- Fintech is a scam, a listicle in eight parts: $91.5b/year, doubling every year.
- Teaching thread management with puzzle games: Rocky's Boots, 2021 edition.
- This day in history: 2001, 2006, 2011, 2016, 2020.
- Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading
Fintech is a scam, a listicle in eight parts (permalink)
The world's economy ground to a halt during the pandemic as millions died, production slowed or stopped altogether, and the resulting supply chain disruptions made many essential products and services impossible to deliver. And yet, the world's billionaires added $5.5t to their net worth during that time.
Thank "financialization," the subordination of the real economy – the economy that makes and delivers the things we need – to the financial economy, a global high-stakes casino where wanton destruction of businesses and lives can be a path to unimaginable wealth and power.
Financialization has infected every sector of our economy. No matter who you are, there's a casino game for you. But as with every casino, the only way to win is to own the casino, not to play the games. We're all the proverbial suckers at the table.
Take the investor class. They are piling into "fintech" startups, with 2021's fintech investments cresting $91.5b, more than double the eye-popping 2020 figure. What's "fintech," then?
Writing for Naked Capitalism, Satyajit Das – an ex-financier turned critic – calls fintech "the untidy agglomeration of finance and technology."
Das divides fintech into four buckets:
i. Payments (e.g. Stripe and Square)
ii. Lending (including the spectacular fraud of 'supply chain finance' epitomized by Greensill Capital)
iii. Buy now/pay later (BNPL) – short term consumer loans
iv. Deposit taking (online banking startups)
All follow the same simple formula: "take a function, digitise it, toss in a little jargon – 'financial engineering,' 'technological disruption.' Season generously with mystique; add some high profile spruikers or fawning media endorsements."
Fintech uses some combination of the following eight tactics to transfer money from investors and users to the finance sector:
I. Disguise the true function. For example, supply-chain finance exploits disclosure rules so it can treat debts as accounts payable, disguising unsecured personal finance as a secure business, leading to spectacular losses.
II. Mask the true economics. How do you make a 26% APR look reasonable? Both BNPL and supply-chain finance manage it. They pay the seller immediately, at a 4% discount, then the buyer pays them back in installments over two months – 26% per year! Yes, this is borne by sellers, not buyers, but of course, sellers then charge more to cover it, so cash buyers end up subsidizing BNPL users.
III. Find an attractive demographic. Supply-chain finance and peer-to-peer lending prey on weaker borrowers who lack the economic power to demand better deals. BNPL uses high-minded talk of "democratizing capital" to extract huge returns from young and financially illiterate clients.
IV. Exploit and expand regulatory blind-spots. Fintech boosters have convinced regulators that they need "regulatory sandboxes" to "innovate in." These are free-for-all zones that allow companies to act as banks…without being regulated like them.
V. Increase risk. To bring fresh suckers to the table, you need to make increasingly risky bets with sky-high returns. Ignore profitability, and make up your own benchmarks to dazzle investors with, based on how much you're losing, and insist that this is the price of growth, which will eventually produce profits.
VI. Obscure risks. Use "soft credit checks." Lend money to your shareholders. Borrow against non-existent future revenues. Use short-term funding mechanisms (like supply-chain finance) for long-term capital expenditures. Engage in large, "related party" transactions, where two closely related entities trade money back and forth.
VII. Target frightened, technologically ignorant investors. Find people who made money in non-digital realms and use FOMO to convince them that they're going to miss the next big thing because they don't understand how their phones work. Banking automation is a boring, low-return business, but call it "fintech" and suckers will beat a path to your door.
VIII. Use investor cash to fund short-term growth. Sell products at a loss. Pay for celebrity endorsements. Fake your automation, simply paying an army of low-waged workers to do repetitive tasks that you can't figure out how to computerize, but pretend it's "AI." And of course, spend a fortune on marketing:
That's financialization for traditional investors, but like I said, the casino's got a game for every player. Stephen Diehl is consistently the best-informed critic of bitcoin and blockchain, and his essay, "The Token Disconnect," is a must-read:
Cryptocurrencies aren't currencies. They suck as stores of value, units of account, and units of exchange. Imagine if your house was denominated in bitcoin instead of US dollars: a two-emoji tweet from Elon Musk could cause your home to lose 80% of its value. "This is a dystopia."
If tokens aren't money, what are they? For venture capitalists, cryptos are a change to "arbitrage securities regulation" – that is, to do finance without being subject to financial rules, especially rules about whose money they're allowed to spend.
"The median return on a given VC investment is zero." So securities regs limit who can invest with VCs, because the amount of technical knowledge you need to distinguish good VC investments from doomed scams is formidable, setting up a lot of everyday people to lose their life's savings.
But tokens let VCs bypass those rules: "an asset class that you can buy from your portfolio companies that looks like a security, swims like a security, and quacks like a security, but is not regulated as a security. In fact it’s not regulated at all."
This is the true meaning of "financial engineering" and "financial innovation" – a way to do an end-run around investor protection rules. It's a way to let sophisticated investors unload their bad bets on the public without filing an S-1 or even producing a prospectus detailing a business model. Tokens – unlike shares – can be liquidated at any time, including the moment just before the company craters.
