The Root of All Evil

This week, we ask whether anything can actually slow the AI buildout. Higher interest rates, rising energy costs, U.S.–China competition, and growing calls for regulation would normally look like meaningful constraints—yet investment keeps charging ahead.

We start with the strange macro backdrop and Bill Ackman’s argument that AI investment may be unusually insensitive to higher rates. Then we turn to the latest U.S.–China talks and the increasingly strategic role of AI before digging into recent AI misalignment disclosures and the debate over what regulation should actually look like.

Should policymakers slow development now, or first focus on better measurement, evaluation, liability, and engineering standards?

0:00 Rates Keep Rising — Why Is the Economy Still Strong?
1:14 Does AI Break the Fed’s Old Models?
6:18 The 10-Year Treasury Breaks Above 5%
10:19 AI Agents Are Starting to Go Off Script
15:34 Should AI Be Regulated?
18:59 Regulatory Capture, Liability & Big AI
24:10 Self-Regulation vs. Government Intervention
26:57 What Could Actually Go Wrong With AI?
30:01 Would China Really Catch Up If the U.S. Slowed Down?
31:59 Engineering AI Safety Instead of Stopping Progress

About the show:
Two finance professionals (and Alexis...) dig to the root of recent news topics to inform their opinion.
Details + Primary Sources = Good Basis for an Opinion.
Technical, Curious, Primary Sources, Independent.

Luke and Joe are two finance professionals who understand that, in order to combat manipulation and form an informed, individual position, details and primary sources are key. Alexis joined later. We focus on digging to the root of whatever financial scandal, debate, or news that happened in the past week, reviewing the source material with you, and then forming our own opinion. We do not claim to know everything, only that we are honest in our search for understanding. We try to have fun with it as well and don't take ourselves too seriously. We heartily invite you for the ride.

Find us:
Substack - https://rootallevilpod.substack.com/?...
X - https://x.com/Root_All_Evil
Spotify - https://open.spotify.com/show/6B6vqZE...
Apple Podcasts - https://podcasts.apple.com/us/podcast...
YouTube - / @rootallevilpodcast


Music:
With Plenty Of Money And You (Remastered) - Tony Bennett, The Count Basie Orchestra
Flashing Lights (Outro)

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.
DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.
DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

Luke, Joe and Lexi talk about how central bankers around the world went hiking this week, the demise of the CLARITY Act (for now), some drama in the FICO / VantageScore world, and Michelle Bowman and the Federal Reserve are fighting for the little guy in some new regulatory guidance on Third Party Risk Management.

Timestamps:

00:00 - The Lavish Buffet of Financial News this week

04:35 - Financial Housekeeping: 25bps Rate Hike around the World

Topic 1: The Failure of the Clarity Act

08:22 - We're Triggering YouTube's Filter, Screw it

09:05 - CLARITY Context: Original Intentions

10:48 - CLARITY 1: Digital Asset = Security or Commodity?

12:24 - Now The Senate Adds Stuff

13:54 - What Killed CLARITY?

16:39 - Ethics can Kill

17:49 - "I think you're being manipulated"

22:23 - It's all about power

Topic 2: The FICO, VantageScore Fight

26:21 - Lexi's FICO Score

28:44 - The Credit Bureau / FICO Business Model

30:42 - Monopoly FICO Raised Prices!

32:37 - Credit Bureaus Strike Back!

33:01 - Government helps the people! Er, the banks!

36:08 - VantageScore v FICO Score

Topic 3: Federal Reserve Protects Community Banks

37:37 - Who is Michelle Bowman

38:34 - The Fed "doesn't usually do this"

39:35 - The Killer Sentence

40:28 - Bowman always standing up for the little guy

Google Doc Show Notes:

https://docs.google.com/document/d/1yu2zyYL5RQKLDs8mXLEayPHTtOIe5QNlvO9GBD8Rn88/edit?usp=sharing

About the show:

Two finance professionals (and Alexis...) dig to the root of recent news topics to inform their opinion.

