Investing lessons to be drawn from "Tower of Basel"

Power accrues to whoever writes the rails (risk weights, eligibility, identity, provenance).

Photo by birdeye.ch on Unsplash

I am referring to the book “Tower of Basel“ by Adam Lebor.

A) Core Laws (what the book actually reveals)

1. Centralize the switch, decentralize the optics

• Reality: Bank for International Settlements (BIS) = club of clubs. Decisions at a small core; legitimacy theater pushed to national Central Banks.

• Rule: Keep one coordination switch above the nation-state (swap lines, settlement, standards). Push “independence” messaging down.

2. Write the scoring system, not the speeches

• Reality: Basel risk weights and eligibility lists decide who gets infinite bid.

• Rule: If you set the weights, you set the world’s portfolio.

3. Sanctuary for the few → discipline for the many

• Reality: Discretion/exemptions at the apex; rules for everyone else.

• Rule: Soft law for systemic insiders, hard law for the periphery.

4. Stability through selective opacity

• Reality: Timed, partial disclosure lowers blow-back and preserves room to maneuver.

• Rule: Publish enough to look legitimate; conceal enough to be effective.

5. Standardize the rails, localize the blame

• Reality: Templates written transnationally; heat absorbed nationally.

• Rule: Synchronize by committees, not treaties; implementation pain is a local story.

6. Crisis is a coordination instrument

• Reality: Centralization jumps after shocks; rules ratchet, sunsets slip.

• Rule: Keep crises short enough to avoid revolt, long enough to embed rails.

7. Collateral is sovereignty

• Reality: “Good collateral” = who transacts fast.

• Rule: Treat collateral taxonomies like constitutional law.

8. Neutral front, directional outcomes

• Reality: Words = “prudential, harmonization”; outcomes funnel to the same instruments.

• Rule: Use neutral rhetoric to hide targeted preferences.

9. Global money ≠ national democracy

• Reality: Transnational liquidity can’t be voted on nationally at speed.

• Rule: Keep metagovernance offshore; let parliaments debate tax rates.

10. From clubs to code

• Reality: Paper standards are becoming machine-enforceable defaults (IDs, provenance, e-invoicing, KYC schemas).

• Rule: If APIs enforce policy, you don’t need police.

B) Today’s Implementations

• Programmable money first; CBDC later: tokenized deposits/stablecoins on ID rails normalize controls; CBDC is consolidation.

• Identity & provenance as base layers: “admissibility” (signable, revocable, auditable) becomes the moat.

• Collateral weaponization: sovereigns top-tier; outside money (gold/Bitcoin) kept capital-expensive/operationally awkward at the core (Store-of-Value niche allowed, Medium-of-Exchange dominance contained).

• Crisis cadence: 2–8 week shocks → mandatory standards → panic dialed down after adoption begins.

C) Controller’s Playbook → Investor’s Playbook

Controller knobs → Public signals → Trades

1. Risk weights / eligibility
   → drafts from BCBS/FSB/IOSCO; identical language across US/EU/UK in weeks
   → Long compliance OS (PLTR/MSFT), Cyber (PANW).

2. Swap-line choreography / facilities
   → weekend communiqués, TGA/RRP/BS moves, bill-vs-coupon pivots
   → Buy fear dips in state-embedded software; fade clarity pops

3. Admissibility mandates (lineage/provenance/rollback)
   → Requests For Proposal (RFP) verbs: attest, revoke, trace, lineage, rollback
   → Long Palantir (decision provenance), MSFT Purview/Entra, audit-grade cyber (PANW)

D) Alpha Checklist

• Policy intent? (drafts, speeches)

• Perimeter leverage? (stores, banks, clouds can enforce without law)

• Vendor readiness? (shipping knobs: ID, lineage, rollback, audit)

• PSC ↑? (Policy Synchronization Coefficient — same rule across allies)

• LPI ↑? (Legibility Pressure Index — “attest/revoke/rollback/trace/lineage” in RFPs)

• Net Liquidity & issuance mix? (bill-heavy = easier; coupon-heavy + TGA rebuild = headwind)

• Who’s the inelastic buyer? (mandates/capital rules)

• What can’t be said in an LP memo (e.g. PMs can’t write “we’re buying the substrate of technocracy”)? (buy it)

• Which pilot can’t roll back? (ratchet)

• Who can change rules mid-game? (own them or their console)

E) Where mispricing persists (and how to front-run)

• Tracking-error prisons: active funds can’t size early; you can.

• ESG/optics veto: “governance substrate” under-owned; own the thing nobody can name out loud.

• Procurement opacity: classified/quiet wins not in models; watch ATO (Authorization to Operate), standards drafts, identical language across regulators.

• Forced-seller windows: VaR (Value at Risk) spikes/margin hikes = sell winners first → you provide liquidity to policy-default vendors.

F) Red Flags (for disconfirming checks)

• Standards backtracked or court-voided across multiple jurisdictions (rare).

• App stores/banks/clouds loosen AUPs (Acceptable Use Policies) simultaneously (opposite of revealed trajectory).

• Big buyers fail to renew after pilots in core functions (identity/lineage) — watch renewal length & attach rates.

G) One-Page Summary

• Thesis: Power accrues to whoever writes the rails (risk weights, eligibility, identity, provenance).

• Mechanism: Soft law + perimeter enforcement + machine-enforced defaults.

• Crisis: Short shocks ratchet standards; sunsets slip.

• Collateral: Sovereigns crowned; outside money contained (Store-of-Value niche, not Medium-of-Exchange).

• Alpha: Buy the rail-writers and knob-sellers (policy-grade software, ID/provenance/payment middleware) before committees and consultants can say it.

My thesis vs LP-memo reality

• I can write: “We’re long the substrate of governance — software that turns policy into parameters”.

• They must write: “We’re long ethical AI and regulated data platforms”.

• Result: under-positioning persists until the standards are ubiquitous and index committees capitulate.

Bottom line

• “Tower of Basel” is a manual on how to run a global monetary stack through standards, not slogans. The revealed preference is stable coordination — by writing the rails.

• Today, that same logic ported into code (ID, provenance, programmable money) is where most of the value and power accrete.

• The alpha is to buy the rail-writers and knob-sellers — the ones whose products make policy self-executing — before it’s polite to say out loud what they actually are.

None of this should be considered investment advice.