Complex Systems with Patrick McKenzie (patio11)

Patrick McKenzie (patio11) reads his classic Bits About Money essay on why your bank deposit is not what you think it is. He explains the capital stack that makes deposits appear riskless while funding genuinely risky businesses, and why the "no questions asked" property of money took the United States roughly a hundred years to engineer.

Patrick updates the essay with commentary on SVB's collapse, the Voyager collapse and emergency injunctions about the finer points of ACH plumbing, and the GENIUS Act's stablecoin interest ban. He argues that crypto keeps rediscovering the same hard truth: things that behave like deposits without being deposits eventually break. When they break, they will break other structures they have wormed into, and they will tend to have wormed into a lot, because deposits are extremely useful and are perceived to never break.
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Full transcript available here: www.complexsystemspodcast.com/your-bank-balance-isnt-in-the-bank/
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Presenting Sponsors: Mercury, Meter, & 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.
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. 
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:
The alchemy of deposits: https://www.bitsaboutmoney.com/archive/the-alchemy-of-deposits/ 
Deposit Insurance: https://www.bitsaboutmoney.com/archive/deposit-insurance/ 
Gift Cards: https://www.bitsaboutmoney.com/archive/gift-card-accountability-sink/ 
Debanking (and Debunking?) https://www.bitsaboutmoney.com/archive/debanking-and-debunking/ 
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Timestamps:
(00:00) Intro
(00:20) Why revisit this essay now
(02:03) Deposits are money
(06:53) Heavily engineered structured products pretending to be simple
(09:11) Credit card charge-offs as an underappreciated welfare program
(10:16) Deposits as pink slime
(13:08) Silicon Valley Bank and information sensitivity in the real world
(19:06) Many things are quasi-deposits
(20:00) Sponsors: Mercury | Meter
(23:13) Many things are quasi-deposits (cont’d)
(25:10) Voyager bankruptcy
(32:29) How the FDIC resolves bank failures over weekends
(34:49) Making the magic happen
(35:13) The GENIUS Act and the stablecoin interest debate
(40:31) Sponsor: Granola
(47:45) Wrap

In this episode of Complex Systems, Patrick McKenzie riffs on why public sector payroll modernization is even more likely to fail than the typical public software procurement project. He then goes into a wider discussion about payroll providers and their role as software, payment rails, and a sink for an enduring controversy in political economy. We want robust state capacity and hate income taxes. He breaks down the history of tax withholding as a state-deputized collection mechanism and explains how providers like ADP manage a lucrative "conveyor belt" of money to earn interest on the "float". Finally, he discusses how fintech innovations like Earned Wage Access (EWA) are providing a pro-social, daily-pay alternative to predatory payday loans.
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Full transcript available here: https://www.complexsystemspodcast.com/public-payroll/
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Presenting Sponsors: Mercury, Meter, & 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.
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. 

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:
Mikey Dickerson episode: https://www.complexsystemspodcast.com/episodes/fixing-government-technology-with-mikey-dickerson/ 
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Timestamps:
(00:00) Intro
(01:10) Why government payroll projects keep failing
(02:08) The root cause: rules nobody can write down
(05:22) Fraud in plain sight: pension spiking
(10:18) The Information theory problem
(11:57) Essay: “Payroll Providers, Power, Respect”
(13:54) Why does payroll exist, anyway?
(16:13) Enter tax withholding
(18:20) An aside about tax preparation software 
(20:05) Sponsors: Mercury | Meter
(22:54) An aside about tax preparation software (cont’d)
(25:00) Withholding taxes were an operational disaster in early implementations
(27:08) So what happens in payroll, anyway?
(29:50) “Where is the risk transfer?”
(33:43) What about those other payments?
(39:01) Where is the frontier in payroll?
(39:25) Sponsor: Granola
(41:15) Where is the frontier in payroll? (cont’d)
(45:59) Rideshare apps vs. payday loans: Byrne Hobart's insight
(46:05) FinTech's net impact
(47:12) Wrap

