banks

Bailouts, Bailouts, Bailouts

Published by Anonymous (not verified) on Thu, 02/04/2020 - 8:00am in

The United States has passed five major economic bailouts and stimuluses since 2001. They are: the $15 billion airline bailout passed by President George W. Bush following the 9/11 attacks; the $120 billion 2008 Bush Economic Stimulus which cut checks to taxpayers; the $700 billion 2008 Emergency Economic Stabilization Package (EESA) also known as TARP; the $831 billion American Recovery and Reinvestment Act (ARRA) and now the $2 trillion Coronavirus Aid, Relief and Economic Security Act also known as the CARES Act. Continue reading

The post Bailouts, Bailouts, Bailouts appeared first on BillMoyers.com.

Here We Go Again!

Published by Anonymous (not verified) on Thu, 02/04/2020 - 7:40am in

Tags 

banks, Congress, money

Neil Barofsky was TARP’s chief inspector general, its top cop, with a mandate to flush out waste, fraud and abuse now he talks with Bill Moyers about the CARES act. Continue reading

The post Here We Go Again! appeared first on BillMoyers.com.

Knowing where money comes from is key to keeping healthy…

Published by Anonymous (not verified) on Tue, 31/03/2020 - 7:00pm in

Unilever has always been a fairly progressive company – although there are certainly arguments about its products and advertising strategy so I was interested to see this piece in this week’s ‘Sunday Times’: Giving hand sanitiser to the NHS is all fine and dandy but I strongly suspect Jope has no idea that this does... Read more

Iain Duncan Smith Denounces Plan to Introduce Universal Basic Income

Published by Anonymous (not verified) on Tue, 31/03/2020 - 4:29am in

Universal Basic Income, the scheme by which governments give a specified guaranteed income to all their citizens regardless of personal wealth or employment, has been widely discussed in recent years. I think some countries may already have such schemes in place, and there might be a programme about it this week on Radio 4. It was also one of the ideas mooted to help people out of their financial difficulties caused by the Coronavirus lockdown. Ten days ago, on Friday, 20th of March 2020, Mike put up a piece reporting that Boris Johnson was then considering the idea. And not only that, the idea had the support of some British industrialists, like Liam Kelly, the chair of the Baltic Triangle group of companies. Kelly said that the scheme wasn’t quite as radical as dropping money from a helicopter, but was a plausible solution to the problem of the present crisis. He said “It will help stave off the unprecedented economic challenges we face and protect us from another. This is a sensible fiscal stimulus and it’s time it went directly to the people, not just to the banks.” This might be a reference to one of the criticisms of the government’s financial bailout of the 2008 banking crash. The money went to the banks, who have carried on as before. Some critics have said that what Brown should have done instead is given the money to the public, so that their spending would solve the crisis the bankers had created. Who would have to face the consequences of the massive financial bubble they had created, rather than expect everyone else to bear the costs imposed through austerity while they continued to enrich themselves.

One voice, however, spoke against this scheme: Iain Duncan Smith. The pandemic has had a profound personal effect on some people. It’s brought out the best in them, as friends and relatives rally round to look after those, who are too vulnerable to do things for themselves like go shopping. IDS, however, has remained untouched by this. He still remains a shabby, deplorable excuse for a human being. In an article in the Torygraph stuck behind a paywall – because the Tories don’t let the proles getting anything for free – IDS issued his criticisms of the scheme. He blandly stated that the scheme would make no difference to the financial problems of low-income households and would not alleviate poverty. For which he provided no evidence whatsoever. He also said that it would disincentive work, and cost an astronomic amount of money. This is despite the scheme being budgeted at £260 billion, which is £70 billion less than the £330 billion Rishi Sunak has already imposed.

Mike says of … Smith’s appalling attitudes that they come from a man, who seems to believe that the solution to poverty is killing the poor themselves. Why else, Mike asks, would he have imposed policies that have pushed the vulnerable so deeply into poverty that many have died.

Mike also makes the point that he’s also trying to protect his own political vanity projects, like the Bedroom Tax, Universal Credit, PIP and ESA assessments, which would all become redundant with the introduction of UBI. Mike concludes

And he wants to ensure that we do not get to see the beneficial effects of UBI, even if it is only brought in for a brief, experimental period.

It seems clear that, while the Tories are claiming to be doing what they can in the face of the crisis, the evil that motivates them remains as strong as it ever was.

