The Week: Evergrande, computer file systems, and Facebook's blitz

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Hello and welcome to this week’s free edition of The Terminal. And a hearty “Wilkommen!” to the three Germans who inexplicably subscribed to this newsletter over the past few days. Here’s what I’ve published in the last week:

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Evergrande bargain

The last week has been dominated by conversations about Evergrande, the second largest property developer in China, which is currently undergoing a serious liquidity crunch, with hundreds of billions of dollars in liabilities. I thought it’d be worth digging into this in reasonably simple terms for people who don’t follow this stuff too closely.

China’s residential and commercial property sectors, taken together, make up almost thirty percent of its GDP, which is a lot. It’s been a very significant driver of the country’s meteoric economic growth, and there’s now enough empty property to house 90 million people.

The company’s biggest property companies, including Evergrande, are all significantly indebted and leveraged to the gills. Companies would aggressively borrow money to buy up some land, build foundations, collect some deposits, hire some workers to build the properties, and then eventually start getting mortgage payments to start paying back those initial loans and the suppliers and contractors. They need to keep building and building and offering discounts to keep the wheel spinning. All the while, companies are hoping the land their money is tied up in appreciates in value. It’s a model that demands constant explosive growth to be viable. Because when the party stops, you have to pay up — to your creditors, to your investors, to the people who bought houses and are now expecting them to be built.

That last group is key because, as in many places in the world, property is where the Chinese middle class has their wealth tied up. Everybody involved wants to see that land value go up. Capital Economics says about $200 billion of Evergrande’s current debt is actually 1.6 million unfinished properties, which the purchasers are expecting to be built. Those people are quite angry now, and staging protests outside Evergrande offices across China.

Pause a moment to savour the soundtrack to this video:

Evergrande, an undeniably weird company which has at times also had an electric vehicle business, a bottled water business, a prospective theme park arm and a pro football team, is experiencing the proverbial end of the party. It doesn’t help that the Chinese government no longer sees an explosive property market as conducive to ‘common prosperity’ and is looking for new avenues of growth. (The state introduced a “three red lines” policy last year intended to encourage property giants to cut down on their debt. Evergrande has broken through all three lines.) It also doesn’t help, systemically, that China’s local governments have for some time balanced their books with land sales to property developers like Evergrande.

There’s a 2017 interview with investor and researcher Anne Stevenson-Yang widely circulating this week which pointed to the inherent problems of the market, which is worth a read:

There is probably no company that is more representative of the investment bubble than Evergrande. It’s the biggest pyramid scheme the world has yet seen. Evergrande is highly leveraged and has like 270 projects all over the country. I have been easily to 40 of them yet I have only seen one that was fully occupied. Many of these projects are megalomaniac visions and totally empty. Yet you go to these places and you see their sales room filled with young buyers. When I open my eyes I see crumbling stone and empty jungles or deserts. What they see is a future with wealthy Europeanized people strolling on modern paths. It’s just amazing. It’s a mass illusion and Evergrande more than any of these developers plays to this illusion by building developments that are specifically positioned for the investor, not to live there but to buy for some future appreciation in price.

Anyway, the big question now is the extent to which this is going to spill over into broader problems for the world’s economy, given a good part of the world’s financial system is tied up in Asian markets and big investment firms like Blackrock hold Evergrande bonds. It’s likely the Chinese government will act in some significant way to contain the fallout and keep the company solvent to some extent, while trying to avoid signalling to other big property companies that full bailouts are on the table. Scott Morrison is out this morning signalling for calm and that it’s all relatively contained, which may or may not calm you.

This went on a bit long for a section of this newsletter, but hopefully it was helpful. A bit more technical, but this is an interesting thread.

Files and folders

There’s a great feature in The Verge about the fact that young people raised in the current mobile and search-driven technology ecosystem are far less familiar with the classic model of computer storage (i.e. the one where you have ‘files’ that you put in ‘folders’):

More broadly, directory structure connotes physical placement — the idea that a file stored on a computer is located somewhere on that computer, in a specific and discrete location. That’s a concept that’s always felt obvious to Garland but seems completely alien to her students. “I tend to think an item lives in a particular folder. It lives in one place, and I have to go to that folder to find it,” Garland says. “They see it like one bucket, and everything’s in the bucket.”

