2
Schelling Point
The American Republic will endure until the day Congress discovers it can bribe the public with the public's money.
— generally attributed to Alexis de Tocqueville, possibly originated by Alexander Fraser Tytler
Lindsey Postrel, the owner/editor/operator of the Cogent News media site with the motto “Liberation not Regulation,” had been saying for over a decade, “Factual news is currently out of style, but I’m confident that will change. Reality has a habit, after all, of making itself felt in the long run.” She found herself tantalized by the possibility that right here, right now, was the teachable moment when factuality would make its dramatic comeback.
Factuality had made a partial comeback, at least among a small community of rich people, almost two years earlier when Lindsey blew the lid off California’s semi-secret plan to balance its budget by running civil forfeitures against all the millionaires in California. That scoop had put her on the map, increasing her readership and viewership by a factor of ten.
And today, judging by the numbers she was seeing for people logging into her show, she could have another factor of ten increase if these next interviews went as expected.
Lindsey introduced Colin Wheeler, whom most of her audience already knew, then smiled at the rather severe-looking middle-aged woman seated next to her. “Lenora Thornhill, I’m delighted to meet you.” Lindsey turned to the cameras. “Dr. Thornhill is the Expedition Commander for the Fuxing fleet of the BrainTrust, so it’s a delightful accident that we could get her here today for a few words on the sociology of economic catastrophes.” She turned back to Lenora. “And why are you here at this remarkable moment?”
Lenora gave the cameras a stiff smile. “I came back, as it happens, to hear Dr. Everest’s presentation on SmartCoin.” She let her head slide to the side. “And I needed to talk to my business partner, Jim Caplan, about some changes to the framework.”
Lindsey nodded. “That’s the Accel Educational Framework, which those of you on the BrainTrust have surely encountered before.” Lindsey gave Lenora a shrewd look. “And your husband had nothing to do with your presence?”
Lenora’s smile turned warmer. “Of course. I was hoping to have a few moments of private time with him as well.” Her husband had gotten stuck, after years of pleasant toil as a software engineer, with the job of COO for the Accel Corporation. He rarely managed to leave the archipelago.
Lindsey leaned forward. “So, back to the question of the day. What causes a bubble to burst? Why do people suddenly start panic-selling the goods they’ve bought so eagerly?”
Lenora nodded. “So, in the times leading up to the pop of a bubble, some people know that they are in a bubble, and they know the bubble will burst.” She sighed. “Sometimes, as in the dotcom crash at the turn of the century, just about everyone knows a crash is just around the corner. But—”
Colin picked up the thread. “But until the moment the pop occurs, there’s money to be made riding it, like a surfer catching the leading edge of a tsunami.” His voice acquired dry irony. “It’s all great as long as you manage the last few moments of the trip with luck far in excess of your common sense.”
Lindsey pushed forward. “So, bubbles invariably hang on until . . . what?”
Lenora jumped in. “Until a game theoretic phenomenon known as a ‘Schelling point’ arises.”
Lindsey sat back. “Ahh. The Schelling point: the moment everyone knows that everyone knows that this is the moment to do a particular thing.”
Lenora nodded. “Schelling points have been with humanity for a very long time, although this form of coordinated cooperation with no communication operated in anonymity until Schelling identified it in 1960.”
Colin gave an example. “In ancient China, when a dynasty became too corrupt for the people to tolerate, it came to be understood by everyone that they would wait until the death of the emperor before revolting. Everyone knew that everyone knew that the time to rebel was at the funeral.”
Lenora nodded enthusiastically, picking up on Colin’s delight with the example. “Eventually, the bureaucrats of ancient China figured out that their predecessors tended to meet their own untimely demises when the Emperor died, and they fought back. Those governmental powers, upon seeing the emperor was not long for this world, would craft rumors that the emperor might be dead, but maybe not. The death then occurred months before the bureaucrats allowed it to be known that the emperor had been dead for a long time. No Schelling point, no rebellion.”
Colin summarized, “This bureaucratic strategy worked often enough to become popular among corrupt governments everywhere.”
Lindsey listened thoughtfully. “Okay, then. For a financial system, what kind of event qualifies as a Schelling point that will burst a bubble?”