Details + Primary Sources = Good Basis for an Opinion.

Technical, Curious, Primary Sources, Independent.

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.

DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.

DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

“I have asymmetric information. I am the house now.”

Scott Bessent’s challenge to traders sets up this week’s question: how far can Washington actually bend markets to its will?

Joe and Luke unpack the yen’s rally, Treasury buybacks, rising bond yields, and the pressure from oil and inflation. Is the market mispricing the fundamentals—or simply delivering an answer policymakers don’t like? We also debate what it really means to use the U.S. balance sheet as a foreign-policy tool.

Then we turn to AI agents, claims of major mathematical breakthroughs, and Joe’s experience building Moonwake Grove without a background in game development. If machines can accelerate intellectual work so dramatically, what still stands between those advances and faster economic growth?

Plus: China, the South China Sea, and a diplomatic confrontation sparked by a handwritten note.

A small twist: we discuss wishing AI could edit the podcast for us. After recording, we actually put it to work in Riverside—with our own review and final cuts.

About the show:
Two finance professionals dig to the root of recent news topics to inform their opinion.
Details + Primary Sources = Good Basis for an Opinion.
Technical, Curious, Primary Sources, Independent.

Luke and Joe are two finance professionals who understand that, in order to combat manipulation and form an informed, individual position, details and primary sources are key. As such, we focus on digging to the root of whatever financial scandal, debate, or news that happened in the past week, reviewing the source material with you, and then forming our own opinion. We do not claim to know everything, only that we are honest in our search for understanding. We try to have fun with it as well and don't take ourselves too seriously. We heartily invite you for the ride.

Find us:
X - https://x.com/Root_All_Evil
Spotify - https://open.spotify.com/show/6B6vqZE...
Apple Podcasts - https://podcasts.apple.com/us/podcast...
YouTube - / @rootallevilpodcast

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.
DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.
DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

Luke and Joe talk China this week as they are buying up gold, got isolated at the G20, and economists continue to question what the "real" exchange rate should be. Luke also gives a prediction in regards to the Federal Reserve's little known third mandate.

Time Stamps

Topic 1: China's Buying Gold

00:00 - Luke apologizes for being dumb

00:40 - Central Banks moving away from the dollar?

01:45 - Why the RMB will never be backed by gold

04:45 - So why ARE they buying gold? A few theories

06:45 - Introducing, the "Gold Road"

08:04 - Gameshow: Funny Bond Names

11:02 - A Gold-RMB Financial Infrastructure

12:02 - "Why not just exchange for dollars?" Because...sanctions

Topic 2: Scotty B Isolates China at the G20

12:54 - The G20 Drama, a Footnote!

14:06 - China objection #1, PP 4

16:36 - China objection #2, PP 10

17:23 - China objection #3, PP 11

19:04 - China objection #4, PP 13

20:53 - China looking isolated

Topic 2.5: China's Real Exchange Rate

21:45 - What the China exchange rate SHOULD be.

23:24 - Explaining the PPP or "Big Mac Index"

Others

24:22 - Scotty B's Feisty Letter

24:57 - China's Financial Report - How the PBOC conducts monetary policy

26:22 - Fed's Tri Mandate, Proud Moment, & Prediction

Show Notes:

https://docs.google.com/document/d/1KjYBiuoXlywznttzFmNs035Iuxl_y1dMa43ATSfEdQ0/edit?usp=sharing

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.

DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.

DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

Kevin Warsh used his first Jackson Hole speech as Fed chair to lay out a different philosophy for monetary policy: less forward guidance, fewer promises about the path of rates, and more reliance on markets to reveal information.

But at almost the same time, Treasury Secretary Scott Bessent has been taking increasingly active steps in the bond market as long-term yields remain volatile. So who really controls interest rates — the Fed, Treasury, or the market itself?

