Complex Systems with Patrick McKenzie (patio11)

Patrick McKenzie
  • 4.7 (15)
  • Investing
  • Updated Weekly

We live in a world where our civilization and daily lives depend upon institutions, infrastructure, and technological substrates that are _complicated_ but not _unknowable_. Join Patrick McKenzie (patio11) as he discusses how decisions, technology, culture, and incentives shape our finance, technology, government, and more, with the people who built (and build) those Complex Systems.

  1. Forty ways to pay for coffee in Japan

    7 hrs ago

    Forty ways to pay for coffee in Japan

    Patrick McKenzie (patio11) reads his 2021 essay "Payments in Japan," tracing how Japanese consumers navigate a landscape with dozens of competing payment methods at once: credit cards, electronic money, QR-code super apps, convenience-store cash vouchers, and bank transfers. Along the way he covers the JFTC's campaign to force credit card networks to disclose interchange rates, how Rakuten and 7-Eleven each bought a bank to solve a payments problem blocking their core business, why PayPay's subsidized 2018 launch let it run away with the QR code market, and why konbini payments remain popular despite a user experience frozen in the late 1990s. –Full transcript available here: https://www.complexsystemspodcast.com/japanpayments/ –Presenting Sponsors: Mercury & MongoDB Complex Systems is presented by Mercury—radically better banking for founders. Mercury's new feature Command brings an LLM directly into your banking interface, so checking balances, finding invoices, or sending a wire is as easy as asking. Apply online in minutes at https://mercury.com/.  What's the point of building faster with AI if your database can't keep up? MongoDB's native data model mirrors the language LLMs already speak. Ship at the speed of AI while staying ACID compliant at Fortune 500 scale. Start building at https://mongodb.com/ai. – Links: Payments in Japan: https://www.bitsaboutmoney.com/archive/payments-in-japan/ An Introduction to Japanese Society: https://www.amazon.co.jp/Introduction-Japanese-Society-Yoshio-Sugimoto/dp/1107626676/  Use transit cards on your iPhone or Apple Watch in Japan: https://support.apple.com/en-us/120474  –Timestamps:(00:00) Intro(02:44) Credit cards(10:40) Payment method heterogeneity(12:57) Cash(14:57) Sponsors: Mercury + MongoDB(17:29) Cash (cont’d)(19:58) Electronic money systems(22:13) App-based payments(28:27) Convenience store payments(31:27) Bank transfers(34:03) Ambitions thwarted(34:30) Wrap

    35 min
  2. The factory behind your home loan

    Jun 18

    The factory behind your home loan

    Patrick McKenzie reads from his 2022 Bits About Money essay on mortgages, making the case that a mortgage is best understood as a manufactured product, not a simple loan between a bank and a customer. He walks through the assembly line behind every home loan, the loan officer and back-office staff who build the 700-page document. Then he traces the supply chain it gets sold into, where GSEs insure against non-payment risk, servicers buy the right to collect monthly checks, and pension funds and other private capital end up holding the economic exposure, because they want it more than banks do.–Full transcript available here: https://www.complexsystemspodcast.com/mortgages/ –Presenting Sponsors: Mercury & Granola  Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at 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 – Links: Mortgages are a manufactured product: https://www.bitsaboutmoney.com/archive/mortgages-are-a-manufactured-product/ The 30-Year Mortgage is an Intrinsically Toxic Product: https://byrnehobart.medium.com/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a Michael Lewis’ The Big Short: https://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827 – Timestamps: (00:00) Intro (02:26) Mortgages are a manufactured product (04:19) Who manufactures mortgages? (07:08) Who buys mortgages? (07:42) The risk of non-payment (10:08) Sponsor: Mercury | Granola (14:35) The risk of failing to service a mortgage correctly (17:51) Every other risk you could imagine, of which there are many (24:04) Scratching the tip of the iceberg (25:10) More about flow meters (26:24) Wrap