See: https://voxpoliticalonline.com/2020/03/20/coronavirus-trust-iain-duncan-smith-to-try-to-wreck-our-chances-of-survival/

This is absolutely correct, though it can be added that the Gentleman Ranker isn’t afraid of seeing his own political legacy discarded, but the whole Tory attitude to poverty and the question of wealth redistribution. The Republicans in America and the Tories over here hate redistributive welfare policies. The rich, they believe, should be left to enjoy their wealth, ’cause they created it and its all theirs, and the poor should have to work for their money. If they can’t work, or are poor, it’s because of some fault of their own – they’re idle, or simply don’t have the qualities to prosper in the meritocratic society created by unfettered market capitalism. And since Maggie Thatcher, Tory and Blairite welfare policy is based on the assumption that a large percentage of people claiming disability or unemployment benefit are workshy scroungers. Hence the fitness to work tests, in which it has been claimed that the assessors are instructed to find a certain percentage fit, because Tory ideology demands that they do. Even if in reality they are severely disabled, terminally ill, or in some cases actually dead. This also applies to Jobseeker’s Allowance and Universal Credit, and the system of sanctions attached to them. It’s all the principle of less eligibility, by which the process of claiming benefit is meant to be as harsh, difficult and degrading as possible in order to deter people from doing it. It is designed to make them desperate for any job, no matter how low paid or degrading. Or if they cannot work, then they are expected to find some other way to support themselves or die. The death toll from benefit sanctions runs into hundreds, and the total death toll from Tory austerity is 120,000, or thereabouts. And many of these deaths are directly attributable to IDS’ wretched, murderous policies.

If Universal Basic Income were to be introduced and shown to be a success, it would effectively discredit Tory welfare policy. The idea that state welfare stops people from looking for work has been a Tory nostrum since before Thatcher. But with Thatcher came the belief that conditions for the poor should be made harder in order to make them try to do well for themselves. I can remember one Tory, or Tory supporter, actually saying that on the Beeb during Thatcher’s tenure of No. 10. But these ideas would be seriously damaged if UBI were successfully implemented. It would also help undermine the class system the Tories are so keen to preserve by closing the gap between rich and poor through state action, rather than market forces. Which, indeed, have never done anything of the sort and have only created glaring inequalities in wealth.

Iain Duncan Smith couldn’t bear to see this all discredited. And so to stop this, he blocked UBI, even though it offered a plausible solution to some of the financial difficulties people are suffering.

Which shows you exactly how despicable he is, and how devoted to the maintenance of a welfare system that has done nothing but push people into poverty, starvation and death.

 

 

The Magic Money Tree used for the advantage of banks – again

Published by Anonymous (not verified) on Sun, 29/03/2020 - 4:08am in

These are key quotes from the British Business Bank, the bank designed to keep business running till the Coronavirus crisis passes: Coronavirus Business Interruption Loan Scheme gives the lender a government-backed guarantee for the loan repayments to encourage more lending. The borrower remains fully liable for the debt. The Big Four banks have agreed that... Read more

‘I’ Newspaper: Hard Brexit Could Raise Food Bills by £50

Published by Anonymous (not verified) on Fri, 13/03/2020 - 9:03pm in

Here’s a piece of information that the Tories really don’t want you to know. According to the article ‘Family food bills could rise by up to £50 a week’ by Tom Bawden in Tuesday’s edition of the I, for 10th March 2020, this could be a result of the hard Brexit Boris and his cronies seem to be aiming at. The article runs

A hard Brexit could cost a family of four more than £50 a week more in food bills, with meat, dairy and jam rising most in price, a study has found.

Researchers looked at the effect of leaving the EU with no trade deal and calculated it would push the weekly food shop up by between £20.98 and £50.98.

The increases would come from hefty tariffs on imports and the cost of increased border checks on food coming into the country. A hard Brexit is also expected to push down the value of the pound.

By contrast, a soft Brexit with a comprehensive trade deal would push the food bill up by a much smaller amount – of between £5.80 and £18.17 a week, according to a new study by the University of Warwick, published in the journal BMJ Open.

While a hard Brexit would put considerable extra financial pressure on most British households the impact on poorer households would be far worse.

“Food security in the UK is a topical issue. Over the last five years food bank use has increased by 73 per cent, and this could increase for families who are unable to absorb these increased costs. There could also be reductions in diet quality leading to long-term health problems, ” said Martine Barons, of the University of Warwick.