Lenora shrugged. “Sometimes it’s an event in the field of finance. The Great Recession’s moment of truth came when Lehman Brothers went bankrupt, and everyone suddenly knew that everyone knew the jig was up, and the real estate mortgages, cdos, and cds held by all the financial institutions were worth no more than the paper upon which they were printed.”
Colin gave a very different example. “Sometimes, however, when a bubble has grown huge, an incident that has little to do with the financial system can supply the trigger. On 9/11 in 2001, the destruction of the Twin Towers in New York kicked off the dotcom crash, even though the coming or going of a couple of skyscrapers on the East Coast had virtually nothing to do with the revenues, profits, schedules, or opportunities in Silicon Valley.”
Lenora gave the audience a harsh smile. “A century from now, people will still argue about the direct effects of the announcement of the death of America’s President for Life on matters of business and debt.”
Colin wrapped up. “But a century from now, no one will disagree that it was the trigger to blast open the very gates of hell through which we are now falling.”
The Great Crash rolled around the world at the speed of light. Markets with daily crash limits halted trading in minutes; some markets that were already closed because it was nighttime did not bother to open. The world of finance slammed to a halt on every continent and in every city.
But the BrainTrust was not on a continent. Financiers and brokers aboard the GS Prime and Wells Morgan never shut down their servers; they worked twenty-four/seven. When a remarkable enough opportunity arose, even the financiers who lay dead asleep leapt from their beds to join the action.
For a full-service financial house, economic booms were not the only exciting opportunities. Economic hiccups—every kind of financial volatility—offered lucrative possibilities for the creative mind. A crash of monumental proportions like this one provided monumental profit potential. Aboard the GS Prime, no one slept.
Keenan Stull had tried to sleep, but it did not work out. His phone sang the opening of Paula Abdul’s Cold Hearted Snake well before dawn.
His wife turned away from him, muttering, “Tell Larry the next time I see him, I’m going to kill him.”
Keenan rolled out of bed. “Larry.” Larry Winters was the CEO of GS. Officially he was Keenan’s boss’s boss, though for obscure reasons, Larry chose to call Keenan directly whenever he wanted things done.
Larry didn’t waste time on pleasantries. He went directly to the criticisms. “Where are you? The whole world’s gone mad, and you’re nowhere to be found.”
This hardly seemed fair since Keenan had answered the phone on the first ring. “What’s happening?”
A choking sound came across the phone. “Don’t you know? The Crash! The Crash!”
Keenan immediately knew what that meant in all its dire potentialities. The adrenalin spike lifted him nearly off his toes. Not only was it a disaster, but it was also the opportunity of a lifetime. “Tell me while I dress.”
Larry offered a GS-oriented perspective. “The Army started shooting civilians in a riot at the White House. Apparently the President’s dead and gone. Moments later, the Crash began.” Larry hesitated before admitting the following. “You know the parking service we offer? So that after hours, you can trade shares at the closing price? That we then sell in the morning?”
Keenan ran for the door with a sinking feeling. “Yes, the one I’ve been telling you for years we need to hedge better.”
Larry barely acknowledged this. “It was very lucrative, especially since the regulators made it illegal dirtside years ago. But today, even though we shut down the service about fifteen minutes into the Crash, it was too late.”
Keenan drew the obvious conclusion. “So now we’re holding a lot of commitments we’re going to lose our shirts on.”
Larry still had to defend himself. “Adding up all the wins and losses over the years, it’s still been a great business, and we’ve gotten a lot of goodwill with our regular customers. You know, people desperate to get out of their dying portfolios while they still have something to save.” His voice became commanding. “But we need to switch gears.”
Keenan hurtled down the ramp to the Tower of Babel deck with its passage walls rendered with scenes of Babylon. He hadn’t bothered to wrap a tie around his neck. Today it just didn’t seem important. “Give me a few minutes to get some things started.”
He hung up, grabbed appropriate people as he swept past their offices, and went to work.
At his command, the GSDC, a compute server ship built solely to supply the petaflops needed for GS’ most extreme analyses, burned tremendous compute power extrapolating the prices at which they would be able to sell additional assets, and started offering these considerably lower prices—with considerably higher margins for the risk GS was reluctantly accepting. Panicked sellers paused, swallowed, and accepted the losses rather than risk losing even more.
Then Keenan’s people realized the prices were falling so low that the markets would close for a second day before the trades people begged GS to undertake for them could be executed.