If fintech is the high-roller section of the casino, tokens are the regular tables, where everyday people can get fleeced.
But anyone who's been to Vegas knows that the games aren't limited to high-roller tables and regular games – casinos give over vast amounts of real-estate to nickel slots and other chances for working stiffs to enrich billionaire casino-owners.
Financialization's nickel-slot is the multi-level marketing scheme (MLM), lately reinvented as a Gen-Z, influencer-driven powerhouse that uses the same old providential horseshit (poor people are poor because of their "mindsets" – change your mindset, manifest a fortune and grow rich).
Writing in The Atlantic, Kaitlyn Tiffany offers a fascinating dissection of the Breakaway Movement, a sales-cult that markets scientifically incoherent "functional water" filters with a mystical blend of "ethical consumption," Instagram filters, and vibes.
If "functional water" sounds like a stupid thing to build a fortune on, don't worry. It's incidental to Breakaway's business – the point isn't to sell people magic water filters, it's to recruit people to recruit people to recruit people to sell magic water filters…maybe.
Breakaway, like other contemporary MLM cults, prey primarily on young women, urging them to commodify the social support network – family and friends – that they depend on, eschewing mutual aid for predatory transactionalism. Other examples include Lularue, Doterra, Beachbody, It Works, etc).
But as Tiffany writes, young women are wising up ahead of the wealthier, "more sophisticated" people who are sinking money into tokens and NFTs and fintech investments. Reddit's r/antiMLM has grown from 1,000 members in 2017 to 740,000 today. There's a whole new anti-MLM influencer movement, who use their social power to warn their followers away from these scams. And of course, there's FTC Chair Lina Khan, whom Social Selling News – a trade rag for MLM – called a "progressive millennial" (like that's a bad thing?!).
MLM con-artists are privately fretting that they've run out of suckers. People are wising up. This week, Microsoft announced that it would integrate a predatory Buy Now/Pay Later app into its Edge browser, only to face a user uprising:
The real economy may have been swallowed by the financial economy, but reality has a well-known anti-finance bias. You can't eat financial products, or live in them, or heat your home with them.
Well, not unless you're harnessing exhaust heat from an environmentally devastating Bitcoin-mining rig:
Real people need the real economy. Every bubble eventually pops. We are currently living through "the bezzle," which JK Galbraith defined as, "the magic interval when a confidence trickster knows he has the money he has appropriated but the victim does not yet understand that he has lost it."
Young women are wising up. The rest of us will eventually follow their lead. While I'm waiting, I'm going to read Das's latest book, A Banquet of Consequences RELOADED, an update of his 2015 book on "How we got into the mess we’re in, and why we need to act now":
Teaching thread management with puzzle games (permalink)
I fell in love with computers in the mid-1970s, starting when I was six and my dad brought home a teletype that could connect to his university's mainframe with an acoustic coupler – a kind of proto-modem with a cradle that fit our kitchen's rotary-dial phone handset.
If you'd like an unrolled version of this thread to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
The next phase was the CARDIAC, a cardboard computer that you punched out, assembled and operated, following instructions to move counters around registers and solve simple computation problems:
Then we got our first home computer, an Apple ][+, and I began to program in earnest, learning by retyping long program listings printed in magazines like Byte and Compute:
These were powerful ways to learn how computers worked and how to command them – they were legible in a fundamental way, things I could figure out just by playing with them.
But as I wrote programs of my own, I soon discovered gaps in my knowledge – theoretical gaps, things like boolean logic. I was rescued by a game: Rocky's Boots, an incredibly fun puzzle game that challenges you to construct logic chains to solve levels, like a version of Myst that teaches you the first half of a Computer Science 100 course.
This combination of fun and legibility gave me a deep, intuitive understanding of what computers were, what they could do, and how they worked.
Today, I found a lovely little modern game that's squarely in this mold. The Deadlock Empire is a puzzle game that lets you "test yourself against the intricacies of multi-threaded programming in the divine language of C#."
You are The Scheduler, and your job is to sabotage the choreography of multiple threads within computer programs to induce "deadlocks" that cause them to crash, defeating the Parallel Wizard and leading the Sequentialist Army to victory.
It's not just an arch bit of computer humor – it's a genuinely challenging puzzler that instills that same deep understanding of an esoteric and vital concept from computing. It's the kind of thing that can deliver "Fingerspitzengefühl" ("fingertip feeling"), a German word for an intuitive, thorough sense of a system's functioning.
