US antitrust is the devil
Fascinating insght into US antitrust thinking that is quite mind boggling. They actually believe that the antitrust case against Microsoft promoted Google Chrome and Firefox! This is a great example of reverse analysis thinking where the result rationalises the approach.
Microsoft Internet Explorer became huge because it was better and faster than Netscape. That was 1996. Time passes and IE became known as slow. Firefox emerged, followed by Chrome I see no connection to antitrust stuff here.
My Interview With Antitrust Expert Gary Reback: Google’s Looming Antitrust Issues | TechCrunch
One interesting insight from the conversation: I ask Reback if he thinks we’d be in a better world if Microsoft had in fact been broken up into two or more companies as was originally ordered. His response – “no.” The investigation and lawsuits themselves, he said, did enough to force Microsoft’s hand and allow browsers like Firefox, Chrome and others to blossom.
US Bank failure tracker | 1934 – 2009
Interesting graph. Look at 1980/82 and compare to 2009. [ht Calculated Risk]
China and America economic future – Ferguson/ Fallows debate
A summary in NYT of the fascinating Ferguson/ Fallows debate at Aspen on the economic relationship between China and US.
Ferguson: US and China are divorcing economically. China will focus on internal consumption, not exports. “Depreciation (of US $) is inevitable and the Chinese are working to end the dollar’s role as the world’s reserve currency.”
Fallows: “… doesn’t know what the future will hold, but he believes that Chinese officials still see the dollar as their least risky investment. Domestically, China will not turn democratic, but individual liberties will expand. He agreed that China and the U.S. will dominate the 21st century, but he painted the picture of a more benign cooperation.”
Chinese Fireworks Display | NYT
I came to the debate agreeing more with Fallows and left the same way, but I was impressed by how powerfully Ferguson made his case. And I was struck by their agreement about what to do. This conversation, like many conversations these days, gets back to America’s debt. Until the U.S. gets its fiscal house in order, relations with countries like China will be fundamentally insecure.
Bank deposits – the hidden risk associated with government guaranteed deposits
The focus on bank financial strength is generally on the lending side of the business and the potential for bad debts. Here is another view, and something that drives some banks to make ever riskier loans to produce enough revenue to pay for their deposits.
For Banks, Wads of Cash and Loads of Trouble | NY Times
The 79 banks that have failed in the United States over the last two years had an average load of brokered deposits four times the national norm
…
But the hot money also came with a high cost. To lure the money from brokers, banks typically had to offer unusually high rates. That, in turn, often led them to make ever riskier loans, leaving them vulnerable when the economy collapsed. Magnet failed early this year and Security Bank is barely hanging on.
When we assess leverage it is not just the quality of the assets, it is also the cost of the liabilities, which is what deposits are to banks – liabilities with an associated cost.
It is ironic that those deposits that banks are gathering across the US from other than their home state at high rates, are also FDIC insured. So the US taxpayer has been passively promoting banks to take undue risks by gathering high cost insured deposits to fund their mortgage and loan growth.
This is just another element to take into account for The Great Unwinding of leverage in the financial system. The deleveraging that takes place will result in smaller institutions, and much less value attributed to deposits in cash, due simply to a supply that far outstrips demand. The outcome will depend on whether the regulators institute limits on FDIC insurance, limits on brokerage or some hybrid of those.
Relevance to Bankwatch:
One more blow against the old system. A banking business model based purely on arbritrage on interest is not viable, and highly susceptible to risk associated with leverage. This leads to two conclusions:
- Regulation: The unintended consequences of regulation such as deposit insurance are complex, and need to be considered by the regulators. Those unintended consequences could be more expensive in the long run through higher taxes, than the immediate apparent benefit.
- Bank models: Banks have historicaly been arbiters of money between lenders and borrowers. Non Interest revenue from fees has been long considerd considered icing on the cake from interest revenue – essential icing, but nonetheless icing. The new world is smaller and requires efficiency. What if a banking model were built on fee revenue first? This would require products and services that are seen as valuable by consumers, and it would drive different approaches than investment in expensive branches, ATM networks, and staff.
PS: To provide a sense of scale of the problem, a back of the envelope calculation on some Canadian banks where I have an idea about the customer and staff numbers produces a customer to employee ratio of 150:1. A similar cacluation on core banking (primary chequing with that bank) customers to employee ratio brings an incredible 50:1. This hardly suggests that the investments in technology, branches and infrastructure over all the years has been effective. Banks efficiency has been hidden from view by the growth in the financial system. Much more to come on this.
