Banks Expanding into Peer-to-Peer Lending

The Financial Times reports about the expansion of banks such as Société Générale and Goldman Sachs into peer-to-peer lending systems that were originally intended to get around the banking system.

But as the demand for P2P finance has grown, platforms are turning to large financial services groups to provide funds and spur their growth.

Yes, barriers to entry make it expensive to challenge the entrenched players. And it makes it easier for those players to swallow up any new entrants who might pose threats to their existing business.

The sector is also attracting high-profile individuals, with Arianna Huffington, president and editor-in-chief of Huffington Post Media Group, the latest to join a P2P lender. She has been appointed to the board of Payoff, one of a clutch of new competitors that are emerging to compete in an industry dominated in the US by Lending Club and Prosper.

Payoff? Yeah, that’s about what it amounts to. If you want to break into the banking field, you have to pay someone off, either the government or the entrenched incumbents. This is the risk with any new entrant, any new technology, no matter how disruptive. Look at how Bitcoin has been co-opted by those who want to subject it to regulation just like any other financial service. The deck is stacked against anyone who wants to upset the apple cart, which is why reform efforts are going to have to focus on rolling back, not tweaking, the burdensome regulations that currently exist.

Dispatches From the War on Cash

Euro Target
It appears that the French government is taking Rahm Emanuel’s advice and not letting a good crisis go to waste. Using the Charlie Hebdo attacks as a pretext, the French government wants to urge the European Union to enhance monitoring of anonymous money transfers. In other words, the government that was actively tracking terror suspects and decided to stop, the government that could easily monitor the bank accounts and communications of a terrorist cell, has decided instead to try to throw the other 65 million residents of France and the other 500 million residents of the EU under the bus and subject them to yet more government regulation.

Always Looking Out For the Little Guy

MasterCard Logo
From Coindesk comes news that MasterCard has spoken out against the risks of Bitcoin and the need for all players in the financial industry to be subject to the same set of regulations. While one can understand that Mastercard might be a little peeved at what they see as a competitor being able to undercut them through sidestepping current regulations, the solution is to cut the regulatory burden for all players. What MasterCard proposes instead is to subject Bitcoin companies to existing financial regulations, which are so onerous and burdensome that they will put many Bitcoin companies out of business and prevent many companies that might have formed from even going into business.

Boston Fed Takes On Bitcoin

Bitcoin ATM Plate
The Federal Reserve Bank of Boston is the latest Fed entity to take on Bitcoin, publishing a recent study in which the authors stated that:

“This policy brief discusses how some features of bitcoin [sic], as designed and executed to date, have hampered its ability to perform the functions required of a fiat money––as a medium of exchange, unit of account, and store of value.”

Talk about begging the question. First of all, acting as a medium of exchange, unit of account, and store of value are properties of all money, not just fiat money. But if Fed researchers are evaluating alternative currencies based on their ability to perform as fiat monies, then just about anything short of the current system will be too good to act as fiat money.

The Feasibility of Negative Interest Rates

Alex Pollock of the American Enterprise Institute seems to have missed the point of the European Central Bank’s (ECB) introduction of negative interest rates at its deposit facility. Negative interest rates are like a 100% tax rate in many respects. If you set a 100% tax rate, people are just going to stop working. Not…

No Bank Account For You!

An ATM with bars over it.

Via Coindesk comes news of a Bitcoin ATM operator forced to close their business because they were unable to find a bank that would provide them with an account. This is a real danger to the mainstream viability of Bitcoin. Without access to the banking system, Bitcoin is unable to be converted into other currencies, something which will hamper more widespread acceptance of the currency among the general population. In order for Bitcoin to be converted into and out of fiat currency, banks will either have to offer accounts to Bitcoin businesses or Bitcoin businesses themselves will have to become banks and offer banking services. Obviously the former is easier than the latter.

Here’s the Mobile Payment

Smartphone being used to make a mobile payment at point of sale.

The Atlanta Fed wants to know: “Where’s the Mobile Payment?” Well, as anyone who has ever used Bitcoin can tell you, mobile payment is one of Bitcoin’s strengths. Take, for example, the case of Mission Market, an upscale convenience store in Fullerton, CA, which accepts Bitcoin as payment at point of sale (POS). Ring up your items, tell them that you want to pay with Bitcoin, and the POS tablet displays a QR code. Swipe it with your smartphone and Bitcoin will be debited from your account and credited to Mission Market’s account. Quick, easy, painless. No cash to change hands, no credit card bill to pay at the end of the month.

New York Fed Warns of Dangers of Paper Money

French 400 livres assignat from 1792, issued by the government of the First Republic.

The New York Fed’s “Liberty Street Economics” blog recently posted an interesting short history of the French assignat, a paper currency issued by the French Revolutionary government that quickly became worthless. That the New York Fed, which actively engages in unbacked money creation, published a cautionary tale of the dangers of paper currency is quite humorous. Nonetheless, it is still an interesting tale and well worth reading. As with most hyperinflationary crises, you see the normal cycle of over-issuance of currency, mandatory price controls, and the threat of death for those who defy the government’s monetary edicts.

The Greatest Danger to Bitcoin

The greatest danger to Bitcoin may come from its early adopters and advocates.

While the U.S. government and other governments around the world certainly have Bitcoin in their sights, one of the greatest dangers to the success of that digital currency will be from some of its early adopters and advocates.

Bitcoin news website CoinDesk recently posted an article discussing a video created by the Dutch bank ING, in which one of their economists proposed an “improvement” to the Bitcoin protocol consisting of an algorithm to match money supply with money demand.