Complex Systems with Patrick McKenzie (patio11)

Patrick McKenzie (patio11) is joined by returning guest Zvi Mowshowitz, AI watcher extraordinaire, to read Anthropic’s S-1 and what it shows about the AI industry. They cover a founder-controlled structure built on a single Class F share that holds 50.1% of the vote, an uncapped 3:1 employee donation match that may be the most expensive perk ever offered, and about $900 billion in forward compute commitments. They also discuss why softer Q3 revenue points to a shortage of GPUs rather than of customers, the bubble and circular-financing bear cases, and who should be blamed when AI-assisted hackers take $5 billion from Binance.
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Full transcript available here: https://www.complexsystemspodcast.com/reading-the-anthropic-s-1-with-zvi-mowshowitz/ 
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Presenting Sponsor: Mercury

Complex Systems is presented by Mercury. Mercury Payroll puts payroll, benefits, and compliance right inside your Mercury account. An in-house team backed by AI registers you in new states, files and remits your payroll taxes, and handles the notices, so you don’t have to copy from PDFs to Excel to web portals. Setup takes minutes, and Mercury Payroll is free for eligible Mercury customers through the end of 2026 at mercury.com/payroll 
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Links:
Anthropic S-1: https://www.sec.gov/Archives/edgar/data/2130357/000162828026068676/anthropicpbc-sx1ax1.htm 
Zvi’s past Complex Systems episode: https://www.complexsystemspodcast.com/episodes/betting-trading-zvi-mowshowitz/ 
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Timestamps:
(00:00) Intro
(01:35) How the S-1 talks about existential risk
(07:45) Anthropic has long had an attitude
(12:20) Anthropic’s uncapped donation matching
(14:18) Postscript: what the matching program will actually cost
(16:00) Sponsor: Mercury
(18:29) Revenue growth and cohort economics
(22:25) Postscript: Q3 was a supply story, not a demand story
(24:55) Is it a bubble?
(28:27) Sizing the market for tokens
(31:02) The commodification bear case
(31:56) Cash efficiency and $800 billion in compute commitments
(36:44) Postscript: what happens if the commits go bad
(39:20) Flexing compute between training, inference and subleasing
(43:37) Reading an S-1, with and without an LLM
(46:49) Circular financing and the dot-com comparison
(50:08) Wall Street versus the tech industry
(52:02) The three AI pills
(54:53) Industrial revolutions and how weird the future gets
(57:31) AI mathematics and the bitter lesson
(01:00:52) Capabilities nobody trained for
(01:04:40) Capabilities versus diffusion
(01:07:12) Token spend at the frontier
(01:09:09) Final thoughts on the S-1
(01:11:48) The Hackening and who bears responsibility
(01:17:49) Trapdoors and irreversible decisions
(01:19:12) Wrap

Patrick McKenzie (patio11) reads his 2022 Bits about Money essay “Markets in power,” prompted by a SoftBank push notification asking him to cut his air conditioner use between 5 and 8 PM, and updated for the era of AI data centers. He walks through why electricity has to be consumed almost the moment it is generated, how base load, intermediate, and peaker plants divide up a day’s demand, and how virtual power plants turn software and contracts into the economic equivalent of a peaker plant. The new commentary covers CoreWeave’s start as a GPU host for Ethereum miners, why ERCOT paid a Bitcoin miner tens of millions of dollars during the 2023 Texas heat wave, and why AI data centers, whose chip depreciation is five to ten times their electricity bill, behave more like base load than Bitcoin miners do
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Full transcript available here: https://www.complexsystemspodcast.com/why-softbank-paid-me-17-yen-to-skip-the-air-conditioning/

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Links:
(Source essay) Markets in power: https://www.bitsaboutmoney.com/archive/markets-in-power/ 
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Timestamps:
(00:00) Intro
(02:58) Electricity is ubiquitous, and other polite fictions
(06:35) Electricity supplied and demanded are necessarily equal
(07:57) Demand for electricity fluctuates over the day and over the year
(09:53) The power generation mix
(13:34) Demand response and virtual power plants
(19:50) A quick aside about meter reading
(21:05) Why this sudden interest in power?
(26:22) Wrap

Patrick McKenzie (patio11) reads his 2022 Bits about Money essay on the infrastructure behind American charitable giving, prompted by the wave of AI-generated wealth expected to flow into philanthropy. He explains donor-advised funds, a chimera that is legally a charity but works for donors like a financial institution that can time travel: someone with a windfall takes the tax deduction now and recommends grants for years afterward. Along the way he covers why the IRS-required donation receipt is simple enough for a seven-year-old to produce while the industry still spends billions on record-keeping, why DAFs still mail so many paper checks, and how Anthropic’s reported uncapped three-to-one donation match could push tens of billions of dollars through this machinery.
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Full transcript available here: https://www.complexsystemspodcast.com/the-charity-that-is-also-a-time-machine/
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Presenting Sponsors: Mercury & ElevenLabs

