Lithuania – Development of the Non-Bank “Fintech” Payments Sector

 

The Fintech Landscape in Lithuania 2020-2021
Invest Lithuania

If you’ve been following the news about Wirecard, you know Munich prosecutors are reportedly investigating a Euro 100 million transfer through UAB Finolita Lithuania on the suspicion that the some or all of the proceeds were transferred to Jan Marsalek, Wirecard’s fugitive Board member and CFO.

You should note and, if you haven’t, I will emphasize that there is apparently an ongoing investigation but no charges have yet been filed, nor judicial judgments issued.

As usual, the FT is keeping a close eye on developments. You are likely to find them a good source of information.

Members of the Bundestag and at least one Lithuanian (opposition) politician have criticized the Central Bank of Lithuania’s alleged “lax enforcement” and “failure to act” against Finolita.

The CBOL have vigorously rebuffed this charge.

At this stage it is premature to pronounce in favor of either of these two positions.

What we can do, however, is take a closer look at Lithuania’s non banks share of payment activity.

To see what sort of activity is taking place and assess regulatory and other risks on a macro basis.

To start, let's set the 'scene". 

As of year end 2020 Lithuania’s population was 2.8 million. As of May the estimate is 2.7 million.

2020 (estimated) GDP is some USD 55 billion which places it 80th in the world.

Per the CBOL’s 2020 annual review of banking activity as of 1 January 2021, there were 11 locally incorporated banks and 6 foreign branches operating in the country.

Despite the number of banks, the market is highly concentrated.

Two locally incorporated Swedish-owned banks (Swedbank and SEB) controlled 64% of banking assets in the country. 

Luminor Bank (DNB/Nordea) was the largest foreign branch.

Total banking sector assets were some Euros 37 billion as of FYE 2020.

According to a 2019 EBF study based on FYE 2018 financials Lithuania ranked 26^th out of the 28 states in the EU-28. In the EU (Euro area), it was 17^th.

So relatively small beer. Not a lot of prospects to expand its commercial banking sector.

A small population, modest-sized economy, and a high level of banking concentration.  

How to grow the economy?.

In 2016 Lithuania decided to aggressively pitch itself as a “fintech” center in Europe, launching a global campaign to build on prior years’ success in attracting fintechs..

It touted its multilingual, talented work force, quality of life, low taxes, low cost of living, and its “fintech friendly regulations and infrastructure”. The latter point was mentioned by 63% of respondents to a 2020 fintech survey.

In conformity with EU laws the CBOL issues Payment Institution (PI), Electronic Money Institution, (EMI) and Specialized Bank (SPB) licenses.

A PI may not hold customer funds on deposit. It makes “instant” payments.

An EMI may hold customer funds (legally not a deposit) but rather in the form of electronic money and make payments similar to a PI or issue payment instruments (prepaid cards, phone apps, etc) that allow a client to make a payment. 

Note an EMI does not issue or transact in virtual or cryptocurrencies.

Another key selling point was that the CBOL allows fintechs with PI and EMI licenses to make and receive payments through Centrolink—the CBOL’s payment system linked to the SEPA (Single Euro Payments Area).

My wiser, elder brother suggested that I not presume that readers know what SEPA payments are.  "Wise" advice. Quick summary.  SEPA is similar to the USA's ACH (Automated Clearing House) and the UK's BACS (Bank Automated Clearing System).   

Note SEPA still provides a channel for illicit activity as I hope my comment makes clear.

This is a major selling point as it gives these non bank entities access to the 36 SEPA countries, that is beyond the EU.

We will look at this topic in more detail in the next post.

By the end of 2020, Lithuania had achieved remarkable success. It has attracted a wide variety of fintechs, including major names.   

For more details download the 2020-2021 The Fintech Landscape in Lithuania from the Invest Lithuania site here.

230 fintech companies were operating in the country.

Roughly 50% have payment licenses.

Prior to Brexit Lithuania ranked #2 in the EU by the number of PI, EMI, and SPB licenses it had issued as per the graphic above.

