The Furious Five (June 27):Adobe/Meta AI Moves, Netflix's Anti-Sharing Economy, and the Titan Tragedy

Adobe Dominates (link)

Adobe's Financial Triumph Fueled by AI Innovation

Adobe's focus on AI has been credited for the company's recent financial successes. For example, the company is leveraging AI innovations across its product suite, notably Firefly, an AI tool for generating images. This focus on AI has contributed to Adobe's robust financial performance, with the company surpassing Wall Street expectations for the quarter ended June 2, posting revenues of $4.82 billion and adjusted profits of $3.91 per share. Adobe's shares rose over 5% in aftermarket trading following the announcement. This bullish outlook extends to future performance, with Adobe forecasting its current-quarter revenue to be in the range of $4.83 to $4.87 billion, and raising its FY 2023 revenue forecast to between $19.25 billion and $19.35 billion. The company's stock has seen a significant 40% increase since May, driven in part by investor optimism around Adobe's AI strategy. However, some analysts warn of potential overvaluation due to the hype around AI. Despite this, Adobe's management remains optimistic about the future of AI in enhancing their product accessibility and customer productivity. (Source: Reuters, Seeking Alpha)

Outmaneuvering the Competition: Meta’s Open-Source AI Gambit

Tech giant Meta is reportedly planning to offer a commercial license for its forthcoming open-source large language model (LLM), according to an exclusive from The Information. If true, this marks a major shift in approach, as most currently commercially used language models, such as Google's Bard and OpenAI's ChatGPT, are closed-source. This innovative move could potentially lead to broader adoption by companies seeking a more flexible and cost-effective AI solution. However, it's worth noting that this development hasn't been widely reported or confirmed by Meta, so caution is advised until further information is available. (Source: Artisana)

Trustworthy AI: NAIAC's Strategy for Harnessing AI Benefits and Mitigating Risks + NIST AI Risk Framework

The National Artificial Intelligence Advisory Committee (NAIAC) has submitted its inaugural report to the President, outlining strategies for the U.S. government to harness the benefits of AI technology while mitigating its potential risks. The report emphasizes the need for trustworthy AI, new R&D initiatives, international collaboration, and workforce support. Future focus areas for NAIAC include rapidly evolving AI sectors like generative AI. The committee is also set to reassess its working groups to more effectively study the influence of AI on various societal facets such as workforce, equity, and societal norms. Deputy Secretary of Commerce Don Graves highlighted the critical juncture the country is at regarding AI development and the necessity of balancing innovation with risk management. The Biden-Harris administration has emphasized responsible American innovation in AI to safeguard people's rights and safety. The committee's future endeavors will consider mechanisms to keep pace with the swift development and deployment of AI technology. The report also references this AI-Risk framework published by NIST. (Source: NIST)

Netflix Gains On its Anti-Sharing Strategy

Netflix's is benefitting remarkably from the shift towards an 'anti-sharing' economy. During a recent period, the streaming giant experienced a significant surge in new sign-ups, averaging 73,000 daily—a 102 percent increase compared to their previous 60-day average. Remarkably, Netflix added 100,000 subscribers each on May 26th and May 27th. At the same time, Netflix's recent policy change limiting password sharing outside individual households is significantly altering dynamics among families and friends who previously relied on shared subscriptions. While this strategy has boosted the company's sign-ups and revenues, it raises questions about the social and relationship impacts of such business decisions. This shift towards an 'anti-sharing' economy is causing what some users describe as 'breakup talks', disrupting established patterns of digital sharing and challenging relational norms. Although this move is aligned with Netflix's commercial goals, it sparks a discussion about the role companies should play in shaping societal behaviors and norms, highlighting the need for an ESG (Environmental, Social, and Governance) perspective in policy decisions. As we see companies making choices that prioritize economic gain over social dynamics, it's essential to consider the broader implications and the role business should play in fostering or disrupting social connections. (Source: TheVerge, WSJ)

Titan Disaster: A Governance, Risk, Compliance Tragedy

OceanGate's Titan submersible incident has starkly underscored the importance of rigorous internal controls, adherence to governance risk, and compliance for businesses. Despite the repeated warnings about Titan's safety by a prominent deep sea exploration expert, the company's CEO, Stockton Rush, overlooked these critical insights in his pursuit of innovation and market dominance. The tragic consequences were not only fatal to him and four other passengers but also posed severe risks to the broader industry. Critics argue that these calamities were preventable had OceanGate prioritized safety certification and independent validation before operating commercially. Rush's dismissal of such safety precautions—viewing them as barriers to innovation—reflects a dangerous misapprehension that can jeopardize both human life and the reputation of an industry. In the wake of this tragedy, the importance of sound internal controls, risk management, and compliance with accepted standards is clearer than ever. (source: BBC)

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own. 

