Blockchain Inside Regulations Is NOT Innovation

I agree with the thesis of this article by William Mougayar.  However, in my view, a definitional point is in order to be fair to all involved.  Financial firms have innovated, or at least evolved their product lines.  As someone old enough to have had his tongue gummed up with stamp glue from mailing checks, things have indeed come a long way.

What is incompatible with regulated enterprises, though, is disruption. Regulators and their charges can hardly destroy their business model, after all.  As Shumpeter had pointed out way before we entered this current age of acceleration, creative destruction is not a gradual, but a traumatic phenomenon.  As for permissioned blockchains, I struggle to find parallels from the past, but I have this image of chariot makers adding speedometers to their horse drawn vehicles to compete.

 

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How does Leadership differ from Management?

This is a little off topic, but I was asked this question and I like my answer:

Leadership is about winning the minds and Management about carrying the bodies. In my experience, though, the two are so intertwined that they should be seen as one. If you try Management without leadership, you get no respect. If you try Leadership without management, you get nowhere.

 

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I need to retire my CFO (and stop buying love letters)

I am the CEO of Me&My Family Inc. We are in the business of growing our children and caring for our elders, producing fine vacation memories and advancing the cause of fine dining. Financial management is not one of our core competencies.

My wife, who is also, of course, the Chairman of the Board, has been serving as CFO. She writes checks and balances checkbooks; she runs spreadsheets to simulate future cash flows and models alternatives for card and home equity financing, saving for college and that condo in Florida.

Her other job as an accounting clerk at a big multinational is a blessing and a curse, as it gives her the know-how, but also the bad habit, of sophisticating our finances to death.  Me, I have bigger fish to fry. However, the Chairman is now fed up with all that clerical work and would like to get into loftier pursuits, like her soccer run, gardening and quality time with the CEO after the kids’ bedtime.

The thing is big shot CEOs have it easy, because scale lets them afford armies of financial optimizers who distill the tons of noise coming from their economic activities into the fine spirit of financial charts, interest maximization and perfect forecasting.

On the contrary, I, and most other consumers, face the bleak choice of trying, with scarce time and poor tools, to emulate the work of a CFO’s department or accept abysmally sub-optimal end results by letting things slide.  Not that my great grandparents did any better: they only had the cookie jar as a financial tool. At least their lack of choice saved them from insanity.

Over time, very large multinational and governments first developed, and/or purchased from banks, services to optimize their finances. Then, as technology improved, medium and small businesses got them too. High net worth individuals have long had a version of the same under the form of private bankers or family offices.

Isn’t it time that everyone could have a similar service, albeit without all the PowerPoint presentations or the wood paneled bank offices? That automated Nirvana would not be easy to achieve, all the more since the needs vary so much across demographics.

Let’s review what a financial service for today’s ordinary (NOT average) person would be:

  • Help me choose the most convenient (i.e. less expensive or more profitable) option.
  • Automate activities that can be algorithmically programmed, i.e. pay according to my wishes, accept or reject debit requests.  But not just that: BE my personal banker, for real.
  • Have a budget based on past experience plus my stated goals for the year and my lifetime. Have a forecast of how I am doing and will likely do versus budget if I stay the course. And revise my budgets accordingly,
  • Keep me informed of relevant issues. Help me be paranoid where I need to be (fraud alerts) and easygoing where I can (decide what I allow others to access of my stuff),
  • Show me these things in a language that I can easily grasp and use for decision making.  Understand in almost natural language what I want. Learn from me, at my pace and under my conditions, to customize on my terms, like my personal banker or corporate account officer would,
  • Scour the world (wide web) in search of best offers I decide I need, but do not try to sell me any crap,
  • Let me reach you (bank) whenever and wherever I want with the best quality of interaction. Read here “make the service mobile first”,
  • Respect my privacy above all else.

Now I know some of this stuff is present in some banking offers. I won’t make a necessary incomplete laundry list. Look for some out the hotbed of financial innovation that is the UK. It is still not all there and it is not commonplace.

Regular users should not even have to know it’s there, like my wife is not even aware her car takes care of the engine’s temperature and keeps tires inflated at the right pressure. That some of the above is cutting edge is highlighted by the modest expectations in this recent article (Three Online Banking Traditions That Are Extinct.)

It doesn’t help that banks sometimes profit from their customers inability to optimize their balances or choose the cheapest loan available.

Someday, however, this will sound as quaint as the service of love letter writing that could be purchased in Gabriel Garcia Marquez’s Colombia. I hope I get to see this soon.

 

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Killing Bitcoin

There is an interesting post with an industry  perspective from Daniel Masters on LinkedIn.  Read it here.

 

My view is no one is going to kill Bitcoin. Not that it cannot be done. It is just that doing it would kill so many other things everyone want alive that it is unthinkable. Another intriguing question is how the technology versus the interests of all actors will shape the path of the financial services industry in the short and long term. Also, unlike things like music players or hair replacement by cloning, where users have little emotional involvement and probably little philosophical stake in how the stuff works, finance (and BTC within it) carry a lot of emotions and public opinion, hence the fascinating interplay.

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Fedcoin Helpers

Following up on posts by David Andolfatto et al. on the issue of state sponsored digital currency, I came across the following article.  IBM is looking to support central banks in setting up some form o digital currency.  Whether or not it is the right approach, it seems to me that the arrival of industrial strength suppliers is good news.

Ultimately, even if taxpayers’ money is not put to the best possible use, community/open sourced alternatives will not be crowded out, but rather spurred by any large scale implementation.

Reuters article on IBM move here

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Which Fedcoin?

More FedCoin thoughts.
Actually I eerily coincide with Robert on most points, except for monetary policy.
If anything, the more transactions become frictionless, the less any monetary authority will have room for maneuvering. The minute the interest rate is not of my liking (and I like nothing worse than a negative rate) I would jump into bitcoin (or ECBCoin or SwissCoin) and arbitrage out. I have to give it some more thought to the implications.

 

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cryptonomics

David Andolfatto, Vice President of the St Louis Fed, published a most interesting post yesterday Fedcoin: On the Desirability of a Government Cryptocurrency. Andolfatto’s post is itself in reference to JP Koning’s Fedcoin piece of last October. Back then, I wrote a bit about that on a private email list that is usually devoted to topics relating to blockchain protocol design. I thought the Fedcoin thought experiment was interesting fodder for our monetary intuitions. Still do. So here it goes.

A central bank backed blockchain payments network for a national currency like the USD is a neat idea. It would, first of all, put digital cash on the map for good. And digital cash that trades at parity with an economy’s well-established unit of account is a far more useful medium of exchange than a volatile cryptocurrency like bitcoin. Andolfatto:

And so, here is where the idea of…

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