Random Thoughts – Randosity!

Everything wrong with Corporate America: Wells Fargo

Posted in banking, botch, business by commorancy on September 14, 2016

corporateUnless you’ve been out of touch, you’ve probably read the recent articles regarding Wells Fargo’s recent activity of illegally and silently creating over 2 million credit card and deposit accounts against unwitting Wells Fargo customers! If that’s not enough, Wells Fargo then rewards its executive for this illegal behavior with a $125 million golden parachute on departure. If not, let’s explore.

Wait.. What happened?

To catch you up… Wells Fargo’s Community Banking division, the division which currently is (until the end of 2016) headed up by Carrie Tolstedt, had instituted sales quotas on credit card and bank accounts. This mean that the sales teams had to sell and open a specific number of accounts each day, week or month. These quotas lead to 2 million accounts being illegally and silently opened against people who had no knowledge of the card’s or account’s existence. Effectively, this is identity theft, right within the bank where you do business (assuming you bank at Wells Fargo).

This fraud was uncovered recently by the Office of the Comptroller of the Currency and the city and county of Los Angeles. Unfortunately, this illegal activity by this well known and respected bank is now putting that bank under fire, scrutiny and loss of trust. While that scrutiny is now a problem for Wells Fargo reputationally, the bigger problem is that these execs (who are clearly not executive material) end up walking away with millions of dollars in their pockets as rewards for wrongdoing.

This is the #1 problem with executives and executive compensation in America. Executives can now create and engage in illegal schemes, see them through to execution, then walk away as if nothing happened with huge piles of ill-gotten money. Though, I’m quite sure this problem extends to all parts of the world in all executive roles. It’s just that in America, white collar crime like this gets away with a slap on the wrist, millions of dollars in compensation and a shiny new executive job at another corporation. I wouldn’t be surprised to see Carrie Tolstedt named CEO at a new company.

What happened to real law enforcement?

It seems that law enforcement is only needed if, as a person, you rip off $500-1000, run a stop sign, have a rear tail light out or speed. As a corporate executive, you get a pass. Unfortunately too, Wells Fargo is a huge bank which underpins a huge portion of the economy. While I fully agree that this bank and all of its executives should be brought up on major and serious charges of fraud with each and every executive held accountable, it likely won’t happen. If this bank is “taken down” by the feds in rightful retaliation over this level of fraud, the economy will tank.

It’s a catch-22 situation. The government knows that if they even begin to touch Wells Fargo in any legal action, the economy will take a huge nosedive. Seriously, taking down a bank as big as Wells Fargo will have such far reaching ramifications across the globe. It could probably even spark a global financial meltdown. This is the reason AIG wasn’t taken down (or allowed to die) for its role in the housing bust and, instead, was actually bailed out by the government.

For this reason, the Consumer Financial Protection Bureau (CFPB) has instead only lightly fined Wells Fargo $185 million (only slightly more than the $125 million payday that Carrie Tolstedt walks away with) and is mostly chump change to a company like Wells Fargo. Though, the CFPB claims Wells Fargo’s $185 million is the largest fine it has ever levied. That may be the case, but it really is chump change to this bank. The “largest fine” statement is also just posturing for public approval. If you want to impose a truly large fine, impose a fine that makes a bank like Wells Fargo think twice about doing something like this again, like $1 billion. Worse, Wells Fargo likely won’t even have to pay the whole $185 million. Wells Fargo’s lawyers are likely to appeal and get it reduced (in a closed door agreement) to like $25 million (or less).

Let’s consider that the government bailed out Wells Fargo not that long ago with $25-36 billion in cash that Wells Fargo didn’t really need. So, it’s not like $185 million will even make a dent in the books at Wells Fargo. Wells Fargo likely made more than $185 million in interest alone holding onto those billions in federal aid, so this is basically the government slapping Wells Fargo on the wrist and taking back only the tiniest bit of money that Wells Fargo made off of holding onto that bailout money. Not to mention how that bailout money was even used… let’s just say, it was used less for bailing anything out than for advancing Wells Fargo’s business plan.

This is the reason the feds won’t touch banks when they run afoul with illegal and fraudulent activities. If Carrie Tolstedt and John G. Stumpf (CEO) see the inside of a courtroom over this issue either personally or as part of a Wells Fargo lawsuit, I’d be totally surprised.

Disavowing Knowledge and Placing Blame

John G. Stumpf has now firmly placed the blame on his staff for this activity. He is now attempting to disavow any knowledge of this scam. I call bullshit on that. You’re the CEO, if you don’t know what your direct reporting staff are doing with their teams, then you shouldn’t be a CEO. Sales goals are not set by the sales staff. Sales goals are set by the management team full well knowing what those sales goals might lead staff to do to make those sales numbers. When sales goals are too aggressive or too unreasonable or outright stupid, then corners are cut to make the numbers. And, that’s exactly what happened… corners were cut.

If a handful of accounts were created by one or two people, then you might be able to disavow this activity as rogue sales staff. But, since 2 million of these accounts were created by apparently 5,300 now-fired staff (more than a handful of people), there is no way that either Carrie or John can claim no knowledge of this activity or claim rogue staff. They may have even condoned the activities.

This is not only an illegal use of the bank itself, but it’s also an accounting scandal in and of itself. It means that Wells Fargo illegally reported earnings on accounts that shouldn’t have existed knowing that they shouldn’t have existed (hello KPMG). So, not only is the creation of the accounts a problem, it also means that Wells Fargo’s books now need to be 100% audited for any other illicit reporting activities. If this was knowingly going on directly under Wells Fargo’s executives’ noses (and KPMG’s noses), what else did they condone? This means restated earnings. Someone needs to crack those books open and now.

Eliminating Quotas by the end of 2016?

Seriously, Wells Fargo you were just called on the carpet for illegal activity, yet you are not stopping these sales quotas immediately? I mean, as in today? Wells Fargo has stated they will stop them at the end of 2016 coincidentally when Carrie Tolstedt walks away with her $125 million golden parachute.

Why wait an extra 3 months to cancel that sales quota activity? Why keep Tolstedt on board and reward her all the while keeping these quotas in effect? It’s what got you into trouble in the first place. If the sales team members were told to create fake accounts under real people’s names, what else might they be doing under these sales quotas? No, these quotas need to stop today, not in 3 months.

What are we teaching our children?

Here we have a well respected organization (or so we thought) … a bank … that is supposed to handle our money efficiently and we find a scam under the hood. That the money they have made off of that scam is diverted by the millions into executive salaries and compensation. This teaches our children that so long as we attend an Ivy League school, complete with a graduate degree in business and get a C-level executive job, we can line our pockets with cash no matter what illegal activities we perform against the public. And, we get away scott-free and never see the inside of a courtroom.

This is the whole reason executive compensation must be revisited and must also become regulated by the government, not by the corporation. If you make it to C-Level executive, then your position should be accountable exclusively to the government. Unfortunately, this goes against the tenets of private enterprise. But hey, I think it’s abundantly clear that there is no such thing as corporate governance. We’ve had so many of these issues year over year (Enron, Volkswagen, FIFA, Toshiba, etc). And now, we add Wells Fargo to that list and it’s time to put a stop to it. It’s quite clear that corporations cannot and will not govern themselves in an appropriate manner. When money is involved, stupidity reigns supreme. Working at a bank like Wells Fargo is a dream job for any would-be crook. You can basically set up any sort of ponzi scheme and completely get away with it. This is what we are teaching our children.

It must also become that each corporate executive is now held personally and legally liable and accountable for any wrongdoing performed under their watch as an executive for any company they govern (going all of the way to the CEO). The business itself should be held legally liable separately from any actions brought against each individual executive. No longer should ‘incorporation’ or ‘LLC’ shield executives from liability. No insurance policies should be issued or allowed to cover for such illegal activities. And… any ill-gotten gains received during their reign over illegal activities must be immediately forfeited to the government as a fine. Let these crooked C-level executives lose everything they own and end up in federal prison. These people do not deserve future jobs as executives.

There is no way Carrie nor John can deny knowing what went on in their organization. Only executives can require mandates which enact sales quotas over these types of sales activities. This meant that they were fully and completely aware of the activities of their sales staff. There is just no excuse for these types of behaviors from executives. However, it’s even worse that these corporations reward their executives with huge cash payouts when they allowed illegal activities to occur.