    27 min
  3. How brokerage transfers actually work

    Jun 4

    How brokerage transfers actually work

    Patrick McKenzie reads from his 2024 Bits About Money essay on ACATS, the Automated Customer Account Transfer Service that governs how Americans move investment accounts between brokerages, then updates it with regulatory developments (and industry infighting) from early 2026. The essay covers why a system underpinning trillions of dollars in assets was deliberately designed to skip verifying whether transfers are actually authorized, what the three-business-day shot clock means in practice, and how a bad actor armed with a stolen identity and a mobile app can drain someone's retirement account before they notice it's gone. (Good news, though: they’ll almost certainly get it back. Bad news: quite stressful, and it often isn’t obvious when staring at the zero that this is a recoverable condition.) –Full transcript available here: https://www.complexsystemspodcast.com/acats/ –Presenting Sponsors: Mercury & Granola  If you have more interesting hobbies than managing your money, Mercury Personal is built for you. It allows you to automate movement between accounts—allocating paychecks and tax prep the moment they hit—with a sensible permissions model for partners or accountants. It works the way tech people expect banking to work. Go to mercury.com/personal to experience banking built by the same folks Patrick trusts for his business. 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 – Links: Guys what is wrong with ACATS: https://www.bitsaboutmoney.com/archive/how-acats-transfers-work/ – Timestamps:(00:00) Intro(01:49) A brief digression into self-regulatory organizations(03:04) FINRA regulates asset transfers between brokerages(04:54) How does one transfer securities account assets?(06:52) What does an ACATS request actually entail?(09:44) Brokerages frequently do not verify incoming ACATS requests(15:28) Recent developments in ACATS fraud(19:13) Should I be terrified, Patrick?(20:07) Sponsors: Mercury | Granola(23:17) Should I be terrified, Patrick? (cont’d)(24:46) Another fun wonky control(28:29) A final ACATS story(29:58) Regulatory updates: FINRA 26-02(32:34) Comment letters from the industry(43:20) Outro

    44 min
  4. Wrong numbers and why they survive, with Aaron Brown

    May 14

    Wrong numbers and why they survive, with Aaron Brown

    Patrick McKenzie (patio11) is joined by Aaron Brown, author of Wrong Number, to examine why institutions that produce bad statistics face so few consequences for doing so. They trace the pattern from Aaron's 1975 summer job, where two credentialed experts confidently produced opposite conclusions about whether American tractors ran on diesel or gasoline, through decades of case studies involving the NTSB, COVID-era research, and the eviction moratorium. Along the way they discuss why financial markets are unusually good at error-correction, why "wanna bet?" functions as a tax on b******t, and what it means that every senior economist Aaron told about the tractor problem simply laughed and topped it with a worse story. –Full transcript available here: https://www.complexsystemspodcast.com/aaron-brown/ –Presenting Sponsors: Mercury & Granola Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at 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 – Links: Wrong Number (book): https://www.amazon.com/Wrong-Number-Blizzard-Quantitative-Disinformation/dp/1394379781 Wrong Number with Aaron Brown (video series): https://www.youtube.com/playlist?list=PLBuns9Evn1w_SLGfUY5i__wzUF5f8e7ec –Timestamps: (00:00) Intro(01:12) The agricultural demand curve discrepancy(04:06) Why experts prioritize teaching over learning(05:17) Institutional indifference to error(06:26) The brand halo of high-status institutions(08:34) Lessons from COVID-era decision making(10:19) Financial statements versus scientific rigor(14:53) Sponsors: Mercury | Granola(18:19) The difficulty of auditing and replicating research(22:12) The CDC eviction moratorium and its justification(23:34) The NTSB curbside carrier safety study(26:41) Conspiracy versus incompetence in data manipulation(30:05) Error correction in financial markets(32:52) The culture of the advantage gambler versus the academic(35:28) Betting as a tax on b******t(38:44) Using market pricing to evaluate risks(41:04) The track record of scary predictions(43:34) Environmental success stories and technological optimism(48:21) Energy efficiency and the path to global wealth(54:10) Wrap and where to find Wrong Number