So yet another new strategy was required. Fortunately, Keenan had expected that. He already had his team programming suitable smart contracts to handle the derivatives with which they would hedge their new future.
Keenan’s phone started playing Paula Abdul’s song again. He blew out a harsh breath. Larry was supposed to wait for Keenan to call, but apparently, he couldn’t.
Keenan held the phone a little away from his ear as Larry came on the line. “So, Keenan, what’s the plan? You have one by now, I hope.”
Keenan frowned. “You know, I always thought I was up for anything, but let’s be honest—this is new. This situation calls for caution, but—”
Larry finished the sentence. “But with an opportunity this big, you’ve gotta leave caution behind. I’m expecting something better than caution from you, Keenan. All our competitors have effectively closed their doors. They’re no more useful to customers than the stock markets, which are all closed. Be bold.” His voice developed a tinge of menace. “Of course, you have to be right as well.”
Keenan rubbed his temples. “So, I’ve been trying to answer the question, what assets will still be worth something in the morning? Deutschmarks, of course.” The mark had made a spectacular comeback after Germany withdrew from the Eurozone a decade earlier, when France led the southern euro countries in an austerity revolt and ran the printing presses to supply cash for the profligate and bankrupt southerners. “But there’s not enough German currency to hedge the entire world.”
He took a deep breath. His boss suffered from a puzzling dislike of all things BrainTrust despite the profits Keenan had reaped there. “There is, however, one asset we can rely upon.”
The CEO raised an eyebrow. “And that is?”
Lindsey Postrel turned to her next guest, a diminutive Balinese woman with glasses and a white lab coat. “Dr. Dash, I’m so pleased you could make it.”
Dash smiled warmly. “I’m happy to be here. It’s good to see you again, Lindsey.”
Lindsey turned to the cameras. “I know I don’t have to tell you this, but Dr. Dash is of course the heroine who cured the bioterror plagues that threatened to destroy the world. She then destroyed the threat that more such pandemics would arise.” When Lindsey said Dash had “destroyed the threat,” what she really meant was “killed the bastard who’d created the pandemics in the first place,” but Lindsey knew Dash hated being reminded of that incident, especially in public.
Dash squirmed uncomfortably. “We had an extraordinary team of scientists curing the plagues.”
Lindsey nodded sagely. “Of course.” She turned to her other guest. “We also have Dr. Erika Everest here, the inventor of the SmartCoin software that makes it so robust in the face of economic crisis—even a crisis like this one. Dr. Everest, how is SmartCoin holding up as the rest of the world crashes around us?”
Erika offered a gracious smile, then leaned forward anxiously. “It seems to be doing fine at the moment.” She frowned. “Of course, the situation is changing so rapidly that something terrible could have happened in the moments since we came on camera.”
Lindsey laughed. “So, how were things doing two minutes ago?”
Erika laughed as well. “You know, back when we were inventing SmartCoin, we used to toss around theories at the coffee stand about what would happen with it when the world’s economy collapsed.”
Lindsey raised an eyebrow. “I note you said ‘when it collapsed,’ not ‘if it collapsed.’”
Erika nodded. “Of course. It’s been obvious for a generation that we were living on borrowed time. The exponentially growing debts accumulated throughout Western civilization could not grow forever.” She added dryly, “And as we now see, they did not.”
Dash leaned in. “I too would like to hear how our currency is doing. I had not paid attention to the algorithms of SmartCoin until this new crisis broke.”
Erika raised her finger. “And that’s the way it should be. A monetary system should never intrude into a person’s life, not even in times of crisis.”
Lindsey pursued this line of thought. “So, how is SmartCoin doing by that standard?”
Erika shrugged. “I fear the people who use SmartCoin—which includes everybody here on the BrainTrust—are going to be surprised the next time they check their accounts.”
Both Dash and Lindsey asked, “How?”
Erika sat back in her chair. “As I was saying, when we were first developing SmartCoin, we would argue about whether, when the crash came, the algorithms would conclude that SmartCoin was looking at a deflationary or inflationary scenario.” She twitched her nose before continuing. “Let’s look at how it seems to be working right now. People around the world, especially in the financial markets, are moving out of their broken national currencies and shifting to SmartCoin. The currency is currently working very hard, being used for twice as many transactions per day as usual.”
Lindsey interpreted this. “Thus leading to inflation, since that increase in velocity produces the same effect as having more currency in circulation.”