After Brexit, it is now #1.

Think of that for a moment.

More than Germany (77), France (76), Netherlands (66), and Sweden (49).

And unlike those countries, Lithuania has a preponderance of EMI licenses.

The CBOL’s report on 2020 PI and EMI activity won’t be available until some time in July.

So we’ll have to make-do with the 2019 report.

That report discloses that in 2019 12 PI and 6 EMI licensees were restricted to payments within Lithuania and subject to caps on the amount of permitted transactions.

You will also find details there on income, market share, destination of payments, and the types of payments – cash deposits and withdrawals, automated payments, etc.  

In the next post we'll look at the share of Centrolink activity by the PI/EMI sector.

FT Exposes the “Dirty Secrets” on Infrastructure Cybersecurity

By Day Keeps the Free Market Working
By Night Redeems Children's Teeth for Cash

In this weekend’s FT Myles McCormick and Hannah Murphy wrote: “Pipeline ransom attack exposes vulnerability of American infrastructure to cyber threats”

At first glance this seemed to be “Sun rises in the East, sets in the West” article as the vulnerability of American infrastructure to cyber threats has been repeatedly “exposed”.

The Colonial Pipeline incident is not the first cyberattack rodeo in the USA as the authors note:

Since 2019, US critical infrastructure targets have suffered about 700 ransomware attacks, including 100 this year, according to data from Temple University in Philadelphia.

As I read on, it seemed more properly that the article exposed two key reasons why incidents like these occur and, thus, why infrastructure is insecure. 

Key reasons outlined below in bold. Quotes from the article in the list below each “point”.

Woefully and Criminally Unprepared

1. Just a quarter of companies in traditional infrastructure businesses, including oil and gas, utilities and healthcare, were properly braced for an attack, estimated Matias Katz, chief executive of the cyber security group Byos.

2. The oil and gas sector has been criticised for lax cyber security regulation.

Governments have responsibility for being asleep at the switch on regulation. 

Though as Milton Friedman would tell you, if he could, there is no need for government regulation as the “Free” Market solves problems like this all on its own.

It’s all about the Benjamins.

1. But reconfiguring traditional security systems to account for the ever-changing nature of cyber threats is costly.

2. Pipeline infrastructure is largely operated by private capital, so there is often a drive to cut costs where possible.

Or, in small words, private companies avoid spending the money. 

As evidenced in the first point above, an estimated 75% of infrastructure operators. 

So it’s not the case of a few cases proving the rule about the magical prowess of the “Free” Market correct.  

But rather the overwhelming majority proving Dr. Friedman "dead" wrong.

Two further thoughts.

When the going gets tough, our national rough and tumble highly competitive private companies go running to Uncle Sugar for a handout.

1. You know them. They’re the guys who complain about welfare and how $300 a week unemployment benefits “sap the willingness of the precariat to work”.

2. While extolling how the “free” market delivers the best solutions to problems.

3. Now I’m not adverse to giving aid to those who are truly struggling.

4. Colonial Pipeline’s 2018 FYE audited report shows net profit of some US$ 470 million on total revenues of US $ 1,397 million (a very nice 33.7% net margin) and interim financials for 1Q2019 US$ 137 million in net profit (36% net margin).

5. It’s not possible to calculate a return on equity as CP has negative equity. Perhaps, due in part to a generous dividend program coupled with an earlier decapitalization (Treasury stock purchases in prior years). CP paid US $670 million dividends in 2018!

6. In light of those statistics, I think Uncle Sugar shouldn’t give them more than $299 a week lest we encourage them to slack off.

7. As you’ll note from the dearth of public information on its financials after 1Q19, CP is pretty good with keeping their financial information secure. So it’s pretty clear where their security focus is.

As to the problem being “old operational technology systems, some of which predate the internet,” having “outdated security and being difficult to upgrade”.

1. Old operational systems which predate the internet probably aren’t connected to the internet.

2. Thus, it would seem less likely to be vulnerable to hacking and capture unless miscreants were on the premises to infiltrate PLCs.

