Bitcoin Virtual Currency Market Crashes

Funniest thing, but a student on Monday said that he'd invested in Bitcoin. I forgot exactly how this came up during discussion. Mostly we were talking about state sovereignty and one of my students got on the topic of a "cashless economy," and then the young guy in the back started in with Bitcoin. We talked about it for five minutes or so, heh.

And then here comes the news from yesterday morning, "Shutdown of Mt. Gox Rattles Bitcoin Market: Closure Raises Concern About the Future of Unregulated Virtual Currency."

And at LAT, "Bitcoin virtual currency is on the verge of collapse":

It was supposed to revolutionize the global monetary system. Instead, the bitcoin virtual currency that has captured the imagination of investors and financiers is on the verge of collapse.

In a stunning blow to a novel way to buy products and services, the world's largest exchange for trading bitcoin currency shut down Tuesday, triggering a massive sell-off and sending many prospective investors away — perhaps for good.

"This is extremely destructive," said Mark Williams, a risk-management expert and former Federal Reserve Bank examiner. "What we're seeing is a lot of the flaws. It's not only fragile, it's fragile as eggshells."

The mysterious circumstances that triggered the failure of the exchange, Mt. Gox in Tokyo, is only adding to the renewed anxiety over the virtual currency, which just a month earlier had been gaining momentum and supporters.

After saying users could not withdraw their funds, Mt. Gox suddenly ceased all operations, including shutting down its website. Mt. Gox users may have lost more than $300 million worth of bitcoins in what was the latest and biggest in a series of recent setbacks for the virtual currency.

The currency exists only online, and its value is based on an algorithm. Investors buy bitcoins with dollars, euros and other real currency. A purchase with bitcoins typically involves transferring an amount from the buyer's bitcoin "digital wallet" to the seller's wallet on the Internet.

The blow to bitcoin's credibility has highlighted all the fears critics have been trying to raise. Because it is unregulated and anonymous, there is probably no way for users to know who may have seized the thousands of missing bitcoins — and no way to recover them.

This sudden reversal of fortune is particularly painful for enthusiasts who believed just a few weeks ago that bitcoin was on the cusp of mainstream acceptance because of growing support from venture capitalists, banks and regulators.

Instead of triumph, the bitcoin community is now focused on repairing the damage. Mt. Gox is nothing more than a "collapsed tower of toxic sludge," said Williams, who is also a finance professor at Boston University School of Management...

Well, I described Bitcoin as a "fad" on Monday, and that might be the perfect word for it in the end.

Still more here.

Sandra Bullock and Alfonso Cuarón on 'Gravity'

I liked this interview of the pair at the Los Angeles Times, "How Alfonso Cuarón pulled Sandra Bullock into his field of 'Gravity'."

I saw this film over the holiday weekend as well. I just didn't have a chance to blog it before I saw "The Wolf of Wall Street," which was a riot.

More at CBS News This Morning, yesterday morning:

'The Wolf of Wall Street'

This is without a doubt the funniest movie I've seen in a very long time. And I had no idea. I didn't read the reviews. I only really heard about the movie when all the other Hollywood-awards buzz got going, and even then --- having seen serious productions like "12 Years a Slave" --- discounted the importance of this film. But it's a keeper. Not a "best picture" candidate in my opinion (it's nominated), although Leo DiCaprio's performance is as "best actor" award-worthy as anything I've seen this season. The movie's extreme portrayal of money-powered, drug-fueled, and sex-crazed out-of-control excess is so over-the-top it's a bit hard to take too seriously, which for me is what makes "Wolf" that much more compelling. It's a comedic no-apologies flash down the fast lane of "greed is good" high-finance debauchery. DiCaprio brings his role to life in a virtuoso performance, along with the very impressive Jonah Hill as his sidekick and partner in crime. And the smokin' Margot Robbie definitely heats up the screen (with a "fresh-face" attractiveness that's hard to resist).

That said, the movie's too long. I don't know? What, like three hours? And then there's the normative (ethical) questions: Does this film unquestioningly glamorize massive hedonistic gluttony and a literally mean-spirited commercial sensibility? (The scene where the broker-trainee is fired from Stratton Oakmont for cleaning a fishbowl on IPO day is brutal and made me feel sorry for the f-ker.) The Los Angeles Times captures the film's controversy over ethics:

Love it or hate it, "The Wolf of Wall Street," more than seemingly any other movie in the Oscar frame, has gotten audiences up in arms and debating it all through the holidays and into the final pre-noms stretch.

