This is easy for Venezuela

President Nicolas Maduro has said Venezuela would launch a cryptocurrency to combat a US-led financial “blockade,” although he provided few clues about how the economically crippled Opec member would pull off the feat.

The solution to hyperinflation always is a new currency. One that is rigidly limited in issuance so that people can have confidence in it. Maybe not a sufficient criterion, but a necessary one.

So, hands up everyone who thinks Maduro is going to launch a currency with a hard and not breakable issuance limit?

Quite, it’s not going to work, is it?

This isn’t going to be the Google of finance

Three senior City bankers are masterminding the launch of a new digital bank focused on shaking up the UK savings market.

The trio is led by Huy Nguyen Trieu, a fintech entrepreneur who led a capital markets team at US bank Citi in London until quitting last summer. He is working on the project with his former colleague Lionel Durix, who remains in a senior Citi role, and Paul Hanks, the former chief technology officer of UK digital bank Atom.

They plan to launch a mobile savings app that uses artificial intelligence to give savers tailored advice and offers “risk-free” products such as Isas and high interest rate savings accounts to help them reach their financial goals.

Mr Nguyen Trieu told The Daily Telegraph: “I left Citi to help build the next Googles in finance. I am totally convinced new financial companies and business models will emerge that we can’t foresee today.”

It might be very successful and all that but it’s just not going to be the Google of anything, let alone finance.

What’s the network effect here? There isn’t one? So, it’s not going to be a Google then, is it?

To explain what’s wrong with US pensions

The more money Ross appeared to be worth, the more money investors seemed willing to give him. “Really, for us, it was a bet on him, ” says Sam Green, who helped put $300 million into Ross’ funds on behalf of the Oregon Public Employees Retirement Fund, citing his personal wealth as one factor. “I don’t know of any better indicator of future success than having been successful in the past.”

How excellent that Polly finally agrees

Gordon Brown saved the world. He really did, bringing world leaders to agree a gigantic fiscal stimulus and bank rescue. But the trouble with saving us from a 1930s-style depression is that people never see what didn’t happen. Few feel gratitude towards the person who prevented the mass unemployment, devastated savings and home repossessions that never poleaxed them.

So saving the banks was a good idea then?

This seems reasonable enough to me

The Treasury Select Committee has questioned a decision by the UK audit watchdog to clear KPMG over its work with HBOS just before its rescue, with chairman Nicky Morgan demanding a full explanation as to why the auditor has been allowed to get off scot-free.

So, why?

KPMG audited HBOS’s accounts in 2007 under the assumption that market conditions would not worsen and the bank could fund itself, the FRC wrote in its conclusion. However just over six months after the accounts were published Lehman Brothers filed for bankruptcy, causing turmoil in global financial markets, and HBOS was taken over by Lloyds.

“The extreme funding conditions which arose in October 2008 were not anticipated,” the watchdog said, adding that market conditions when the accounts were published in February 2008 did not make the auditor’s assessment of HBOS seem unreasonable.

As the Senior Lecturer keeps insisting, financial markets cannot deal with uncertainty. An audit isn’t really the place to predict implosion of the interbank market, is it? Not that the Senior Lecturer will go onto say that of course…..

Most, most, amusing

When the boss of Wall Street’s biggest bank calls a bubble, the world inevitably sits up and listens, albeit with a sense of historically weighted irony: of course an investment bank boss would spot disaster after his industry presided over the last one. Jamie Dimon, the chief executive of JP Morgan, said last week that the ascendancy of the virtual currency bitcoin – which has risen in price from just over $2 in 2011 to more than $4,000 at points this year – reminded him of tulip fever in 17th-century Holland. “It is worse than tulip bulbs,” he said. “It could be at $20,000 before this happens, but it will eventually blow up. I am just shocked that anyone can’t see it for what it is.”

For the usual Guardian critique of bankers is that they wouldn’t know a bubble until it had popped in their face, isn’t it?

Oh dear, oh dear

So, I’ve been asked to have a look at a little paper:

In fact and practice, seigniorage is distributed unfairly and opaquely because most
money is created by commercial banks. Money in circulation (money stock) consists of
notes issued by central banks and deposits created by commercial banks. The quantity of
the latter far exceeds the former in all major countries. Therefore, a portion of seigniorage
is given to commercial banks as a hidden subsidy (Huber and Robertson, 2000).

Well, no.

The idea here is that we want to finance a universal income, and obviously, seigniorage, the profit from creating money, is a good place to get the finance. Sure, why not?

It’s just that the banks aren’t getting seigniorage by creating credit, only the central bank is from creating money. They’re not the same thing at all.

This is easy to test. Where is that seigniorage that the banks are receiving? If it’s anything like proportional to central bank profits from money making then it’s hundred of billions a year in an economy like the UK. As the Positive Money guys say in fact. But the banks don’t get hundreds of billions – that’s an order of magnitude larger than their profits for example.

So, the banks aren’t getting such seigniorage, so we cannot appropriate it by changing the system.

What? He Didn’t. He Did? Ahahahaha

The German stock exchange operator Deutsche Börse has agreed to pay 10.5 million euros, or about $12.5 million, in fines to resolve an investigation by German authorities into possible insider trading before its talks to merge with the London Stock Exchange Group became public.

The proposed deal between the two exchange operators was announced last year, and would have created by far the largest operator of stock markets in Europe, combining bourses in Britain, Germany and Italy as well as several of the region’s largest clearinghouses. The proposal fell apart this year.

The public prosecutor’s office in Frankfurt has been examining share purchases by Carsten Kengeter, the Deutsche Börse chief executive, in December 2015.