The Furious Five for June 20: AI, Tech, and Business Stories You May Have Missed

Redditor Robots Rioting

McKinsey's Take on the Trillion-Dollar Potential of Generative AI

Generative AI's potential to significantly boost global economic value could add between $2.6 trillion and $4.4 trillion annually across diverse use cases, enhancing AI's overall impact by 15-40%. This technology can automate up to 70% of current work activities and may advance the timeline for automation of half of today's tasks to between 2030 and 2060. Further, it could stimulate labour productivity growth between 0.1% to 0.6% per annum through 2040. However, fully leveraging generative AI's benefits necessitates managing inherent risks and supporting workforce transitions with new skills development. Despite its potential, the journey toward full realization is nascent, and substantial challenges remain. (Source: McKinsey)

Revolt at Reddit: Reddit's API Pricing Protest

The "Reddit Revolt" is a significant user and developer backlash against Reddit due to changes in its API pricing, which are predicted to lead to the shutdown of many third-party apps like Apollo and "rif is fun for Reddit". The discontent has been fuelled by perceived miscommunications and alleged dishonesty from Reddit's CEO, Steve Huffman, regarding these changes, including incoming restrictions on third-party apps displaying NSFW content. In response, over 100 subreddits have "gone dark" in protest, and nearly 4,500 communities are pledged to do so. Some speculate that these changes are due to Reddit's plans to go public. (Source: TheVerge)

Mistral AI Sets Sights on OpenAI with $113 Million Seed Funding

Mistral AI, a month-old startup based in Paris, has raised a staggering $113 million in a seed funding round to develop large language models and generative AI, aiming to compete with OpenAI. The funding round was led by Lightspeed Venture Partners and involved significant contributors from across Europe, including Bpifrance and former Google CEO Eric Schmidt. Mistral AI, co-founded by former Google DeepMind and Meta professionals, plans to focus on open-source solutions and target enterprises. The company's first models for text-based generative AI are expected to be launched in 2024. It aims to provide businesses with tools that simplify the integration and use of AI, with a particular focus on open-source models that use publicly available data. This strategy is designed to avoid legal issues related to training data. (Source: TechCrunch)

First-of-its-kind AI Legislation Advances in EU Parliament

The European Union's parliament is advancing draft legislation known as the AI Act, potentially the first comprehensive set of regulations governing Artificial Intelligence (AI) in the West. This act includes prohibitions on real-time remote biometric surveillance in public spaces and restrictions on developing facial-recognition databases from surveillance footage or internet scraping. The legislation also aims to control predictive policing systems and regulate how companies train AI models with large datasets. In certain scenarios, companies would have to disclose when content is AI-generated and ensure their AI models don't produce illegal content. Businesses would also need to summarize the copyrighted data used to train their models, giving content creators a potential claim to a share of profits. The proposed act could impose fines of up to 6-7% of a company’s global revenue for certain non-compliance cases. Negotiations to finalize the legislation are to begin immediately, with the aim of reaching a deal before year-end. Some tech researchers support these rules, arguing they could help establish safety standards and slow down the rush to release advanced AI tools. However, tech companies and lobbyists argue that overly prescriptive rules could hinder innovation. (Source: WSJ)

AMD's Chase for Trillions Stumbles: Stock Prices Slide Despite Bold AI Chip Announcement

AMD revealed details of its upcoming artificial intelligence (AI) chip designed to compete with industry leader Nvidia. Expected to be available in Q3 with mass production in Q4, the chip boasts 192 gigabytes of memory, potentially assisting tech companies in managing the costs of AI services like ChatGPT. However, AMD refrained from disclosing the early adopters or the price of the new chip. While the lack of a major client announcement led to a dip in AMD's share price, the company remains optimistic about the chip's potential. The firm also announced high-volume shipments of a general-purpose central processor chip named "Bergamo" to companies, including Meta Platforms. AMD's strategic moves indicate their intention to vie for market share in the AI chip market, currently dominated by Nvidia, and bolster their valuation. (Source: Reuters)

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.

The Furious Five for June 13: Tech and Business Stories You May Have Missed

The EV Charger to Rule them All

Apple Unveils is Vision Pro Headset: Are we Ready for Spatial Computing?