The research suggested that the price of tea, coffee and cocoa which are typically imported from outside Europe will be least affected by Brexit.

In October, Michael Gove admitted that at least some prices could go up. “Some prices may go up. Other prices will come down,” he told BBC’s Andrew Marr Show.

So more people are going to starve and be forced onto the streets so that Boris, Rees-Mogg and the hedge funds that currently back the Tory party can become even richer. And I’ve seen absolutely no evidence that food prices are going to come down, as Gove says. Though this should surprise no-one: Gove and the Tories are the party of greedy liars.

But don’t worry – Brexit means we’re taking back control. Right up until the moment this country, its health service, industry and farming are bought up by Boris’ friend Trump.

Score! Anti-Racism Charity Gives Riley the Red Card over Competition Judges

Despite Melanie Phillips and Ephraim Mirvis trying to keep the anti-Semitism smears going, there has been some good news. The anti-racism charity, Show Racism the Red Card, politely told smear merchant Rachel Riley where she could stick her complaints about the judges they had selected for a youth competition. The organisation had launched a competition for school children, and chose as judges the left-wing film director, Ken Loach, and Children’s Poet Laureate Michael Rosen. Both are eminently suitable. One of Loach’s most recent film, Dirty Pretty Things, is about the immigrants, who do the dirty, menial work we don’t want to, like cleaning. Michael Rosen is Jewish and an educator on the Holocaust. He has presented evidence about the latter to parliament. But Riley and her matey Tracey-Ann Oberman, and a journalist, Ebner, objected to the decision to appoint the two because they had a ‘problematic’ relationship with British Jews. This was, in my opinion, the insinuation that they were anti-Semitic. Loach has been accused of it before, because he directed a film or a play years ago about the gross maltreatment and dispossession of the Palestinians by the Israelis. Of course, like so many others so smeared, he is nothing of the sort. He was given a very warm welcome a few years ago when he was invited to attend a meeting of Jewish Voice for Labour. They’re a group formed to campaign against the anti-Semitism smears against the party and its leader, Jeremy Corbyn. Unlike the Jewish Labour Movement, they really were all Jewish, although gentiles could become associate members, and they were members of the party. Neither of these stipulations apply to the JLM, whose members don’t have to be Jews or party members, but who somehow claim the right to represent Labour’s Jews. Loach and Rosen were smeared by Riley and her buddies because they had the audacity to support Jeremy Corbyn.

Now Show Racism the Red Card has issued a statement confirming that they are very pleased to have Loach and Rosen as judges. They lament the way the competition has been overshadowed by these accusations. However, they were contacted by prominent figures in education, the arts, sport, law, media, science and politics, who endorsed their decision and refuted the allegations against Loach and Rosen. They also thank the public for the kind messages of support they received from them. Loach has been a member of the charity’s Hall of Fame because of his work with them. The charity says of Loach and Rosen that

As award-winning icons in their respective fields, it is very exciting for us that Ken and Michael have agreed to be judges. But equally important is the compassion we have seen them show to people – of all races and religions – who our charity is here to help.

Mike rightly describes Riley and her fellows as bigots. They are, in the sense that they are utterly intolerant of the opinions of others. They have consistently tried to silence and deplatform supporters of Jeremy Corbyn by smearing them as anti-Semites, even self-respecting Jews like Michael Rosen. However, Riley isn’t concerned about real anti-Semitism from outside the Labour party. She is silent when people send her examples of such to her Twitter feed. Mike gives two such cases. One is a Tweet from the Prole Star asking her what she has to say about a video contained in the Tweet. This shows the islamophobe Tommy Robinson greeting his followers with ‘Shalom’ – the traditional Jewish greeting – and asking them to send money so he can continue his work of destroying the White race. Robinson is a gentile, and this is a reference to the notorious anti-Semitic conspiracy theory about Jews. Robinson’s probably joking, but this isn’t funny, just grossly offensive.

Derek Lucas sent Riley and the noxious editor of the Jewish Chronicle, Stephen Pollard, a Tweet from the Auschwitz Memorial. The Museum was appealing to Amazon to take down from the book store real anti-Semitic books. These included one by Reinhard Heydrich, the Nazi governor of Czechoslovakia and one of the chief organisers of the Holocaust, and three by the Nazi ideologue, Alfred Rosenberg. One of these was an explicitly anti-Semitic piece with the title, The Jew and His Trace through History. And another was The Sins of High Finance, which you can guess is about the Jewish control  of capitalism. There’s no question that these books should not be for sale. But Riley has said that she’s not interested in anti-Semitism outside the Labour Party. And so she’s silent about these real works of anti-Jewish hatred, by men who were active in the Jews’ mass murder.