Bitcoin: Scam or Currency?

Posted in banking, botch, business by commorancy on January 12, 2013

Note, if you’re not really into philosophical discussions about economics, money and technology, this is probably not the post you’re looking for.  Also, if you’re looking for technical details on exactly how Bitcoin is implemented, I suggest you seek your research elsewhere.

[Update for 3/1/2014] — Mt. Gox files for Bankruptcy

Mt. Gox, a bitcoin exchange located in Japan, has filed for bankruptcy stating the loss of around 744,000 bitcoins from its exchange wallet. More info in this Reuters article. How this loss occurred is up for speculation. Mt. Gox claims its loss stems from a known flaw in the Bitcoin protocol. Bitcoin protocol advocates claim the wallet that Mt. Gox used was designed so that it exacerbated the known but usually rarely occurring flaw, which ultimately led to the massive loss of the Bitcoin from Mt. Gox exchange. Because of the massive amount of debt incurred as a result of its loss (among other debts), the exchange has ceased operations and anyone who had Bitcoin (or any other currency) deposited there may be out of luck.

What this says is that is several things. The Achilles heel of Bitcoin is its decentralization and the lack of properly protected wallet systems. The fact that there is no authority to advocate for depositors when companies like Mt. Gox go bankrupt leaves Bitcoin in a majorly problematic state. This situation also advocates for using personal wallets stored locally over using third party companies where situations like Mt. Gox can arise.

Because of the decentralized currency, there is no one to turn to when your Bitcoin goes missing from a large privately run exchange. Situations like Mt. Gox are exactly the type of setbacks that prevent Bitcoin from really becoming a solid workable useful currency.

If you had Bitcoin deposited in Mt. Gox, I’d like to hear your experience. Please leave a comment below describing your experiences with Mt. Gox or any other exchanges.

Disclaimer

This article is written with the sole intent to discuss whether Bitcoin can succeed as a currency at all or whether it’s a scam.  This article is not here to discuss the technical merits of Bitcoin, how a Bitcoin is specifically implemented technically or whether those technical details are a valid.  Once again, this article is here to discuss if a Bitcoin has any value in the marketplace or is merely a scam.

If you really want to know how Bitcoin is implemented, there are many many technical white papers that discuss this in great detail and that are available from the below mentioned Wikipedia article and through Google searching.  This article’s author leaves it up to the reader to do the technical research on the Bitcoin implementation details if you are interested.  If you’re looking for that level of detail, you’re not going to find it here.

What is Bitcoin?

Bitcoin alleges itself to be a, more or less, a digital / electronic currency that uses decentralized electronic ‘banking’ techniques involving digital signatures to validate each coin and approve transactions (to validate authenticity of said coin).  As Wikipedia states about Bitcoin,

Bitcoin (abbrvBTC) is a decentralized digital currency based on the open source protocol created by a pseudonymous developer named Satoshi Nakamoto.[1] It is subdivided into 100-million smaller units called satoshis.

This technical implementation was designed to solve the problem of exact digital copies when in the digital form. Therefore, the way each Bitcoin is created means that it is unique, individual and can’t be double spent by the same person.  So, when you own a Bitcoin, only you owns that unique coin and no one else (until you spend it).

Want more details? Follow the Wikipedia link on Bitcoin or search Google.

What is a currency?

Bear with me as some of this may seem very simplistic, but we need to start simple and at the beginning to understand the issues involving Bitcoin. Currency is, simply, any object or thing that takes on a given value.  More specifically, it becomes a currency when many of these objects are mass produced that all look and feel identical.  For most currencies, we equate the value with these tangible objects by ‘size’ or ‘denomination’ of the object.  Most of the currencies in play today work with two types of duplicated objects: paper ‘bills’ and flat metal cylinders called ‘coins’.  These are tangible physical duplicated but unique objects. The denomination is then a specifier of that specific duplicated object.  In the US, the currency is named ‘dollar’.  But, it could be just as easily named ‘fred’ or ‘mxyzptlk’ (except that that word is probably trademarked by DC comics).  So, as in the US Dollar, it’s a piece of paper marked with the number 1 and the words ‘one dollar’ or a coin struck and marked with the words ‘one dollar’.   These unique objects are then the basis of a piece of currency or ‘money’. So, while these are the fundamentals to begin a currency, it doesn’t establish it as valid currency until other criteria have been met.

Simply striking out objects labeled with this information doesn’t make it become currency.  For example, you can mint any coin you like, but the simple act of minting a coin doesn’t make it worth money.  After all, you can go buy child’s play money or grab some of Hasbro’s Monopoly game ‘money’, but these are mere pieces of paper with ink and hold no value in a currency market.  For casinos, they have chips and metal coins, but again these hold no value until exchanged within the casino back to US Dollars (or whatever currency that that casino provides).  For example, while a casino will accept their own tokens and coins to play their games, these tokens and coins hold no value outside of the casino (except in the case as a collectible or because of they contain rare earth metals as discussed below).

So, what makes a currency become legitimate legal tender? 

Basically, it requires an ‘authority’ to decree that the currency exists, issue the currency and usually a government to back the currency.  By ‘backing’, I don’t mean that there’s something tangible backing up the currency (like gold or land), I mean that the government has a gun-wielding military force at its disposal.  Having such force at someone’s disposal gives that someone power.  With power comes the ability to enforce rules.  And then, rules establish policy, policy establishes currency, currency establishes an economy along with such things as capitalism and that establishes the ability to buy and sell things.  Keep in mind that buying and selling will happen with or without currency.  It’s just that currency makes it easier and more standardized.  So, instead of having to hand over a  bushel of apples in trade for a bail of hay for your horse (i.e., random bartering), you can hand over 25 dollars instead.  And because many people have all handed over around 25 dollars for a bail of hay, that establishes that a bail of hay is ‘worth’ around 25 dollars.  That also establishes at once, the value of 25 dollars and the value of a bail of hay.  It doesn’t necessarily establish the value of a bushel of apples until the apples are ‘sold’ multiple times at or close to a certain price.

That means people have to ‘buy into’ that that piece of currency paper (or coin) has a ‘value’ and that that ‘value’ is established by the words printed on it, along with the issuing body’s ability to enforce that this piece of paper is now considered ‘legal tender’.   That value is then further established by how much it can buy.  Remember that policy establishes what is ‘legal’ and the power to enforce that policy is what puts the power behind that piece of paper which is then considered ‘legal tender’.  The government and the issuing body (not necessarily the same thing) lend legitimacy to the currency by power, policy and the ability to enforce policy.  Note that tangible currency created by decree and enforced by power is called ‘fiat currency’.

Of course, ‘the people’ have to allow that government to wield the power.  The reason the people give the government power is in exchange for protections. So, in exchange for allowing the government to remain in power, the government will provide protections for the people in the form of such things as a police force, a fire department, a military and some types of health services.  Of course, these protections aren’t without costs (i.e., read taxes or payments using, of course, the decreed currency).  But, the protections are established by the government.

One additional thing is that not only does the government and the issuing body have to recognize the currency as valid, but so do other worldly governmental bodies.  So, a currency must be recognized as valid by other governments to be useful in those other locales. It’s not an absolute requirement, but unless other governmental bodies recognize the currency as valid, it cannot be used in exchange for other currencies.  Without being recognized by other countries, this then makes it hard to, for example, buy things from other countries with our currency. Once recognized, however, the currency can then be exchanged to other forms of currency around the world and purchases can be made.  And with that, foreign currency exchange is born, which is a much more lengthy discussion than is required here.

The bottom line is that ‘the people’ give their trust to the government to both decree and ‘back’ the currency as valid.  So then we all have to agree that the ‘dollar’ has value, what that value is and how much it will ‘buy’.

Digital vs Real World currency

Bitcoin does not have a governmental power behind it.  It does not have a governmental sanctioned entity issuing the currency.  It is not recognized by any governmental force as a legitimate or legal currency.  It was developed by a technical engineer with an open standard protocol and is backed by nothing other than a relatively strong encryption algorithm and a set of established exchanges (where to buy Bitcoin).  So, as long as the encryption algorithm cannot be cracked, each issued Bitcoin is a unique and individual entity.  If it ever is cracked, the whole Bitcoin system falls apart.

