Homeowners cash out; Bitcoin accepted in Ohio

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Wall Street Journal

The joys of homeownership
More homeowners are “finding their homes to be a tappable source of wealth” despite rising mortgage rates, which are “crushing much of the refinancing market.” Instead, those who can are doing cash-out refis, which accounted for more than 80% of the refi market in the third quarter, the highest share of cash-out refis since 2007. “The trend attests to the current state of the U.S. economy, which is more than nine years into an expansion that has lifted home values sharply but raised worker pay at a much slower pace.”

Just OK
The financial services industry "is pleased, but not fully satisfied" with the job Mick Mulvaney has done in his first year as acting director of the Consumer Financial Protection Bureau. On the plus side, Mulvaney "has made a number of changes that the financial industry has hailed, including a pullback in enforcement actions, an easing of supervisory activities, and a pledge to redo a new payday-loan rule that lenders warned would decimate them. But many in the industry had expected Mr. Mulvaney to move more swiftly to blunt the power of the agency and ease regulations in areas such as mortgage disclosures, debt collection, and prepaid cards."

Double-edged sword
Venmo, PayPal's digital money-transfer service, “was hit by a wave of payments fraud earlier this year that helped push losses higher than the company previously expected and prompted it to shut down some user features to control the damage. Venmo’s fraud difficulties, which haven’t been previously reported, illustrate how innovations designed to make it easier for consumers to send money have also emboldened scammers to exploit their weaknesses. The spike in fraud caught Venmo by surprise, and its responses gummed up the service for many genuine users.”

Patience young grasshopper
Shares of Visa and Mastercard “have taken a nasty spill lately, underperforming a weak market in a reminder that even the most attractive investment story only works at the right price.” But the paper says investors shouldn’t rush in just yet to buy on the dip. “Investors should wait to see if economic pessimism lays the ground for an even better sale on their shares,” it advises.

Planting the digital flag
Ohio will begin accepting bitcoin for business tax bills this week, the first state to do so, “a show of support for a technology that has garnered lots of hype but failed to gain traction as a form of payment.” Eventually, the state expects to expand acceptance to individuals. “I do see [bitcoin] as a legitimate form of currency,” said state Treasurer Josh Mandel, who “views the new program both as a convenience for filers and an opportunity for ‘planting a flag’ for Ohio in the currency’s adoption.”

A payments processor will "convert the bitcoin to dollars" for the state.

It remains to be seen if that’s a wise move. Over the weekend the price of bitcoin dropped below $4,000, meaning it “has lost nearly a third of its value in seven days, one of its worst weekly selloffs on record.” It’s down about 80% since the $20,000 peak of late last year.

Financial Times

Scandal update
“Under pressure” from the Federal Reserve Bank of New York “to tighten its oversight of risk,” Goldman Sachs in 2013 implemented “sweeping changes” to how its internal committees oversee its operations. Unfortunately, that warning came after the bank completed $6.5 billion of “controversial” bond financing for 1MDB, the Malaysian fund now engulfed in scandal that has led to the indictment of two former Goldman bankers. “The news will add to questions over Goldman’s handling of the 1MDB deals.”

Why did Danske Bank turn a blind eye to concerns about money laundering at its tiny Estonian branch for so long? Maybe it was “all the juicy profits that ended up in the Danish parent’s [profit and loss statement]. Despite accounting for just 0.5% of Danske’s banking assets, the Estonian unit alone managed at one point to throw off some 11%” of its total profits. “What action was ultimately taken at Danske came about partly because of pressure from a whistleblower, Howard Wilkinson. Rewarding whistleblowers is a ticklish business. But the U.S. experience of offering bounties shows it can be effective. If banks won’t clean their own stables, we could at least empower those who will.”

Not free
British property expert James Max says “there is no such thing as ‘free banking.’ It’s a fantasy,” he writes in an op-ed. “Whoever you bank with, you’ll be paying them a lot of money. It might be through opportunity cost, or fees, interest charges or transaction charges. You are still paying. On that basis, why pay for poor, impersonal customer service? IT systems that fail. Branches with long queues. Telephone call centers that frustrate. Arduous processes to borrow money when dealing with a short-term credit crisis of your own.”

“Home equity is the big pot of gold.” — Sam Khater, chief economist at Freddie Mac.

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