Mike is currently fighting a libel action against him brought by Riley, who wishes to silence him and a number of others for the horrendous crime of blogging about her alleged bullying and smearing of a vulnerable schoolgirl as an anti-Semite. Because, surprise! Surprise! – the girl also dared to support Corbyn on line. Mike states that it is important that he win, so he can very publicly defeat her and her wretched bigotry. He therefore ends his article by appealing for donations and giving details how people may give them, if they choose to do so.

It’s excellent that Show Racism the Red Card has stood up to the real bullies in this, and backed Loach and Rosen. I have no doubt that they’ll be excellent judges.

And Riley’s silence on real Nazism and anti-Semitism would seem to indicate that she’s the real bigot in all this.

See: https://voxpoliticalonline.com/2020/03/06/anti-racism-charity-defies-bigots-like-riley-retains-loach-and-rosen-as-competition-judges/

Big Banks Call for Wall Street Deregulation to “Fight Coronavirus”

Published by Anonymous (not verified) on Sat, 07/03/2020 - 7:46am in

As coronavirus panic hits the U.S., a financial lobbying group is attempting to use the crisis to push through the deregulation of its industry. The Bank Policy Institute (BPI), a Washington-based lobbying organization representing many of the nation’s largest banks, released a set of proposals this week, the most important of which recommends that the Federal Reserve lower capital requirements to zero. This would mean banks could lend an unlimited amount without having any assets or wealth to back it up. It also advocated relaxing the so-called “stress tests” that force banks to show that they can withstand economic shocks. This, it claims, would help America fight the COVID-19 virus. The report’s lead author was BPI CEO Greg Baer, former Managing Director of JP Morgan Chase.

The recommendations have been condemned as incoherent and “transparently opportunistic” by Jeremy Krass of the University of Michigan School of Business. “The whole idea of capital requirements and stress-testing banks is to make sure they have enough cushion to absorb losses” in a period of economic crisis, Kress told the Washington Post. Now that the economy has gone into a sudden shock, Wall Street wants those regulations lifted.

The government itself is also trying to force through measures that it dubiously claims would help fight the coronavirus. Earlier this week President Trump called on Congress to enact a large tax cut and pushed Democrats to support it.

These efforts perfectly encapsulate the idea of the “Shock Doctrine” that author Naomi Klein laid out in her 2007 book of the same name. Klein argued that the wealthy elite use the confusion caused by economic and other disasters to quickly force through pro-free-market legislation that would otherwise meet with widespread and coordinated opposition. As she said, “the idea of exploiting crisis and disaster has been the modus operandi of [economist] Milton Friedman’s movement from the very beginning – this fundamentalist form of capitalism has always needed disasters to advance.”

“Some of the most infamous human rights violations of this era, which have tended to be viewed as sadistic acts carried out by antidemocratic regimes, were in fact either committed with the deliberate intent of terrorizing the public or actively harnessed to prepare the ground for the introduction of radical free-market ‘reforms,’” she explained.

Klein cites Hurricane Katrina – where the Bush administration rushed through privatization and charter school bills for New Orleans while residents were reeling from the devastation – as a perfect example. Going further back, Chilean dictator Augusto Pinochet used his coup against President Salvador Allende to turn Chile into a free-market, neoliberal experiment almost overnight, over the protestations of ordinary Chileans, whom he suppressed with overwhelming force.

The stock market is in serious decline amid fears that the coronavirus will disrupt international supply chains; the Dow Jones index plummeted nearly 1,000 points yesterday. Yet, as the Center for Economic Policy Research’s Dean Baker has noted, the stock market is a very poor indicator of the economy’s current and future health. It is, however, a great gauge on how the top one percent are faring. Stocks also tend to surge after natural disasters (like the 2004 Indian Ocean tsunami) or when conservatives win elections (in December, British banks and weapons manufacturers’ share prices jumped after Boris Johnson beat Jeremy Corbyn). This is because corporations, ignoring the devastation, expect big orders to rebuild or to destroy.