Apple has announced its much awaited VR headset. Last week, they unveiled the Vision Pro Headset, which is designed to seamlessly blend digital content with the physical world. This much awaited device allows users to interact with a three-dimensional user interface controlled by eye movements, hand gestures, and voice commands, and is powered by visionOS, the world's first spatial operating system. Careful to separate themselves from the competition, they classified the Vision Pro as their first spatial computer. The Vision Pro Headset is priced at $3,499 and is slated for release in early 2024. (Sources: Apple, Wired) 

For a great summary on Apple's latest, check out Cold Fusion's review:

Crypto Crackdown Continues: SEC Sues Binance and Coinbase

The Securities and Exchange Commission (SEC) has sued Binance and Changpeng Zhao (Binance’s Canadian founder and controlling shareholder) for operating an illegal trading platform in the U.S. and misusing customers’ funds. Binance is the world’s largest cryptocurrency exchange. The SEC said that Binance and Zhao misused customers’ funds and diverted them to a trading entity that Zhao controlled. That trading firm, Sigma Chain, engaged in manipulative trading (known as "wash trading") that made Binance’s volume appear larger than it actually was, the SEC said. Binance also concealed that it commingled billions of dollars in customer assets and sent them to a third-party, Merit Peak, which was owned by Zhao, the SEC alleged. The SEC filed the case in federal court in the District of Columbia and is asking a federal judge to freeze Binance’s assets and appoint a receiver. (Source: WSJ)

SEC then filed a lawsuit against Coinbase, for allegedly operating as an unregistered broker and exchange. Unlike Binance, Coinbase is listed on the NASDAQ and hence regulated by the SEC. The SEC claims that Coinbase violated rules that require it to register as an exchange and be overseen by the federal agency. Coinbase has denied the allegations and intends to defend itself in court. The SEC’s strategy has centered on using its enforcement division to subdue crypto companies and show why its regulations apply to crypto activities, with increasing focus on the biggest players rather than just the companies and currencies at the margins. Coinbase pushed back on Tuesday, accusing the SEC of taking an “enforcement-only approach” with the crypto industry in the absence of clear rules. Brian Armstrong, CEO of Coinbase, had the following take:  

“The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation,” Paul Grewal, chief legal officer of Coinbase, said in a statement. “In the meantime, we’ll continue to operate our business as usual.” The lawsuits are part of a growing regulatory crackdown on the crypto industry in the post-FTX fallout. (Source: WSJ)

Global Tech Giants Bet Big on AI, Back Cohere with $270M Funding

AI startup Cohere has raised $270M in a Series C financing round, attracting investors from around the globe and notable tech firms like NVIDIA, Oracle, and Salesforce Ventures. This surge in investment underlines the growing recognition of AI as a critical driver of business success in the coming decade. The round was led by Inovia Capital and included participation from investors in the USA, Canada, Korea, the UK, and Germany. Cohere's CEO, Aidan Gomez, emphasized the company's readiness to lead in the next phase of AI products and services that will revolutionize business, while NVIDIA's CEO, Jensen Huang, hailed Cohere's contributions to generative AI as foundational. (Source: Cohere)

GM and Ford's EVs to Plug into Tesla's Charging Network

General Motors (GM) and Ford electric vehicles will gain access to Tesla’s vast U.S. charging network starting early next year. Both GM and Ford are aligning their electric vehicles to be compatible with approximately 12,000 out of Tesla's 17,000 chargers. The Detroit auto giants are advocating to establish Tesla's connector as the industry standard. At first, GM and Ford EV owners will need an adapter to hook into the Tesla stations, but both GM and Ford will switch to Tesla’s North American Charging Standard connector starting with new EVs produced in 2025. (Source: CBC, CNBC)

Data Management: An Inescapable Necessity in the World of Generative AI

As interest in Generative AI rises, the importance of robust data management in businesses comes to the fore. Efficient data storage, filtering, and protection are necessary for successful AI integration. A properly structured data management system is essential for companies to effectively utilize large language models. A key concern for these companies is the quality of data, which must be well-structured, relevant, and organized for effective AI training. Therefore, firms must carefully cleanse, categorize, and format their data to avoid retaining useless information. As highlighted in the Wall Street Journal, organizations such as Syneos Health are prioritizing such data cleansing efforts. Syneos spent roughly 18 months prepping this repository for AI model training and construction. This process involved a team of data scientists and business experts who created centralized, reusable machine-learning elements. (Source: WSJ)

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.

Tech, AI, Auditing & Beyond: 5 Stories from Last Week

Here's a look at 5 things you may have missed from last week

Robot lawyer getting arrested. 