Erika nodded. “Exactly.”
Dash, who had been watching Erika with fierce intensity, asked, “But are they buying the same goods that were already being exchanged with SmartCoin? Or have the transactions been purchases of goods that were formerly external to the SmartCoin network?”
Erika stared at her. “You say you’ve only been studying SmartCoin for a few hours? You’re right on target. New assets are being brought into the SmartCoin exchange process at an even higher velocity than the transaction rate.”
Dash continued, “So, with lots more assets being chased by the same number of coins, supply and demand tell us that a unit of currency can buy more goods, bringing a counterbalancing deflation. Which force is stronger?”
Erika chuckled. “That’s what we used to argue about over coffee. We know the answer, at least for this crisis. Even though untangling the forces of inflation and deflation represents a hard problem for people, for the SmartCoin software, the answer is easily calculated.”
She licked her lips. “We’re looking at deflation on a massive scale. The spot price of a SmartCoin has risen twenty-five percent. The algorithm hasn’t created that much more currency yet, but that’s the projected outcome.”
Lindsey whistled. “So if you owned one coin yesterday, now it’s worth 1.25SC? Whoa. How many investments can make twenty-five percent in a day?”
Dash made the obvious observation. “With returns like that, the speed at which people switch to SmartCoin will grow rapidly.”
Erika added. “Leading to more addition of assets to the network.”
Lindsey wrapped up that part of the conversation. “Leading to even more creation of currency.” She turned to the cameras. “So, all you viewers out there, it might not be a bad idea to load up a SmartCoin app on your phone and shift some bucks to the only currency that yields dividends.” She took a deep breath. “Full disclosure is now required. I already have most of my money in SmartCoin-denominated assets, so I’ll be one of the people profiting when you join us.”
Dash shot a baffled look at Erika. “One thing puzzles me about this. How can all these currency and stock crashes be affecting SmartCoin so rapidly? The stock markets are closed, and none of them are even on the BrainTrust, but still the falling prices are influencing coinage here.”
Erika rolled her eyes. “I’m pretty sure it’s because of the financial services people on the GS Prime. They’re still trading, even though everything’s shut down dirtside. Whoever they are, they’re leaking the external reality into the BrainTrust faster than I could ever have imagined.”
Dash and Lindsey exchanged knowing looks and said in chorus, “Keenan.”
Keenan was moving GS customers into SmartCoin as fast as his team could clack the computer keys.
He had had to begin the day at a sprint, despite knowing he was at the start of a marathon. His first order of business was the handling of customers who had placed their accounts in the GS smart contracting system. The software implementing the contracts watched for various signs of market crisis and granted GS diverse authorities to engage in trades and transactions to protect the client’s assets without further authorization. Since every single alarm bell in the system had gone off, every single one of those accounts received maximum-priority service. By the time they had those people safely moved, other members of the team had gotten authorizations from enough other customers that the frenetic pace continued.
At this point, Keenan had a panel on his display, constantly ticking off the current rate of creation of SC coins. The prices he was offering customers for their dying investments kept going lower in terms of local dirtside currencies but held on somewhat in SC. Customers were looking in horror at their local-currency valuations but got calmer when Keenan explained how their holdings would start reaping benefits the moment they switched over. More than one swore at their laziness in not converting to SmartCoin-denominated assets years earlier.
As he signed up customers, Keenan was dimly worried that he was personally causing a run on SmartCoin. He was pretty sure he was making big profits—disturbingly, it was hard to tell when the currencies themselves were in flux—but in the macro sense, was he doing good or ill? Would SmartCoin survive this huge production of currency?
He couldn’t deal with these moral and ethical questions now—way too much money to make—but he knew Dr. Everest was here on the BrainTrust somewhere. He’d have to ask her about it first thing—after he’d made some money and gotten some sleep.
Dash spent a moment staring into space, visualizing Keenan’s probable operations and their consequences. “Oh, my.”
Lindsey clapped her hands. “See that dreamy look, folks? Her friends tell me that’s just what Dash looks like when she’s about to draw an amazing conclusion.”
Dash’s eyes slowly refocused. “Keenan’s probably moving customers into SmartCoin as fast as he can go.” Her eyes now widened. “It’s another Schelling point.”