    56 min
  5. Defendant, Censor, Politico, Spy

    May 8

    Defendant, Censor, Politico, Spy

    The improbable but true story of how non-profits operating a private intelligence agency to combat terrorism decided to interfere with campaign infrastructure in a U.S. election. This piece includes original public interest reporting, following on the previous episode on how the Southern Poverty Law Center became financial infrastructure. If you have previously read Bits about Money's reporting on this subject, note there are two major additions here: 1) direct evidence of interference in campaign infrastructure for a declared candidate in a U.S. election, which was newly developed after our original reporting and 2) responses (and lack thereof) from the non-profits at issue. –Full transcript available here: www.complexsystemspodcast.com/defendant-censor-politico-spy/ –Presenting Sponsors: Mercury, Granola & Meter Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at 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 Networking infrastructure has a way of accumulating technical debt faster than almost anything else in IT. Meter handles the full stack (wired, wireless, and cellular) as a single integrated solution: designed, deployed, and managed end-to-end so there's only one vendor to call when something goes wrong. Visit meter.com/complexsystems to book a demo. –Links: Notes on a non-profit indicted for bank fraud (Bits about Money): https://www.bitsaboutmoney.com/archive/nonprofit-indicted-bank-fraud/ – Timestamps: (00:00) Intro(02:50) The coordinated pressure campaign, as experienced by industry(08:13) The coordinated pressure campaign, as narrated by its authors(08:36) Mid-2017: Color of Change dialogue with PayPal begins(09:27) August 11, 2017: Charlottesville Unite the Right Rally(10:58) August 21, 2017: JPMorgan Chase Foundation donates $500k to the SPLC(11:44) 2018: SPLC organizes Change the Terms, which becomes the coalition's nucleus(19:07) March 2021: Color of Change describes the meetings on a podcast(21:42) A brief interlude about causality and communications strategy(22:58) The coalition targets politicians in nonpartisan fashion(28:20) Early 2020: The SPLC describes this campaign to Congress(31:26) June 2020: Widespread protests throughout America; National Guard, Facebook deployed(35:33) July 29, 2020: Antitrust Committee hearing about market power(38:05) January 6, 2021: A riot at the Capitol(42:51) February 25, 2021: The SPLC lobbies Congress to require companies to inform on nonprofits and others to government(44:49) June 4, 2021: Facebook rescinds newsworthiness exception to multiple policies(45:22) July 2021: The Change the Terms coalition attempts nonpartisan interdiction of Trump PAC fundraising(48:16) Later in 2021: Coalition members fundraise in reliance upon this conduct(50:52) 2022 to present: The Change the Terms coalition evolves posture(52:10) January 2023: Change the Terms intervenes in its own name against a declared candidate for the presidency(53:53) A brief parable about maintaining tax-exempt status (55:30) We have invited coalition participants to comment(57:50) We received a statement from the Center for American Progress(01:02:43) No other member of the coalition offered any comment(01:03:13) The moral authority of charities is a commons

    1h 5m
  6. How the SPLC became financial infrastructure

    May 1

    How the SPLC became financial infrastructure

    Patrick McKenzie reads from his latest Bits About Money essay, walking through why bank fraud charges are a prosecutor's favorite tool, how the Bank Secrecy Act's surveillance regime is designed to force criminals into impossible tradeoffs, and why lying to a bank is one of the easiest crimes to prove. He then applies that framework to the April 2026 DOJ indictment of the Southern Poverty Law Center, tracing how a covert informant-payment scheme run through fictitious shell entities to become a near-textbook bank fraud case. Part 2 releases next week. –Full transcript available here: www.complexsystemspodcast.com/splc-financial-infrastructure/–Presenting Sponsors: Mercury, Granola, & Meter Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at 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 Networking infrastructure has a way of accumulating technical debt faster than almost anything else in IT. Meter handles the full stack (wired, wireless, and cellular) as a single integrated solution: designed, deployed, and managed end-to-end so there's only one vendor to call when something goes wrong. Visit meter.com/complexsystems to book a demo. – Links: Bits About Money, Notes on a non-profit indicted for bank fraud https://www.bitsaboutmoney.com/archive/nonprofit-indicted-bank-fraud/– Timestamps:(00:00) Intro(02:43) The strategic logic of bank fraud charges in white collar indictments(05:47) Some worked examples of this in white-collar prosecutions(10:49) Criminal law textbooks published on the Internet(12:22) FFIEC BSA/AML Examination Manual(19:07) A textbook prosecution of bank fraud in many respects(27:48) This written communication is a succinct confession to bank fraud.(32:27) Data products and mechanistic decisioning

