Trust. Challenging week. Birthday Gratitude.
Reflecting briefly on AI advances. Moral Hazard vs Depositors US banking; trust Editing my ESG chapter. Friends: winning film prize, grocery distribution. On my son's birthday,
I’ve had a challenging week. I was asked what I do when challenged. I think I’d probably like to eat, read and walk. Maybe see an amazing play. I mostly ended up reading. A good amount about autoimmune diseases for work purposes and some of Marcus Aurelius’ meditations.
I dislike talking about the “Current Thing” but it’s worth reflecting on Chat GPT-4 and the banking sector.
Reflecting briefly on AI advances
Moral Hazard vs Depositors US banking; trust
Editing my ESG chapter, Cary Krosinsky article
Friends: winning film prize, grocery distribution
Transport Sparks; building community
Birthday gratitude for my son
+ Links.
Aurelius wrote this which I share with you courtesy of GPT.
"It is not death that a man should fear, but he should fear never beginning to live."
"Reject your sense of injury and the injury itself disappears."
"The impediment to action advances action. What stands in the way becomes the way."
"The soul becomes dyed with the color of its thoughts."
"The universe is change; our life is what our thoughts make it."
"Be like the promontory against which the waves continually break, but it stands firm and tames the fury of the water around it."
"If someone is able to show me that what I think or do is not right, I will happily change, for I seek the truth, by which no one was ever truly harmed. It is the person who continues in his self-deception and ignorance who is harmed."
"Very little is needed to make a happy life; it is all within yourself, in your way of thinking."
"The best revenge is to be unlike him who performed the injury."
I like the idea of how we paint / dye our souls. I think much of how we paint them is by the company we keep and what we read / watch / interact with. I think on challenging days a bit of stoics, journaling or creativity is good!
Chat GPT-4 is out. The application still hallucinates but good faith users can now do incredible tasks efficiently.
GPT-4 has come out weeks after 3.5 and not long after 3.0. This fits an accelerated scaling pattern (exponential, J-curve, maybe S-curve would all fit). I judge its hard for any one person to imagine the scale of this which is why I view it as notable. My recent pause moment was looking at GPT-4’s exam scores.
GBP-4 scores in top 20% across wine, economics, art history, maths and a very broad range of human knowledge. See here:
Dear readers (in order to keep up) you will need to get with the programme and think about how you will be using this in your life because the earlier you figure it out, the more useful it will be to you. Via Poe on my iPhone I have all the major AI apps on my phone (let me know if you want an invite if you don’t have access). I don't know yet how to use this very well but am slowly figuring this out. I am also pondering how this will change a generation of children learning. Soon, they will learn with AI. I think most (though not all) parents are going to conclude that this will be better than not and AI will come. As I was pondering Tyler Cowen wrote a Bloomberg column on this - here. Also not without risks:
In the future, every middle-class kid will grow up with a personalized AI assistant — so long as the parents are OK with that.
As for the children, most of them will be willing if not downright eager. When I was 4 years old, I had an imaginary friend who lived under the refrigerator, called (ironically) Bing Bing. I would talk to him and report his opinions to my parents and sister.
In the near future, such friends will be quite real, albeit automated, and they will talk back to our children as directly as we wish. Having an AI service for your child will be as normal as having a pet, except the AI service will never bite. It will be carried around in something like a tablet, though with a design that is oriented toward the AI.
Recent developments suggest that AI models can be both commoditized and customized more easily and cheaply than expected. So parents will be able to choose what kind of companion they want their kids to have — in contrast to the free-for-all of the internet. The available services likely will include education and tutoring, text or vocalizations of what the family pet might be thinking, dancing cartoon avatars, and much more. Companies will compete to offer products that parents think will be good for their kids. Some of the AIs might even read bedtime stories (in fact, I’ve already heard some of them).
Many parents may be reluctant to let their kids become attached to an AI. But I predict that most families will welcome it. For one, parents will be able to turn off the connection whenever they wish. Simply clicking a button is easier than yanking an iPad out of a kid’s grasp.
Most of all, letting your kid have an AI companion will bring big advantages. Your child will learn to read and write much faster and better, and will do better in school. Or maybe you want your kid to master Spanish or Chinese, but you can’t afford an expensive tutor who comes only twice a week. Do you want your child to learn how to read music? The AI services will be as limited or as expansive as you want them to be.
It is an open question how quickly schools will embrace these new methods of learning. At some point, however, they will become part of the curriculum. Competitive pressures will make parents reluctant to withhold AI from their kids. Even if the AIs are not present in the classroom, some kids will use them to help do their homework, gaining a big advantage, and the practice will likely spread.
Of course children will use these AIs for purposes far beyond what their parents intend. They will become playthings, companions, entertainers and much more. When I was a kid, with no internet and mediocre TV, I created imaginary worlds in the dirt, or with simple household items, and my parents often had no clue. The AI services will become part of this model of spontaneous play, even if parents try to make them purely educational.
What about teenagers? Well, many parents may allow their kids to speak with AI therapists. It might be better than nothing, and perhaps better than many human therapists.
Do think about this and keep updating your views. I found this a good lay technical explanation of how it’s working FYI.
