Complex Systems with Patrick McKenzie (patio11)

• How deposit insurance actually works

  Patrick McKenzie (patio11) reads his Bits about Money essay on deposit insurance, explaining this critical financial infrastructure, with some thoughts on its performance during 2023. He covers what deposit insurance actually covers (and critically, what it doesn't), how fintech users often misunderstand their exposure to counterparty risk, and the anatomy of bank failures. This is infrastructure you rely on as much as electricity: ubiquitous, critical, hopefully invisible, and worth understanding before it matters again.–Full transcript available here: www.complexsystemspodcast.com/how-deposit-insurance-actually-works/–Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro.–Links:Bits about Money, https://www.bitsaboutmoney.com/archive/deposit-insurance/ –Timestamps:(00:00) Intro(03:10) The covered peril(07:07) Anatomy of a bank failure(12:55) Keeping your bank hydrated(19:58) Sponsor: Framer(23:20) Orderly bank failures(28:25) The cost of insurance(30:15) The ultimate backstop(31:48) Deposit insurance as ubiquitous infrastructure

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• Home improvement lending with fewer bankers and more computers

  In this episode, Patrick McKenzie reads his essay about the financial infrastructure that makes buying windows painless. When a window installer can originate, underwrite, and fund a $25,000 loan in 15 minutes before leaving your house, it's because four parties—window companies, facilitating platforms, specialized banks, and capital providers—have built a system that actually works. Patrick explains how modern consumer lending learned from 2008 to create better underwriting, clearer compliance, and properly distributed risk, all in service of enabling commerce in the real economy.–Full transcript available here: www.complexsystemspodcast.com/home-improvement-lending/–Sponsor: MercuryThis episode is brought to you by Mercury, the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.comMercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.–Links:Bits about Money: https://www.bitsaboutmoney.com/archive/window-modern-loan-origination/ –Timestamps:(00:00) Intro(02:46) Why not just have banks loan money for home improvement?(06:43) Modern installment loan origination as a service(09:58) Sponsor: Mercury(11:09) Modern installment loan origination as a service (part 2)(15:17) What's the actual product offered?(19:03) How does this pie get divvied up?(24:12) Is this unsecured lending?(26:12) Should we be happy this Rube Goldberg machine exists?

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• Talking to the Bank of England about systemic risk and systems engineering

  Patrick McKenzie (@patio11) shares his remarks to the Bank of England on critical vulnerabilities in financial infrastructure. Drawing from the July 2024 CrowdStrike outage which brought down teller systems at major US banks, Patrick discusses how regulatory guidance inadvertently created dangerous software monocultures. He also examines the stablecoin market, its impressive growth, and the elephant tethered to the room. He also delivers a message from Silicon Valley to other centers of power on the urgent necessity of waking up regarding AI, which almost the entire world currently far underrates.–Full transcript available here: www.complexsystemspodcast.com/talking-to-the-bank-of-england/–Sponsor: MercuryThis episode is brought to you by Mercury, the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.comMercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.–Links:The Bank of England: https://www.bankofengland.co.uk/ Bits about Money, Why the CrowdStrike bug hit banks hard: https://www.bitsaboutmoney.com/archive/crowdstrike-bug-hit-banks-hard/ Scaling Laws for Neural Language Models" by Kaplan et al: https://arxiv.org/pdf/2001.08361 Stripe Annual Letter 2024: https://stripe.com/annual-updates/2024 –Timestamps:(00:00) Intro(01:48) The importance of implementation-level understanding(03:00) Single points of failure(04:25) Can a 22-year-old engineer close all the banks?(05:18) The CrowdStrike incident: A case study(08:34) The culture of "shut up and shuffle"(09:54) Blameless postmortems(12:25) What actually happened during CrowdStrike(18:01) Five whys: Root cause analysis(19:03) How software monocultures are created(22:54) Understanding endpoint monitoring software(25:25) Distributed systems and the nature of CrowdStrike(31:22) The economics of software monocultures(33:29) Why wasn't there defense in depth?(37:05) Why was recovery so difficult?(40:32) The domino effect across financial institutions(43:36) What went right: Electronic systems remained up(45:10) This was a near miss(49:29) Potential policy responses(54:03) Switching gears: Stablecoins(01:01:37) The elephant in the room: Tether(01:15:32) Who loses if Tether implodes?(01:16:59) AI and the future of trading(01:26:47) AI risks in the trading space(01:30:41) Closing

