The explanation machine is broken. Let's replace it.
Why are most explanations still a bad game of telephone? It's time to take misinformation seriously and make useful explanations a low-latency public good.
So, ok, yes, this story is partly inspired by what happened with Robinhood this week. I’m sorry. But it's only tangentially about that. I mostly want to discuss two larger principles, which are interconnected and far-reaching in their implications:
The speed of money is much slower than it needs to be. (We use old, creaking systems to move assets, and the ingenious hacks/tricks that speed things up are fragile in places and can break under extreme pressure, as they did this week.)
The speed of explanations is much slower than it needs to be. (Some folks understood what was actually happening to Robinhood in real time, but most didn’t, which led to an explanatory vacuum quickly filled by conspiracies.)
The first item sets context for the second, so we need to start there. But I’ve written this in such a way that (a) you don’t need to have followed the Gamestop / Robinhood / r/wallstreetbets saga, (b) you can skip certain sections if you have.
TL;DR for Skimmers:
Our moving-assets-around infrastructure is old and notoriously slow
It stays slow because most voters don’t know to demand better
Efforts to build new infrastructure are largely poorly understood
This all remains true because our explanation machinery sucks
Smart folks have at least built creative ways around the old infrastructure
But those hacks are fragile in places, and will break under extreme stress
This week saw extreme stress in the form of wild (albeit hilarious) trading
That stress broke a few things temporarily, leading to bad outcomes
Those dynamics and outcomes were poorly explained to most
A mob thus filled the explanatory vacuum with a theory
That theory was wrong, though in a way that’s easy to sympathize with
It’s easy to sympathize because our explanation machinery sucks
Those who did know what was going on yesterday were in the minority
If you wanted to get in the know, there was no single great resource
We don’t have any good system for spreading fast/good explanations
Such a system is definitely possible
There’s a blueprint for such a system at the end
I’d love help in building it
(If this all already intuitive to you, or you don’t really care about any of the stuff that happened this week, please feel free to skip to section iv.)
I. Robinhood and The Not Very Merry Men
(I’m obscuring the name here because the user walked back and later deleted the tweet. And they were one of many anyway. I just want to illustrate the height of the mob, which lots of good people are susceptible to in an explanatory vacuum!)
Anyway, what were this user and millions of others so salty about?
Robinhood (an investment/trading app) had done a thing (restricting specific trades), and Robinhood had, ahem, not done much of a job of explaining why they did that thing. And the practical effect of the thing was that Robinhood users couldn’t make trades that they had cause to believe would be profitable (where those betting the other way were able to make trades), which understandably made said users, uh, mad.
Now, why did Robinhood do the thing?
There are two broad explanations to choose from:
Robinhood was appeasing financial overlords (Citadel, hedge funds, Wall Street, “suits”) who wanted to steal their money back from Robinhood users (i.e., regular folks) and teach them some sort of a lesson about staying in their lane
Robinhood had to meet a bunch of requirements designed for normal times, where the sheer madness of this week stressed and then broke Robinhood’s ability to both meet those requirements and let free trading continue
Taking those in turn:
The first was never all that plausible, as the sort of coordination required there would be both super illegal and easily discovered. And of course many of those suits actually wanted to keep the party going (though not all, as some middlemen are running up against their own system constraints). But those who did want the party to end had better tools at their disposal than calling up Robinhood’s CEO and saying “hey I know this will blow up your customer base and cost you billions personally, but I need you to help us by doing something that will put you into profound legal jeopardy”. (This theory also requires us to believe that said CEO said “ok yes well that’s fine I guess” and went along with it.)
The second explanation is what actually happened, which is boring and unsatisfying, and also perhaps a bit unexpected (not because it’s something we should be surprised at, but because our explanation machinery has been broken for so long that the underlying premises are not super clear to people outside specific fields). But when things look dodgy and there’s an explanatory vacuum (including from Robinhood), people are naturally going to turn to plausible-sounding theories that fit their prior narratives, and it will be hard to blame them too much for doing so, especially if what’s happening is screwing them.
Anyway, before we get into Robinhood’s comms decisions and what to do about the larger explanatory crisis, let’s talk just a little more about money systems.
II. The Earth Literally Revolves Faster Than Money Moves
A good bedrock principle when it comes to understanding finance: credit is fast, but settlements are slow.