US banking. There are two opposing and problematic (in the sense that there are costs) policy thoughts with respect to US (and global, really) banking. (No investment advice yadda yadda) I am going to call them:
(1) Moral Hazard Danger (or, Let It Burn)
(2) Business\Retail Deposit Loss danger
Supporters of (1) are thinkers like Cliff Asness. Or, (again, I’m quite unsure how my thinking and Cowen’s tend to be in the same ball park so often) As Tyler Cowen puts it:
…. unintended secondary consequences. Raising the FDIC protection limit from $250,000 to ??? raises political eyebrows in a dramatic manner. For one thing, the FDIC would then be seen as guaranteeing a much larger part of the financial system. Over time, the pressures for the government to protect yet additional parts of the financial system will grow, just as they did after the bailouts from the 2008-2009 financial crisis. Furthermore, if the FDIC keeps on increasing its protections in the quest for financial stability, that means a larger FDIC, a larger regulatory apparatus, perhaps higher capital requirements, and over time higher premia for banks to pay to the FDIC. (As a side note, worthy of another post, we are also hearing calls that somehow VCs need to be regulated now, if they are going to “receive bailouts”.)
As that scenario unfolds, there will be all the more incentives to supply more lending and also deposit-taking services outside the formal and more heavily regulated banking sector. Rather than pushing more resources into the larger banks, this policy would push additional resources outside the formal banking system altogether. That would mean less power, oversight and scrutiny from the Fed and also from other regulatory bodies. Typically American banks are more tightly regulated and monitored than are non-bank financial entities.
This kind of problem is likely to unfold slowly, but it is no less real.
Supports of (2) are thinkers like Bill Ackman. He argued:
Or again Cowen…
Once depositors are allowed to take losses, both individuals and institutions will adjust their deposit behavior, and they probably would do so relatively quickly. Smaller banks would receive many fewer deposits, and the giant “too big to fail” banks, such as JP Morgan, would receive many more deposits. Many people know that if depositors at an institution such as JP Morgan were allowed to take losses above 250k, the economy would come crashing down. The federal government would in some manner intervene – whether we like it or not – and depositors at the biggest banks would be protected.
In essence, we would end up centralizing much of our American and foreign capital in our “too big to fail” banks. That would make them all the more too big to fail. It also might boost financial sector concentration in undesirable ways.
…we started off wanting to punish banks and depositors for their mistakes. We end up in a world where it is much harder to punish banks and depositors for their mistakes.
Another unintended secondary consequence is that lots of funds would flow out of the banking system and into U.S. Treasuries. In other words, our private businesses would find it harder to borrow and our government would find it easier to borrow and thus government would command more resources.
As the world or a country goes richer so does its finance sector and the risks that comes with it.
It’s worth pondering where between (1) and (2) you might sit. I think the most thoughtful people will appreciate that there are significant risks with either position.
A final word here. The banking system relies on trust. I’d go so far to say that the higher levels of trust enable real world economy to grow wealth faster, and that lower levels of trust lead to all kinds of other problems too. We are currently seeing some of those problems play out now.
I’m going to be editing my chapter of the CFA ESG book. Chapter 7. If this is relevant to you let me know any thoughts.
Not investment advice - yadda yadda - my friend Cary Krosinsky has shared this with me on long term / sustainable investing.
Our friend Chi Thai has produced “Raging Grace”, the film that took home the big prize and the best debut award at South by Southwest film festival. The overall genre of the film is “horror” and the sub-genre is immigrant diaspora with subversion of mainstream narrative.
One argument in the debate on storytelling is that there is a lack of “narrative plenitude” outside mainstream viewing. That’s why Black Panther, Crazy Rich Asians, and Everything Everywhere All At Once - and my distant cousin Michelle Yeoh’s Oscar win - are so important. (Also why climate narrative plenitude might be important, I’m reading Ghosh on this).
We backed Chi a long time ago. It’s taken a long time for her to gain this recognition. It’s amazing to see it come. You paint your souls with the friends you back.
We backed another friend, Carl many years ago. His company Wholegood has won a significant contract with Milk and More (milk delivery company) here in the UK. Try them out if you use Milk and More!
Transport Sparks. We organised a trip for Transport Sparks (a group for young autistic transport enthusiasts) to visit the London Transport Museum’s Acton Depot. Here is one Spark’s video of the occasion.
A moment of gratitude. 20 years ago organising such an event would have been very difficult. There was no internet to bind us together, there was no event system to organise us, there was no appreciation of the “value” and the humanity that such a community brings.
Still, it does take good people to continue to do good things. They don’t happen automatically. Anoushka, Sparks, LTM, Depot staff. I thank you.
On another note of gratitude. JP reaches a birthday.
The journey has been hard in many many ways. But I will also take a moment to note that 20 years ago this journey would have been much much harder. Maybe close to impossible.
Like the debate all aspects of humanity. Poverty, health, science. We have done well in the last 20 years but we could and should be doing so much better.
Danish actor, Oscar Dietz, so very kindly sent a message for Jpike. Jpike has watched Antboy (a movie Dietz starred in) several hundred, maybe even low thousands of times. Jpike has watched the film or parts of it every night for the last few years(!)
Links:
More on how banking works
Long haul flights and possiblity of hydrogen
UK R&D investments
Drug approval speed up in UK coming?