Complex Systems is presented by Mercury—radically better banking for founders. Mercury Spend hands your team and agents their own cards with limits you set once, so nobody waits on you to approve a SaaS invoice and nobody chases a receipt. Apply online in minutes at https://mercury.com/. 
ElevenAgents by ElevenLabs are AI voice and chat agents that look up accounts, handle routine requests, and pass a fully developed ticket to a human rep when needed, which is what IVR always promised. They handle more than 10 million conversations a week, in over 70 languages. Book a demo at elevenlabs.io/complexsystems.
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Links:
(Source essay) Charitable donations and the infrastructure supporting them: https://www.bitsaboutmoney.com/archive/charitable-donations-infrastructure/ 
The Third Wave of American Philanthropy:
https://nanransohoff.substack.com/p/the-third-wave-of-american-philanthropy 

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Timestamps:
(00:00) Intro
(02:24) How charities are organized in the U.S.
(06:09) Recordkeeping for charitable donations
(10:00) Charitable donations and time travel
(10:55) Sponsors: Mercury | ElevenLabs
(15:02) Charitable donations and time travel (cont'd)
(22:54) This is a pattern seen elsewhere
(23:49) Postscript
(26:40) Wrap

Patrick McKenzie (patio11) reads his 2022 Bits about Money essay "Finality does not exist in payments." It argues that how final a payment is depends on the rails, the parties, and the governing law, not on the payment method alone. He explains why the reversibility of credit cards is what made internet commerce possible. He also covers the "hold harmless," the brief phone call between operations staff that quietly unwinds wire mistakes every day. He then applies the essay to Citibank's 2020 accidental wire of nearly $900 million to Revlon's lenders: a district court let recipients keep about $500 million before an appeals court reversed it. He closes with how the UK, India, and Japan have each tried, with mixed results, to make fraudulent instant payments less final.
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Full transcript available here: https://www.complexsystemspodcast.com/the-900m-wire-that-wasnt-final/
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Presenting Sponsors: Mercury & Granola
Complex Systems is presented by Mercury—radically better banking for founders. Mercury Spend hands your team and agents their own cards with limits you set once, so nobody waits on you to approve a SaaS invoice and nobody chases a receipt. Apply online in minutes at https://mercury.com/.
If meetings consistently leave you with hazy action items and lost context, Granola handles the transcription so you can actually participate and gives you searchable notes afterward. Try it free at granola.ai/complexsystems with code COMPLEXSYSTEMS
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Links:
(Source essay) Finality does not exist in payments: https://www.bitsaboutmoney.com/archive/no-payments-are-final/ 
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Timestamps:
(00:00) Intro
(01:23) Finality is a technosociolegal construct
(03:26) Non-state agreements for dispute resolution
(07:34) Wait, are you telling me wires are reversible?
(12:43) Why does this matter?
(13:26) The $900M mistake
(14:52) Sponsors: Mercury | Granola
(18:11) The $900M mistake (cont'd)
(20:37) Final, then not final
(23:09) How other nations handle finality
(32:39) Wrap

Patrick McKenzie (patio11) reads his Bits about Money essay on how credit cards make money. The prompt was a listener who wondered how a card can include free travel insurance for someone who never carries a balance. He covers the four ways a card earns revenue (net interest, interchange, fees and marketing contributions), and explains why rewards competition makes some customers in the middle of the credit score ladder persistently unprofitable. He also explains why Europe's interchange cap left cards at about half of electronic payments, while Japan's uncapped interchange quietly pays for the rest of its consumer banking. In a new postscript, he walks through what a proposed 10% APR cap would mean for cardholders at the low end of the market, and how First Republic made sub-10% unsecured loans work by treating them as a way to win deposits.

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Full transcript available here: https://www.complexsystemspodcast.com/why-banks-pay-you-to-use-their-credit-cards/ 
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Presenting Sponsors: Mercury & Granola

Complex Systems is presented by Mercury—radically better banking for founders. Mercury Spend hands your team and agents their own cards with limits you set once, so nobody waits on you to approve a SaaS invoice and nobody chases a receipt. Apply online in minutes at https://mercury.com/. 
If meetings consistently leave you with hazy action items and lost context, Granola handles the transcription so you can actually participate and gives you searchable notes afterward. Try it free at granola.ai/complexsystems with code COMPLEXSYSTEMS

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Links:
How credit cards make money: https://www.bitsaboutmoney.com/archive/how-credit-cards-make-money/ 
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Timestamps:
(00:00) Intro
(01:11) How credit cards make money
(01:55) Bundling and unbundling
(03:12) Revenue levers for credit cards
(03:23) Net interest
(06:19) Interchange
(07:34) Interchange makes cards so valuable you're paid to use them
(10:02) Fees
(10:50) Marketing contributions
(13:05) Debit cards: a horse of a different color
(13:32) Sponsors: Mercury | Granola
(16:54) Postscript
(25:27) Wrap