Complex Systems with Patrick McKenzie (patio11)

True Crime, banking edition

Sep 12, 2024

53:12

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Patrick McKenzie, an insightful essayist on financial systems, joins media entrepreneur Erik Torenberg for a deep dive into the banking world. They tackle the three stages of money laundering—placement, layering, and integration—and how banks have become reluctant de facto law enforcers. Their conversation highlights the unintended consequences of stringent regulations on economic growth and inclusivity, questioning the balance between preventing crime and supporting legitimate financial activities. It’s an eye-opening discussion on the complexities of modern banking.

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Quick takeaways

The conversation highlights the three stages of money laundering—placement, layering, and integration—illustrating the complexity within the financial system.

Strict banking regulations, while intended to curb illicit activities, often create unintended consequences that impact economic growth and financial inclusion.

The balance between KYC/AML compliance and customer accessibility reveals significant challenges in ensuring security without stifling legitimate financial transactions.

Deep dives

The Challenges of Centralized Control

Centralized control in complex systems often leads to significant challenges, as highlighted by the concept of 'seeing like a state'. This idea illustrates how government planners can oversimplify complex environments, resulting in failures that disregard the cultural and operational realities of those they aim to serve. Historical examples, such as the mismanagement of forestry practices in 18th-century Germany, reveal how planners can impose their narrow views, with disastrous consequences. While centralized entities, including large bureaucracies and big tech firms, have shown the capacity to operate effectively, they also carry inherent risks that must be recognized and managed.

Intro

4min

Big Tech vs. AI: Power and Challenges

6min

Navigating Banking's Customer Service Maze

19min

The Financial System's Role in Communication and Responsibility

3min

Navigating KYC and AML Challenges

16min

Balancing Crime and Legitimate Use in Financial Systems

5min

In this episode of Complex System, the tables are turned and media entrepreneur/investor Erik Torenberg interviews Patrick McKenzie (patio11) about the intricacies of the financial system, focusing on banking, money laundering, and regulatory compliance. They discuss several of Patrick’s essays from Bits About Money.

Patrick discusses the three stages of money laundering - placement, layering, and integration - and how the financial system has been deputized to act as law enforcement. The conversation touches on the unintended consequences of strict regulations, including their impact on economic growth and financial inclusion.

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Full transcript available here: https://www.complexsystemspodcast.com/true-crime-banking-edition

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Sponsors: WorkOS | Check

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Links:

Seeing Like a Bank https://www.bitsaboutmoney.com/archive/seeing-like-a-bank/

KYC and AMI: https://www.bitsaboutmoney.com/archive/kyc-and-aml-beyond-the-acronyms/

Money Laundering and AML Compliance: https://www.bitsaboutmoney.com/archive/money-laundering-and-aml-compliance/

Turpentine Media: www.turpentine.co

Turpentine network for Tech Founders & Execs: www.turpentinenetwork.co

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Twitter:

@patio11

@eriktorenberg

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Timestamps:

(00:00) Intro

(00:33) Seeing like big tech

(06:31) AI, centralization, and information processing

(09:23) Crypto vs AI: Thiel's perspective

(10:30) Seeing like a bank: ledgers and customer service

(19:57) Future of banking customer service

(22:27) Societal goals vs banking efficiency

(28:58) Sponsors: WorkOS | Check

(31:15) Understanding KYC and AML

(35:16) Money laundering explained

(42:28) Financial system as law enforcement

(51:41) Ideal changes in the financial system

(52:34) Wrap

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Complex Systems is part of the Turpentine podcast network.

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