#234—What caused the Great Depression
It was an identity problem
Welcome to Yaka Stuff, our weekly newsletter that covers news, industry perspectives, and updates from the Hard Yaka ecosystem. Check out last week’s report here.
This week:
What caused the Great Depression
The state of Solana
This week in FTX
Stuff happens
1. What caused the Great Depression
Whatever you may think of Ben Bernanke, his work analyzing the Great Depression has greatly contributed to how we understand the banking system and crises. Last month, he won a Nobel Prize for his efforts.
Conventional wisdom at the time was that the Great Depression could have been prevented if central banks had just printed more money. Bernanke’s work showed otherwise. When banks failed, they didn’t just lose money, they also lost all of those customer relationships. In a sense, identities and reputations were lost. They didn’t have credit scores in the 30s.
And so even if more money was pumped into the system, there wasn’t a mechanism for distributing it to people and businesses.
From the Royal Swedish Academy of Sciences:
Once a bank goes bankrupt, the relationship between the bank and its borrowers is cut; this relationship contains knowledge capital that is necessary for the bank to manage its lending efficiently. The bank knows its borrowers, it has detailed information about what borrowers have used the money for and what requirements are needed to ensure the loan will be repaid. Building up such knowledge capital takes a long while, and it cannot simply be transferred to other lenders when a bank fails. Repairing a failed banking system can therefore take many years, during which time the economy functions very poorly. Bernanke demonstrated that the economy did not start to recover until the state finally implemented powerful measures to prevent additional bank panics.
While identity has come a long way since the Great Depression, we are still, for the most part, operating on pre-internet, legacy frameworks. And like the 30s, identities still operate in centralized, disparate silos.
The other two winners in economics were Douglas Diamond and Philip Dybvig, whose work illustrated how banking systems operate in a modern economy and laid the foundation for modern banking regulation. Much of it is common knowledge today, but it was pretty revolutionary at the time, and is even more relevant as we think about things like crypto and the rise of stablecoins. You can read more about it here.
2. The state of Solana
Solana’s obviously been hit hard by the FTX debacle. This video shared by Chris Lewis provides a good overview of the ecosystem’s near term challenges:
3. This week in FTX
Bankman-Fried Apologizes to FTX Employees, Details Amount of Leverage in Internal Letter
DeFi Is the Answer to the FTX Crisis—But We Must Get Better at Communicating It
FTX Owes Almost $3.1 billion to Its Top 50 Creditors, Filing Says
FTX Owes Its 50 Biggest Unsecured Creditors More Than $3 Billion
4. Stuff happens
Greg Kidd featured: 3 Venture Investors on Where They’re Looking to Invest in Crypto Now
JPM’s Jamie Dimon: Regulators Have Done ‘Nothing’ to Stem Crypto Fraud
Celsius Failed Because It Was Technically Incapable, Report Finds
Binance to Be 'Guinea Pig' for Vitalik Buterin's Proof-of-Reserves Protocol: CZ
Meta Employees, Security Guards Fired for Hijacking User Accounts
Twala Launches New Digital ID Technology to Prevent Fraud in the Philippines
Carv Valued at $40M as Investors Race to Back Web3 Identity Builders
Bank of Japan to Run CBDC Experiments With Country's Megabanks: Report
Scotland Plans Digital ID Pilot for 2023 as One Login is Scrutinized