Let’s compare the difference between a tangible ‘dollar’ and a Bitcoin.  A tangible dollar is a physical unique piece of fiat currency.  That is, it’s a tangible thing you can put in your pocket, it has a unique serial number (at least the bills have these) and are so stamped by the issuing authority. Ignoring for the moment that these tangible ‘dollars’ can be reproduced (read counterfeit) by unauthorized entities, each ‘dollar’ is its own unique entity.  Counterfeit bills are usually identifiable because the ‘original’ issuer uses anti-counterfeit techniques that establish parts of the bill which cannot be duplicate easily.  However, counterfeiting is a problem with any currency.  Or, at least, in real world currency.  That’s why bills and coins are redesigned periodically.

So, when you have ten tangible dollars, they are real physical bills.  In a digital world, these rules can’t apply.  In a digital world, it’s all 1’s and 0’s.  These can be duplicated infinitely and freely without knowing that that digital file was ever duplicated.  So, for example, attaching and emailing a photo of your dog to your friend makes a copy of that photo.  And that photo is the exact same as the photo on your computer and the exact same as the one you posted on Flickr.

With a digital currency, this is a problem.  Enter Bitcoin.

Why Bitcoin?

Bitcoin creates each coin uniquely through a computer algorithm that generates guaranteed unique coin entities and to prevent counterfeiting.  So, each Bitcoin represents one unique digital coin that stands on its own.  Each coin was created by an issuing authority using that algorithm and each coin is then registered in a decentralized database of outstanding coins.  So, whenever you spend that unique Bitcoin, the decentralized database will log that coin’s ‘transaction’.  However, like any currency, the transaction does not need to be recorded. In reality, to verify the legitimacy of any digital Bitcoin(s) when spent, it should be cleared with one of the transaction databases.  Otherwise, you risk that it may be counterfeit or double spent.  Because the coin was created using a basically un-crackable bitsize combined with each being unique and because each coin is officially registered with the decentralized transaction registry, that coin in theory can only be spent once per transaction.  So, even if you manage to copy the coin and attempt to give it away to someone else, it’s still only one coin no matter who owns or spends it.  In other words, duplicating the coin file into multiple files still only yields one coin to spend.  So, duplicating the coin’s file does not duplicate the number of coins that it is.  It’s still only one coin and is valued at whatever one coin is worth.  If you give away a copy of the coin to someone else, you’ve effectively just given them one Bitcoin and you’ve lost it.  Or, you will have lost it if they spend it first.  Again, if you want exacting details on how all of this is implemented technically, please read the Bitcoin Whitepaper.

Suffice it to say that the coins are allegedly unique and the transaction service prevents double spending.  So, it effectively makes it useable currency in the sense that each coin is unique like paper money.  Which, of course, is the sole goal of the whole technical implementation.. to mimick real world money in a digital way.

Before I get into the spending of Bitcoins, let’s step back and ask, “What legitimizes this currency?”  The answer is, not much.  The ‘currency’ is not yet recognized by any governments that I know of.  Therefore, it is not listed on exchanges with the dollar.  In other words, to exchange any other currency, such as the dollar for Bitcoin, you have to go to a Bitcoin exchange.  Bitcoins are not openly exchanged at regular exchanges.  So, you’re handing over dollars (or other legal tender) to a Bitcoin controlled exchange in trade for Bitcoins.

Think of this like going to a casino.  To get a chip to use in the casino, you have to go to that casino’s cashier and exchange your dollars for casino chips.  Therefore, you’re at the mercy of that casino to 1) remain in business while you play and 2) to retain the value of the chips while you’re playing.  So, if the casino goes out of business and kicks you out of the casino with chips in hand, those chips are worthless.  If the casino refuses to exchange the chips back to dollars, again, they are worthless.  If the casino decides that a ‘one dollar’ chip is now worth ‘one cent’, again, you’re at the mercy of the casino.  This is effectively Bitcoin.

Scam? You decide!

So, this is the place where some people see Bitcoins as a scam.  If you don’t personally recognize the currency as legitimate yourself, then you will only ever see it as a scam.  The fact that you have to go to a Bitcoin controlled exchange (regardless of being ‘decentralized’, read peer-to-peer) to change dollars (or any other currency) to Bitcoins is suspect.  Let’s get to the heart of the matter.  Exchanging real money for Bitcoin may simply make the originators of Bitcoin rich with ‘legal tender’ at the expense of people buying into the ‘Bitcoin’ idea as currency, but in reality is destined to fail and become worthless digital files. Where do those dollars go when handed over to that exchange?  How is the exchange rate determined?  These are all questions not easily answered.  Oh, I’m sure the people running the Bitcoin exchange will come up with some colorful answers, but the reality is that who really knows?  Unless Bitcoins become traded at a national exchange level and through exchanges not controlled by Bitcoin exclusive exchanges, then we really don’t fully know where the dollars or euros or whatever went after becoming Bitcoins.  Of course, the flip side of this is that you effectively ‘bought’ Bitcoins with your ‘real’ currency.  By purchasing a Bitcoin, that comes to another issue regarding collectibility, but that’s discussed below.

So, on the one hand you have legal tender which is established, recognized and sanctioned that you can really spend for real world items. You are taking that money and exchanging it for Bitcoin which has extremely limited uses cases, limited spend venues, questionable exchange rates, limited denominations coupled with low supply, no governmental backing, not being recognized by governments and other authorities and the high probability that it will be used for less than legitimate purposes, and this is presently what Bitcoin is.  Looking at all of this coupled with giving some random entity real money in exchange for ‘Bitcoin’ can be easily seen as a highly speculative scam.  It has a high probability to be or become a scam and, at the same time, make someone (or a few someones) very rich with real legal tender in the process… possibly your supplied legal tender funding violence or other unsavory uses.

On the other hand, you have a possible new digital currency that could succeed if it gains enough traction in various marketplaces.  However, the risk vs reward for Bitcoin is clearly too high for real currency use.  So, that leaves speculation and collectability almost the entire reason to buy into the idea of Bitcoin, if that’s a reason at all.

Ignoring the fact that each coin is unique and can’t be easily counterfeit, you have to consider what things you can currently buy with Bitcoins.  Since it’s not recognized as legal tender or even valid currency other than in very limited uses and by limited ‘businesses’, this currency is ripe for scam artists.  That means, legitimate businesses (especially banking) shy away from things that are not considered ‘legal’ or that reside in the fringe of ‘legality’. Any such legitimate businesses will opt for ‘legal tender’, such as the US Dollar.  So, adoption by legitimate business is a huge hurdle for Bitcoin.  Especially in the banking sector.

In addition, because Bitcoins are now being considered as the standard for online gambling uses (to thwart restrictions on the US dollar in online gambling), this further reduces the legitimacy of this ‘currency’.  That is, you can’t run to your local supermarket and buy a loaf of bread with a Bitcoin, but you can place an online poker bet with it.  You can’t run to your local car dealership and buy a new car with Bitcoin, but you likely can buy some drugs with it.  You can’t buy school supplies with your Bitcoin, but you probably can buy a handgun with it in an underground market.  This doesn’t spell good things for Bitcoin’s success or legitimacy as a currency. Because online gambling is one of the biggest scams out there right now, this use case doesn’t make Bitcoin look better.  Considering that most of the online casinos reside outside the US, US laws don’t apply to wagers made at those casinos.  So, even if you win big, there’s no protection from simply losing all of your Bitcoin when they choose not to give you your winnings (the most likely outcome) or the exchange rate has changed so much as to have lost any gains you may have won.  When you invest in Bitcoin to use at a casino, you’re effectively gambling twice: Once at the casino with your wager and again when you go to exchange your Bitcoin back to legal tender.

The fact that you were using Bitcoin, which have few protections anyway and which is then used to place a bet at an online casino leaves you ripe for losing everything you’ve given to the casino.  Meaning, you’ve lost your dollars to the exchange and you’ve lost your Bitcoins to the scam casino who’s just bilked you.  If you do manage to get anything out of the casino, you have to try your luck at the exchange and hope you can get legal tender back out at any kind of a decent rate.

Is Bitcoin Legitimate Currency?