Today the number of COVID-19 cases worldwide reached 100,000, with 3,461 recorded deaths. In response, the Himalayan nation of Bhutan closed its doors to tourists altogether, Starbucks announced it would no longer allow customers to use their own cups due to concern about contagion, and the world’s smallest country, the Vatican, recorded its first case of coronavirus. In the U.S., 259 people have been infected, and 14 have died.

While emergency funding to combat the virus will be passed today, the American response has not been swift. Workers have not been guaranteed full sick pay while quarantining, leading to a situation where many poorer citizens will have to choose between doing the right thing and going broke. A Miami resident returning from China was presented with a $3,500 bill after reporting his flu-like symptoms to medical staff, leading to fears that a lack of universal healthcare will help the virus spread. Analysts, however, appear more concerned about the health of stock prices than the health of the nation. CNBC’s Rick Santelli suggested infecting the entire population with COVID-19 so nobody would have an excuse to miss work, thus effectively sacrificing the country for the sake of the economy. While there are many economic steps the United States could take to help the situation, deregulating Wall Street might not be the most necessary. 

Feature photo | A pedestrian wears a surgical mask on a busy street in mid-town Manhattan, as concerns grow around coronavirus, March 3, 2020, in New York. Bebeto Matthews | AP

Alan MacLeod is a Staff Writer for MintPress News. After completing his PhD in 2017 he published two books: Bad News From Venezuela: Twenty Years of Fake News and Misreporting and Propaganda in the Information Age: Still Manufacturing Consent. He has also contributed to Fairness and Accuracy in ReportingThe GuardianSalonThe GrayzoneJacobin MagazineCommon Dreams the American Herald Tribune and The Canary.

The post Big Banks Call for Wall Street Deregulation to “Fight Coronavirus” appeared first on MintPress News.

Too Good To Be True

Published by Anonymous (not verified) on Fri, 06/03/2020 - 9:58am in

"USD-backed stablecoin is 10x better than your savings account," runs the headline on an unsolicited press release in my inbox yesterday. And it goes on to explain:

The average interest rate for savings accounts in the US currently stands at 0.09%, with some German banks even charging negative interest rates.

Universal Protocol, a coalition of leading blockchain organizations, including Uphold, Cred, Blockchain at Berkeley, and Bittrex Global, has recently introduced interest rates of 10% p.a. for its USD-backed stablecoin UPUSD. 

Ok, so they are issuing an altcoin at high interest rates. Why are they comparing this with FDIC-insured savings accounts?

The UPUSD is a fully-transparent digital asset that is collateralized 1-to-1 with US dollars and held at US-domiciled, FDIC-insured banks. 

FDIC-insured banks don't hold digital assets. They hold US dollars. So this should read "collateralized 1-to-1 with US dollars held at US-domiciled, FDIC-insured banks." Perhaps the redundant "and" is a typo?

But even when corrected, this statement is so misleading it amounts to mis-selling. It implies that anyone who invests in this altcoin benefits from FDIC insurance. This is not the first time I have seen this claim made about cryptocurrency investments. It wasn't true last time, and it isn't now.

FDIC insurance protects the customers of regulated US banks from losses if the bank fails. Currently, the insurance only covers US dollar holdings of up to $250,000 per depositor, institution and ownership category. Universal Protocol presumably has corporate accounts, which are an ownership category: these would thus be covered up to a maximum of $250,000 per bank (not per account).

Universal Protocol's website says its "mission" is to bring 100 million new users into cryptocurrency.  Assuming that the minimum a user can hold is one UPUSD, this would mean Universal Protocol holding $100m US dollars in FDIC-insured bank accounts. The US has more than 5,000 FDIC-insured banks and savings institutions, so it would in theory be possible for all of this money to be distributed across US banks. However, managing hundreds of banking relationships would be an enormous overhead. I suspect that if it comes anywhere near succeeding in its mission, Universal Protocol will find that ensuring FDIC backing for all of its USD reserves isn't something it really wants to do.

However, currently the reserves backing UPUSD are far below the FDIC limit. This is from the UPUSD page on Universal Protocol's website:

The stablecoin is underpinned by reserve management developed by Uphold, the world’s most transparent digital money platform, which has handled nearly $4 billion in transactions and publishes its assets and liabilities in real-time.