We break down Warsh’s “hall of mirrors” problem, the possibility of a “Bessent put,” Treasury buybacks and the yield curve, before widening the conversation to the collapsing U.S.-Canada trade relationship, Operation Economic Outcast against Iran, secondary sanctions, China, and the limits of American economic power.

0:00 A Crazy Week in August
2:17 Warsh’s First Jackson Hole as Fed Chair
6:54 The Fed’s “Hall of Mirrors” Problem
9:24 Forward Guidance and a Quieter Fed
14:02 Warsh’s Principles; and the Market Reaction
19:20 What Do We Mean by “Interest Rates”?
22:54 Fed vs. Treasury: The Bessent Put
24:43 Treasury Buybacks and the Long End
28:43 The US-Canada Trade War Returns
39:47 “Operation Economic Outcast” and Iran
42:00 China, Iranian Oil and Secondary Sanctions
46:27 Dollar Dominance and Its Limits
49:18 Could China Return to a Gold Standard?
51:09 China’s Long-Term Economic Outlook
55:04 Closing Thoughts

About the show:
"Making Finance News Accessible and Fun to Normies"
Details, Primary Sources, Explainers

Find us:
X - https://x.com/Root_All_Evil
Spotify - https://open.spotify.com/show/6B6vqZE...
Apple Podcasts - https://podcasts.apple.com/us/podcast...
YouTube - / @rootallevilpodcast

Music:
With Plenty Of Money And You (Remastered) - Tony Bennett, The Count Basie Orchestra

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.
DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.
DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

This week, Alexis joins us again for a discussion about a new class of securities: the Compute Backed Security, or CBS. This is a project set up by NVIDIA to, at the end, increase the demand for his product by increasing the financing available to them.

But what are the underlying economics of hyperscalers, and what risks are they most sensitive to? Luke presents a simple model to help answer that.

The team then discuss how the US is living paycheck-to-paycheck, and the bank is charging them more each week!

Finally, a new segment detailing what other events the team is looking forward to seeing unfold.

Time Stamps

Topic 1: Compute Backed Securities

00:00 - Where MBS comes from: Birds and Bees

01:56 - Introducing the Compute Backed Security (CBS)

02:49 - The AI Compute Factory Financing Model

05:55 - The Risks Facing the Financier - A Sensitivity Analysis

08:11 - Risk Profiles, How CBS and MBS will differ fundamentally

09:17 - A Dirty Secret of Model Builders

12:01 - New Financial Infrastructure for the AI-buildout - Compute Futures

15:38 - Main Question: Will the Demand For Compute Materialize?

17:37 - Cat Interruption

17:58 - The Reason NVIDIA dominates: economics, not compute

19:34 - Does Joe Finance Lexi Poo Compute Holdings?

Topic 2: Treasury Yields Higher than Snoop

20:36 - State of the Market: The US Lives Paycheck to Paycheck. Lexi is Scared

23:13 - Scotty B's Latest Market Intervention & Debt Management

26:15 - A new debt number and Joe's Chemistry Class

Looking Ahead

26:54 - Watch Out: September 18

28:00 - Watch Out: Treasury v Fed, two conflicting market philosophies

31:29 - Bessent "got a little diva in him"

32:49: Watch Out: More New Banks & CLARITY

About the show:

"Making Finance News Accessible and Fun to Normies"

Details, Primary Sources, Explainers

Show Notes:

https://docs.google.com/document/d/1561g7wWzhVwFFUyBM-oSkV7n9bzeLwT6ARxWgsaidso/edit?usp=sharing

Financing Model:

https://docs.google.com/spreadsheets/d/1uKoUUSfJPeuTq7HscOnAj4HGA4-mIEwC/edit?usp=sharing&ouid=107861613904606850397&rtpof=true&sd=true

Music:

With Plenty Of Money And You (Remastered) - Tony Bennett, The Count Basie Orchestra

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.

DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.

DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

This week we look at the weakening yen, rising U.S. Treasury yields, and the limits of how much policymakers can really control market outcomes. We also revisit my AI evaluation project after scaling it to thousands of runs, then connect that work to recent examples of unexpected agent behavior—including the Hugging Face incident and the role of persistent agent loops.