Patrick McKenzie (patio11) explains how compliance regimes designed to be viral brought many more firms into the scope of frameworks like SOC 2. This created a market demand for compliance-on-the-cheap by companies like Delve. Delve has been accused in an anonymous bit of investigative journalism as engaging in Potemkin compliance.
Patrick contrasts what real audits look like with what Delve allegedly delivered. He argues that selling compliance theater as compliance is fraud, not the sort of benign rule-breaking celebrated in startup culture.
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Full transcript available here: https://www.complexsystemspodcast.com/delve-into-compliance-theatre/
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Presenting Sponsors: Mercury, Meter, Granola & Framer
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.
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.
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
Building and maintaining marketing websites shouldn’t slow down your engineers. Framer gives design and marketing teams an all-in-one platform to ship landing pages, microsites, or full site redesigns instantly—without engineering bottlenecks. Get 30% off Framer Pro at framer.com/complexsystems.
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Links:
Fake Compliance as a Service - Part 1: https://substack.com/home/post/p-191342187
Editorial independence episode: https://www.complexsystemspodcast.com/episodes/editorial-standards-and-independence/
Dan Davies episode: https://www.complexsystemspodcast.com/episodes/dan-davies-organizations-fraud/
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Timestamps:
(00:00) Intro
(02:14) The taxonomy of compliance
(04:11) Why compliance is viral
(09:08) Defense in depth
(14:19) Accountability and liability
(16:05) The allegations against Delve
(19:53) Sponsors: Mercury | Meter
(22:41) The allegations against Delve (cont'd)
(24:31) The response and evidence
(29:38) Implausible patterns
(38:22) Heuristics for truth
(40:10) Sponsors: Granola | Framer
(42:52) Heuristics for truth (cont'd)
(44:28) Naughtiness vs. fraud
(51:16) A voice in the startup community
(53:05) Advice for the exposed
(56:38) Wrap

Patrick McKenzie (patio11) reads his classic Bits about Money essay explaining why the debt collection industry earns its “river of effluvia” metaphor. From the accounting standards that force banks to "charge off" delinquent accounts to the large CSV files that constitute the only proof of a debt's existence, he explores how the system prioritizes accounting finality over legal and factual accuracy. The conversation reveals why the single most effective way to resolve a debt is often forcing a collector to read and write paper. They can’t, operationally, and don’t see that as an impediment to making money, especially because the paper will often document their lies and crimes.

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Full transcript available here: https://www.complexsystemspodcast.com/debt-collections/

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Presenting Sponsors: Mercury, Granola & Framer
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
Building and maintaining marketing websites shouldn’t slow down your engineers. Framer gives design and marketing teams an all-in-one platform to ship landing pages, microsites, or full site redesigns instantly—without engineering bottlenecks. Get 30% off Framer Pro at framer.com/complexsystems.
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Links:
https://www.bitsaboutmoney.com/archive/the-waste-stream-of-consumer-finance/ 

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Timestamps:
(00:00) Intro
(05:20) The lifecycle of a defaulted debt
(14:17) The debt collection industry
(19:58) Sponsors: Mercury | Granola
(23:36) The debt collection industry (cont’d)
(25:55) The operations of a debt collection firm
(34:02) What does the debt collector hope to get from a call?
(36:52) Why does this continue being so broken?
(39:34) Suing people with robots
(40:26) Sponsor: Framer
(41:43) Suing people with robots (cont’d)
(44:14) What can be done about this?

Patrick McKenzie (patio11) and Philip Kiely, early employee at Baseten, discuss the inference stack: the critical layer of software and hardware that sits between a model’s weights and a user’s prompt. They cover inference engineering, how intermediate layers are evolving over a technical stack that is changing every six months, and how sophisticated organizations are actually consuming LLMs beyond just writing their questions into chatbot apps.
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Full transcript available here: www.complexsystemspodcast.com/inference-engineering-with-philip-kiely/
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Presenting Sponsors: Mercury, Meter, & 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.
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. 

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:
Download Inference Engineering: https://www.baseten.com/inference-engineering/ 
Philip's website: https://philipkiely.com/ 
Stripe's Emily Sands on Complex Systems: https://www.complexsystemspodcast.com/episodes/the-past-present-and-future-of-ai-with-stripe/ 
Des Traynor on Complex Systems: https://www.complexsystemspodcast.com/episodes/des-traynor/  
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Timestamps:
(00:00) Intro
(00:30) The AI deployment pipeline
(03:04) Evolution of abstraction layers in engineering
(05:14) Defining inference and model weights
(08:45) Architecture of language and diffusion models
(10:11) AI adoption in the broader economy
(11:30) The shift toward agentic workflows and RL
(14:55) Function calling and real-world actions
(20:10) Sponsors: Mercury | Meter
(22:59) Technologies for agentic tools: MCP and skills
(25:32) The craft of writing a harness
(29:56) Using AI for automated proofreading and tool creation
(34:12) Balancing LLMs with deterministic code
(37:31) Observability and chain of thought reasoning
(39:31) Sponsor: Granola
(41:21) Observability and chain of thought reasoning
(50:45) Speculative decoding and hidden states
(55:37) The value of smaller, task-specific models
(59:55) Internal competencies versus buying solutions
(01:09:27) Self-publishing a technical book in record time
(01:23:20) Wrap