Lawyer gets GPTed: Google the citation, before you submit that legal brief 

A lawyer used OpenAI’s chatbot ChatGPT to research cases for a lawsuit against an airline. He submitted a brief full of fake cases that the chatbot made up. The judge found out and ordered him to explain himself. The lawyer admitted he used the chatbot and did not verify its sources. He asked the chatbot if it was lying and it said no. The judge is considering sanctions for the lawyer and his firm. Chatbots unreliable: This case shows the dangers of using chatbots for research without checking their facts. Chatbots can mimic language patterns but not always tell the truth. Other chatbots like Microsoft’s Bing and Google’s Bard have also lied or made up facts in the past. (Source: TheVerge)

Nvidia: One trillion reasons why we're in the AI boom

US chipmaker Nvidia has reached a market value of more than $1tn, joining a select group of US companies. The firm’s share price surged by more than 30% since last week, after forecasting strong demand for its products due to advances in artificial intelligence (AI). Nvidia’s hardware powers most AI applications today, with one report suggesting it has 95% of the market for machine learning. The firm expects to bring in $11bn in sales in the next quarter, almost 50% more than analysts had expected. AI is seen as the next supercharged growth area, but valuations can be hard to justify. (Source: BBC)

AI Execs: Are they getting frank about their Frankensteins?

Top AI execs (and others who have cashed in on the AI boom) are now warning us about what they have released into the wild. Here is the statement that they released: "Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war." (Source: CBC) 

Bad bots: Tessa advises people with eating disorders to lose weight

AI chatbot named Tessa that was implemented by the U.S. National Eating Disorder Association (NEDA) to help those with eating disorders was implemented to replace human call operators. However, it was taken down after reports that it had started to give out harmful dieting advice. Activist Sharon Maxwell claimed on Instagram that Tessa offered her advice on how to lose weight and recommended counting calories, following a 500 to 1,000 calorie deficit each day and measuring her weight weekly. (Source: NPR, Global)

OSFI on AI: The importance of a robust governance framework 

OSFI, in a recently released report, discusses the importance of a robust governance framework for ensuring that AI models used in the financial industry remain effective, safe, and fair. AI governance was one of the topics discussed at the Financial Industry Forum on Artificial Intelligence (FIFAI) workshops. The conversations touched on four main principles guiding the use and regulation of AI in the financial industry: Explainability, Data, Governance, and Ethics. The Canadian Audit and Accountability Foundation defines governance as structures, systems, and practices an organization has in place to assign decision-making authorities, define how decisions are made, establish an organization’s strategic direction and oversee the delivery of its services. (Source: OSFI)

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.

In the Midst of the Writer's Strike, Is AI Set to Take Centre Stage in Hollywood?

Sam Altman, CEO of OpenAI, mentioned something worth reflecting on during a fireside chat with Tobias Lütke (founder and CEO of Shopify) at Toronto's 2023 Elevate conference: 

"If you look at the prediction from maybe 10 years ago maybe even five, I think most experts would have say first AI comes for physical labor. It's going to drive trucks it's going to work in factories. Then it comes from the sort of easier parts of cognitive labor. Then it comes from the stuff that's really hard… Maybe it can write computer code someday - maybe not. And then maybe someday in the distant future (but probably never) it can do creative work. And of course it's gone the exact opposite direction…Almost everybody predicted this wrong."

The quote by Altman summarizes the amazement that many of us experience when interacting with Generative AI, witnessing how it can effortlessly generate high-quality content, whether it's telling a joke in the tone of your favourite comedian or writing a blog post in the style of a famous author.

Not everyone, however, is a fan. Its abilities, though in their infancy, have irked the creative crowd. I am talking about the writers in Hollywood, who are picketing as we speak.

AI: Taking Center Stage within the Scriptwriting Process?

They are worried about the use of artificial intelligence in the movie production process. The writers fear that producers may use AI to write scripts or fill in gaps in unfinished screenplays. This would result in an increased supply of scripts. When the supply of something goes up, the price goes down. That's the way capitalism works. Consequently, the increased use of AI could lead to a decrease in the need for scriptwriters, potentially affecting writers' earnings. While recognizing that this rapidly advancing technology could be a useful tool in some cases, the writers are demanding that production companies agree to certain safeguards regarding its use.

It’s tempting to think that this only applies to those picketing in front of Hollywood. The word “content” may send our minds to art, writing, and movie scripts. However, content generation is not just about the creative crowd. Consider that accountants, lawyers, and consultants are also content generators. Sure, they cater to a different genre and audience. And yes, their content is more likely to make you cry than laugh, it's still content at the end of the day. Moreover, this discourse extends far beyond the confines of movies, television, or streaming platforms, serving as an early warning sign, a proverbial canary in the coal mine, hinting at the impending profound transformations across all sectors and industries.