DOCOMO to Launch Mobile Remittance Service
Banks continue to be challenged by disintermediation from telco’s and here is another example, this time in Japan. The service will launch 21st July, and allow sending up to $200 with only the payee’s phone number being required.
An interesting tweak is the ability to have the money deposited with DOCOMO under the guise of a credit to your account, however this is deposit taking by another name.
DOCOMO to launch mobile payments service
Customers of DOCOMO’s i-mode™ mobile Internet service on the FOMA™ 3G network will be able to remit up to 20,000 yen (about 208 U.S. dollars) per transfer, basically just by inputting the payee’s mobile phone number. The payee receives a mail notification via their DOCOMO mobile phone and is given the option of depositing the money in a domestic bank account or having the amount credited to their monthly DOCOMO phone bill. The payee can receive remittances totaling up to 200,000 yen (about 2,080 U.S. dollars) per month.
It is a lucrative service with charges to payor and payee.
The charges per payment (including consumption tax) will be 105 yen for the payer and 65 yen for the payee.
Researched by Nobuyo Henderson
Future for many banks remains grim | Roubini
This interview with Roubini, on a visit to China, is wide ranging, and provides a good assessment of where we are in the economic cycle, why we got here, and importantly what to expect next. In particular this assessment on US banks is sobering. That aside, it is a worthwhile read.
The first involved banks. Like Paul Krugman and others, Roubini had been warning that many banks were weaker than they seemed. Rather than trying to nurse them along, he said, the government should move straightaway to nationalization: “I’m concerned that we’re not going to deal with the bank problem as we should,” he said. “Some banks are insolvent. To prevent them becoming zombie banks, the government should take the problem by the horns and, on a temporary basis, nationalize them. Take over these banks, clean them up, and then sell them back to the private sector. Not doing that is one mistake we may make and regret.”
Morgan Stanley and MUFG in joint push
Morgan Stanley hooks up with one of the largest Japanese banks to compete with Citi and JP Morgan.
Morgan Stanley and MUFG in joint push | FT
Mitsubishi UFJ Financial Group is set to merge its securities subsidiary with Morgan Stanley’s Japanese securities operations, to create one of the top three brokerages in Japan.
The Japanese bank and Morgan Stanley have been in talks since MUFG invested $9bn last year into the then-struggling US broker, for a 21 per cent stake.
Researched by Nobyuo Henderson
“The Fourth Turning” | demographics and predictable change
Demographics is an interesting science, and one that has real impacts on society over time that are really only apparent after the fact. Mauldin recounts a conversation with Strauss and Howe on their book, “The Fourth Turning“. The premise is that the US and the western world move in 80 year cycles, with four ’seasons’ within each cycle. As historians, they have looked back in time, and concluded the cycles are quite consistent.
Whether you buy that or not, the four cycles noted do describe the 20th century well, and place us firmly in the latter part of the third, or ‘unravelling’ cycle/ first part of the ‘crisis’ cycle. We have been/ are in a period of high individualism and discredited institutions. We are entering a period of tearing down, and re-building. Following the logic, we will enter a period of renewal, collective optimism and willingness to work together and help each other soon. We can always hope we do not need the full 20 years for the fourth ‘crisis’ cycle. What do you think?
Outside the Box | Mauldin
The First Turning is referred to by Howe as a High. As this follows a period of crisis, one of the hallmarks of a First Turning is a heightened sense of community and collective optimism, driven in part by the fact that the society has just come through a difficult and challenging time. Consequently, during First Turnings, societal institutions tend to be strong while individualism is weak. The post-World War II “High” of the mid-1940s through early ’60s is the most recent example of a First Turning.
The Second Turning, called an Awakening, typically starts out feeling like the high tide of a High, with signs of progress and prosperity everywhere. But just as everything seems to be going along swimmingly, large swaths of society begin to chaff under the social conformity of the High, beginning to gravitate to more individualistic pursuits and demanding that their personal interests come first. You may recognize the “Consciousness Revolution” of the mid-1960s through early 1980s, correctly, as the Second Turning.
Next up, the Third Turning, which Howe calls an Unraveling, is much the opposite of a High. To wit, individualism dominates, while institutions are increasingly weak and discredited. Quoting Howe on the Unraveling…
“This is a time when social authority feels inconsequential, the culture feels exhausted, and people feel bewildered by the number of options available to them. It is a time of celebrity circuses and a tremendous amount of freedom and creativity in our personal lives, but very little sense of public purpose.
