Tag Archives: banking

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Beleaguered bank sues itself

Wells Fargo BankProof (if such were needed) that the financial sector is utterly batshit insane: Wells Fargo is suing Wells Fargo over a condominium mortgage.

Being a taxpayer-subsidized, too-big-to-fail institution, it’s possible that one of the few ways for Wells Fargo & Co. to know what it is doing is to notify itself with a court filing.

In this particular case, Wells Fargo holds the first and second mortgages on a condominium, according to Sarasota, Fla., attorney Dan McKillop, who represents the condo owner.

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

“The primary reason is to clear title and ownership interest in a property to prepare it for sale,” Waetke said in an email exchange. “So it really is not Wells Fargo vs. Wells Fargo.”

Yet court documents clearly label “Wells Fargo Bank NA” as the plaintiff and “Wells Fargo Bank NA” as a defendant.

If you tried to write that into a story, people would think you were doing satire. The truth really is stranger than fiction. [via SlashDot; image by TheTruthAbout]

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Metaverse bank chairman does a runner with the cash

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Starship screenshot from EVE OnlineYeah, so we’re all tired of hearing about crooks in charge of banks shafting their depositors and borrowers at the same time… but this story’s a little different, given that the bank in question exists in the virtual universe of science fiction MMO EVE Online.

That’s not to say no real money was involved, though; RMT, or Real Money Trading, is one of the few things frowned upon in EVE‘s laissez-faire economy, but it still takes place – and as such there may be a lesson for real-world economists in the story:

Because players often do not have the interstellar credits — abbreviated to ISK, also the official abbreviation of the Icelandic kroner — they need to expand their fleets, an enterprising player created a bank that would accept deposits and lend to players who would pledge assets, like their spacecraft, as collateral.

The bank was a success. According to its Web site (yes, it has one), Ebank accumulated about 8.9 trillion ISK in deposits in 13,000 accounts belonging to 6,000 users. That was far more than it was able to lend out — there were around 1 trillion ISK of loans.

Somewhere along the way Ebank’s top executive, who went by the online handle Ricdic, apparently got greedy. According to CCP, he made off with deposits, which he then sold for real cash to gamers on a sort of black-market exchange separate from Eve.

CCP kicked Ricdic out of the game. And Ebank has temporarily shut down while its board of directors (yes, it had one of those too) tries to sort out the mess. Depositors, meanwhile, appear to have pulled 5.5 trillion ISK of deposits.

It’s not clear how much of that virtual money was embezzled and now needs to be found, somehow, by Ebank. But if the Eve chatter is accurate, it could amount to 10 percent of deposits withdrawn. That could wipe out whatever capital was used to finance Ebank’s loan book. As in the real world, that would spell insolvency.

[…]

As in the real economy, the customers could be tempted to appeal to a higher authority — Eve’s creators. That would probably involve appealing to the Council of Stellar Management — a body of nine members chosen by Eve players to represent them in discussions with CCP.

But the word from Reykjavik isn’t likely to comfort Ebank’s depositors. Eve’s creators at CCP — which employs its own economist and philosopher — take a laissez-faire approach, leaving most such matters to the game’s users to sort out. Unlike the Icelandic government, which allowed three local banks to nearly bankrupt Iceland with unchecked expansion, CCP is determined not to encourage entities to become too big to fail.

This is similar to a nasty incident in Second Life a while back, but SL’s banks are governed by US banking law, and so Linden Lab takes a much more hands-on approach to its economy.

It’ll be interesting to see how this pans out; it’s easy to dismiss the travails of a metaverse bank as irrelevant, but as they become more complex (not to mention valuable in real-world terms), metaverse economies may become a valuable testing ground for alternative economic theories. Anything that helps us avoid another real-world clusterfuck has got to be worth keeping an eye on, right? [via MetaFilter; image by Pentadact]

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Why hasn’t mobile banking spread out from Africa?

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Kenyan woman with mobile phoneIf there’s been one good thing to come out of the global financial shitstorm, it’s that all of a sudden we’re looking afresh at established institutions and questioning whether, actually, there aren’t much better ways we could be doing things.

Point in case: mobile peer-to-peer banking, which is going gangbusters in parts of Africa but has yet to make much of a splash beyond that continent. The Guardian‘s Victor Keegan takes a closer look, and wonders whether it might be the key to saving the UK’s continually beleagured, semi-nationalised and utterly mismanaged postal service:

If you want to see pioneering experiments in banking you will have to go to a surprising place – Africa. And the question is, why can’t we do the same here? If the Post Office is looking for a new role, it need look no farther. In Kenya, customers of M-Pesa can send money to each other from around the country in 14 seconds flat using their mobiles. In the UK it takes three days, thereby endowing the banks with a huge float of money in transit on which they can earn interest. In Kenya, people leave their money at a trusted outlet such as a shop or pharmacy, where it is loaded into their sim cards.