In any case, about those reviews which I missed. Check A.O. Scott at the New York Times, "When Greed Was Good (and Fun): DiCaprio Stars in Scorsese’s ‘The Wolf of Wall Street’"; Richard Brody at the New Yorker, "The Wild, Brilliant 'Wolf of Wall Street'"; and Betsy Sharkey at the Los Angeles Times, "Review: Scorsese, DiCaprio go hunting in 'Wolf of Wall Street'."

RELATED: At Business Week, "Jordan Belfort, the Real Wolf of Wall Street," and William D. Cohan, at the New York Times, "The Tame Truth About the Wolves of Wall Street."

HSBC Cash Withdrawal Limits Spark Fears of Banking Crisis

At Director Blue.

An amazing piece, and I checked Google for more information, and found this at BBC, "HSBC imposes restrictions on large cash withdrawals."

Americans are not going to go for currency and banking restrictions. This ain't Greece or Cyprus. You'll see a huge political backlash. People won't stand for that shit.

Ben Bernanke Struggled to Boost U.S. Economic Growth

Bernanke's stepping down at the end of the month, and the Fed's supposed to ease off its economic stimulus policies, but we'll see. A report at the New York Times, "Fed Scales Back Stimulus Campaign."

And see the Wall Street Journal, "Meltdown Averted, Bernanke Struggled to Stoke Growth: Fed Chairman Fails to Engineer Robust Recovery, Even With Extraordinary Measures" (via Google):

After a financial crisis he didn't see coming, Ben Bernanke steered the U.S. away from a potentially devastating panic. Yet five years later, the recovery he helped engineer with extraordinary policies remains frustratingly weak.

As Mr. Bernanke prepares for his final days as Federal Reserve chairman, that legacy—a mix of failings, boldness, persistence and frustration—is coming into sharper focus, and with it a clearer picture of the power and limitations of modern central banking.

Fed officials meeting in Washington on Wednesday face another consequential decision: a close call on whether to start winding down their $85 billion-a-month bond-buying program.

At the root of the issue is a long-running debate between Mr. Bernanke and other Fed officials about how much more a central bank can or should do to try to spur an economy that hasn't been wholly responsive to its efforts.

It could be the last big Fed decision before Mr. Bernanke ends his chairmanship next month, eight years after taking the helm in what he expected to be a far-more-placid era.

"I will make continuity with the policies and policy strategies of the Greenspan Fed a top priority," Mr. Bernanke said at his first confirmation hearing in November 2005, citing predecessor Alan Greenspan. He talked broadly of the need to ensure financial stability, but made no mention in his statement of the threat from a housing boom that by then had begun showing signs of cracking.

How would you rate Bernanke's performance? How will history remember him? Weigh in here.
Fans of Mr. Bernanke say history will mark him most as the courageous economic steward who, once crisis struck in 2008 and 2009, flooded the financial system with loans and averted another Great Depression.

"This is like saving you from nuclear war," said Ray Dalio, founder of the giant hedge fund Bridgewater Associates.

Mark Gertler, a New York University economics professor and friend of Mr. Bernanke, said that "like Roosevelt, he was the calming influence, the grown-up in the room, during the darkest days of the economic turmoil."

Before then, however, came calculations that haunt the Fed.

Mr. Bernanke's first steps in office were to continue a succession of small interest-rate increases that some economists say were too late, and too timid, to curb a badly swollen housing bubble.

Mr. Bernanke has disputed that analysis, but acknowledged that the Fed failed to adequately supervise banks before the crisis or to see danger to the broader financial system—mistakes that have since led Congress to revamp Washington's approach to financial supervision.

Early on, Mr. Bernanke embraced only reluctantly the interventionist stance that has come to define his stewardship.

In December 2007, for example, he said he was "quite conflicted" about whether to cut interest rates sharply, according to transcripts of Fed's meetings. That turned out the be the month the recession began. At other times, he talked about wanting to avoid bailing out financial markets, institutions or people.

Timothy Geithner, the former Treasury Secretary and New York Fed president, saw the reserved former professor's worldview change in early January 2008 as financial turmoil deepened and started to bite the economy.

"That's when he decided that the risks were so great and he was going to have to be much more aggressive," Mr. Geithner said. "He kept at it."

It is widely accepted that the landmark policies Mr. Bernanke championed during and after the crisis—rock-bottom interest rates, loans to banks and controversial bond buying—averted an economic calamity. Their failure to spur a vigorous recovery, however, has created perhaps the biggest unanswered question about Mr. Bernanke's legacy.

"I wish I was leaving with the unemployment rate at 5% instead of 7%," he said wistfully during a November discussion with high-school teachers.

The Fed has promised to hold short-term interest rates near zero at least until the unemployment rate, currently 7%, falls to 6.5%. And in an effort to drive long-term rates down, the central bank has accumulated more than $3 trillion in Treasury bonds and mortgage securities.