This isn’t a fixed law or anything. The system doesn’t need to be this way. (And not all asset-moving systems are.) But the fundamental infrastructure we use to settle most bank transfers and stock trades is pretty old and rickety, and anything you want to do with it takes a few business days to sort out to finality. While one good solution would be to just rip it all out and replace it, there’s a classic collective-action problem here (i.e., it’s hard to coordinate lots of people with different incentives, especially where the ultimate overseers aren’t being elected for their vision or expertise by voters who really grok it all). And so instead of replacing it we’ve kinda just…not done that.
Now, there is good news so to speak. A lot of bright people have realized that they could at least lessen the pain of slow settlement by creating elaborate (really quite genius) sets of hacks and credit agreements that let trading/commerce flow pretty freely without anyone having to worry too much about settlement risks. (Going through the examples and how they work is eureka-porn, but outside our scope today.)
(I’m also deferring a larger discussion about crypto. But the short version is that lots of smart people are working to build a parallel system that’s faster and better, and it would be great if our professional explainers shed more light there. Because some of these startups are bad, and some will just become what they meant to replace, but some are the future, and it would be great if we provided folks with frameworks to understand the different dimensions and dynamics on which they should judge.)
Anyway, the upshot for our purposes here:
You can now transfer money from your bank account to Robinhood and then buy your first stock on said platform all in minutes!
But the actual flow of money in settlement terms is much slower. While clever credit systems make it so that Robinhood can be pretty sure that deposited funds will reach them, that still has to actually happen! And then those funds have to not be requested back. And this all takes a few days to fully clear.
When Robinhood initiates a trade on your behalf, they’re taking advantage of various credit agreements too, because actual stock settlement also takes days, leaving folks exposed to bad outcomes while that happens. Robinhood is thus required to offset some of this risk by putting up their own money as collateral. And the amounts here can vary wildly with the perceived risk of a given trade.
Because Robinhood is also allowing users to leverage their trades (i.e., borrow money from Robinhood to bet more than they actually deposited), Robinhood needs to both maintain a lot of capital (i.e., their own money) and hope that they don’t see a crazy expansion in borrowing requests from customers over any short amount of time (especially to finance trades that will require a lot of collateral!).
So we can see the broad strokes of what happened here:
A massive number (low millions) of new users joined Robinhood over the course of a few days, each wanting to be able to trade immediately (many using at least some borrowed money to lever their trades)
The corresponding inflows of cash came much slower, leaving Robinhood to use their own money for lots of things as they waited for those deposits to clear
Most of those customers wanted to make the same trades, which became more risky as folks piled in, thus requiring Robinhood to post more and more collateral
Robinhood tapped all their standing lines of credit, but just couldn’t raise enough cash to finance all the desired trades
(They raised $1bn USD on Thursday night, but that still won’t be enough to allow all the trades that users want in the very short-term)
But so far as this part goes, it’s not clear who the villain is here:
Robinhood had no obvious reason to believe that they’d need more than $600m in credit lines until the dominos were already falling at a rapid pace, nor can anyone easily build a brokerage platform designed for this kind of extreme use case
While Robinhood could have requested that the markets just close trading on the relevant stocks while they recapitalized (thus levelling the playing field), they had no real leverage to do so, and everyone else in the market would (fairly or not) have laughed and said “nah” as it wasn’t really their problem
Robinhood was/is only in this position because of (i) the settlement infrastructure being such an outdated relic, and (b) a mix of broad-strokes government / marketplace regulations that didn’t really envision how the rules might one day create points of unfairness for retail investors in such unusual circumstances
If we knew more about what Robinhood knew and when (about their capital position, the looming change in collateral requirements, how many users were onboarding, etc), maybe we could judge them more harshly for failing to request a capital infusion earlier. But there’s no question that they (and several other brokerages) were facing an unprecedented situation, and that sudden and massive capitalization isn’t something you can always do with a day of notice.
But of course, while that’s all pretty mitigating, now we have to get to the shitshow of how Robinhood actually explained themselves, and why it went so disastrously.