None of these uses cases, no matter how technically well designed that this currency is, validates or legitimizes Bitcoin as a useful or legal currency.  Sure, it might be able to protect you from counterfeiting, but it will never protect you from being scammed.  And, if you are scammed, there is no one you can turn to to get your Bitcoin back, let alone get your US dollars back.  With the US Dollar, you can turn to your bank or your police both.  If you know who the other party is, you can sue.  With Bitcoin, all that is likely off the table.  In the  digital wild west, there’s no Sheriff in town here.  So, you lose your Bitcoins and they’re gone.  Neither the cops, nor the feds nor the banks will help as Bitcoin is not recognized as legal tender.  And, this is one of many hurdles involving the use of Bitcoin.

Of course, you might be able to sue the exchange where you gave your dollars for Bitcoin, but if there is a transaction record that can be produced that proves you were handed Bitcoin, then any lawsuits will be fruitless.  If you exchange money for any other good or service (digital or otherwise) and delivery can be proven through a transaction record, there is really nothing that can be done there legally.  That you gambled with your Bitcoin and lost is your problem.

Worse, what of the exchanges?  How are they managed or audited?  Who runs them?  Are they even audited?  In this case, who watches the watcher?  I’ve read a rather disturbing blog article at Nerdr.com about how at least one of the Bitcoin exchanges is manually altering the Bitcoin price to their own whim.  So, what does that say of the other exchanges?

Collectible Commodity vs Currency

Bitcoin faces another serious adoption problem: supply.  Built into the algorithm at the decentralized exchange is managing how much Bitcoin is in circulation at any one time.  So, if you want to obtain Bitcoins, you probably can’t get them from an Exchange until they are issuing new Bitcoin.  And since new Bitcoin isn’t issue often, that leaves you to find someone with Bitcoin willing to sell it to you outside of the exchange and likely at collectible prices (which brings up collectibility of Bitcoin). If you do manage to get it, you’re likely to pay the ‘collectible’ price for the Bitcoin.  Basically, as of this writing, $10-15 might get you one Bitcoin assuming you can even find someone willing to sell you coin.  And, that’s the problem, supply.

For a currency to succeed, it has to remain liquid.  That is, there has to be enough currency in circulation all of the time that people can get it when they need it.  If it cannot be obtained, it cannot be used as a currency.  Which then comes to the difference between Bitcoin being a collectible commodity and being currency.  Clearly, even the US Dollar has numismatists (or currency collectors).  And, here’s the problem.  Collectible value markets operate outside of the currency market.  So, for example, the face value of a one dollar bill is one dollar.  But, to a collector looking for specific markers, that ‘one dollar’ bill might be worth 1000 dollars as a collectible.  As collectors pull money out of circulation marked as a collectible commodity, it removes that liquid currency from the market and, thus, it cannot be spent as its face value.  This means that the issuing body has to make up for the currency pulled out of circulation as a collectible and replace that currency with new liquid currency.

Bitcoin faces this exact problem.  Speculation collectors are holding onto their Bitcoin as a collectible, not as currency.  They are speculating that the collectible value of the currency will rise and they will be able to sell it to another collector at a much higher value than the monetary face value of the Bitcoin.  Worse, because Bitcoin doesn’t have stamped monetary denominations, it makes it all the worse at determining the face value of a single Bitcoin, let alone the collectible value of it.

Basically, the speculative collectors are hording the Bitcoin as a commodity and preventing it from becoming and remaining liquid currency.  So, each time an exchange releases more Bitcoin into the wild, it’s immediately snapped up by collectors rather than going into liquid motion to be spent.  Speculative collectors are the biggest problem that Bitcoin faces today.  As there’s so little currency in motion, it really cannot be used as a currency.  So, it’s really become a collectible item for people to hold onto and not spend.  In fact, there’s so much more incentive to hold onto Bitcoin than spend it, it’s basically paralyzed as a currency.

Bitcoin’s future

The Bitcoin designer was so focused on making sure that Bitcoin was secure and, at the same time, scarce that he/she probably didn’t realize it would become paralyzed by speculative collectors.  The reality of low supply of anything only breeds one thing, collectors.  Collectors do not spend or trade.  They collect and hold with the intention of selling at a much much higher price much later.  The only way out of this paralysis is to release so much more Bitcoin into the wild that the collectors have no incentive to hold it any longer.  And this is exactly what Bitcoin must do to succeed as a currency.  This is also exactly what the US Treasury does to avoid the same paralysis of money movement with the dollar.  Note that the release of new Bitcoin has to be so much that it’s impossible for any one collector to afford to horde.  While it may ruin the market for collectibility of Bitcoin (and also kill any paper profits that collectors may perceive they have) and also lower the value of Bitcoin, it will force Bitcoin to become liquid again.  Until this happens, Bitcoin will never become a liquid currency that can be used for anything more than speculation and the occasional wager, assuming you can even find Bitcoin to buy or spend.

Personally, I wouldn’t invest in Bitcoin other than as a collectible at this point and even that is questionable due to the volatility of that market. Bitcoin has no real uses as a currency, other than perhaps at offshore casinos and other mostly unsavory purposes.  Even then, it may not protect you from the IRS or US authorities (if in the US) when you win at a casino.  Right now, it’s more or less a novelty investment and even then there are better investment vehicles that offer safer and higher returns.

Demise of the Bitcoin?

There is one other thing that could potentially destroy Bitcoin.  If the US Government (or any government) were to take the idea of Bitcoin and implement something similar (and easier) as a national digital currency sanctioned and issued by the Treasury department, this would likely destroy Bitcoin’s main objective, to become the defacto digital currency.  The one thing that a US digital coin cannot destroy in Bitcoin, however, is the anonymous nature of the currency, that Bitcoin is not issued by a government (it is outside of government control) and the peer-to-peer decentralized nature of it.  In the end, those pieces probably don’t really matter.  That the new digital currency works, that it is usable, that it can buy milk and eggs and pay rent, that’s what’s important.  Were the US to legitimize its own digital currency, businesses would adopt this en-masse and people and businesses wouldn’t look twice at Bitcoin thereafter.  A US digital coin would become the defacto standard for digital currency, at least in the US.  Bitcoin would then, as it is now, be relegated to a digital underground currency used for purchases where government sanctioned money cannot be used without penalties.

It’s just a matter of time before the US Treasury department wakes up.  As the saying goes, “Fight fire with fire”.  Creating a national digital currency solves a lot of problems.  It reduces the amount of paper and metal that it must mint saving money buying the supplies for the production of tangible money, it ushers in an even more solid digital economy and it gets rid of Bitcoin all at the same time.

Stupid Security Measures: autocomplete=off – How To Turn Off or Disable

Posted in banking, security, technologies by commorancy on April 16, 2012

While I’m all for some browser related security, this one feature is completely asinine because it’s so unpredictable, uncontrollable and stupidly implemented. This is the complete opposite anyone should expect from a quality user experience. Let’s explore.

What is auto-completion?

Most browsers today will automatically fill forms and password fields from locally saved browser login and password information (usually the field is yellow when automatically filled). This is called autofill or autocompletion. While I admit that storing passwords inside a browser is not the smartest of ideas, specifically if it happens to be connected to your bank account. With that said, it is my choice. Let me emphasize this again loudly. Saving passwords IS MY CHOICE! Sorry for yelling, but some people just don’t listen or get this… hello Chrome, Firefox and IE, you guys (especially Chrome) need to take notes here.

So what’s this autocomplete=off business?

As a result of autocompletion, the browser creators have decided to give web site creators the ability to disable this mechanism from within their own web pages. So, when they create forms, they can add the tag “autocomplete=off” to the form which prevents the browser from storing (or offering to store) passwords or other sensitive information. This is fine if the browser would give the user the choice still. It doesn’t.

I’m fine with browsers trying to prevent stupid behavior from users, but always provide an override. Never implement features like this, however, at the expense of a frustrating and inconsistent browser experience. This is exactly what autocomplete=off does. Why? The browser doesn’t give the user control over this web page mechanism nor does it even warn of it. If the site sets this flag on their form, the browser won’t offer to store anything dealing with this form. That’s fine IF I can disable this behavior in the browser. I can’t. As I so loudly said above, this is MY choice. Make this a preference. If I want to store logins and passwords for any site on the Internet, it’s my choice. This is not Chrome’s choice or Wells Fargo’s choice or any other site’s choice. If you offer to store and save passwords, you need to let me do it under all conditions or don’t offer to do it at all. Don’t selectively do it based on some random flag that’s set without any warning to the user.