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  1:31:37

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  1:31:37
• Narrative, mastery, and character bleed in games, with Ricki Heicklen

  Patrick McKenzie (patio11) is joined again by Ricki Heicklen to discuss Metagame 2025, a conference where 250 attendees were divided into Purple and Orange teams competing for territories across campus. Patrick built a complete roguelike RPG in 25 days using LLMs, discovering that providing minimal world-building context transformed generic fantasy outputs into emotionally resonant storytelling. They discuss the power and responsibility of game designers, how games create pedagogical experiences that traditional teaching cannot, and what happens when the line between player identity and character identity starts to blur.–Full transcript available here: www.complexsystemspodcast.com/narrative-mastery-character-bleed-in-games-with-ricki-heicklen/–Sponsor: MercuryThis episode is brought to you by Mercury, the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.comMercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.–Links:Metagame: https://www.metagame.games/–Timestamps:(00:00) Intro(00:25) Using games to teach trading(00:57) Game design conference insights(01:12) Ricki’s personal journey into game design(02:41) Exploring different game types(03:35) Challenges in game design(04:44) Metagame conference overview(08:23) Escape room design experience(11:25) Building a rogue-like game(15:35) Metagame mechanics and challenges(18:25) Sponsor: Mercury(19:37) Metagame mechanics and challenges (part 2)(31:10) Event management and lessons learned(44:00) Game mechanics and player roles(45:09) Complex encounters and Plague Town(48:44) Moral choices and player decisions(50:59) Game design and narrative impact(55:36) Character bleed and real-world influence(01:02:00) Game design challenges and player agency(01:24:16) Community and player interaction(01:30:04) Wrap

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  1:31:19

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  1:31:19
• Bits and bricks: Oliver Habryka on LessWrong, LightHaven, and community infrastructure

  Patrick McKenzie (patio11) is joined by Oliver Habryka, who runs Lightcone Infrastructure—the organization behind both the LessWrong forum and the Lighthaven conference venue in Berkeley. They explore how LessWrong became one of the most intellectually consequential forums on the internet, the surprising challenges of running a hotel with fractal geometry, and why Berkeley's building regulations include an explicit permission to plug in a lamp. The conversation ranges from fire codes that inadvertently shape traffic deaths, to nonprofit fundraising strategies borrowed from church capital campaigns, to why coordination is scarcer than money in philanthropy.–Full transcript available here: www.complexsystemspodcast.com/bits-and-bricks-oliver-habryka/–Sponsor: MercuryThis episode is brought to you by Mercury, the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.comMercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.–Links:Lightcone Infrastructure: https://www.lightconeinfrastructure.com/ Lighthaven: https://www.lighthaven.space/LessWrong: https://www.lesswrong.com/ –Timestamps:(00:00) Intro(01:08) The origins and evolution of LessWrong(03:54) Challenges of running an online forum(05:57) Reviving LessWrong(14:51) The unique structure of Lighthaven(17:35) The complexities of conference venues(19:14) Sponsor: Mercury(20:14) The realities of conference planning(25:32) Challenges of maintaining Lighthaven(29:54) Navigating permits and regulations(37:02) Impact of fire code regulations on traffic fatalities(39:06) Economic analysis of safety regulations(41:39) Housing policy and construction in Berkeley(43:30) Fundraising challenges in the nonprofit sector(46:44) Effective altruism and fundraising dynamics(54:20) Lessons from religious fundraising practices(01:05:36) Reflections on fundraising(01:13:26) Wrap

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