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Why Bitcoin Matters: It's the Payment System, Stupid!

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Receiving Wide Coverage ...

TD Bank: CEO Ed Clark will retire next year and hand the reins to Bharat Masrani, who has overseen the Canadian bank's expansion in the U.S. over the last six years — a hint of where TD's growth ambitions lie. The story in today's Journal leads with an anecdote suggesting customer service has worsened at the former Commerce Bank operations since the Canucks took over "America's Most Convenient Bank." Somewhere, Vernon Hill is saying "muahahaha." (Speaking of ol' Vernon, while on holiday in London last week, we passed by a branch of his Metro Bank and did a double take. It was a dead ringer for the old Commerce branches.) Wall Street Journal, Financial Times, New York Times

Reviews Get a Bad Review: A widely leaked draft of a GAO report savages regulators' handling of the aborted foreclosure reviews. We couldn't find the actual report on the GAO's website this morning, but it was helpfully embedded in a post on the Naked Capitalism blog (which, incidentally, did a lot of early reporting that found the reviews were slanted to reject borrowers' claims of harm). For those who prefer the executive summary: Wall Street Journal, New York Times, Bloomberg News

Bitcoin: The recent surge in the price of this alternative currency has landed Bitcoin on the front page of the FT. Above the fold. It's a pretty harsh story (headline: "Bitcoin bubble grows and grows"; tulip comparisons abound), as is an article in the U.K. Grauniad. ("The Harlem Shake of currency" — what does that even mean?) But as we've been saying for months, the volatile currency known as bitcoin (small "b") is a lot less interesting than the fast, inexpensive, and refreshingly private payment system known as Bitcoin (uppercase "B"). The latter is much more relevant to the future of banking. Consider: Disruptive technologies do not always map perfectly to the things they disrupt. People understandably latch on to the sensationalistic aspects ("The price is going crazy! It'll end in tears!"). They overlook the subtler implications, namely: a whole payment and banking system has been built from scratch in this century, without legacy systems or a central authority, accessible to anyone with an Internet connection. For a more thoughtful and nuanced critique of Bitcoin, make time to read this long piece by Felix Salmon, the Reuters blogger. He covers a lot of ground, but here's the key point for the purposes of this discussion: "There's a lot to be said for a fast, efficient, peer-to-peer payments system which bypasses centers of authority and which has negligible transaction costs. It just doesn't need to be its own currency." Whether or not you agree with that statement, the ups and downs of the currency's exchange rate with the dollar undeniably complicate adoption of the attendant payment system. But must that always be the case? After reading Salmon (and the comments on his essay), we recommend turning to a 2011 post on the inimitable Irdial blog, "Why the quoted price of Bitcoin doesn't matter." Here's the nut of it: "Bitcoin's true nature is as an instant way to transmit money anywhere in the world. It is not an investment, or money itself, and holding on to it in the hopes that it will become valuable is like holding on to an email or a PDF in the hopes it will become valuable in the future….As long as the value of Bitcoins does not go to zero, it will have the same utility as if the value were very 'high.' …New services to facilitate the rapid, frictionless conversion into and out of Bitcoin are needed to allow it to function in a manner that is true to its nature." And that's the part of the Bitcoin economy for people in financial services to watch, not the hateful hype.

Fed Watch: San Francisco Fed President John Williams, one of the central bank's more dovish officials, said it could be time to start "tapering" asset purchases under QE3 this summer. So really, Bitcoiners and goldbugs, you don't need to worry about debasement in the dollar at all. (We kid, we kid.) Financial Times, Washington Post

Wall Street Journal

"So Much for the Libor Gold Rush" — Now that a federal judge has thrown out most of the claims against the banks, "It's looking like Libor won't be the legal bonanza that the trial bar was hoping for," taunts this editorial. However, the news side of the operation reports that 30 state attorneys general are soldiering on with an investigation of Libor-rigging by banks.

"MF Global Report Blasts Corzine" — Report is from the bankruptcy trustee.

Financial Times

"Goldman and JPM benefit as rivals retreat" — from investment banking, that is.

New York Times

"Uncovering the Human Factor in Risk Management Models" — Don't let the drowsiness-inducing gerund headline scare you away. This is a very interesting profile of John Breit, retired former risk manager at Merrill Lynch. Breit makes provocative comments about, among other things: Value-at-risk models ("useful only as a contrary indicator" — a line that reminds us of the "Simpsons" episode where Homer looks at a card reminding him to "do the opposite of whatever Bart says"); risk-weighting capital requirements ("Inevitably, he argues, banks will 'pile into' the same types of supposedly safe investments, creating bubbles"); and the clout of risk managers (measured by "how many times they meet with chief executives and what they have recently vetoed").

"In Mortgage Case, Judge Dismisses Dexia Claims Against JPMorgan Chase." This putback case, brought by a European bank, "was being closely watched on Wall Street, in part because it could provide a window into another high-stakes suit facing the industry," namely the FHFA's claims against 17 big banks that sold dodgy mortgage bonds to Fannie and Freddie. "At least 20 of the securities at issue were also included in the Dexia case." Notably, the judge who threw out Dexia's claims is Jed Rakoff, hardly a megabank partisan.

Washington Post

"Polar opposites Hensarling, Waters clash on House Financial Services Committee" — Self-explanatory.

"Regulators closer to supervising nonbank financial companies" — The Fed's final rule on the dreaded SIFI designation "leaves a strikingly wide swath of companies on the table as potentially falling under tougher oversight, including private-equity firms and hedge funds."

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Big Winners and Losers for Banks on Election Night

Republicans won a sizable victory late Tuesday, retaking the Senate after losing it eight years ago. Banks, too, largely benefited, as an ally of the industry captured a Senate seat in West Virginia, two credit union allies fell and a key Democratic senator squeaked past. Here's how election night played out for banks.

Comments (1)
Interesting piece about Bitcoin (as opposed to bitcoin). Having an instant way to transmit funds to anyone, anywhere, is indeed the holy grail.

How do we get away from having middlemen like coinbase.com in order to exchange a currency such as bitcoin? These guys are THE weak links in any open source system. Maybe it's just a matter of the strong surviving, but when I see customer's information totally unsecured on a currency platform, I run, not walk, in the other direction: https://coinbase.com/checkouts/baf5ba9212bf6499644fb0eb4ae1e405
Posted by khelfand | Friday, April 05 2013 at 11:34AM ET
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