In the process, it has flooded the U.S. banking system with money, funds available for banks to lend. These cheap-credit policies, in theory, should spur job-creating growth.

There's a fabulous graphic here, "Imperfect Tools, Imperfect Economy." Pay attention to the radical growth and scale of quantitative easing after 2009. The Fed flooded the economy with money, deflating the currency while staving off a collapse in growth. Seriously. Just take a look at the scale of the monetary stimulus. That's gotta be unprecedented.

See that New York Times piece at top for more.

'Clock is Ticking' — China Warns U.S. Over Budget Showdown

And like it's going to do any good.

At the Independent UK, "Get your fiscal house in order: China warns US as superpower expresses concern for $1.3tn of investments":

China, the biggest foreign creditor of the United States, has waded into the American budget crisis, warning Congress that it must resolve the political impasse over the debt ceiling without further delay.

The Chinese Vice Foreign Minister, Zhu Guangyao, told America’s deadlocked politicians on Monday that “the clock is ticking” and called on them to approve an extension of the national borrowing limit before the federal government is projected to run out of cash on 17 October.

“We ask that the United States earnestly takes steps to resolve in a timely way the political issues around the debt ceiling and prevent a US debt default to ensure the safety of Chinese investments in the United States,” Mr Zhu told reporters in Beijing. “This is the United States’ responsibility,” he added.

The American government entered its seventh day of shutdown on Monday, following the failure of Congress to approve the national budget a week ago. And there was little sign of progress on the still more crucial issue of the fast-approaching “debt ceiling” deadline.

Continue reading.

Markets Brace for Post-Fed World

At WSJ, "Despite Best Yearly Start Since 1999, Investors Spooked by Central Bank's Signals See Turbulence Ahead":

The U.S. stock market had its best start to a year since 1999, but by Friday—the halfway mark of 2013—investors had ditched their party hats and braced for the Federal Reserve to cut back on policies that helped send stocks soaring this year.

The Dow Jones Industrial Average ended the first six months of the year up 14%, but all the gains came in the first five months. The Dow fell 1.4% in June, including a 114.89 point, or 0.76%, drop on Friday to 14909.60.

The impact on financial markets from an anticipated shift in Fed policy in the second half of the year is now a matter of intense debate. In the past week, senior Fed officials have sought to reassure markets the central bank would withdraw its assistance gradually and only if the U.S. economy appeared strong enough.

But some investors said they were bracing for more tumult in the months ahead, as markets face a new, uncertain world.

"We think it is going to be a bumpy summer, a volatile summer," said Rebecca Patterson, chief investment officer at Bessemer Trust, which manages about $60 billion in New York. Ms. Patterson added that she was optimistic U.S. stocks would pull through with gains.

In June, Fed Chairman Ben Bernanke confirmed the central bank's intentions to start trimming aid this year. But he said any changes would depend on continued economic strength and be limited to gradual reductions in monthly bond-buying. Increases in the Fed's target short-term interest rates, he said, would require a return to 6.5% unemployment.

The stock market has since swung down and then up as investors tried to predict the fallout. Bond prices took an even bigger hit and yields, which rise as bond prices fall, surged.

Most Fed officials said the markets overreacted to Mr. Bernanke's news conference, but one said market volatility was a normal reaction to the prospect of a pullback by the Fed.

nvestors have become dependent on the Fed's unprecedented injections of cash into markets, including the current $85 billion-a-month bond-buying program. There is no historic experience to help predict how the unwinding of such an elaborate support system will unfold, creating uncertainty.

Jim Dunigan, chief investment officer at PNC Wealth Management, which oversees about $116 billion, compares a gradual withdrawal to movie hero Indiana Jones trying to grab a diamond from the stones of an ancient tomb without bringing the whole edifice crashing down.

"How do you withdraw the support, which has been massive?" Mr. Dunigan said. "It is hard to do. Throttling back is going to be a little tricky."

That was revealed this month, when the mere mention of a Fed pullback roiled markets across the globe. Gold ended its worst quarter since the start of modern gold trading in 1974; Brazilian stocks were down 16% and the Australian dollar tumbled more than 12%.

The U.S. bond market, which is the direct recipient of the Fed's monthly purchases, has been especially hard hit.

Many Americans Say They Can't Retire Until Their 70s or 80s

Well, I'll keep working until I'm at least 65.

I'm going to need the money!

At the Los Angeles Times:

It’s the new retirement: More than four in 10 Americans think they’ll have to work into their 70s or 80s because they can’t afford to retire, according to a new survey.