3. Analogy: If you only send snail mail, it’s unlikely that hackers are reading your correspondence.

4. In some cases if your “internet” technology or programs are “old” enough, they may be extremely difficult to hack/capture.

This is not intended as a recommendation for a Luddite return to manual or outdated systems. But rather as a counter to the “old systems” defense.

It is to repeat myself “all about the Benjamins”. 

It is a "tried and true" method to motivate folks who focus on money by "threatening" them with large fines and loss of their license to conduct business.

Profoundly Disturbing FT Article on Bitcoin and the Environment

Asleep at the Switch

 

Katie Martin and Billy Nauman had an extremely scary article in the FT on Friday 21 May.

While the main point of the article was about the amount of energy used to mine Bitcoin and its impact on the environment, it was this quote that sent the real chill down my spine. 

Tesla chief executive Elon Musk has highlighted the environmental impact of cryptocurrencies. Amid calls from climate activists for tighter rules, governments and central banks are starting to take notice.

So what the FT seem to be saying is that absent the Technoking’s statement and that of “climate activists” –who by the way have been ignored for years--, governments and central banks would still not have “taken notice”.

Thus, our fate apparently depends on the random tweets of celebrity businessmen, including one who actually thinks cryptocurrencies are investable assets and whose statements have a volatility mirroring that of Bitcoin. 

Did I mention that he has an (indirect) economic interest in a portfolio of some US $1.5 billion (cost) in Bitcoin?

Just the sort of chap one would go to for wise counsel.

What a damning statement on several levels about the official entities whose remit is, as we are told, to look out for us!

Unclear as to whether we should ascribe this sorry state to attitude or aptitude.

Or perhaps more likely to both.

This is not the only example of such behavior.

We’ve seen another just this week.

After the ransomware attack on Colonial Pipeline, the US House of Representatives “sprang” into action. Given the prior somnolence, it must have been quite a “leap”. Olympic at least.

The House Homeland Security Committee—as aptly and ironically named as the House Select Committee on Intelligence—apparently just discovered that cyberattacks and hacking pose a national security threat. 

It has in the words of the Committee’s Chairman brought a “new urgency to our work”.

Given repeated past cyberattack incidents and a manifest failure to act, it may be appropriate to remove the word “new” from the Chairman’s statement.

Otherwise, the unwary reader might be tempted to think that there was some urgency in the past.

Having made this criticism, if you’re the faithful reader of this blog, you know that I try to be fair.

I should, therefore, acknowledge Congress’s achievement in reducing pollution through the prevention of the burning of the USA flag. Achieved without a constitutional amendment or even legislation!

And I think we can be almost certain they will “stand tall” to prevent plant-based substitutes for the hamburger and beer.

So, perhaps, all is not lost.

Just most.

CryptoCurrencies – The Manifest Absurdity of the Stablecoin

 

Just the other day, there was an article in the FT about "stablecoins" describing them as a "link" between traditional curriencies and cryptocurrencies.

There is quite a lot of manifest absurdity in the world these days, economics, politics, and matters financial.

To set the stage for today's exploration, a review of the "logic" for cryptocurrencies.

Proponents argue that:

1. Government-issued currencies are not "backed" by real assets. e.g., gold.

2. Governments can therefore issue as many "fiat" currency notes as they wish. Thus eroding value via inflation.

3. Electronic payments made with "fiat" currencies are subject to (a) surveillance and (b) seizure by pressumably intrusive and untrustworthy governments.

Cryptocurrencies are the "answer" because:

1. They are created by private sector entities and thus free from the "malign" behaviour of governments.

2. A key assumption (delusion) here is that private sector entities' honesty is beyond question.

3. While like fiat currencies cryptocurrencies are not backed by real assets, their value depends on and is obtained through the operation of the market.

4. A key assumtion (delusion) here is that the "market" never misvalues an asset either because of irrational exuberance, manipulation, market failure, etc.

5. Electronic payments made with cryptocurrencies are immune to (a) surveillance and (b) seizure by those presumably malign and untrustworthy governments.