This day in history (permalink)
#15yrsago MPAA wants the right to commit fraud https://www.wired.com/2006/12/mpaa-kills-anti-pretexting-bill/
#15yrsago MPAA: it’s OK to copy movies if you keep them in a vault https://web.archive.org/web/20061019205940/http://www.slumdance.com/blogs/brian_flemming/archives/001953.html
#15yrsago Edgar Bronfman Jr's piracy liabilities should wipe him out (but won't) https://web.archive.org/web/20061205212325/http://blogs.reuters.com/2006/12/01/the-most-dangerous-download-of-all/
#10yrsago Croatian transparency activists publish enormous database of government procurements, pointing the way to detecting corruption and fraud https://web.archive.org/web/20111129234109/http://techpresident.com/blog-entry/croatian-transparency-activist-marko-rakar-making-waves-again
#5yrsago Children synthesize $2 version of Martin Shkreli’s $750 malaria drug https://www.smh.com.au/technology/martin-shkreli-responds-after-sydney-grammar-boys-make-daraprim-20161201-gt1n3q.html
#5yrsago Canada’s music lobby admits WIPO Internet Treaty drafters were “just guessing” https://www.michaelgeist.ca/2016/12/music-canada-reverses-on-years-of-copyright-lobbying-now-says-wipo-internet-treaties-were-wrong-guess/
#5yrsago EFF battles misleading, sloppy, secret FBI warrants aimed at the Internet Archive and CREDO https://www.eff.org/deeplinks/2016/12/fighting-nsl-gag-orders-help-our-friends-credo-and-internet-archive
#1yrago Ohio spends tax dollars to destroy Ohio https://pluralistic.net/2020/12/01/autophagic-buckeyes/#subsidized-autophagia
#20yrsago The Time Cube https://web.archive.org/web/20011130172805/https://www.timecube.com/
#20yrsago RuPaul launches a blog https://web.archive.org/web/20011126101025/http://rupaul.com/weblog.shtml
#10yrsago Moving House, sweet picture book about a house that lobbies to keep its family from moving out https://memex.craphound.com/2011/11/30/moving-house-sweet-picture-book-about-a-house-that-lobbies-to-keep-its-family-from-moving-out/
#10yrsago Twitter buys secure communications company that helped hack the Arab Spring https://www.wired.com/2011/11/twitter-buys-moxie/
#10yrsago Study: Bandwidth hogs aren’t responsible for peak network congestion https://www.hyperorg.com/blogger/2011/11/30/are-data-hogs-the-problem/
#10yrsago San Diego police arrest congressional candidate for voter registration in Civic Center Plaza https://www.youtube.com/watch?v=zsHlNR-nVR0
#5yrsago The hacker who took over San Francisco’s Muni got hacked https://krebsonsecurity.com/2016/11/san-francisco-rail-system-hacker-hacked/
#1yrago Attack Surface in the New York Times https://pluralistic.net/2020/11/30/selmers-train/#times
#1yrago Open law and the rule of law https://pluralistic.net/2020/11/30/selmers-train/#rogue-archivist
#1yrago Twitter is more redeemable than Facebook https://pluralistic.net/2020/11/30/selmers-train/#epistemic-superiority
Today's top sources: Radar Trends to Watch (https://www.oreilly.com/radar/radar-trends-to-watch-december-2021/), Naked Capitalism (https://www.nakedcapitalism.com/), Trashfuture (https://twitter.com/trashfuturepod), Slashdot (https://slashdot.org/).
- Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. Yesterday's progress: 517 words (44080 words total).
A short story for MIT Tech Review's 12 Tomorrows PLANNING
A Little Brother short story about remote invigilation. PLANNING
A Little Brother short story about DIU insulin PLANNING
Spill, a Little Brother short story about pipeline protests. Yesterday's progress: 621 words (32894 words total) FIRST DRAFT COMPLETE
A nonfiction book about excessive buyer-power in the arts, co-written with Rebecca Giblin, "The Shakedown." FINAL EDITS
A post-GND utopian novel, "The Lost Cause." FINISHED
A cyberpunk noir thriller novel, "Red Team Blues." FINISHED
Currently reading: Analogia by George Dyson.
Latest podcast: Jam To-Day (https://craphound.com/news/2021/11/21/jam-to-day/)
- Internet Governance Forum (Warsaw), Dec 10
Competition and Regulation in Disrupted Times, Dec 16
- Redistribute the Internet (NGI Summit)
Policy, Profit, Privacy, and Privilege: The Post-Pandemic Future of Remote Testing Technology (ACM-USTPC):
- "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The Washington Post called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html
"How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59 (print edition: https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)
"Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html
"Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p1562/_Poesy_the_Monster_Slayer.html.
- The Shakedown, with Rebecca Giblin, nonfiction/business/politics, Beacon Press 2022
This work licensed under a Creative Commons Attribution 4.0 license. That means you can use it any way you like, including commercially, provided that you attribute it to me, Cory Doctorow, and include a link to pluralistic.net.
Quotations and images are not included in this license; they are included either under a limitation or exception to copyright, or on the basis of a separate license. Please exercise caution.
How to get Pluralistic:
Blog (no ads, tracking, or data-collection):
Newsletter (no ads, tracking, or data-collection):
Mastodon (no ads, tracking, or data-collection):
Medium (no ads, paywalled):
(Latest Medium column: "Give Me Slack." https://medium.com/@doctorow/give-me-slack-b4e88a007dbf
Twitter (mass-scale, unrestricted, third-party surveillance and advertising):
Tumblr (mass-scale, unrestricted, third-party surveillance and advertising):
"When life gives you SARS, you make sarsaparilla" -Joey "Accordion Guy" DeVilla