Uphold publishes its reserve holdings on its website. Tier 5 is described as "a series of tokens and stable coins issued by Universal Protocol as part of a new universal transparent reserve standard which features innovative safeguards like recoverability and inheritability." The three coins listed here are UPUSD, UPBTC and UPEUR. At the time of writing, UPUSD in issue are valued at $60,686.56. If these coins are fully backed by USD as Universal Protocol claims, then this is the amount of USD reserves currently held in banks. So they have some way to go before their claim that the reserves are fully FDIC-insured starts to look shaky.

But there is a much bigger problem with Universal Protocol's implied claim that UPUSD investments would be FDIC-insured. Uphold's description of UPUSD says this:

U.S. dollars are held at banks located in the United States with the intention of being eligible for FDIC “pass-through” deposit insurance, subject to applicable limitations.

Pass-through insurance applies when a bank has a fiduciary duty towards a third party, for example if it is acting as custodian for third party funds. It does not apply to investments. If pass-through insurance were to apply to customer UPUSD holdings, therefore, the USD reserves backing them would have to be held in some kind of custody account on behalf of UPUSD holders. The crypto exchange Gemini, for example, explicitly states that it is a fiduciary and custodian for USD deposits, and on that basis advises customers that it intends their deposits to be eligible for pass-through insurance. Here's how Gemini describes its management of USD deposits:

Your fiat currency deposits are: (i) held across our Customer Omnibus Accounts in the exact proportion that all Gemini Customer fiat currency deposits are held across our Customer Omnibus Accounts; (ii) not treated as our general assets; (iii) fully owned by you; and (iv) recorded and maintained in good faith on our Exchange Ledger and reflected in a sub-account (i.e., the Fiat Account of your Gemini Account) so that your interests in our Customer Omnibus Accounts are readily ascertainable. Our records permit the determination of the balance of U.S. dollars for a particular Gemini Customer as a percentage of total commingled U.S. dollars held FBO all Gemini Customers in all Customer Omnibus Accounts in a manner consistent with 12 C.F.R. § 330.5(a)(2).

Uphold's equivalent paragraph appears to be this:

We maintain at all times a fiat currency deposit balance for the benefit of users that hold Universal Stablecoins that is equal to or greater than the amount of Universal Stablecoins issued and in circulation. You can view the balance of U.S. dollars, Euro or other fiat currency on Uphold pegged to the respective Universal Stablecoin and the amount of Universal Stablecoins held on the Uphold Platform on our Transparency Page.

Gemini specifically says that fiat currency placed on deposit belongs to the customer. But Uphold makes no such statement. Nor does it describe itself anywhere as a fiduciary or custodian. The Transparency Page discloses Universal Protocol's total stablecoin issuance and associated reserve balance, not individual customer reserve balances. And throughout their documentation, both Uphold and Universal Protocol repeatedly refer to the US dollars held in banks as "our reserves". That's not a custodian relationship.

The fact is that buying UPUSD isn't remotely similar to placing dollars on deposit with a custodian intermediary. It is investing in publicly-traded digital assets for profit. FDIC pass-through insurance does not apply to other USD-backed publicly-traded investments such as mutual funds. It therefore seems unlikely that UPUSD purchases will be eligible for FDIC insurance. Unless FDIC says otherwise, those buying UPUSD should assume that they are uninsured.

And it gets worse. Not only are these investments probably uninsured, they are also high risk, complex and opaque. And the returns on them aren't anything like as good as Universal Protocol claims.

Simply buying UPUSD doesn't earn you any interest. To earn a return, you have to lend it out using the Uphold Earn app, also known as Cred Earn. And the interest rate you get depends on the type of asset you lend. Cred Earn says that Uphold members can earn up to 10% interest when they loan certain digital assets to CRED. Currently, the digital assets that can be loaned are BTC, XRP, ETH, Euro, USD and Gold. The interest rate you get depends on the type of asset you lend out. To get 10%, you have to lend BTC. Thus, to earn 10% interest you have to exchange a stablecoin backed 100% by USD reserves for a highly volatile cryptocurrency. I could find no evidence in Cred's marketing material that 10% could be earned in any other way. So Universal Protocol's claim that its USD-backed stablecoin enjoys interest rates of 10% isn't really true.

There is good reason for the promised returns to prove elusive. Browsing Cred's website finds this:

Cred offers sub-10% APR on loans, not 25% like banks and credit card companies.

