On The Other Side ep 65 - Bailout Brink: The Tale of Two Bank Collapses w/ David Phelps
Primer: The devastation caused by the 2008 financial crisis could not be understated. In this episode of On The Other Side, David Phelps reads to listeners his heartfelt and moving story Bailout Brink that describes his harrowing experience with the aforementioned crisis.
Bailout Brink
His personal reflection on the impact of the 2008 financial crisis and its aftermath
Graduated college in 2008 and got an internship at MoMA
Learned about the Lehman Brothers bankruptcy and realized it was a big deal
The 2008 event bifurcated generations into:
Those who pursued traditional corporate careers
Those who became freelancers and pursued private subcultures online
“2008 was the year that bifurcated generations—bifurcated our culture, our beliefs, and even our ability to relate to one another.”
- David Phelps
The 2009 recession highlighted how our identities are shaped by economic factors
His father lost his money in options trading and was evicted at 89 years old. His mother bailed his father out
Many working-class homeowners were evicted while rich bankers who caused the subprime mortgage crisis were bailed out by taxpayers
He joined Occupy Wall Street in 2011 and believed their slogans helped conceive the current era of user-generated culture, politics, and finance
Decentralization of online platforms was efficient, enabling a phrase to reach thousands instantly
Occupy Wall Street was organized through Twitter. You can trace the Gamestop hype and VCs inciting bank runs to Occupy Wall Street
He visited the welfare office during the recession, where people were desperate and powerless
“Because in the early 2010s, everyone felt powerless—it was just the feeling of the time. It was just how you acted on it that determined your character. And not everyone had the luxury to act well.”
- David Phelps
His college friend, Persephone, introduced him to Bitcoin
Thought Bitcoin was for criminals. Later, he learned that he was wrong
In 2017, a girl he met on Tinder suggested Bitcoin to him again
Was drawn to the message of Bitcoin being an alternative to a nationalist military-backed banking system
Banks are like a money plumbing system for the government and a faucet for the Federal Reserve to irrigate the economy
Banks borrow short-term and lend long-term to arbitrage the short-term need for $1 against the long-term need for $1
Major banks struggle to offer high-yield savings accounts to depositors due to fluctuating interest rates and their greed
Depositors have little say in bank policies and there are few alternatives to banks
Banks serve the economy, which conflicts with depositors’ needs
Crypto multisig and MPC wallets offer new options for self-banking and receiving returns directly through protocols
When USDC dropped to $0.88 cents to the dollar, traders were irrational even though those tokens were backed by full collateral
The Fed stepped in to provide sentimental support, reminding us that the money is real
People made millions from crypto by arbitraging its inefficiencies
"Economics is not just a psychological phenomenon, but often—for too many of us—a psychological trauma. You can see a recession as a series of red numbers on a screen, but they are red numbers on a screen that will change people’s taste in movies, stick them with an addiction here and there, and scar lifelong relationships."
- David Phelps
Going bankless is to cushion ourselves from trauma that is self-induced by both parties
Conversation With Chase
During the GameStop short squeeze, people were talking about democratizing finance
“What ultimately happens is that a game for rich people is a very dire sentence on the psychological, physical, emotional state of everyone else.”
- David Phelps
The rational thing to do in a bank run is to participate in it
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