The most recent Third Turning began in the mid-’80s with Morning in America, and continued through the ’90s. Previous periods of Unraveling in American history were also decades of cynicism and bad manners. Think of the 1920s, the 1850s, the 1760s. And history teaches us that the Third Turnings inevitably end in Fourth Turnings.
Finally, there is the Fourth Turning, called a Crisis. The recent Third Turning appears to be winding down, and we are currently on the cusp of a Fourth Turning. This is a time of great turmoil, when society’s basic institutions are torn down and rebuilt, and seemingly insurmountable problems are addressed. During Fourth Turnings, America engages in a struggle for its very survival and redefines its identity as a nation. Large wars are often a part of this process. The American Revolution, Civil War, Great Depression, and World War II were all features of past Fourth Turnings.
On VRM, Facebook, and being misunderstood for long periods of time
I simply love this post at RWW. The post is about how FaceBook could turn on the power of their userbase to the benefit of consumer power. I have long been a fan of VRM and at the same time at something of a loss to see how it could be initiated. Then I read this post, and new lights went on.
The post is about FaceBook, but it is less about them, than it is about business models for dot.com companies with large userbases who insist on following tradigital advertising models. The whole ‘We have lots of eyeballs so lets monetise’ thing.
[disclaimer] I have long believed that adwords, adsense, and any such interruptive advertising model has only a limited online lifespan, and represent a termproary interlude that keeps SEO types busy in these formative internet times, until we get to the next level whereby the consumer is truly in charge. Only then will I accept a Web X.0 increment.
I look at myself and my online behaviours, and maybe I am in the minority, but maybe thats because the tools I use are not well understood. My online experience sees almost no ads except when I choose to do so, and I do so choose. I see them in emails I deliberately subscribe to, I see them when I seek them out, but my standard web experience is protected by pop up blockers and AdBlock Plus. If in doubt how many have PVR’s at home, and skip tv ads?
Its not that I don’t want to lknow about products and services. I just don’t want to know when I am reading, listening and watching things on the web. This is the power and the promise of the internet medium; it has the power to be better. I listen to Sirius Radio for similar reasons; I want to hear music not ads.
Enter Vendor Relationship Marketing (VRM). Terrible title, but in essence VRM says you will decide when a merchant (vendor) may contact you, ie advertise to you. Until then stay away. Here is one of the more provocative catchphrases from “The ClueTrain Manifesto” which forsaw this problem and solution 10 years ago.
The challenge is how to move from an interruptive model in radio, television, phone, mail, and now internet to VRM which would require a seismic and complete shift.
“be prepared to be misunderstood for long periods of time.” – Jeff Besos
Back to the RWW post. Bernard does a nice job of pointing out that FaceBook is taking too long to develop a business model, and is taking longer than Google did. He notes that it will take a radical shift in order to do that, and that shift will be misunderstood, but give it time.
I agree with Bernard. The reason FaceBook and traditional advertising doesn’t work is because no-one wants to hear an ad in the middle of a conversation. However FaceBook has the other benefit (some say weakness) of being a walled garden and Google cannot see inside. He notes this is the perfect oportunity to turn that walled garden into a powerful tool on behalf of the consumer. When they feel the need for a product, service or information on them, FB users could, through an RFP (Request for Purchase) process make it known to vendors, even to the point of naming their price or price range. Vendors could respond.
This turns the ad model on its head. The playing field is levelled between the merchant and the consumer. If the merchant comes on stronger than the consumer wishes, or tries to return to old ways, the consumer can ignore them.
Relevance to Bankwatch:
Consider banking – every day thousands of RFI’s emanating from VRM services, and the banks can compete on them, all electronically. Clearly this requires formats, standards, and defined processes but it makes an interesting future world view, and one that FaceBook could kick off.
BofE Governor in the dark on banking regulation
The management of UK banking/ financial system has become highly politicised reflecting the general Browns government style. This from the meeting yesterday between Mervyn King, Governor of the Bank of England and the Commons committee.
Governor in dark on banking regulation | FT
His comments to MPs on the Commons Treasury committee flabbergasted its members. John McFall, the committee chairman, said the lack of communication at the top level between the Bank, Treasury and Financial Services Authority was unbelievable. “The tripartite authorities are a communications black holes, which is worrying.”