Clearly, it isn't going to pay anything like 10% on most deposits. Everything except BTC earns 3-5%. If the average loan rate is 8-10%, that is a respectable margin. But is an interest rate of 3% really sufficient to compensate investors for the loss of FDIC insurance, when online banks are offering between 1.5% and 2% on FDIC-insured accounts?

And then there is the nature of the lending on which these somewhat underwhelming returns depend.
When you lend your UPUSD, or BTC, or whatever, you aren't lending it to Uphold or Cred. You are lending it to third party borrowers. This was CredEarn's answer to the question "What do you do with my crypto assets?"

Cred offers crypto lending on a collateralized and guaranteed basis. Your crypto assets are used to lend. Cred acts as an intermediary between borrowers and lenders.

Cred says that borrowers borrow under its own credit line against cryptocurrency collateral. But the funds it lends out aren't its own. Unlike a bank, it physically transfers funds you have chosen to lend out into its lending pool:

Loan assets are swept from customer accounts on the 1st and 15th of every month. For example, if you pledge assets in the week of Jan 28th, funds will be removed from your Uphold wallet on February 1st and you will start earning interest that day (February 1st). If you pledge on February 5th, the assets will be swept from your account on the next funding date - February 15th - and you will start earning on Feb 15th.

And unlike a peer-to-peer lender, you won't know who borrows your funds or what they use them for. All you are told is this:

Your pledged assets are used to lend to and transact with a variety of customers, including retail borrowers and money managers with well-established track records.Cred does not lend to short-sellers.

Cryptocurrency lending is not like bank lending. People don't borrow cryptocurrencies to buy cars or houses, or even to fund business ventures. No, they borrow cryptocurrencies to trade them for other cryptocurrencies, often at very high leverage. Cred partners with crypto exchanges such as Bitbuy and Bittrex Global, which don't offer margin lending facilities to traders. It's not difficult to work out where your funds are going.

Furthermore, the message on the Earn screen saying what Cred does with your pledged assets also appears on the Borrow screen. So it seems that Cred lends out the crypto assets that borrowers pledge as collateral. And you thought your funds were safe?

The press release I received misleadingly presents UPUSD as a high-interest substitute for FDIC-insured US dollar bank accounts. Nowhere does it say that UPUSD might not be covered by FDIC insurance. Indeed, by saying UPUSD is fully backed by USD reserves in FDIC-insured banks, it gives the impression that this investment is as safe as an insured savings account. It also fails to disclose the fact that the advertised interest rate can only be earned by taking on considerable market and credit risk, and that investors' funds may be used for speculative purposes. It is hard not to conclude that the press release is intended to mislead naive retail investors into moving their funds from insured savings accounts to highly risky uninsured investments.

Before writing this piece, I informed Dan Schatt, chairman of Universal Protocol and (surprise, surprise) president of Cred, of my intention to warn the public that his product is in no way equivalent to an insured bank savings account, that investments would probably not be FDIC insured, and that investors would only earn the advertised rate of interest if they allowed their funds to be lent to margin traders at high leverage. I invited him to explain to me why I should not do this. I received no response. So here is my warning.

High returns always mean high risk. If someone promises high returns with no risk, they are selling snake oil. Don't be fooled. 

Did Subprime Borrowers Drive the Housing Boom?

Published by Anonymous (not verified) on Wed, 26/02/2020 - 11:00pm in

James Conklin, W. Scott Frame, Kristopher Gerardi, and Haoyang Liu

Editor’s note: When this post was first published, the chart labels for “Non-Boom Counties” were incorrect; the labels have been corrected. (February 26, 12:00 pm)

Did Subprime Borrowers Drive the Housing Boom?

The role of subprime mortgage lending in the U.S. housing boom of the 2000s is hotly debated in academic literature. One prevailing
narrative ascribes the unprecedented home price growth during the mid-2000s to an expansion in mortgage lending to subprime borrowers. This post, based on our recent working paper, “Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom,” presents evidence that is inconsistent with conventional wisdom. In particular, we show that the housing boom and the subprime boom occurred in different places.

Where Were the Subprime and Housing Booms?

The exhibit below provides a straightforward illustration of our main finding. The top panel maps U.S. county-level house price growth between 2002 and 2006. The bottom panel plots the growth in the share of first-lien purchase mortgages to subprime borrowers over the same period. The contrast between the two panels is striking. House price growth was fastest in the western part of the country, Florida, and the Northeast Corridor, while the fastest growth in the subprime share of purchase lending occurred in areas like the Midwest and Ohio River Valley. Simply put, the housing boom and the subprime boom occurred in different places.