That tracks with how Joshua Drossman, a senior at Princeton, has understood computer systems for as long as he can remember. “The most intuitive thing would be the laundry basket where you have everything kind of together, and you’re just kind of pulling out what you need at any given time,” he says, attempting to describe his mental model.

It’s worth remembering that this didn’t happen by accident. Tech companies like Apple and Google have deliberately encouraged an environment in consumer tech which occludes messy file structures in favour of various metadata-driven systems that cleanly present you with whatever you might need in a given context. We live in beautiful app palaces where you can’t see the pipes and copper wiring inside the walls.

It tracks with something I’ve been thinking about for a while, which is that despite the current generation being dubbed digital natives they are probably in the aggregate less ‘good with computers’ than the average elder millennial who had to contend with an array of (yes, often maddening) barriers to completing normal tasks.

This isn’t a “back in my day!” kind of complaint, it’s just indicative of how the industry continually works to file off the rough edges of digital experience. Okay, maybe it’s a bit of that kind of complaint.


There’s been plenty of bad press about Facebook recently. That has culminated in something called Project Amplify, the New York Times reports:

Mark Zuckerberg, Facebook’s chief executive, signed off last month on a new initiative code-named Project Amplify.

The effort, which was hatched at an internal meeting in January, had a specific purpose: to use Facebook’s News Feed, the site’s most important digital real estate, to show people positive stories about the social network.
The idea was that pushing pro-Facebook news items — some of them written by the company — would improve its image in the eyes of its users, three people with knowledge of the effort said.

But the move was sensitive because Facebook had not previously positioned the News Feed as a place where it burnished its own reputation. Several executives at the meeting were shocked by the proposal, one attendee said.

The Markup also reported that Facebook rolled out a News Feed update which blocked automated data collection of posts, which will be a thorn in the side of watchdogs trying to research the platform. (Facebook denied this was the reason it did this.)

I have no illusions that Facebook hasn’t used its News Feed in underhanded ways in the past, but this is certainly a development. As the NYT reports, Amplify is only deployed in a few cities and it is unclear whether it will continue. But hell: if Facebook more or less acts like a nation-state, why not have an internal FBI or CIA tackling the problems of citizen dissent?

Good tweet

This week’s reading

  • Some Catholic monks from the Rhône region in southern France were charged with setting fire to 5G antennas, which they said were "harmful to people's health".

  • Interesting bit on how one should approach the coming disruptions in tech and their effect on society. This quote kind of captures how I feel most of the time: “Some days I feel like the holy trinity of NFTs, DAOs, and DeFi might replace the very foundation that society rests on. Other days it feels like 90% vaporware and Ponzi schemes that collectively emit more CO2 than a medium-sized country."

  • This NYT story — “What If Covid Were 10 Times Deadlier?” – copped a bit of heat online, but I think it’s an interesting question. As it stands, Covid is right in a politically uncomfortable zone where its really pretty deadly and transmissible as far as respiratory viruses go, but at the same time invisible enough on a population-wide level that it can generate a significant political constituency who can treat it as not that big a deal.

  • To the point I’ve been making about negotiations between the crypto world and existing regimes: US Homeland Security has signed a $1.36 million contract with Coinbase to provide blockchain analytics software to Immigrations and Customs Enforcement (ICE).

  • Twitter is turning on the ability to ask for tips in Bitcoin through its app, and will also implement some way to authenticate NFTs. You might have seen an army of accounts with little cartoon NFT avatars — those users will often include a wallet address in their handle so someone can check they actually ‘own’ their avatar. Twitter wants to make that native.

  • From Bloomberg on NFTs: “Most assets sold on OpenSea in the last 90 days haven't seen another deal since.”

  • One last NFT bit, from the New York Times:

But there’s one way that NFTs are profoundly different from the last generation of online disrupters. In terms of ownership, they actually move in the opposite direction of projects like Napster, BitTorrent and the software communities that destabilized the entertainment industry. Those were about reproducing data and sharing it for free, or eventually, a subscription fee. NFTs are about taking what should be a fully shareable image and sticking a SOLD sign on it.