“The dirty little secret of what used to be known as Wall Street securities firms – Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns – was that every one of them funded their business in this way to varying degrees, and every one of them was always just twenty-four hours away from a funding crisis. The key to day-to-day survival was the skill with which Wall Street executives managed their firms' ongoing reputation in the marketplace.” – William D. Cohan
Despite countless examples throughout history, the speed with which confidence in seemingly powerful entities can collapse never ceases to surprise. One sleepy Monday morning you are taking the subway to your office at Lehman Brothers, thinking through the mundane details of your meeting schedule and interactions with your boss, and by the next Monday your company is filing for bankruptcy protection in court while you are walking out of the building with a box of your personal belongings.
The psychology of bank runs – a phrase we’ll use here as a catchall for crises of confidence – is fascinating. Intuitively, I think of them as a mix of chaos theory and game theory – chaos theory because they have all the classic signs of non-linear systems that are sensitively dependent on initial conditions, and game theory because each actor in the drama is running a complex internal dialogue to simultaneously determine what they should do versus what they expect the crowd to do in order to optimize for their own particular outcome. It is exactly this interaction between locally-optimizing individuals and the crowd of similar players that is the source of non-linearity in the system. If you haven’t read Chaos by James Gleick or Theory of Games and Economic Behavior by John von Neumann and Oskar Morgenstern, I suggest you do so.
The phenomenon of bank runs isn’t limited to banks, of course. The same dramatic arc plays out in all manner of societal dramas. Take political scandals, as an example. An otherwise popular and powerful governor facing a potentially career-ending scandal is susceptible to the same forces. If few supporters defect, the governor stands a good chance of waiting it out. But the path from two or three key supporters jumping ship to a devastating political death spiral is astonishingly short, as many a bewildered former public servant can attest.
Which brings us to the topic of this brief Doomberg piece: the total and tragic collapse of the US presence in Afghanistan, and some particularly doomy potential consequences that I see coming in the future. The speed and manner with which the Taliban reclaimed control over much of the country had all the hallmarks of a bank run. In this case, the 300,000-member local Afghan army, ostensibly created, armed, and trained by the most powerful military on earth to fend off a Taliban force estimated to have only 75,000 fighters, turned out to be a collection of 300,000 locally-optimizing individuals keeping a keen eye on the various crowds and their intentions. I’m quite certain that the abandonment of Bagram Air Base by the US military was the butterfly that flapped its wings, causing the hurricane that followed. How many key members of the Afghan army balked after witnessing that? Enough to catalyze what happened next, I suspect.
The real danger here is the coinciding bank run on Joe Biden’s leadership and what it means for the world. One has to be a deep and blind partisan to not see what a disastrous week it has been for the President of the United States. From his unforgivably bad press statement on Monday (at which he took no questions), to the bizarre 20-odd minute speech yesterday about vaccine boosters and masks in schools that completely ignored the giant elephant in the room, to the cringe-worthy interview with George Stephanopoulos during which the President angrily declared that two days ago was actually four day ago (or five days ago, as though it matters whatsoever), President Biden emptied his own bank. If he tried to have a worse week, it’s hard to imagine what he could have done differently.
To be perfectly clear, I wrote the previous paragraph with deep sadness and zero partisanship. The facts are the facts and they need to be confronted. The President of the United States is a deeply wounded political entity – perhaps fatally so, at least on the international stage – and yet he still has more than three years left on his term. This is an extremely dangerous situation for the current global order. Coming off the chaos of the last four years, the world was yearning for a return to reliability. They are getting anything but.
What ally is going to trust the assurances of the US now? What enemy doesn’t properly sense weakness? What if several enemies collaborate to simultaneously lunge for whatever they’ve been resisting to grab for years or decades, daring the US to respond? If you think the enemies of the US aren’t war-gaming their options and aspiring to locally optimize given the shocking developments of this week, prepare to be surprised.
Oh, and 3,170 miles? That’s the distance from Kabul to Taipei.
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