How much control do we really have over markets, models, or the systems we build around them?

Sources:
Daily Treasury yields: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=202608
US debt to the penny: https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny
Open AI agent incident: https://openai.com/index/hugging-face-model-evaluation-security-incident/
Huggingface analysis of incident: https://huggingface.co/blog/agent-intrusion-technical-timeline

About the show:
Two finance professionals dig to the root of recent news topics to inform their opinion.
Details + Primary Sources = Good Basis for an Opinion.
Technical, Curious, Primary Sources, Independent.

Luke and Joe are two finance professionals who understand that, in order to combat manipulation and form an informed, individual position, details and primary sources are key. As such, we focus on digging to the root of whatever financial scandal, debate, or news that happened in the past week, reviewing the source material with you, and then forming our own opinion. We do not claim to know everything, only that we are honest in our search for understanding. We try to have fun with it as well and don't take ourselves too seriously. We heartily invite you for the ride.

Find us:
X - https://x.com/Root_All_Evil
YouTube - / @rootallevilpodcast

Music:
With Plenty Of Money And You (Remastered) - Tony Bennett, The Count Basie Orchestra

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.
DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.
DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

The conversation begins with an introduction and preparation for the AI model demo. The hosts discuss the AI model, its purpose, and its potential impact on productivity and automation. They explore the data processing and automation involved, the output and analysis of the AI model, and the workflow and repair plan for the model's narrative generation. The conversation delves into the use of AI models for data analysis, including model selection, running the model, interpreting AI-generated narratives, and understanding error and audit failure. It also explores the concept of interpretability in AI models, token probabilities, and the future state of AI research.

Takeaways

• AI model's impact on productivity and automation
• Data processing and automation for AI model
• Workflow and repair plan for AI model's narrative generation AI model selection is crucial for data analysis
• Interpretability and token probabilities play a significant role in AI model research

Chapters

• 00:00 Introduction and Preparation
• 01:19 Understanding the AI Model
• 03:03 Productivity and Automation
• 04:02 Data Processing and Automation
• 05:10 AI Model Output and Analysis
• 36:08 Workflow and Repair Plan
• 40:00 Introduction to AI Models
• 40:34 AI Model Selection
• 41:01 Running the AI Model
• 41:27 AI-Generated Narrative
• 43:04 Error and Audit Failure
• 45:17 Interpreting AI Output
• 46:32 AI Model Prompting and Interpretability
• 01:01:04 Token Probabilities and Model Parameters
• 01:09:38 Future State of AI Research

Luke, someone who doesn't follow soccer / futbol, watched the second half of the World Cup. His takeaway: Argentina is a dirty team. He discusses how he formed his opinion on that one.

We discuss bank's earning season, and how banks absolutely crushed it. Joe says that volatility is back, which is good for those market makers in banks. Luke has a different take: with the AI buildout, lots of companies are drawing down future wealth into the present. Banks take a cut of all that intertemporal movement.

Finally, the focus of the episode, Luke runs Joe through the new tariffs on Brazil and Canada and, in particular, tries to tease out a distinction between the JUSTIFICATION (i.e., the nice-sounding false reason used to sell the act) and the REASON (i.e., the real, true reason for doing it). Basically, it's all politics and power first, economics second.

00:00 - "Yo, Argentina is a dirty team."

04:48 - Banks Crushed it in Earning Season (and Google Counterpoint)

08:57 - Punitive Tariffs, Supreme Court, and Other Options

11:53 - Cause v. Effect; Justification v. (the real) Reasons

13:07 - Why just Canada and Brazil? Trade Deficit?