6. A key assumption (delusion) is that movement via a trading platform from "fiat" currencies to "cryptocurrencies" and vice versa is not subject to (a) surveillance and (b) seizure by untrustworthy and malign governments.

7. Elliptic a blockchain/crypto security company claims to have traced Colonial Pipeline's ransom payment to a BTC wallet to which apparently other such payments were directed. And then payments out of that wallet.  Another delusion hits the wall.

So now to the "stablecoin"

1. Having trashed "fiat" currencies as unreliable and potential unstable, some stablecoins offer the investor the proposition of indirectly holding "fiat" currencies, e.g. tether.

2. In such cases, the stablecoin claims to hold one unit of fiat currency for each unit of cryptocurrency. So let's get that straight. It's backing its "currency" with the "real" asset of a "fiat" currency. But with the holder of the stablecoin assuming the risk of the intermediary between the Central Bank issuer of the fiat currency.  

3. Some stablecoins are tied to bitcoin or other sh*tccoins. Exactly how the underlying volatility of those "assets" is managed is no doubt a combination of "naive belief", "magic", and derivatives. The latter being the last (valuation) refuge of scoundrels and conmen.

4. Some stablecoins can in the words of Celsius pay interest 100X what one can earn in the bank market for fiat currencies. As of August 2020, capable of earning up to 16% per annum!

5. A key assumption (delusion) is that such returns make economic sense from investing in a non-productive asset. At least Tesla has a "real" business selling emission credits to third parties, even though that market appears to be shrinking!

So let's look a bit closer at the first class of stablecoins – those "tethered" to a fiat currency.

As background, here's a link to the settlement agreemen effective 18 February 2021 between the NY State Attorney General and iFINEX INC., BFXNA INC., BFXWW INC.,TETHER HOLDINGS LIMITED, TETHER OPERATIONS LIMITED, TETHER LIMITED, TETHER INTERNATIONAL LIMITED.

The pattern of behaviour recorded in the settlement agreement should demonstrate the fallacy of several of the assumptions (delusions) cited above.

It should also demonstrate the additional risk that such entities face in obtaining the services of creditworthy financial institutions.

When one is forced to deal in the “odd and out of the way corners” of financial markets, with undercapitalized institutions in less than ideal jurisdictions, including non banks, one’s business is subject to greater risks.

And those risks ultimately flow to the “wise” investors who have placed their funds with “one”.

Bitfinex is a cryptocurrency trading platform that allows its clients to trade between fiat and cryptocurrencies.

Tether is a stablecoin which claims to hold one US dollar in reserves for each “tether” issued.

It is by most accounts the “largest stablecoin in the cryptospace”!!!!

The companies are related parties.

Initially, Bitfinex and Tether worked through banks in Taiwan that had correspondent relationships with Wells Fargo Bank. In early 2017 WFB stopped processing transactions for Bitfinex and Tether.

In June 2017 Bitfinex opened an account with Noble Bank International Puerto Rico.

NBI was formed under Act 273 of Puerto Rico which provides for the creation of offshore financial entities. Such entities enjoy tax benefits and may not offer services to residents of Puerto Rico. They must have a minimum capital of US $5 million of which US $250 thousand must be paid in, and four employees.

Just the sort of financial “institution” one might think a good place to plunk down US $500 million of one’s “spare” change. Or more precisely one's customers' hard earned money.

Tether for its part kept its US dollar reserves at the Bank of Montreal but the account was in the name of its attorney.

Presumably, that was because BoM didn’t want to “entertain” an account from Tether.

Until September 2017, Tether (or more precisely its attorney) held some USD 61 million in that account. At that point some 442 million tethers (worth US $442 million) were in circulation. 

Even without a calculator you should be able to determine that the "collateral" coverage was less than 1 to 1.

During that time Bitfinex held US $382 million of Tether’s funds in its account.

After 15 September Tether opened an account at NBI and Bitfinex transferred the funds to Tether’s account.