At a Forum Oxford future technologies conference at the weekend we were updated on the startling success of the operation. It is reckoned that 17% of the Kenyan population is on M-Pesa. As a result they don’t need to carry cash any more, as everything from a can of Coke to your funeral can be paid for by phone. It works because the cash is held centrally by the bank, thereby enabling transactions to take place at very fast speeds. The average transaction is $30 (£20) because people trust it to do big ticket items.

Of course, there is always PayPal (which offers a mobile-linked transfer system as well), but finding a business that will accept PayPal that isn’t internet based is a big challenge. So, why hasn’t the idea caught on in more developed nations? [image by whiteafrican]

Maybe it is because we are not used to the idea of technology transfer coming from poorer to richer nations that industrialised nations have been so slow to realise not only that Africa is leading the world in mobile banking, but that it has big lessons for us.

Call me cynical (O RLY?), but I suspect it has a lot more to do with the fact that banks have no need to sell their services to us in a manner that emphasises our convenience, because our lives are so inextricably entangled in their profit generation systems already. Just like a drug dealer, they like to keep you waiting so as to remind you whose bitch you are…

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Peer-to-peer open-source hardware funding

electronic hardwareIn a moment of pure blogging synchronicity – right after a commenter dismissed the story about Detroit artists buying cheap houses as irrelevant, using the phrase “[c]all me when it is a commune of semiconductor engineers” – here’s a story about open-source hardware engineers getting together and forming a communal bank to provide start-up loans:

… open source hardware requires more financial investment than open source software. It isn’t as easy as downloading a few open source programs on to your existing computer, explains Stack. “With open source hardware you don’t get a finished product until you have put in some money,” he says. For instance, there’s the cost of the printed circuit boards, the solder and the components.

“To build open source software you just need to set up a project on Sourceforge,” says Huynh. “But if you get open source hardware wrong, it burns a hole in the wallet.”

The Open Source Hardware Bank, which isn’t yet fully up and running as a federally regulated lending institution, allows those interested in open source hardware to make investments in specific projects, then (hopefully) reap returns ranging from 5 percent to 15 percent from the successful sale of the projects. For the creators, the bank offers funding that could bring down the costs of their project and give them the stimulus to try out new ideas.

So, a miniature investment banking system based around a community with common interests; financial mobility and specialist knowledge are the main differences from more traditional models.

“Groups of people that have strong shared interest are really the perfect place for peer-to-peer financing to work,” says Scott Pitts, former managing director of Zopa U.S. “As a group they are not out to make a billion dollars, they just want to fund their passion and do it in a sustainable way.”

Only time will tell whether it will stay the course, naturally (and they may not be working on VLSI chip fabrication) but there’s your proof that it’s not just “hippies” and drop-outs who are trying to extricate themselves from the old systems. [via BoingBoing; image by jpokele]

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Rushkoff on the economy: “let it die”

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restaurant pricing - the credit crunch modelUnsurprisingly, everyone everywhere is talking about the economy. The usual twist on the topic is to ask “how can we fix it?”, but Douglas Rushkoff would like to suggest that the global financial collapse is a blessing in disguise and that we should just let it die, as it gives us a chance to reassess the assumptions that our monetary systems were built upon:

… it’s even more important for us to come to grips with the fact that the system in peril is not a natural one, or even one that we should be attempting to revive and restore. The thing that is dying—the corporatized model of commerce—has not, nor has it ever been, supportive of the real economy. It wasn’t meant to be. And before we start lamenting its demise or, worse, spending good money after bad to resuscitate it, we had better understand what it was for, how it nearly sucked us all dry, and why we should put it out of our misery.

His point is that, at every level, the system was designed to benefit those who set it up at the long-term expense of everyone else – it’s almost miraculous it’s lasted as long as it has:

An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.

The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

Just in case you think Rushkoff’s a sneaky pinko or something, it’s worth considering that he’s an advocate of local economies and currencies, and opposed to any form of centralised control; even if you don’t agree with what he has to say, he raises some talking points that we’d all do well to at least consider. As he points out, we may not get another opportunity… and you know what they say about life handing you lemons. [image by Cory Doctorow]

But what do you think? Should we build a new world where value is produced by actual effort, or can the financial system be fixed to ensure we don’t all strive for the profits of a few?