Inconsistent Browser Experience

When autocomplete=off is set on a form, there is no warning to the user that this value is set. The browser just doesn’t save the password. You have no idea why, you don’t know what’s going on. You expect the browser to offer to save and it doesn’t. This just makes the browser look broken. And, frankly, it is. If the browser can’t warn that autocomplete=off is set by the site through changing the color of the bar, flashing, an icon or some other warning mechanism (like the lock when https is in use) the user experience has been compromised and the browser is broken. This affects not only Chrome, but IE, Safari and Firefox. Yes, and this is extremely bad browser behavior. It’s also taking a step back in time before web 2.0 when the browser experience became more positive than negative. We’re heading back into negative territory here.

Browser Developers Hear Me

Not warning the user that the experience is about to change substantially is not wanted behavior. For auto-completion, we already have mechanisms to shut it off entirely. We have mechanisms to exclude sites from saving credentials. Why do we need to change the browser experience just to satisfy Wells Fargo or some other site? I’m all for letting these sites set this flag, but just like overriding bad certificates at https sites, users should be able to override autocomplete=off. There is no need to break the browser experience because you want to allow sites stop saving of passwords. No, again, hear me, it’s MY CHOICE. It’s not your choice as a developer. It’s not Wells Fargo’s choice. It’s not PayPal’s choice. It’s MY CHOICE. If I want to save passwords into my browser, allow me t0 always override this setting.

Hacks Galore

Yes, there are browser hacks available as browser extensions (Chrome or Firefox) to disable autocomplete=off on forms on sites. While these hacks work, they require updating, can break on browser updates and can be generally problematic under some conditions. No, this is an issue that firmly needs to be addressed in the core browser, not through clever browser add-on hacks. Let the sites set autocomplete=off, that’s fine. But, warn me that it’s turned on and let me override it. I shouldn’t need a hack to fix a bug in the browser.

Always Warn of Browser Experience Changes

Why am I going down on this issue so hard? Because this is a completely crappy implementation of this feature. Why? Because it breaks the user’s browsing experience without any warning. If this the page is attempting to prevent me from saving credentials, then this information should be marked clearly in the browser somewhere. Perhaps by adding a special icon to the address bar indicating that credential saving is not allowed on this site. Then, when I click that small icon, I should be able to override this behavior immediately. Again, this is my choice to store or not store passwords to the browser. There should never be any defacto security mechanisms which cannot be overridden by a user control. Never!

If the user chooses to do something stupid, that’s the user’s choice. No, it’s not a bank’s, chrome’s or any other company’s responsibility to ensure the safety of user data. It’s entirely the user’s responsibility and those choices should be completely left up to the user to decide, for better or worse.

[Update] Safari is now warning when autocomplete=off is set on a page. Safari now tells you that the site you are visiting doesn’t allow saving of passwords. Bravo to at least Apple for getting this one right.

I have also found that Firefox with the Greasemonkey plugin and this Greasemonkey script works best for completely disabling all pieces of autocomplete=off.  While the above plugins do at least allow saving passwords, the plugins don’t always allow autocomplete to work.  This means that if you want to see your credentials autopopulate into the fields on page load, you may have to use Greasemonkey instead. I have found that the Greasemonkey solution is the most complete at disabling autocomplete=off.  The reason this works is that Greasemonkey actually removes this autocomplete=off pieces from the page before Firefox renders it. The other plugins just tweak the browser to ignore the setting for password saving, but it still exists in the page source and, thus, the pieces that manage the autocomplete parts are left unhandled.  So, these pieces still don’t populate the fields.

Film Review: The Warning – PBS / Frontline Documentary

Posted in bailout, banking, bankruptcy, botch, corruption, economy, insurance, scam, scams, tanking by commorancy on November 26, 2010

Rated: 4/5 stars.

PBS’ The Warning Documentary

The Warning is a PBS documentary discussing a warning from Brooksley Born, an attorney and a former Commodity Futures Trading Commission (CFTC) chairperson.  She explained that derivatives were extremely risky insurance vehicles and sent a warning that these vehicles needed regulation during her tenure as CFTC chairperson, but her warnings went unheeded.  She resigned in 1999 from the CFTC position after legislation was passed preventing her agency from regulating derivatives.

Vision of this Documentary

While I would like to rate The Warning higher, its take is pretty much tunnel vision on the derivatives markets.  While the derivatives markets did melt down and did, to a large degree, spur the meltdown onward, the meltdown was not started because of derivatives. The derivative meltdown was a casualty of and was exacerbated by the sub-prime mortgage meltdown.  Had the mortgage industry bubble not burst, the derivatives market might have gone unchecked for many more years. The warning was and should have been about placing regulations onto mortgage lending practices. The mortgage lending industry is the industry that failed and sent the economy into a tailspin, let’s make that perfectly clear.  The derivatives (insurance) market, which speculated on the mortgage industry, single-handedly sent Wall Street into a tailspin (along with several large insurance companies like AIG).

Derivatives and the Mortgage Meltdown

Anyone with half a brain in their head could see that using questionable lending vehicles like interest only loans for the first two years or adjustable rate mortgages were ticking time bombs.  When the actual monthly payments came due years later after rates went up to where they should have been, people couldn’t afford pay.  This was especially true when lenders were handing these loans to people who could barely afford the ‘introductory period’ payments.  So, loans came due, people defaulted and the rest is history.  The derivatives (insurance policies) that were issued also came due because of the en masse foreclosures. Insurance companies that issued derivative policies speculating people wouldn’t default en masse began to fail because their speculation was wrong.  So then, these insurance companies couldn’t pay off on the insurance claims. So, when consumers defaulted, so did the insurance companies offering derivatives.

It wasn’t as if warnings weren’t being issued regarding the inevitable mortgage meltdown, it’s just that Brooksley Born (the focus of this film) was not one of the people issuing the mortgage warning.  Her warning was strictly about the highly risky derivatives.  More specifically, the black box non-transparent nature of them. The danger, of course, is that derivatives can be placed on any speculative and risky investment as insurance.  The reason derivatives need to be regulated is to prevent companies the size of AIG from making stupid decisions about such risky vehicles.  However, from a consumer perspective, banks should never have gotten into the position of issuing such risky mortgages like water to people who couldn’t afford them. This was the single mistake that led to where we are today and that mistake has nothing to do with derivatives and everything to do with Government and the Federal Reserve making stupid decisions.

Overall, the movie is worth watching, but also understand its information’s place in the larger meltdown at work in our economy.

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Is Obama hostile towards big business?

To answer this question, we need to delve a little deeper. Note, I am neither condoning nor praising Obama’s handling of his regulatory efforts. However, I would like to point out certain corrections that do need to be made.

“The truth is that not even the Franklin Roosevelt administration was as hostile to and ignorant about free enterprise as this [Obama’s] administration is.”
–Steve Forbes.

But, is Obama really hostile towards business? Or, is he making needed corrections? There is a fine line here. This issue also points out a serious problem in politics today. That problem is, you guessed it, money. Without money, the world doesn’t work. Without money, candidates don’t get elected. Without money, businesses don’t sell things and make money. Back up the train.. Businesses make plenty of money without governmental help. The trouble is that businesses want to be able to make laws that enable their businesses to make more money and then have the government be lenient with them when issues arise.

The reality, though, is that like the separation of church and state, the government now needs separation of business and state. The two are oil and water, they don’t mix. Government needs to be able to make law without interference from any party. But, businesses have deep pockets and hefty lawyers. These two elements help elect officials and help sway these same officials into making good on promises they made towards these businesses during the election.

Obama’s corrections

While I don’t agree with every single thing Obama has done, I do agree that change is necessary. The change that he is making is intended to correct the issues that led to the economic downturn. The trouble comes with statements from people like Steve Forbes. Mr. Forbes believes that he is the end-all-be-all-know-it-all when it comes to all-things-business. The trouble is, he doesn’t. Yes, he runs a successful magazine, but that doesn’t make him an authority. That makes him a successful business owner.

Obama is walking that fine line. A fine line that shouldn’t even be necessary. But, there it is. The line that’s there to help Obama help the economy, help spur business and growth and reduce the chances of a repeated failure. At the same time, the line is there to show that government values business, but isn’t there to socialize it. The trouble is, this economic downturn was of our own making. By our, I mean Wall Street. The housing bubble was just that, a bubble. Bubbles eventually burst and this bubble was no exception. It’s not as if analysts and intelligent minded people couldn’t see the handwriting on the wall. When the mortgage interest rates got down to 1% and all of those ARM and specialty loans were being issued like water flowing down the Mississippi, trouble was inevitable. We just didn’t know that banks and insurance companies were tying their financial soundness to these extremely risky loans using credit default swaps.