How good is this technology? Is it really worth protesting?

As they say, seeing is believing. We don’t have to speculate about AI’s script writing powers. We can try it out ourselves. Here is my attempt to do just that. Check it out and see for yourself:

   

Admittedly, the story was terrible.

It is certainly no competition for the quality and the caliber of those protesting in the Sunshine State. Both my wife and Efrim Boritz thought it needed some work. A lot of work. That being said, if we focus on the aesthetics of the story, however, we miss the point. The story, from start to finish, took a grand total of 35 minutes. Here how I generated the story.

Step 1: Fill-in the Narrative Arc

I took the five elements of Narrative Arc and completed it for my story. This was crafted in the following prompt:

Prompt: Draft the story using the following

“Exposition:  A group of auditors working on an audit file for a bank in 2006. There is a deadline of two weeks. Kevin is the hero. He is the senior on the audit

Rising Action: Kevin is asked to audit a mortgage-backed bonds held by the audit client. He tries to understand the structure. He calls the bond rating agency. Doesn't get answers. Tries to call the borrowers no answer. Billy his manager wants him to just get the work done. He wants him to stop asking questions.

Climax: Kevin concludes that the bonds are worthless and must write them down. Billy insists that they use the current trading price. Terry the partner on the file must step-in to address this argument.

Falling Action: Partner decides to go with Kevin. Billy quits and goes to work for Lehman Brothers.

Resolution (Denouement): After the financial crisis, Kevin becomes part of the internal education team teaching him about the importance of skepticism. Billy has lost his job and is having a tough time finding a new one.”

The result was an outline with each element a bit more flushed out. Here’s how “Exposition” looked like:

“In 2006, a group of auditors are working on an audit file for a major bank. The team has a tight deadline of two weeks to complete the task. Kevin, the hero of the story, is the senior auditor on the project. He is responsible for overseeing the audit and ensuring that the team meets their deadline.”

Step 2: Expand out the Story

Then I asked it to take the text and “Expand and write in Michael Lewis's style”. Here is what it came up with:

“In the bustling year of 2006, when the financial world was basking in the warm glow of seemingly endless prosperity, a group of auditors found themselves hunkered down in a fluorescent-lit conference room. Their mission: to dissect and analyze an audit file for a major bank, a task with a ticking clock – a mere two weeks to complete the assignment. The pressure was palpable, the atmosphere charged with a blend of urgency and apprehension.

At the helm of this ragtag ensemble stood Kevin, the protagonist of our tale. A senior auditor with a keen eye for detail and an unwavering sense of duty, Kevin bore the weight of overseeing the audit and steering his team towards the fast-approaching deadline. His steady hand and calm demeanor disguised the internal churn of responsibility and the need to maintain professional skepticism amidst a sea of financial jargon and convoluted transactions.

Kevin's days blurred together as he poured over documents, cross-referencing figures and questioning assumptions. He navigated the labyrinthine world of finance with an uncanny intuition, a skill honed by years of experience that allowed him to cut through the fog of complexity to reveal the hidden truths beneath. Surrounded by his team of auditors, a diverse group of individuals each with their own quirks and strengths, Kevin felt the weight of their collective success or failure resting squarely on his shoulders…”

Rinse and repeat for the remainder of the outline and you’ve got a fully fleshed out story.

We all agree that this is not a work of art, but it only took 35 minutes. Now, imagine what I could create if I spent 35 hours or 35 days on it. Imagine further and think what the studios could achieve with an artificial intelligence that was designed specifically to generate movie scripts.

Was AI-Enabled Scriptwriting Truly Unpredictable?

No, it was not. This sci-fi thriller has been in the making for 20 years. As Chris Steiner describes in "Automate This", Hollywood had access to an algorithm in 2004 that could predict the commercial viability of a script. He writes:

"In 2004, a major movie studio allowed an algorithm to scan nine scripts of unreleased movies. The results of the analysis, run by a new company named Epagogix, were then tucked away. The movies all eventually hit the screen, and when the last one was out of theaters, the movie studio went back to take a look at what the algorithm, which was supposed to tell them how much money each film would gross at the box office, had predicted. In three of the nine cases, the algorithm missed by a wide margin. The other six forecasts, however, were bizarrely accurate. On one movie that the studio expected $100 million or more on, the total gross was $40 million, a huge disappointment.1 The algorithm predicted $49 million. Another prediction was within $1.2 million. Epagogix was suddenly on its way to becoming an indispensable tool for studios to use in analyzing scripts—especially ones that may be attached to big budgets—before the movie gets made. Epagogix was conceived and built by two movie lovers, one of them a lawyer and the other from Wall Street’s favorite of disciplines: risk management. The point is to minimize the risk of producing a stinker like Disney did in 2012 when John Carter lost the studio nearly $200 million."