13:40 - Tariffs on Brazil Justifications

14:12 - 1) Brazil just has a better payments system, and the US credit card companies are upset

18:35 - 2) An FU to Brazil

19:30 - An FU to Canada, too. Justification v Reason

Sources & Notes:

https://docs.google.com/document/d/1yT3qVlyVigMe-WtQ2yGyUh-6kyeBA9z4WNYUpDvYhU0/edit?usp=sharing

About the show:

Two finance professionals dig to the root of recent news topics to inform their own opinion.

Details + Primary Sources = Basis for an Opinion.

Technical, Curious, Primary Sources, Independent.

Luke and Joe are two finance professionals who understand that, in order to combat manipulation and form an informed, individual position, details and primary sources are key. As such, we focus on digging to the root of whatever financial scandal, debate, or news that happened in the past week, reviewing the source material with you, and then forming our own opinion. We do not claim to know everything, only that we are honest in our search for understanding. We try to have fun with it as well and don't take ourselves too seriously. We heartily invite you for the ride.

On the Cowbell: Google has an extremely broad definition of "Campaign Ad." And if the AI reviewers designate a video as a "campaign ad," then it won't let you do certain things, like promote the video. We are taking steps to make sure that, even under this outrageously wide definition, that we aren't labelled one. Because we are not.

Music:

With Plenty Of Money And You (Remastered) - Tony Bennett, The Count Basie Orchestra

DISCLAIMER 1: Views presented in this podcast are those of the hosts only; they do not necessarily represent the views of current or former employers.

DISCLAIMER 2: The content presented here is for informational (and hopefully, entertainment) purposes only. The content should not be considered financial advice.

DISCLAIMER 3: We are not lawyers. Do not interpret any of what we say here as legal advice. If you have a legal problem, consult a professional lawyer for goodness sake.

DISCLAIMER 4: This is NOT a campaign ad.

We're back! Joe is back from his trip to Japan and has nothing to say about it.

We decry all the great topics we had to miss over the month before we dig to the root of today's topic, the California Election System.

Spurred by what happened to Pratt during the LA Mayoral primaries, plus the discussion on the All-In Podcast (David Friedberg and David Sachs), Luke spent way too much of his time trying to form his own opinion on the integrity of the California electoral system. He does this by steelman-ing arguments from those who would defend the system, and then testing each one.

The main arguements (Luke calls them "pillars") for why the California election system is sound are (a) fraud has never won an election, (b) there is no evidence of scale, (c) there are effective controls in place, and (d) there have been audits, lawsuits, and observation laws, but nothing found.

Some are better than others, sure. At the end, Luke gives his newly-formed, and still maluable, opinion...

Enjoy!

Timestamps:

00:00 - All the Stuff we couldn't cover

01:56 - LA Primary Results and All-In Podcast Response

05:03 - Summarizing David Friedberg's Argument ("There is no election")

07:45 - Why do mail-in-votes favor Dems so heavily? (We really don't know)

08:47 - Luke's Snarky Friend's Response to Friedberg

09:55 - Summarizing David Sachs Argument ("There is Fraud")

10:59 - Luke's Snarky Friend's Response to Sachs & She is right!

14:27 - The 4 Pillars against Sachs and Friedberg

16:20 - Testing Pillar 1) Fraud never won an election

19:55 - Testing Pillar 2) No evidence of scale

24:26 - Testing Pillar 3) Effective controls are in place

30:17 - Testing Pillar 4) Audits, Lawsuits, Observation Laws

35:51 - How to measure the extent of the fraud, but no one will look

36:01 - Voter Rolls, A Legal Ballot Harvest Scheme

About the show:

Two finance professionals dig to the root of recent news topics. Details + Primary Sources = Basis for an Opinion.

Technical, Curious, Primary Sources, Independent.

Luke and Joe are two finance professionals who understand that, in order to combat manipulation and form an informed, individual position, details and primary sources are key. As such, we focus on digging to the root of whatever financial scandal, debate, or news that happened in the past week, reviewing the source material with you, and then forming our own opinion. We do not claim to know everything, only that we are honest in our search for understanding. We try to have fun with it as well and don't take ourselves too seriously. We heartily invite you for the ride.