Until the bubble burst, no one really knew just how deep the rabbit hole went. Then, everything came crashing down and all of the nasty subprime mortgage and credit default swap issues came into view in their all fugly detailed glory. The first evidence of that was Bear Stearns followed by AIG (and the subsequent governmental bailout). I still think they should have let AIG fold, I digress.

Government and Business

It’s high time that government distanced itself from corporate businesses. It’s high time congress made laws to separate government from business (including political support). It’s high time that government stopped being a pawn for corporate businesses. Forbes clearly seems to think that Free Enterprise requires socialism to function. Free Enterprise is not part of and does not need socialism. Free Enterprise means that businesses can do whatever they need to do (within the limits of the laws) to make their business succeed. Clearly, there have not been laws enabled that have dramatically impacted Free Enterprise. The laws that have been enacted have been placed there to prevent corporations from producing risky investment vehicles with a high likelyhood of crashing down again. If businesses are now floundering, it’s not because of laws. It’s because corporations have lost their way and are still expecting handouts. Well, you can keep your hand out, but don’t expect the government to be dropping any coin in it.

Corporations have relied, no… depended on the US Government for handouts. That time needs to end. Subsidies for business need to go away. Businesses need to fend for themselves just like Free Enterprise mandates. If a business can’t make it on its own, then let it fail. I’ll repeat, LET IT FAIL. Failure is also part of Free Enterprise. Businesses that will succeed, will succeed because they produce a good product or service. Businesses that fail, will fail because they don’t produce good products or services.

Lost our way

America, and specifically corporate enterprises, have lost their way. For far too long have big corporations depended on favorable governmental conditions (sounds like a weather report) to help them stay in business. Well, that train has left (and must leave). It should be solely up to you and your business practices alone to make or break your company. It is the quality of your products, services and support that makes people want to buy your products or invest in your company. Nothing has changed about this aspect of Free Enterprise.

We need to go back to a time when quality was the key. When providing a superior product was the answer to getting people to buy things. If that also means deflation, then so be it. Businesses need to find their way by learning how to do more with less. How to manage their staff better and stop over-hiring. At the same time, many of them need to stop under-hiring and also value the employees that they have right now.

The key to keeping your business flowing is by keeping your employees active, productive and happy. Morale is a big problem in companies during any downturn. Once fear sets in over the next reduction in force (RIF), then morale falls to all-time-lows. No, taking the employees on an outing doesn’t boost morale. The way to boost morale is to stop RIFing the staff out the door. Yes, I know it gives a temporary boost to the stock price and makes the shareholders happy, but that’s a temporary fix with limited effects. Once the dust settles, the employees who are left become disgruntled, unhappy and produce less. This is completely backwards thinking. Which is why business has lost its way.

Shareholder value vs quality products

I know, someone’s going to say that it is all about ‘shareholder value’. That may be the way things seem now, but it is wrong. Currently accepted actions that lead to improved shareholder value tend to undercut production, stifle innovation, reduce profit margins and lower productivity. Why would you intentionally do this to your business? So, while these measures may seem to help the stock price, it does nothing to help the company improve its quality of products and services. In fact, in the long run, these actions almost always negatively impact the bottom line. So, the fundamental question is, are you in business to make the shareholders happy or are you in business to sell quality products and services? This fundamental question must be answered.

The true answer to this question also shows that Free Enterprise priorities today are all wrong. It used to be that the customer is #1. Now, shareholders are #1 and customers are #2. This is both wrong and stupid. Until businesses go back to the idea that the customer is #1, corporations will continue to fail and need governmental subsidies. While shareholders are considered #1, there is really no such thing as Free Enterprise when it comes to multi-million dollar corporations… which is why they always need a handout from the government.

Paypal: Don’t trust them with your checking account!

Posted in banking, best practices, scam, scams by commorancy on April 1, 2009

Paypal has been in business for how many years now?  Yet, they still can’t manage to find a way to verify a person without using a bank account?  Since day 1 of Paypal, I’ve been sternly opposed to giving my checking account routing information to Paypal.  Why?  It’s very simple.  I don’t trust them.  I never have.  I never will.

Why you should never give out bank account + routing information to anyone!

Let me first say that when I discuss ‘routing numbers’, this means a combination of both your account and your routing number. Clearly, you wouldn’t just give out only a routing number as that’s not useful. It is only useful when in combination with an account number.

When you give someone a signed check, you implicitly give them your routing information.  That’s a danger when you write a check to a company.  The protection, of course, is that you’ve given them a physical paper check for a specific amount and you know exactly how much that check was.   So, when the check number arrives at the bank and drafts that amount of money from your account, it was expected.  They can’t draw more than the amount the check was written.

Routing numbers, on the other hand, are effectively blank checks.  When you give a company your routing number, you are handing them a signed blank check.  That’s because you’ve agreed to allow them blanket access to your checking account.  That company can then debit any amount of money from your account they see fit without so much as a thank you.   Because Paypal uses EFT (electronic fund transfers) in the form of ACH (automatic clearing house), they can debit your account up to the maximum amount of funds in your account.  This means, they can overdraw your account and completely drain your funds.  ACH/EFT offers no liabilities to the consumer whether accidental or intentional.  Because you gave that company explicit approval to debit your account at will, there are no liabilities for any inappropriate transactions.  That’s left between you and Paypal to resolve.  The bank will usually not become involved.  When banks do become involved, the best they can do is tell you when it happened. You can try to ask your bank for additional help, but they will most likely point you to Paypal for resolution.  The reason is simple, you agreed to give Paypal access to your account up front.

Worse, if the company that overdrafted your account chooses to not give you the money back, then you may be out of luck.  At that point, you better seek a lawyer, assuming you have any money left to pay them.

Paypal and Checking Accounts

Paypal does not need a checking account to verify you.  They just tell you they do because that’s the way they have always worked it.  This verification process can easily be done with a credit card charge that you input later to validate that you receive the bill for the card.  Paypal simply wants to have unfettered access to your checking account.  Frankly, it’s a huge liability for you.  It’s also a huge liability for Paypal to store this information.  One hacker in their system and they could have a field day with your money.

Credit Cards and Fraud

Paypal is well aware of the fraud issues with credit cards.  They are also well aware of chargebacks, merchant liabilities and fees associated with these processes.  To avoid them, they prefer unlimited access to your checking account that hold no such penalties or liabilities.  Because the consumer has no recourse over inadvertant transactions, Paypal has the upper hand.  This is why Paypal will not verify you with only a credit card.  Can they validate based on only a credit card, yes.  They simply choose not to.

Credit cards have long established liability rules that prevent fraud occuring from both rip-off artists and from merchants alike.  Unfortunately, there are no such rules for ACH.

Consumer Protection from Businesses

Whenever a company asks you to give them routing information from your checking account, tell them, “No!”.   Not only should you tell them “no”, you should explain exactly why.  Tell them that you don’t trust them with that level of access to your account.

Should you continue to do business with Paypal?  That’s entirely up to you.  But, I still do not have a verified account with Paypal because I simply will not give them the routing information from my checking or savings account.  I simply do not trust ANY company enough with that information.  Remember, Paypal is not a bank.  Thus, it does not fall under any banking rules, liabilities or any federal insurance.  In fact, who knows what insurance Paypal even carries?  So, whatever Paypal does, you’re at their mercy to do it right.  If they don’t, you have to fight with them to get your money back.  The bank won’t help you.

But, I need to give out my routing number…

Here’s another option.  It’s not optimal, but it works.  Simply, open a second checking account. By setting up a checking account specifically and solely to be used with Paypal and merchants, you can limit your financial liability.  You can then link another account to this new account for transferring in money only, but be sure NOT to link the new checking account to any overdraft protection on any other accounts.  So, if Paypal overdraws your account inadvertantly, they won’t get any more money than what you have specifically placed in there.  So, if you want to buy a $250 appliance, only transfer in $250 for just that appliance.

The problem with this technique is that banks sometime require minimums to open an account and minimums to keep it open.  So, you may have to leave $1000 (or some other arbitrary amount of money) to prevent accrual of monthly fees or account closure.  You’ll need to contact your bank for details.

