Big Tech like Big Banks

As in “too big to (not spectacularly) fail”. Eventually.

Big Tech like Big Banks /img/too-big-to-fail-banks.jpg

In every major economic downturn in US history, the ‘villains’ have been the ‘heroes’ during the preceding boom, said Peter Drucker.

A recent book excerpt makes a convincing point that Big Tech firms are the Big Banks of today, and may end up in the same way. Here are the main points.

Apple and Amazon? A black hole, and instant delivery of sub-prime mortages

Apple is now “an investment fund attached to an innovation machine and so a black hole for aggregate demand”.

Amazon dynamic pricing is quite similar to some pre-2008 lending practices: variable rate sub-prime mortgage loans which, just like Amazon, exploited huge information asymmetries.

Too complex to understand themselves

Big tech and big banks are also similar in that both do not fully understand, before they may even care, the far-reaching effects of their operation. Zuckerberg not realizing what Facebook’s engagement algorithms would lead to sits close to bank executives who had no full understanding of where they could end up, until the 2008 meltdown.

So much money, that the only way to handle it is to become as dangerous as a bank

In the search for both higher returns and for something to do with all their money, firms as Apple or Google have been, in a way, acting like banks: issuing their own cheap debt and using it to buy up the higher-yielding corporate debt of other firms.

The largest and most intellectual-property-rich 10% of companies - Apple, Microsoft, Cisco, Oracle and Alphabet among them - controlled 80% of $1tn in corporate savings parked in offshore accounts.

Most of that money was held not in cash but in bonds - half of it in corporate bonds: a giant portfolio owned not by banks or mutual funds, but by the world’s biggest technology firms.

Peak finance 2.0: on digital steroids, but even more unleashed

That portfolio is why the Big Tech of today also represents the apex of the shift toward financialisation. While being not regulated like banks.

Even here, Big Tech sends the same message that Wall Street and the financial sectors did until 2008, just bigger: “what is good for us is good for the whole economy. No, for all of humankind, democracy, human rights etc”.

Regulation? That would be tyrannical or even authoritarian, by definition.

So, if Big Tech ends up like Big Banks in 2008, at least we already know why.

Image source: Getty, via “The banks that, sadly, can’t die”