Between 2018 and 2019, Bitfinex had problems finding an FI willing to handle its transactions.

So it turned to Crypto Capital in Panama to hold its funds.

By 2018 CC held some US $ 1 billion of Bitfinex's funds or more accurately its customers' funds.

No doubt it sounded like a great idea to plunk down US $1 billion in a non bank.

What could possibly go wrong?

Bitfinex's contact there was "Oz Yousef" or just "Oz".

I'd hasten to add that it's not clear from the settlement agreement whether Oz was a wizard or not.

Oz responded to Bitfinex's subsequent requests for its funds with a variety of excuses as to why the funds couldn't be moved.

Bitfinex nevertheless continued to direct new clients to remit funds to CC!

Apparently when you've got a guy like Oz handling your money, you can't let a few bumps in the road disturb the relationship.

During the summer of 2018, Bitfinex "borrowed" US $ 400 million from Tether.

Oz still was holdiing on to CC's money.

The two entities relationship with NBI was terminated and funds shifted to Deltec Bank Bahamas.

Bitfinex repaid Tether's initial US $400 million "loan" by redeeming an equal amount of Tethers.

Oz still wasn’t releasing Bitfinex’s funds.

2 November 2018 Tether remitted US $475 million from its account at Deltec Bank to Bitfinex’s account at Deltec bringing the total “loan” to some US $ 625 million.

In February 2019 Tether updated its website to state that “[e]very tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, ‘reserves’).”

Tether did not announce that it had changed its disclosure, and indeed there were no media reports about the change until several weeks later on March 14, 2019.  

It also did not provide a breakdown of its "reserve" holdings which would have shown that the bulk of these were in the form of loans to Bitfinex.

Subsequently, Bitfinex and Tether agreed a “credit” agreement under which Bitfinex could “borrow” up to US 900 million of Tethers funds (the supposed reserves for Tether). This appears to be part of a “regularization” on an existing US $625 million existing loan.

As of the date of the settlement agreement, Oz still hadn’t released any of Bitfinex’s cash or as noted above more precisely Bitfinex’s customers’ cash.

Tesla, Its Techno-king, and Bitcoin

But Before You Do
Make Sure They Really Are An Expert

You will probably have seen by now that Tesla’s “Techno-king” announced that Tesla would not accept Bitcoin to purchase its cars.

It was, as I envision it, an almost a Biblical moment – a modern Saul on the road to Tarsus struck by the realization that Bitcoin was very energy intensive and thus not good for the climate.

This scenario does raise one question in my mind.

Tesla’s Technoking is a widely acknowledged genius.

Whether he is smarter than Bill Gates is I understand a matter of serious and furious debate in many quarters.

Given that, I am perplexed as to how this simple fact eluded him?

Saul’s conversion was occasioned we are told by a blinding light and the voice of Jesus.

Pretty darn hard to ignore.

Perhaps, Tesla’s Techo-king had a similar experience.  

The blinding light an exploding battery? 

The voice that of Bill Gates? In which case the debate referred to above may have been conclusively resolved.

Some but certainly not I might suspect that Mr. Musk has been having a bit of fun with the gullible out there.

Talking up Dogecoin one day, driving up the price.

Then calling it a "hustle", and driving down the price on another day.

The same with Bitcoin.

Hard to tell, but I doubt it.

What we can do is look at Tesla’s conditions for the use of Bitcoin for the purchase ot its vehicles for greater insight into its core beliefs.

Veritas may often be in vino.

But it is demonstrated more often and concretely in matters financial.

The T&C were posted on Tesla’s website, but have been removed.

Presumably, in line with the most recent decision on Bitcoin.

We can turn to electrek for what they claim are the original T&C.

Here’s the “bit” about refunds.

I’ve highlighted the pertinent text in red.