Maps-a-b_correct

Multivariate regression analysis presented in the paper confirms the negative correlation between the growth in house prices and the increase in subprime share of home purchase mortgages at the county level over this period. This negative correlation is also shown to be robust to different regression specifications, time periods, house price indices, and credit score thresholds for defining subprime borrowers.

What Accounts for the Negative Correlation?

Our findings run counter to the traditional narrative of the 2000s housing boom: namely, that the growth in subprime home purchases led to the growth in house prices. One potential explanation for the negative correlation is reverse causality. That is, high house price appreciation may have made property increasingly unaffordable for subprime borrowers, leading to a “pricing out” effect. We present evidence in our paper that county-level house price growth had a negative and economically meaningful causal effect on the growth in the share of subprime purchase mortgage lending at the county level between 2002 and 2006. Moreover, using the Federal Reserve Bank of New York

Consumer Credit Panel, we find that higher house price growth lowered the relative likelihood of a subprime individual becoming a homeowner. Taken together, these findings are consistent with a pricing out effect.

Were Subprime Mortgages More Likely to be Fraudulent?

While the growth in subprime mortgage lending was not a principal driver of the U.S. house price boom in the 2000s, it may still have played an indirect role by facilitating activities that have been linked to the boom. The literature has focused on two such activities:

speculation by real estate investors; and

mortgage fraud
in the forms of appraisal inflation and income or occupancy misrepresentation. For this post we will focus on our findings related to appraisal inflation. Results related to other fraudulent lending and speculation activities can be found in the paper.

We identify appraisals as inflated if the difference between the appraised value and the estimated value at origination from Lewtan’s (ABSNet) proprietary automated valuation model (AVM) is at least 20 percent above the average of these two value estimates. The next chart plots the share of privately securitized home purchase mortgages that we identify as having inflated appraisals for boom and non-boom areas, distinguishing between those for prime and subprime borrowers. (Boom counties are defined as those with home price growth exceeding 20 percent between 2002 and 2006.)

Inflated Appraisals not Overly Concentrated in Purchase Mortgages to Subprime Borrowers

There are two important takeaways. First, in boom areas, a significantly lower fraction of home purchase loans characterized by appraisal inflation were to subprime borrowers than to prime borrowers. Second, the incidence of appraisal inflation in home purchase mortgages does not appear to increase over time—for either subprime or prime borrowers—in either type of county. For boom counties, the overall share remains steady over time, while in non-boom areas the share decreases through the end of 2004 before picking up slightly.

In the next chart, we delineate the purchase shares of mortgages with inflated appraisals by prime and subprime borrowers separately. In both boom and non-boom areas the shares of inflated appraisals for prime and subprime purchase loans track very closely. This finding suggests that inflated appraisals were not overly concentrated in home purchase loans to subprime borrowers.

Inflated Appraisals Equally Common in Prime and Subprime Purchase Mortgages

Conclusion

Our findings run counter to the prevailing view of the U.S. housing boom in the first decade of this century. Specifically, we reveal that house price growth during this period was negatively correlated with the growth in home purchase lending to subprime borrowers. We further provide evidence consistent with this being a result of subprime borrowers being priced out of rapidly appreciating markets. We also show that seemingly fraudulent activities were not overly concentrated among subprime borrowers. Our analysis contributes to a
“new narrative”

that rapid U.S. house price appreciation during the 2000s was mainly driven by prime borrowers. Hence, policy prescriptions intended to limit access to credit for marginal borrowers may be insufficient by themselves to prevent a future housing boom.



James Conklin is an assistant professor of real estate at the University of Georgia.

W. Scott Frame is a vice president in the Research Department of the Federal Reserve Bank of Dallas.

Kristopher Gerardi is a financial economist and adviser in the Research Department of the Federal Reserve Bank of Atlanta.

Liu_haoyang2

Haoyang Liu is an economist in the Research and Statistics Group of the Federal Reserve Bank of New York.

How to cite this post:

James Conklin, W. Scott Frame, Kristopher Gerardi, and Haoyang Liu, “Did Subprime Borrowers Drive the Housing Boom?,” Federal Reserve Bank of New York Liberty Street Economics, February 26, 2020, https://libertystreeteconomics.newyorkfed.org/2020/02/did-subprime-borro....




Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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