    51 min
  7. The honey badger of payments

    Apr 23

    The honey badger of payments

    Patrick McKenzie (patio11) reads his classic Bits about Money essay on how checks shaped the entire American payments infrastructure, from the origins of ACH to why a standard US bank account is, technically, a credit product. He then examines what happened when DOGE tried, via Executive Order 14247, to eliminate federal paper check disbursements by September 2025. The carve-outs Treasury eventually had to make map almost exactly onto the essay's original argument. Checks are the honey badger of payments: the numbers keep dwindling, but the edge cases are irreducible, and the second-best pathway for reaching them doesn't really exist yet. –Full transcript available here: www.complexsystemspodcast.com/checks/–Presenting Sponsors: Mercury & Granola Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at 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 – Links: The Long Shadow of Checks: https://www.bitsaboutmoney.com/archive/the-long-shadow-of-checks/ – Timestamps:(00:00) Intro (01:12) A brief digression for people who use functioning payment forms (02:45) Check settlement in the pre-computer era (07:28) Some funny consequences of checks underpinning everything (13:20) Money in transit (14:42) Sponsors: Mercury | Granola (17:56) Money in transit (part 2) (21:12) Deposit accounts and their discontents (23:25) The DOGE postscript (29:03) Honey Badger Jingle

    30 min
  8. Cash received is not revenue earned

    Apr 16

    Cash received is not revenue earned

    Patrick McKenzie (patio11) reads his classic Bits about Money essay explaining why revenue recognition in software is more complicated than most engineers, founders, and financial reporters think. The essay covers the accounting rules behind SaaS subscriptions, the deferred revenue problem that surprised him when he sold his own companies, and the surprisingly intricate standards governing virtual goods in mobile games. He then turns to AI labs, where rapid revenue growth has prompted questions about whether the numbers mean what they seem. They mostly do, but understanding why requires knowing the difference between bookings, deferred revenue, and a minimum commit. –Full transcript available here: www.complexsystemspodcast.com/cash-received-is-not-revenue-earned/–Presenting Sponsors: Mercury & Granola Complex Systems is presented by Mercury—radically better banking for founders. Mercury offers the best wire experience anywhere: fast, reliable, and free for domestic U.S. wires, so you can stay focused on growing your business. Apply online in minutes at 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 – Links: Accounting for SaaS and swords: https://www.bitsaboutmoney.com/archive/accounting-for-saas-and-swords/ – Timestamps: (00:00) Intro(00:56) Accounting for SaaS and swords(03:22) Why revenue recognition matters(05:49) Revenue recognition in SaaS(09:54) Revenue recognition in virtual goods(12:52) Accounting for potions(13:24) Accounting for swords(14:56) Sponsors: Mercury | Granola(18:34) Accounting for swords (cont’d)(20:49) Game mechanics as accounting optimizations(22:10) So about that goblin(23:25) Back to the real world(25:00) How this applies to AI labs(32:48) Wrap

    33 min
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4.7
out of 5
15 Ratings

About

We live in a world where our civilization and daily lives depend upon institutions, infrastructure, and technological substrates that are _complicated_ but not _unknowable_. Join Patrick McKenzie (patio11) as he discusses how decisions, technology, culture, and incentives shape our finance, technology, government, and more, with the people who built (and build) those Complex Systems.

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