While this does work, it’s not optimal by any stretch.   It requires you to be extra cautious with how you use that account.  You have to be diligent to place the money in there when you need it.  And, you need to remember that transfers of money into the account are not always instanteous.  So, you may have to transfer your money in the day before you intend to purchase to ensure the money is there to cover the transaction.

What if I’m a Merchant?

For merchants who want to get paid for products they sell, I understand the issue here with ACH/EFT.  Again, in this instance, I would set up a separate checking or savings account solely for Paypal use.  Only give this account to Paypal so that when you receive payments, you can transfer them out of that account and to your ‘regular’ account immediately.  This way, if Paypal decides to debit you for any reason, the money won’t be there.

Overdrawn Accounts

If Paypal overdraws your account for any reason, don’t expect them to pay you back for insufficient fund fees.  You will have to deal with these fees on top of the inappropriate debiting from Paypal.  You will then have to argue with Paypal to get your money back and your bank fees reimbursed.  But, good luck with both of those processes.

Spending Limits

If you choose not to give your routing information to Paypal, Paypal arbitrarily limits how much money you can send to an individual when you buy merchandise.   For this silly reason alone, this is enough to tell Paypal to take a hike.  There are plenty of ways to buy merchandise from merchants on the Internet.  In fact, when a merchant is reputable enough, they will set up their own merchant account with a bank and let you pay the merchant directly.  You should also feel comforted knowing that when you send a payment to a merchant, not through Paypal, you have the full card protections behind your transaction.  When you purchase through Paypal, your Paypal account agreement may prevent you from using some of your card’s built-in protections… such as a chargeback.

Credit Cards

For all of these reasons above combined with card liability limits, fraud protection and other protections that come built-in with the Visa, Mastercard and Amex logos, credit cards protect a whole lot more than ACH/EFT.  Cards limit your exposure to ID theft and they also limit your liability if someone steals your card and then, for example, buys a new car with it.

For payments, Paypal could choose to issue checks instead of requiring ACH/EFT.   But, they have never wanted to go this route for payments.  Instead, Paypal forces you to verify your Paypal account by giving them a routing number from your checking account.  As I have said, this is not necessary and is a huge liability.

If you want to protect your money in your bank account from unauthorized transactions, you should not give Paypal (or any company) access to your checking account via routing numbers.  Instead you should insist on the protections that credit cards offer.  Credit cards are more than sufficient for anything that Paypal would need (at least for paying for merchandise).  For merchants, you will need to determine what works best for you.

[UPDATE: 6/27/2012]

Paypal now has a new wrinkle in its verification process.  When attempting to verify a checking account and your bank has a web portal (i.e., Wells Fargo), they will ask for the login and password to your bank’s web portal to do an ‘immediate’ verification. Don’t do it! Don’t give it to them. Paypal says they won’t store the credentials, but with all of the stolen information from various sites, do not trust ANY site with your bank’s web portal login and password. This should really be common sense, but maybe it isn’t. With that said, if you must verify a bank account with Paypal, do it the old fashioned method by letting Paypal make two small sized deposits.  First, it makes Paypal give you about 25 cents. Second, you’re not giving out your bank’s web portal password to some random third party.

As much as I rant above about giving out routing numbers and blank checks, it’s far worse to give out your bank’s web portal login and password information. Do not do either if you can help it. However, if you can manage to set up a separate one-sided transfer system into a free savings or checking account for Paypal payments and transfers, then by all means set that up.  Do not give Paypal access to your primary checking account with full access your bank account. Also, make sure that you have disabled overdraft protections on any accounts you give Paypal so that if they reach in and grab money out, when the account hits $0 it doesn’t go any further.  You don’t want to be mopping up a mess of bad debits and at the same time having to pay interest payments on those bad debits.  Paypal is not a bank and they’re not likely to reimburse you for any bad transactions leading to overdraft fees or interest accrued. So, avoid the issue and prevent Paypal from doing this damage in the first place.

Bank executives still in power after meltdown

Posted in bailout, banking, bankruptcy, corruption, economy by commorancy on January 27, 2009

What’s wrong with corporate America?  This article discusses the exact reason why America’s corporations are and continue to be both problematic and emblematic of serious fundamental problems with free enterprise.

Free Enterprise

On the surface, this phrase embodies entrepreneur-ism, freedom to go into business and freedom to make money in the way you choose.   But, to each silver lining, there is also a dark cloud.  The dark cloud of free enterprise, then, is what’s rarely discussed but is always present in any business once it reaches a certain income level.  This black cloud tends to overreach any good that a company may do and, in many cases, stifles the business into oblivion through stupid decisions, inaction and through senior executive selfish actions.

Banks

We all know the story.  Banks doled out risky loans to individuals without checking credit histories and the whole banking industry nearly self-imploded.  But, what’s not widely known about this event is what happened to the bank’s senior executives.  The Associated Press did some research and found that the majority of the banks that doled out these risky loans, and nearly single-handedly killed the banking system, have the SAME senior exectives still in power today.  These are the same executives who presided over and actually ALLOWED their banks to issue (and continue to issue) risky loans until the meltdown.

As the banks continue to lay off thousands workers and, in some cases, shutter branches… incidentally, the layoffs likely include workers not responsible for the meltdown, the senior bank executives (CEO, CFO, CTO, etc) remain safely and comfortably employed (and likely making the same salary pre-meltdown). 

Car vs Bank Bailout

With the automotive industry bailout, very stringent conditions were placed on when and how these car companies could get and use the money.  Some of the conditions discussed even included ousting executives who couldn’t manage their businesses properly.  Not so with the banks.  There were no such executive conditions placed onto the bailout monies for the banks.  This leaves, in most cases, the same executives who presided over issuing of risky loans and the economic meltdown the task of trying to clean up this mess.  Can they?  Do we trust them?

Trust

Do we trust these executives to do the right thing?  That dark cloud I was speaking of, what is it? That dark cloud includes executive compensation, bonuses and other executive cash shuttling programs.  Once large companies get into the position of billions in revenue, the executives in power do not want to give up that cash cow no matter what.  Yet, here we are.  The banks (and their executives) have failed us and our economy and yet they remain in power?  Do we continue to trust that they know what they are doing?  Can they properly get not only their company, but our economy jump started?  Where is the accountability here?

Let’s hope that Congress wakes up to this issue and ultimately takes these bank executives to task for their inaction and inability to police their own companies during the meltdown times.  Surely, they can’t say, “We had no idea it would get that bad!”.  Sha-right.  The handwriting was on the wall when the risky loans began over 2 years ago.  Anyone in their right mind would know that handing out a loan to someone who hasn’t had their credit checked is a tremendous risk.  For executives to make that claim ensures they do not deserve to stay employed.

Shareholders: The other dark cloud

Once a company goes public, the shareholders become the ownership and power of the company… or so we are told.  So, whenever executives make decisions, it’s easy for them to claim it was ‘for the shareholders’.  That’s a catchall phrase to allow the executives to do things they ordinarily could not or should not do.  But, when is it good for the shareholders?  Who makes that decision?  Apparently, this decision is supposed to be the board of directors.  However, in many cases, the CEO is also the Board Chairman.  But, again, part of that same dark cloud.  The board of directors are supposed to steer the company into the right direction.  Again, when large sums of income become involved, people’s eyes get glazed over by $ signs.

When something is done for the good of the shareholders, you can pretty well guarantee they mean there is money involved (either obtaining, but usually spending it).  When and how that money is used is anyone’s guess.  The accounting books are supposed to tell the tale, but we know how that goes with all of the recent accounting scandals.

Corporate executives

Why is it then ok for these corporate executives to preside over and allow detrimental business practices, yet they continue to remain employed?  Why do they get reprieve from the unemployment line?  When are we supposed to hold executives accountable for their actions (or inactions) that lead to dire negative consequences?  These are questions that must be answered.

Does this imply more governmental regulation over corporations?  Perhaps.  It does imply that free enterprise is broken at a fundamental level.  It also implies that something must be done to fix it.  Whether that’s more regulation over businesses or more accountability, I don’t know.  Perhaps we just need stiffer laws that define corporate practices so that executives can be brought up on charges when these situations occur.  If there are legal statutes that prevent such problematic operations, then perhaps executives will think twice about their roles within large dollar companies.  After all, high dollar salaries shouldn’t come with little oversight and no strings attached.

