Samizdata

#Just_Stop_Toil is best anti-Luddite hashtag ever. Use it.

Do people remember all those years back, at the time of the financial crash of 2008, about how so many wrote and spoke about dangers of an over-concentrated banking system, “too big to fail”, moral hazards of bailouts, poor risk management, etc? I do. I cannot count the articles, conferences, talks, books and videos about all this, and the lessons that must be learned.

Well, here we go:

There is, however, a bigger and simpler problem that financial-stability supervisors have been growing concerned about: The over-reliance of banks and markets on a limited number of third parties for things like cloud-computing services, software and risk-modelling tools. The UK, for example, found that 65% of British financial firms used the same four cloud providers. And earlier this year, the International Monetary Fund dedicated a chapter of its annual Financial Stability Report to cyber risks, noting that the world’s biggest systemically important banks were growing increasingly reliant on common information-technology providers. The IMF found a greater overlap in major banks’ use of the same IT products and services than was the case for insurers or asset managers.

The comment is by Paul J Davies, a writer for Bloomberg ($). He is writing about the implications of the Microsoft/Crowdstrike outage that slammed banks, airlines, healthcare providers and others last Friday and through the weekend.

Besides the level of “fragile” reliance on a few systems, is the fact that this saga, in my mind, makes it even more dangerous to proceed with things such as digital identities (an idea of Tony Blair), central bank digital currencies, and the rest of it. I think I need to re-read the Nassim Taleb book, Antifragile.

The Wall Street Journal ($) has been running articles looking at the silicon chip industry, and the attempts by countries such as the US to try and protect and stimulate production of high-end chips. I can strongly recommend Chip Wars by Chris Miller for an overview of the rise of this extraordinary industry, and the web of supply chains that underpin it.

Here’s the newspaper’s latest feature on the topic:

Two years into a nearly $53 billion government effort to shore up the U.S. chip industry, the [US] program’s impact is becoming clearer: Big companies making advanced chips are getting a boost, but there are limits to what the money can do. The Chips Act, passed in 2022 to jump-start domestic semiconductor production, is supposed to supercharge chip making in the U.S. But even in its early stages, it is being challenged by fast-growing chip industries in competing countries, political complexity regarding the allotments at home and the sheer expense of manufacturing chips.

The lion’s share of the allotments have been slated for Intel and other large chip makers that plan to make advanced chips in the U.S., while some companies that are important in other parts of the chip-making supply chain have missed out. Meanwhile, other countries have amped up spending to keep competitive.

The government received hundreds of applications for the grants from companies eager for funding.

No kidding. When lots of public money is hosed around, firms will try and get some of it.

The biggest chunks of money went to Intel, which got up to $8.5 billion of grants for several projects, and to Taiwan Semiconductor Manufacturing Co., Samsung Electronics and Micron Technology, each of which were allotted more than $6 billion for their projects.

Another way of describing it is corporate welfare.

Industry executives have largely been pleased with the rollout of the program, even as labor disputes, higher costs and extended environmental reviews are slowing work compared with some other countries.

I am sure they are.

Some investors are worried about the amount of money being spent on new construction. Elliott Investment Management, an activist investor, took a $2.5 billion stake in Texas Instruments and wrote a letter last month to its board of directors urging slower spending on manufacturing growth to boost cash flows. TI is expected to receive grants under the Chips Act.

There are dangers of major misallocation of capital when politicians drive anything.

The impact of the program is also limited by the sheer cost of chip plants. A single advanced chip fab can cost more than $20 billion, and the planned U.S. facilities won’t be operating until later this decade. Those realities mean that even a historic $39 billion grant program can’t itself tip the global share significantly in the U.S.’s favor.

This is an expensive business.

The tax credit expires in 2026, and industry lobbyists are already preparing to push for an extension.

I am sure they are. The lobbying industry gets another cause to chase.