III. A Comms Case-Study
So we can imagine Robinhood on Wednesday night, realizing the direness of their deteriorating cash / capital position and knowing that new loans / cash infusions wouldn’t happen in time for Thursday’s market open, making the decision they felt they had to (i.e., temporarily restricting only the trades costing them the most cash). Ok, so it goes I guess. But then they went on to pass that message on to customers.
And, lol, they went with this (quoting the first two paragraphs):
Our mission at Robinhood is to democratize finance for all. We’re proud to have created a platform that has helped everyday people, from all backgrounds, shape their financial futures and invest for the long term.
We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AAL, $AMC, $BB, $BBBY, $CTRM, $EXPR, $GME, $KOSS, $NAKD, $NOK, $SNDL, $TR, and $TRVG. We also raised margin requirements for certain securities.
Two obvious things here:
This isn’t an explanation
When your decision effectively cuts people off from buying a stock that they believe will otherwise crash (thus costing them all their winnings), talking about how proud you are of your platform is maybe not the best tonal decision
(In fairness, the full post also linked out to this, which I suppose is an explanation. Just not an explanation to anything that anyone had a reason to care about at the time.)
Now, there are varying theories as to why Robinhood waited until like halfway through the day to actually offer something approaching substance (which went like this), but the most plausible to me are something like:
Brokerages don’t like saying things like “we’re having liquidity issues”, probably because it sounds a scary amount like “insolvency issues”
Legal teams are notorious for being the last read on corporate messaging, where they encourage you to say specific things that won’t get you in the wrong lawsuits (Robinhood is now in loads of lawsuits, but arguably the “right” ones in that none of them seem very likely to amount to anything)
Robinhood maybe didn’t anticipate the scale of blowback, else maybe thought that the standard Silicon Valley playbook of “say as little as possible and let it all blow over” was fine here, as the truth would come out in a way that wouldn’t cause panic, and then maybe people would just forget and not bother switching?
But they, uh, probably didn’t expect for sitting members of Congress (who wrote the rules that caused Robinhood to need so much capital!) to fill the explanatory vacuum with wild speculation and calls for the Attorney General to investigate:
Ash WSB Chairman @arshbajwaarobinhood decided this morning to suspend buying of AMC and GME stock because regular people were making too much money, proving once again that any time the poors find a way to get any sort of financial foothold in this world the billionaire class will move swiftly to crush them
But this is the risk you take when you decide that explaining yourself isn’t the right thing to do, when history has proven time and time that it almost always is.
(That explaining yourself poorly may be worse than a non-explanation is probably true, but not the most compelling argument really.)
Anyway, let’s move on to why this was all so poorly understood yesterday.
IV. The State of the Internet
Some folks did catch on pretty quickly to what was going on. See examples here, here, here, and here. (While some of the sane takes came from journalists, and some were informed by journalists, the best largely came from those with finance backgrounds.)
But if I had to pick the people from outside finance most likely to clue in quickly, I’d overwhelmingly pick tech folks hanging out on Clubhouse. (For those out of the know, it’s an app that supports audio hangouts that resemble panel discussions. Lots of rooms are dominated by people at the intersection of tech and finance.)
But there’s an asymmetric issue here. Note the last sentence below:
Put another way, if you’re in the right rooms on Clubhouse (which is still invite-only), you’re understanding the world (in terms of explanatory knowledge touching current events) at a faster clip than those around you. You get to listen to some of the best experts speaking about it candidly, and you then get explain to others (who will then get to explain a diluted and error-prone version to others yet). And that’s fun!
But if we step back, is this good? Is this how we want things to work? Should the average reader (or Robinhood investor) need find their way onto Clubhouse and into the right room, or need to follow the right people on Twitter or Reddit or Quora, or need to get invited into the right private group on Signal or Telepath or WhatsApp?
The OG concept of the internet is that information wants to be free, and that there’s a universal human good in useful explanations being as accessible as possible. But none of those apps do that as well as they want to (though to be clear they do lots of other things well). But so far as explanations go, either they’re private or discovery sucks or they struggle to prevent groupthink/conspiracies/bullshit from overwhelming the sort of commentary that good explanations can be fashioned from.
So how do we square this? Where’s the internet we need? The internet that takes the best commentary from those other places and makes something great from it?
Before we answer this though, an obvious category I haven’t mentioned yet.