It’s official, Obama is our 44th President

Posted in bailout, banking, bankruptcy, economy, presidential administration by commorancy on January 21, 2009

… and there’s definitely a lot of work to be done.  The state of the country is in severe economic disrepair, no thanks to our former president, George W. Bush.  President Obama definitely has his work cut out for him.

Bush era over

Bush’s errors have left a legacy of  his lack of doing ‘the right thing’ for the country by extreme spending on an unnecessary ‘war’  and economic packages which helped only the rich.  During Bush’s reign, we have seen favoritism towards big business at the expense of everything else.  Yes, I understand certain business lobby groups are very powerful (read give lots of money away) in order to get the things they want.  Under Bush’s watch, he ushered in one of the worst recessions in this nation in years!  This happened strictly because he was not focusing on the economy as a whole and instead focused on being overly friendly to his big business buddies.  But, what’s more important, making those greedy businesses happy or making the country prosper as a whole?   Clearly, catering to big business is both short sighted and part of why we are where we are today.  Instead of making these businesses more money, they have, in fact, lost more money as a result of our down economy.  Short sighted.

Bush also presided over the monetary system that encouraged bad lending practices without reigning these institutions in.  He simply turned the other way and ignored it as though it didn’t exist (again, helping his buddies make more money).  Instead, he would firmly focus on the middle east and he thought that everything would be fine.  Well, everything isn’t fine and we’re paying that price now.  Again, short sighted.

Doing what’s right

The hard choice is to do the right thing for the citizens, the economy and the country as a whole, not what’s right for big business.  Clearly, if anything, this downturn has taught us what shouldn’t be done.  I believe these are the ‘hard choices’ that will face the Obama administration.  Choices that we have yet to see in action.  Choices that I’m not even sure Obama will face without falling into the same old traps.  That’s not necessarily the fault of anyone, it’s just the way lobby groups and our political system works.  Politicians tend to cave into these demands when they don’t see any risk.  But, that risk is often masked behind rhetoric and double-talk.

Clearly, lowering the fed interest rate 2-3 years ago to a single point spurred the home lending crisis.  It’s now starting again with the interest rate at a quarter of a point.  We are now facing the same exact housing bubble possibility that faced our country the first time around.  Can we avoid this bubble again?  Perhaps, perhaps not.  Perhaps it isn’t smart to be lowering this rate this low a second time.  It’s all about cause and effect and this effect has already been felt in a major way.  We don’t need to experience it again.

Tough Choices

There are a lot of tough choices that need to be made, and those choices will affect us every day.  For each tough choice to aid our economy, another problem will result.  Is there a choice that can be made to turn the economy around swiftly?  Doubtful.  Recessions come in cycles.  This recession came a bit earlier than expected… it’s usually an 11 year cycle and our last cycle was after the dotcom bubble burst in early 2000.

Clearly, Obama’s words are tough talk on bringing this country back.  When it comes down to it, can he really make and live up to these tough choices?  Will he be able to say no to businesses over the economy?

Blame the consumer

Because of the mortgage crisis, blame is had from all over for its origins, but one finger is always clearly and firmly pointed at the consumer.  While the consumer may have been partly to blame for accepting their bad loan, it was entirely the lending instituions’ fault for granting the loan in the first place.  If you hand money to a consumer, they’re going to take it.  It is the lender’s responsibility to make the proper and correct decision to give money out and to whom.  Yes, that also means that the lenders must take responsibility for their actions when giving money to people who should never have been given that money.  It’s also the lender’s responsibility for shuttling people into specialty loans that practically ensured failure.

Fixing the lending practices is one of the first hard choices that must be made.  Trying to loosen up credit again isn’t necessarily something that we need to be doing as an economy.  This is a hard choice, but it has to be made.  It’s one of those choices that has clear ramifications.  It means that credit will be limited to those with the best credit scores.  But, people who don’t have the money to pay off loans shouldn’t be given loans.

Another tough choice that must be made is to force lending institutions to go back to standard fixed rate loans.  We must prevent these poorly crafted specialty loans from ever being granted again, no matter how tempting they may appear or how much it may appear to help out the consumer.  Balloon, ARMS and introductory rate loans must become a thing of the past.

If there is one single thing to blame in this process, it’s these poorly crafted specialty loans.  These loans created the false impression that people could afford a loan that they couldn’t afford.  So, in 2 years, when the loan reset (which was clearly written into the terms), this reset ensured a loan failure.  Again, the consumer can be blamed here because it’s easy (and because they accepted the terms).  But, it’s really the lending instutition’s responsibility for lacking the foresight in seeing that these loan products were destined to fail.

Days ahead

From here, we will have to see where Obama and his administration takes us.  Obama speaks of tough choices, but I’m waiting until those words become action on his part.  It’s easy to speak them, it’s much tougher to follow through.  We defnitely need a ‘buck stops here’ President who is willing to lay down the hammer.   We no longer need, nor can our country afford, a president who caters to the rich.   We need a president who is willing to work to bring the country together as a whole rather than filling his own bank account.

Obama, we’re ready and waiting for you to put your tough talk into tough action.

$5 billion given to GMAC Financial

Posted in bailout, banking, bankruptcy by commorancy on January 2, 2009

GMAC Financing (GM’s financing arm) has been given $5 billion in addition to the already $17.5 billion given to GM in order for GM to sell vehicles.  It was stated that GMAC had gotten tangled up in bad mortgage debt.  Um, hello, what business did GMAC have in giving out HOME loans?  I thought this company originated for the purpose of auto financing?  If auto loan companies are sticking their hands into markets where they don’t belong, they deserve to get them slapped.

Again, here is another bailout that was unnecessary.  Yes, I do understand that GM can’t sell cars without its financing arm.  Again, who’s problem is this?  GM needs to work through its issues itself.  The citizens of the US do not need to be propping up these badly run organization through these bailouts.  What business did GMAC have even issuing home loans? Yes, I realize they are a financing arm, but GM should have been keeping careful watch over them to prevent GMAC from offering loans on items other than cars or vehicles.  Again, another company with no oversight that does not deserve a bailout, yet the government is handing them $5 billion.  I understand the reasoning behind the money, but it doesn’t make the pill any less bitter to swallow.

Oh, and the worst part of all of these auto bailouts is that there is no guarantee they won’t go belly-up anyway. Giving the auto makers  this money may all be completely pointless, but we the taxpayers will have to pay the price in the end no matter the outcome.

Does CitiGroup deserve a government umbrella?

Posted in bailout, banking, bankruptcy, economy, tanking by commorancy on November 24, 2008

 

CitiGroup Logo

I guess the broader question, does any large commercial business deserve to be bailed out?  Well, clearly Mom and Pop businesses fail every day.  Yet, the government does nothing.  Why do large conglomerates deserve special treatment? 

The short answer is that there is some magical threshold where there are too many people who would lose their jobs as a result of the failure combined with possible economic ramifications.  But, still, does that warrant a bailout?  No.

If a business cannot run itself in a fiscally appropriate manner (large or small) it deserves to fail and go away.  If any of your family is employed by CitiGroup or any financial company caught up in the turmoil of the financial sector crisis, I feel for you.  But, that doesn’t mean that the company deserves to continue to exist if they cannot maintain profitability even in the toughest of times.  Fiscal responsibility starts at the top of the company and trickles down to even the most bottom level employee.

What does this mean?  It means, don’t request a new computer every year.  Don’t ask for Herman Miller chairs and the most expensive ergonomic keyboard simply because you can.  If the item is considered ergonomic, the company is almost obligated to make sure you get it.  Buying all of these expensive amenities for your desk makes you fiscally irresponsible to the company if you don’t really need it (and, in most cases, you don’t).  But, that’s not to say that this is responsible for CitiGroup’s problems.  

Who knows where the money hemmorage is going inside these companies.  But, clearly, it’s not going back into the business.  Again, I ask, why do these companies deserved to be bailed out?  What makes them special?  I have no sympathy for large companies that can’t properly manage themselves.  Neither should the government.  Spending all of this money to prop up these badly run organizations is clearly counter to free enterprise. 

In Free Enterprise you have to take the good with the bad.  That means, when business is good, you profit.  When it’s bad, you bankrupt and close.   There needs to be no governmental cushion here to soften the fall.

Does CitiGroup or any other badly run business deserve an umbrella?  What do you think?

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