He then goes on to describe the algorithm that analyzes a script based on a comprehensive report created by humans who evaluate various aspects, such as setting, characters, plot, and moral dilemmas. Despite its advanced capabilities, the algorithm still relies on human judgment to evaluate the script's language, story, and characters. But Steiner asks, presciently:

"What if there were an algorithm that didn’t need people for input? What if there were algorithms that could create the script itself?”

The Deeper Truth about Hollywood’s Existing Algorithmic Approach

There is a deeper truth in what Steiner uncovered: audiences are quite predictable. This notion seemingly contradicts the long-held belief that humans demand an infinite canvas when it comes to creativity, a canvas where one could expect unexpected twists, novel ideas, and a constant reinvention of concepts and narratives. Instead, 20-year-old algorithms are capable of predicting what most people like to watch.

Hollywood is clearly gravitating towards sustaining innovation, instead of pursuing truly disruptive narratives. John Wick is on its fourth instalment. And they just released the tenth instalment of Fast and the Furious. Yes, Fast X. By opting to reiterate tried-and-true storylines, Hollywood ensures its economic prosperity. However, the result is a not-so-creative landscape where sequels are incessantly produced, extending familiar plotlines to an almost infinite degree. This approach provides a measure of security, given the inherent uncertainty of box office returns. Yet it also confines the industry within the bounds of proven narratives, potentially at the expense of groundbreaking, original storytelling.

Hollywood studios are not in the business of searching for avant-garde composers, they're searching for chart-topping artists—those who can consistently produce hits that climb the billboards. And as for box-office bombs, they're a crippling blow to the account books—a $200 million heartache they'd rather avoid.

What about the value of creativity?

What about the pursuit of cinematic excellence, the weaving of a narrative so profound that it moves its audience to tears, laughter, or introspection? That's a narrative they've relegated to the bohemian fringe of society, the ones we affectionately refer to as “starving artists”. That creative crowd can dabble in the intricate arts of filmmaking to their hearts' content, while the Hollywood studios stick to what they know best—churning out billion dollar blockbusters, over and over again

This cold commercial reality births a Faustian bargain—one where artistic vision bows before the altar of profitability. It's the invisible contract that underwrites every script, each casting call, and the red-carpet premieres. It's the unspoken rule, the little secret tucked beneath the glitz and glamor of Hollywood. More on this and Optimus Prime in our next post.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.

 

Is the SVB Collapse the Start of Another Financial Meltdown? A look at what went down!

By now we have all heard about Silicon Valley Bank’s (SVB) sudden collapse and we are wondering whether we are on the precipice of a 2008 scale meltdown. After all it is the second largest bank failure in U.S. history. Even more concerning is the recent rattling at Credit Suisse. In this post we'll explore, some key takeaways from the pundits and publishers out there.

Examining the Connection Between Silvergate Bank’s Collapse and SVB’s Bank Run

A few weeks ago, the well-known cryptocurrency bank, Silvergate, suffered a sudden collapse. As a prominent institution within the world of crypto, Silvergate served as a crucial entry and exit point for individuals looking to convert their cryptocurrency into fiat currency. It also maintained substantial exposure to both Alameda Research and FTX.

 

In contrast, Silicon Valley Bank (SVB) maintains no direct connections with the cryptocurrency sector or Silvergate Bank. However, the dramatic downfall of Silvergate likely instilled enough fear among SVB depositors, prompting them to trigger a panic. For a more in-depth exploration of the Silvergate collapse, check out Wall Street Millennial’s take on the situation:

 

 

Unveiling Risk Management Flaws: What did Warren Buffett say about low tides?

Warren Buffett once said, “You don’t find out who’s been swimming naked until the tide goes out.” This sentiment rings true for SVB, which suffered from a maturity mismatch between its depositors' on-demand withdrawals and the long-term debt it held. The bank was exposed to interest rate risks but took no action, leaving it vulnerable.

 

How did things go so wrong?

 

When looking at what happened at SVB, we need to go back in time an examine the impact of the zero interest rate policy that's been in place for decades. It resulted in “the search for yield”. This search for yield funded everything from mortgage-backed securities, cryptocurrencies, investments in emerging markets as well as risky investments in the oil sector. And this is what likely prompted the executive management at SVB to lock in their money in long term debt. Specifically, SVB owned over $80bn of mortgage-backed securities with 97% of them being 10+ year duration at a weighted average yield of 1.56% (link).