Briefly, my sense is:
The best journalism is paywalled (where most of the rest isn’t worth paywalling, and isn’t compatible with producing useful explanations anyhow)
Thanks to legacy thinking from the days of print, journalism has married itself to the drip model where articles that reflect “what’s new” drop as close to the news being discovered as possible, and are then largely fixed in time forever
Their audience values speed above all else, and thus rewards publishers who publish at speeds often incompatible with good research
Their audience also values volume, and thus rewards publishers who assign stories to green graduates without much experience in the industries they cover
These articles are thus mostly middling first drafts (rushed, slanted, non-expert, low-context, etc.) that never get improved
As each article only covers what’s new (with some minimum viable recap), a reader has to consult lots of them to get a full sense of how a thing came to be
But because of the “published once and forever model”, none of this content has much in the way of feedback loops allowing it to either get better or avoid decay
While lots of talented individual writers try to fill this explanatory gap with blogs and vlogs and newsletters, those largely suffer from the same problems (most never get updated beyond correcting typos or egregious errors, most only give one angle of perspective, and most become quickly outdated)
If we agree that explanations are the scaffolding of human progress, it’s actually kind of insane to think that it’s 2021 and this is still our model for explaining current events!
(This also mostly true for explaining past events, as most textbooks have no/terrible feedback mechanisms, and thus their explanatory power also decays accordingly.)
But it doesn’t have to be this way.
V. There Must Be a Better Way!
I first started this newsletter because it seemed the best next step for creating the awareness that Trevor describes here. I’d been doing explainers on Quora for a few years in my spare time, and what I found time and time again as I got deep in the weeds was that the dominant media narratives were muddled and outdated and locked into wrong assumptions. It was a constant eureka / holy shit process.
So I thought maybe I’d do this newsletter, and maybe compile the most egregious / compelling examples into a short and careful book, and then maybe segue from there into an explanations-first content company that’s been my white whale for years.
But I think it’s time to move that up. I don’t want to limit myself to talking about what journalism explained wrong last week. I want to build something that let us house the most useful explanations of what’s happening right now (so as to head off mobs and keep the explanatory vacuum from being filled with various kinds of bullshit).
My pet name for this project is Eureka (or Explainapedia, which is more intuitive but also a lot of syllables).
How I see it working:
When a major story spins up (we’ll have a strong cutoff there to avoid the triviality trap), we’ll create and share a public permalink
A core team of writers and researchers and designers will be split into working on a few things at once: (i) rounding up background context, (ii) synthesizing the best insights from public and private sources, (iii) creating explanatory comics to add color and make things more accessible for visual learners
We’ll publish in segments as we go, at the speed of “what can we stand behind as a responsible first draft” (with a fixed checklist of considerations)
We’ll reward anyone whose work we link (and will always seek permission, or at least offer an opt-out)
We’ll scale my personal policy and reward anyone who has a correction or improvement suggestion, making sure the incentives are in the direction of attracting the best feedback (however critical)
We’ll then seek out experts (including contrarians) to poke holes and help us improve our steelman arguments
For major stories we’ll also have a standing room in Clubhouse where all can give feedback or ask questions, where said calls will then be recorded and uploaded (in question-specific segments) as a pseudo-podcast add-on
So basically Wikipedia (which I love), except 1,000x fewer articles, where each is 10x better on account of:
Being written by the best professional explainers
Being aided by quality explanatory comics (in the vein of XKCD, Wait But Why, The Oatmeal, etc)
Being the best possible mix of fast and good
Having an incentive loop to get people to add detail / correct us / give feedback who otherwise wouldn’t bother to
The team would then also create other explanatory content likely to be relevant as context for future news cycles, as well as content on civically useful subjects where the current explanatory market sucks. The key would just be radical scope control. We’d want to own a manageable number of articles that will always be the best possible resource on the subject. So a practical cap of maybe a few thousand articles total.
The best part is this doesn’t even have to be that expensive! With enough volunteers helping (in smart, organized ways) we can fundamentally reshape the explanatory power of the internet on a very modest budget. This is the kind of thing where a few sufficiently rich patrons who loved the OG internet could fund it out of pocket and get the sort of return that Carnegie got funding libraries for communities in need of light.
If that vision is interesting to you, I’d love to hear from you.