If you are entitled to a refund of your payment or to a buyback, we reserve the right to refund to you either the exact Bitcoin Price that you provided to us at the time of purchase or an amount of US Dollars that is equivalent to the US Dollar price of the product that you purchased, at our sole and absolute discretion, taking into consideration operational efficiency. The same applies to all fees and incidental costs to which you are entitled. THE PRICE OF BITCOIN CAN BE VOLATILE AND THE VALUE OF BITCOIN RELATIVE TO US DOLLARS MAY DECREASE OR INCREASE BETWEEN THE TIME THAT YOU MAKE YOUR PURCHASE AND THE TIME THAT WE PROVIDE A REFUND OR BUYBACK. IF WE REFUND YOU IN BITCOIN, THE VALUE OF SUCH AMOUNT OF BITCOIN RELATIVE TO US DOLLARS MIGHT BE SIGNIFICANTLY LESS THAN THE VALUE OF SUCH AMOUNT OF BITCOIN RELATIVE TO US DOLLARS AT THE TIME OF YOUR PURCHASE. IF WE REFUND YOU IN US DOLLARS, THE US DOLLAR AMOUNT THAT WE PROVIDE TO YOU AS A REFUND MIGHT BE SIGNIFICANTLY LESS THAN THE CURRENT US DOLLAR MARKET VALUE OF THE AMOUNT OF BITCOIN IN WHICH YOU MADE YOUR PAYMENT. YOU ASSUME THE RISK OF BITCOIN PRICE. DEPRECIATION AND APPRECIATION AND WILL HAVE NO RIGHT TO SELECT THE METHOD OF REFUND. YOU ARE NOT ENTITLED TO RECEIVE ANY APPRECIATION ON THE VALUE OF THE BITCOIN THAT YOU PROVIDED TO US AS PAYMENT IN CONNECTION WITH A REFUND OR BUYBACK.

Clearly, despite its once stated belief in Bitcoin—which we can presume was or should have been operative at the time the above was written--, Tesla was unwilling to accept a potential decline in the US dollar value of Bitcoin. But was glad to accept an increase in its value.

If Bitcoin is the righteous alternative to evil fiat currencies, then why would one measure one’s profit or loss in such (fiat) currencies?

And more importantly seek to retain that fiat currency profit?

Hard to square that circle, except perhaps to note that there are many "hustles" and "hustlers" out there.

But then I am neither a Master of Coin nor a Techoking.

That being said, it’s not untypical for an investor in debt or equity to look to keep the upside and shift off the downside to some “sucker”. 

There are No Second Acts in American Lives, Aber in Deutschland Gibt Es (Teil 1)

 In den Vereinigten Staaten von Amerika

In der Bundesrepublik Deutschland

In der Carnaby Straße

Berlin Bundesrepublik Deutschland

Fourplay 101 Eastbound

 

Sejong Cultural Centre, Seoul, ROK

16 January 2005

Nathan East, Bass Guitar

Larry Cartlon, Guitar

Bob James, Keyboard

Harvey Mason, Drums

Colonial Pipeline: Why Do Cyber Attacks Keep Succeeding? Answer in Picture Below

 

The news media is full of reports on the Colonial Pipeline ransomware attack. 

This isn't the first case of cybersecurity failure by a business. 

Sadly it's not likely to be the last until something is done.

Why do events like this happen?

The simple answer is that companies fail to take the necessary steps to protect critical infrastructure despite warnings.

Here’s a February 2020 alert from the US’s Cybersecurity and Infrastructure Security Agency to pipeline operators.

That warning describes:

1. the nature of the attack, tools used -- apparently an “off the rack” hacking program

2. the results of the attack

3. 19 mitigation steps -- many of which are "common sense" 

The unnamed company in this case, did not think that its BCP need include cybersecurity.

If you look at the attack results, you’ll see that the vulnerability was Microsoft software.

As my elder and wiser brother has remarked more times than I care to hear:

There is no need to worry about “microchips” in medicines. Microsoft has never developed a product that works flawlessly.

If you look at the CISA alert for Colonial Pipeline, guess what you will find?

Significant repetition from the alert above given some 15 months earlier.

And as above a lot of these recommended steps seem fairly easy to implement.

So what causes the failure to prepare?