Erika shook her head in bafflement. “Another Schelling point? The way the White House Riot triggered the Great Crash?”
Lindsey held her hand over her mouth to muffle a chortle. “Oh, Dash, by all means, tell us about the new Schelling point.”
Dash shrugged. “It’s obvious if you think about it. SmartCoin has been slowly displacing national currencies for decades. Specifically, every time a nation corrupts its currency so egregiously that even the common citizen sees the consequences, the people switch to SmartCoin.”
Lindsey nodded. “That started happening long before the advent of SmartCoin. In the infancy of crypto-currency, when BitCoin was the only thing available, it used to replace corrupted currencies at least temporarily. Greece was one of the first, when the government considered nationalizing all the people’s savings accounts. Then when Venezuela hyperinflated their currency by a factor of a hundred thousand, people switched, not only to store their money in BitCoin, but to use it as the medium of exchange to buy even milk.”
Dash nodded vigorously. “People who pay attention to such things have known for over a generation that they would someday have to transition away from government-controlled money. However, nothing quite triggered them to make the move, which would have involved a lot of difficulties if all the people they did business with didn’t transition at the same time.”
Erika gasped. “You’re right. The Riot triggered the Great Crash, and the Crash has triggered the moment when everyone knows that everyone else knows that it’s time to abandon their local money and move to SmartCoin.” She shuddered. “I can’t begin to grasp the consequences.” She spoke next to herself, although everyone heard her. “Will it even be a good thing?”
Dash touched her arm reassuringly. “What you have wrought is most certainly a good thing. For those who switch, it will soften the blow of the disaster.” She looked at Lindsey. “It’s easy to imagine that a month from now, half the people in the world will use nothing but SmartCoin for everything they buy and sell.”
Lindsey smiled at Dash, then smiled at the cameras. “Well, I’d say we all have some very fine food for thought. Let’s leave it there and pick up next week, when we’ll have even more to chew on.”
In most of the Western world, the Great Crash was the topic of the day. Ironically, in the Great State of California, where a preview to the Crash had started well over a year earlier, the focus was on a more local matter. Global economic systems might come and go, but it was just money. Political power? That was important.
The Attorney General of the Great Blue State of California stood on the podium above his adoring fans, waving his hands. The fanaticism of his people was similar to the zealousness with which the President for Life’s followers once cheered for him. Of course, if you pointed this out to the AG, he would deny it. He would say his followers’ passion was the result of thoughtfulness. He would think the real difference was that he deserved it because he was a true Man of the People, whereas the PfL had been a fraud.
The AG waited for the crowd to quiet a little, then began. “I humbly accept the post of Governor which you have bestowed upon me.”
Actually, he was irritated by how long it had taken to bestow the title. The former governor (a great man, God bless his soul) had died of Black Rubola, and the lieutenant governor had died of the Sky Rubola that had been dispensed from suborbital missiles.
Both the Governor and the Lieutenant Governor were in some sense responsible for their own deaths. Citing the infringement of liberty involved, when Sky Rubola rained gently down, the Lieutenant Governor had refused to declare martial law to keep people off the streets and out of contact with one another until the BrainTrust developed a vaccine and a cure. Consequently, large numbers of members of the Hollywood set (”I just need one little meeting with my agent”) and members of the state Assembly and Senate (”I just need one little meeting with an important constituent”) fell to the plague that fell from the sky. The lieutenant governor joined them.
The original governor’s error had been to listen to the AG when the AG said they should reject the BrainTrust vaccine, although the AG no longer remembered it that way.
At this point, the AG—now officially the Governor—had bigger fish to fry. A critical moment in history had come upon him, and he saw the need to lead California to a greater destiny. “But as you all know, history waits for no man, and no state.” He pointed to the east. “The President is dead! The time has come for elections!”
The crowd roared.
The Governor roared back. “The Chief Advisor claims no elections are needed. He is trying to take the country from us by force! But we shall take the country from him!”
Another roar washed through Sacramento.
“I shall lead the march to Washington! There we shall take control, and make America as great as California! Equality shall reign throughout the nation! Who’s with me?”
The Governor marched to his limo through the cheering crowd. Once safely inside, his motorcade started to move slowly toward the expressway as his social media campaign urged the people of California, and the people of all the true Blue states, to hop into their cars and join the Governor’s Cavalry as it headed for I-80E to cross the nation and impose their will.