Well, everyone’s insisting he didn’t but they’re to pay the fine anyway.

So, let us just consider this as an allegation. The CEO of a stock exchange is alleged to have insider traded over the merger of his own stock exchange. Can we get much more recursive than that?

This is fun

To be sure, Trump has eviscerated the Environmental Protection Agency (which has helped coal mining), softened financial oversight (great for bank stocks), and has shown little interest in anti-trust enforcement (a welcome development for tech monopolies such as Amazon and Google).

Why does less financial oversight boost banks? I thought the whole point about such oversight was so that the bureaucrats should make sure the banks don’t go bust? But if less oversight boosts the stocks then the markets clearly disagree, no?

Vince on statistics

Around 32,000 borrowers still own less than a quarter of their house, and 2,532 are more than three months behind on their payments, owing £407.5million. Liberal Democrat leader Sir Vince Cable said last night: ‘The run on Northern Rock marked the start of the biggest economic disaster in our lifetimes.

‘It’s an example about the potential catastrophe if the industry isn’t properly regulated in the interests of financial stability. Enormous numbers of people have been ruined as a result of reckless lending for which they ultimately paid a heavy price.’
The Newcastle-based lender’s collapse was followed by the failure of Lehman Brothers in the US, and the taxpayer-backed rescues of Lloyds and NatWest owner Royal Bank of Scotland. The Rock was widely seen as the nation’s most reckless lender, doling out around £7billion of ultra-risky debt in 2005 alone, much of it to first-time buyers.

Some Northern Rock mortgages have gone into default, yes. Some mortgages from all sorts of lenders have gone into default.

The question we’re interested in is whether the rate at NR is higher than at other places. Which is, of course, the one number we’re not given here.

Sounds about right

A man who was given nearly £1.6m by his father after he won £101m in the Euromillions has had his claim for more cash thrown out by a judge.

Michael Dawes, 32, took his father, Dave, and stepmother Angie to court after they stopped giving him more money. He claimed the couple had promised to ensure he and his partner, James Beedle, 34, would never have to worry about money again.

£1.6 million is a lifetime’s worth of money, no? It’s median income for the likely 60 year lifespan of a 30 year old.

Another way to put it, that’s a house and a holiday home bought outright and the pension fully paid up. Yes, life gets pretty easy once those are all paid for:

Michael Dawes was given £1m by his father and stepmother soon after their win, but the judge said nearly all of it had been spent within a month.

About £550,000 was spent on a house in Portsmouth, where Michael lived, but he also gave nearly £250,000 to friends and his partner’s family, and quit a well-paid IT job.

Aha. Living well without having to work? That’s a very, very, much more expensive proposition, isn’t it?

At one point, the pair were spending up to £30,000 a month, including £1,000 a week on groceries.

Blimey. You’d need a capital sum of more like £10 million to buy that lifestyle. Perhaps more actually, 5% return (bit high but dividends from an index fund maybe?) then tax to leave £360,000 a year left over? More than £10 million maybe.

I therefore dismiss the claim.

About right.

The Guardian gets worried because it doesn’t understand

Well, this is finance:

A huge increase in the amounts borrowed by already indebted households in Britain and the US to buy new vehicles is fuelling fears that “sub-prime cars” could ignite the next financial crash.

British households borrowed a record £31.6bn in 2016 to buy cars, up 12% on the year before, said the Finance and Leasing Association on Friday. Nine out of 10 private car buyers are now using personal contract plans (known as PCPs), which have boomed since interest rates fell to historic lows.

Terrors, terrors.

Some of the car-leasing loans in the US and the UK have been packaged into asset-backed securities, to be sold on to investors such as pension funds. This was an asset class that played a ruinous role in the credit crunch, except this time the collateral for these assets is cars, not houses. The ratings giants, Standard & Poor’s and Moody’s, have given most of these batches of loans a triple-A safety rating.

The 2008 problem was that those bonds were *not* sold on to end investors like pension funds. Instead they sat around on bank balance sheets, often leveraged up 25 to 30 times the capital base supporting them. That was the problem – value impairment mean the banks had to dump them before their entire capital base was exhausted setting off a spiral of downward valuations.

If these bonds are with unleveraged final investors then this will not and cannot happen. Thus there’s no problem. If values fall then pensions fall a tiny bit in value. Shrug.

OK, this is possible

Christian Noyer, the former governor of the Bank of France, has been on a City charm offensive, trying to convince financial institutions to set up over the Channel, arguing that the French capital would be more attractive than post-Brexit Britain.

No, not that bit, this bit:

Mr Noyer’s presentation concedes France is not as attractive as the UK for tax, but focuses on its relative merits compared with Belgium and Germany.

That’s possible of course, but claiming that a place is only 193 rd on the list of WTO nations is not really all that persuasive really.

Whoo Boy, aren’t we surprised?

Exiled Gambian ruler Yahya Jammeh stole millions of dollars in his final weeks in power, plundering the state coffers and shipping out luxury vehicles by cargo plane, a special adviser for the new president said on Sunday.

Note that looting the central bank is said to have brought him as much as $9 million. Not a lot to loot in a poor country…..

Not but, because

The pound has enjoyed its strongest week against the dollar in seven years, but stock markets suffered a sharp fall amid growing concerns over a possible Donald Trump presidency.

FTSE and sterling are inversely linked at present. 75% of FTSE 100 revenue is not in sterling. Thus the value of those profits rises as sterling falls, falls as sterling rises.

Sure, there’re millions of other things which affect all prices, of course, but these past couple of months at least there’s been a pretty direct linkage between these two.

As I keep saying and almost no one else seems to be.