Management and organization incompetence is no doubt responsible in some cases.

But on its website, Colonial Pipeline states that it is “Committed to Excellence”.

It is a private company reportedly owned by Shell, Koch Industries, KKR with a Korean pension fund, and several other pension funds and financial firms.

You would expect that it has first class management.

And the financial, technical, and human resources to take appropriate measures. 

It was quite a profitable enterprise based on its 1Q2019 financials.

It has demonstrated security “awareness” in other areas.

CP’s website has a “captcha gate" to keep out undesirables. I was, however, allowed entrance after performing a few Turing tests.

I don’t know whether this is a new feature installed after the ransomware attack (closing the proverbial barn door) or has been there for a long time.

Even stricter is the security for access to investor information.

You have to submit a request to CP’s Investor Relations Department with personal details and a justification of your need to know.

And they note they just might refuse your request!

Talk about cybersecurity! 

At least with respect to financial and corporate information.

Because the ransomware attack was successful, one might infer that similar security measures were not in place to protect pipeline operations.

Improving cybersecurity requires expenditure.

Sometimes management are unwilling to spend the money.

So what is to be done?

Repeated failures in cybersecurity suggest that faith in companies properly managing their affairs is more often than not misplaced.

As well, the invisible hand of the market appears to not only be invisible but also consistently absent in these cases. 

If Hometown Deli in New Jersey is shut down by a cyber attack, it’s one thing.

If a major pipeline is shut down, it’s another.

In one case it causes inconvenience. 

In the other it harms national security.

In the latter case -- a failure of the market -- the prudent approach is strict regulation along with substantial fines and other penalties.

If a critical infrastructure company cannot figure out on its own that cybersecurity is critical,  a statute will make it a requirement and penalize a company financially and otherwise, e.g, revoke its license to operate critical infrastructure, if it fails to develop and implement one.

Related post here.

Market Commentary: Manifest Absurdity

 

Greensill

Today’s FT reported on Lex Greensill’s testimony to Parliament’s “Treasury Committee” as follows:

He insisted that his company’s lending was supported by real assets, although he admitted that up to 20 per cent of the group’s lending last year was based on “future receivables”.

If you’re like me, you probably had to stifle a guffaw on the conflation of “future receivables” with “real assets”.

But if you think a bit more, perhaps in the current environment it’s not so far fetched.

Even sober financial analysts and commentators, including some at the FT, have identified crypto currencies as a new “investable asset class”.

In terms of “real assets” are future receivables any less real than Bitcoin, Dogecoin, or their like? 

I think not.

If that isn’t a sign of irrational exuberance, I’m not sure if there is any sign.

Fairness impels me--note the choice of that verb—to mention that today Jemima Kelly did opine in those very same salmon-colored pages that crypto currencies were a “joke” and shouldn’t be taken “seriously”.

Ark Innovation – Springs a Leak

The FT reported that Ark had lost one-third of its value since its February “high”.

I’d make the same comment I did regarding Tesla’s loss of value.

More accurately, the price is down by one-third.

Value is intrinsic. Price is a market phenomenon.

Also a shout out to Lex, for noting that:

Data from Morningstar illustrate the pitfalls. More than two-thirds of thematic funds outperformed the broad MSCI ACWI index in the year to end March. But go back five years and that drops to below a third. One-fifth of thematic funds did not even survive. Over a decade, just 4 per cent outperformed. As themes go, this one does not inspire much confidence.

Middle Eastern Democracy – Kurdistan Style

Today’s FT “Long Read”--as its actual length discloses it is apparently designed for those with ADD--discussed authoritarianism in Kurdistan.

Not only was I was surprised and deeply shocked to learn that Jeffersonian democracy was not flourishing in Kurdistan. 

But also that corruption was rampant indeed.

Who would ever have thought?

As pointed out in the article, much of the silence on these two topics has to do with geopolitical “considerations”.

So much for making the world safe for democracy or fighting corruption.

At least I suppose one can take comfort that no one has proposed Kuridstan for NATO membership. 

 At least not yet!