 

Interestingly, SVB contemplated managing this risk but decided against it. As noted on Bloomberg:

 

“In late 2020, the firm’s asset-liability committee received an internal recommendation to buy shorter-term bonds as more deposits flowed in, according to documents viewed by Bloomberg. That shift would reduce the risk of sizable losses if interest rates quickly rose. But it would have a cost: an estimated $18 million reduction in earnings, with a $36 million hit going forward from there”

 

Then inflation struck. This caused the Fed to aggressively reverse its zero-interest rate policy. The swift increase in interest rates led to a significant decline in the value of SVB’s debt holdings, as the value of debt falls when interest rates rise. 

To deal with this widening hole in their balance sheet, management failed to raise $2.25 billion. This left SVB unable to cover the unexpected withdrawal of $42 billion in deposits (that occurred in 1 day!), as the value of the debt they held had severely diminished and could not cover the outflows. For more on the numbers, check out Patrick Boyle’s take:

 

 

 

Furthermore, the absence of a risk officer from April 2022 to January 2023 compounded these issues. Moreover, the CAO was none other than the former CFO of Lehman! For more on this check out Cold Fusion’s take:

 

The Race to escape the Sinking Ship: Who will be left holding the bag?

Venture capitalists, known for their interconnectedness through WhatsApp groups, began to realize the bank's shortcomings. They themselves were quite vulnerable as 90% of SVB's deposits were uninsured, in contrast to the industry average of 52% (link).  As noted in this Bloomberg Odd Lots podcast, SVB was not actually dealing with a diverse set of clients. Instead, they were dealing with a handful of VCs. Consequently, the clients pulled out their funds in unison as a response to the request from their respective investors.

 

The Ripple Effect: Contagion Risks Loomed

The inability of Silicon Valley to access cash for payroll could have spelled disaster for numerous startups. This cash flow issue would have also generated incentives for customers to avoid smaller banks, potentially triggering bank runs on other vulnerable institutions. It would also lead to consolidation of customers around the “too big to fail” banks, as people will not trust banks that are the same size or smaller than SVB.

 

Questionable Timing: Bonuses and Stock Sales

The timing of bonus payouts and stock sales raised eyebrows, with bonuses ranging from $12,000 for associates to $140,000 for managing directors issued the day FDIC took over the bank. (link) Silicon Valley Bank CEO Greg Becker's stock sales, totaling nearly $30 million over two years, also drew scrutiny. Most notably, Becker sold $3.6 million worth of shares just days before the bank disclosed a substantial loss that led to its stock plunge and eventual collapse. (link)

 

Capitalism on the way up, Socialism on the way down?

The US Treasury jumped into shore up ALL deposits. The new "Bank Term Funding Program" will offer loans of up to one year to lenders that pledge collateral, which will be valued at par. Management and shareholders, however, will not be bailed out.

 

The Biden administration and other government officials have emphasized that the FDIC intervention is not a bailout, seemingly more concerned about potential backlash than addressing investors' needs. Their apprehension likely stems from the possibility of sparking a new Occupy Wall Street or Tea Party movement, as Uncle Sam's aid tends to favor those deemed "too big to fail" rather than offering support to smaller, struggling entities.

 

And the Biden Administration has good reason to be aware of this perception.

 

As reported in the Washington Post, prominent venture capitalists and tech executives, including LinkedIn founder Reid Hoffman and investor Ron Conway, leveraged their connections and influence to lobby Democratic lawmakers and administration officials for intervention in the bank crisis. As prolific donors to Democrats, including Biden, they worked with Pelosi and Gov. Newsom to pressure the White House and Treasury Department. Over 600 tech industry executives joined a call with Rep. Ro Khanna, who then emerged as a vocal advocate for the Biden administration to support the bank's depositors and prevent broader financial repercussions. Washington Post summarized the situation as follows:

 

“The lobbying blitz reflected a broader sea change in the normally libertarian tech industry — one that typically tries to ward off federal intervention. Now, many of those same voices were calling on the Biden administration to act and protect an ecosystem in which they had a large stake.”

 

Ironically, it was none other than the CEO of SVB, Greg Becker, who lobbied back in 2015 to evade the Dodd frank regulatory constraints and thereby get lighter scrutiny. Here is an excerpt from this article:

 

“Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices,” Becker argued that his bank would soon reach $50 billion in assets, which under the law would trigger “enhanced prudential standards,” including more stringent regulations, stress tests, and capital requirements for his and other similarly sized banks…Becker insisted that $250 billion was a more appropriate threshold…“Without such changes, SVB likely will need to divert significant resources from providing financing to job-creating companies in the innovation economy to complying with enhanced prudential standards and other requirements,” wrote Becker…”

 

Commenting on the contradiction between this attitude and the SVB bailout demanded by the 600 tech execs, Scott Galloway, a prof at NYU’s Stern School of Business, offers a succinct and insightful summary of the underlying dynamics (see here and here):

 

 "We have capitalism on the way up and socialism on the way down."

 

Sure, this protected the depositors. And yes, it was not for the shareholders or management. However, one cannot deny that it was the special access to the powerbrokers that brought in the FDIC to save the day. In the absence of such privileged access, the account holders would have likely met the same fate as mortgage holders who were left stranded in the 2008 crisis.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.

The Battle for AI Search Heats Up: Latest Developments from Microsoft and Google

The race for AI-enabled search is on, and the stakes are high as Microsoft and Google are competing to be at the forefront of this exciting field. Last week was a milestone in the world of AI, as both companies made significant announcements about their latest offerings. In this post, we'll take a closer look at what these announcements mean for the competition for AI-enabled search and what could have led Google to fall behind.

Microsoft's Announcement

Microsoft announced that it will be integrating ChatGPT into Bing to allow people to use Generative AI to answer questions, instead of just endlessly searching. In their demo, they showed how “BingGPT” (my term) could help users get their bearings about a topic, such as famous Mexican painters or Japanese poets. BingGPT could also develop a travel itinerary for a vacation and attempt to answer questions like "Will a sofa fit in a Honda Odyssey?"

Microsoft also unveiled the new Edge browser, which would have the productivity right in the browser. From a CPA perspective, what was impressive was how Microsoft was able to summarize a GAP press release and produce instant comparatives with Lululemon. They also demonstrated how BingGPT could instantly generate a LinkedIn post. In the demo, Microsoft showed how you can direct the AI to use a specific tone (which in this case was “enthusiastic”).

One of the other key takeaways from the unveiling was Microsoft’s positioning of BingGPT. They see it as a co-pilot: something that the user can use to augment their work. That is, they are not looking to unveil bots to replace office workers. Check out the following extracts from the announcement:

 The full presentation is available here

Google's Announcement

Google, not to be left behind, also had an announcement the next day. They chose Paris to unveil their alternative to ChatGPT, Bard.

Unfortunately, the announcement was received as underwhelming. The demonstration was cut short when they misplaced a phone, and they seemed to be more focused on incremental improvements to their existing offerings, such as multi-search (i.e. search by image and text) and augmented reality apps, which provide a Google maps overlay of the shops on the street.

With respect to Bard, there were few details provided. Google mentioned that an API would be available for developers next month, but there was no information about when the average user would be able to try it. The biggest news with Bard, however, was the mistake it made when retrieving an answer. As was widely reported, "Google's blog showing off Bard's capabilities, the AI falsely said the James Webb Space Telescope took the first ever picture of an exoplanet. It was Webb's first picture of an exoplanet, but the first picture taken occurred back in 2004."

The result of Google's stumbles?

Investors were quick to react and wiped out $100 billion of the search engine’s market capitalization.

What happened to Google’s lead?

Google is a prime example of a company that got caught in the innovator's dilemma. Their dominant position in the search engine market made them extremely profitable, but it also made them slow to respond to the rise of AI-enabled search. Google was too focused on maximizing their existing business model and the advertising revenue that came with it, which made them hesitant to invest in AI-enabled search. This is because AI-enabled search would limit the amount of searching that people would do, and therefore, would reduce the amount of advertising dollars that Google would earn.

As a result of their slow response, Google was overtaken by Microsoft, who was able to integrate ChatGPT into Bing, allowing people to use generative AI to answer questions. Google's Bard launch was a clear indication that the company is playing catch up in the AI-powered search space. In order to remain competitive and not lose market share to Microsoft, Google will need to quickly respond and make improvements to their offering.

Though their launch needed work, their panic is justified. Nadella stated during the launch of BingGPT:

"It's a new day in Search. It's a new paradigm for search. Rapid innovation is going to come. In fact, a race starts today in terms of what you can expect and we're going to move. We're going to move fast. For us every day, we want to bring out new things. Most importantly, we want to have a lot of fun innovating again in Search because it's high time."

The statement highlights Microsoft's ambitious plans to capture market share from Google in the rapidly evolving AI-powered search space.

In closing, Google's experience serves as a cautionary tale for companies that are tempted by the riches of their existing business models. In order to stay competitive, companies must be willing to take risks and invest in new technologies, even if they may disrupt their existing business. Companies that are too focused on preserving their existing profits may miss out on new opportunities and be left behind.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own.