One in 10 people expects to toil into their 80s, while 32% expect to be on the job into their 70s, according to the report by insurer Northwestern Mutual.

On average, those surveyed expect to leave work at age 68. However, the report points out, that doesn’t jibe with reality.

The mean age of those already retired is 59, the study said.

An increasing number of people figure they’ll simply work longer to make up for inadequate nest-egg savings these days, not realizing how layoffs, poor health or other forces pushed their forebears out of the workforce far sooner than they wanted...

Continue reading.

Chancellor Merkel Angry with Cyprus as Euro Crisis Intensifies

At Der Spiegel, "Iron Chancellor Returns: Merkel Can't Contain Anger over Cyprus":

Angela Merkel is known for her measured approach to even the most controversial issues. The crisis in Cyprus, however, has enraged the German chancellor. In parliamentary meetings on Friday morning, she did little to disguise her fury -- though she shoulders some of the blame herself.

Coalition parliamentarians have rarely seen Chancellor Angela Merkel so upset. Whether it has been election defeats, internal bickering in the government or the euro crisis, she almost always finds moderate words even as others panic. She has earned a reputation for being cool and calculating.

But the situation in Cyprus appears to have frayed her nerves. In meetings with parliamentarians from her conservative faction and later with those from her junior coalition partner, the Free Democrats (FDP), it quickly became clear on Friday that her patience with Cyprus is running out. Together with Finance Minister Wolfgang Schäuble, she left no doubt as to her frustration with Nicosia's new plan for raising €5.8 billion in badly needed capital.

Merkel disapproves of the Cypriot proposal, which involves bundling state assets into a "Solidarity Fund" that includes the country's retirement fund to back bond issues. According to reports on Friday, she is not alone. The troika, made up of the European Commission, the European Central Bank and the International Monetary Fund, agrees with her assessment.

What happens next? "I hope that it doesn't result in a crash," Merkel told FDP parliamentarians according to a meeting participant. Merkel has long warned of a potential domino effect should a euro-zone member state enter insolvency. But now, her government is no longer excluding the possibility.

The chancellor is particularly frustrated by the lack of communication with Cypriot leaders even as the situation worsens dramatically. Some in her party have even used the word "autistic" to describe Nicosia's apparent unwillingness to communicate with Berlin. "What we have never experienced before is that, over a period of days, there has been no contact with the EU or with the troika," Merkel reportedly told the parliamentarians.

More at that top link.

Plus, "Search for a Solution: Troika Reportedly Rejects 'Plan B' in Cyprus."

European Parliament Seeks Cap on Bankers' Bonuses, Faces Stiff Push-Back From Britain, Europe's Banking Capital

The Euro-bureaucrats want to limit bonuses to bankers, also known as capitalists, who are the enemies of the continent's idiotic state-socialists. How perfect.

At Der Spiegel, "World from Berlin: 'Cap On Banker Bonuses Is a Serious Blunder'":

The European Parliament moved this week to cap banker bonuses. But the plan faces stiff resistance in Britain, Europe's financial capital, and even German commentators question whether it will stop banking excesses.

As of Jan. 1, 2014, bankers' bonuses will be capped at 100 percent of their annual pay, or 200 percent with shareholder approval. The decision, reached in Brussels early Thursday morning by the European Parliament, the European Commission and the rotating Irish EU presidency, is likely to be approved next week. The regulation will apply to all bankers working within the EU, as well as employees of European bank subsidiaries abroad.

Although the regulation may not have a huge impact on normal banking executives, it could have a radical one on investment bankers, who work in a sector where it isn't unusual for bonuses to reach as high as ten times their annual salary. The center-left member of parliament leading the negotiations in Brussels, Udo Bullmann of Germany's Social Democrats, described the move as being no less than a "revolution" on the financial markets.

But in London, Europe's banking capital, criticism of the decision has been massive. "This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire," scoffed conservative London Mayor Boris Johnson, adding that Brussels cannot set pay for an entire sector "around the world." The move would only boost the United States and Asia as financial industry centers and further alienate Britain from the EU, he said.

So far, British Prime Minister David Cameron has been reserved in his remarks about the bonus cap, although he shares fears that the new rules will scare banks away from Britain. "We do have in the UK -- and not every other European country has this -- we have major international banks that are based in the UK but have branches and activities all over the world," he said. Cameron called for a regulation in Brussels that is "flexible enough to allow those banks to continue competing."

The left seeks to bring the rest of the world down, damn the consequences. At least some common sense is prevailing in London, and that's despite Britain's long slide in the socialist mediocrity itself. (The NHS scandal continues to amaze the world with the wonders of socialized medicine.)

More at the link.

Italian Election Rattles World Markets

At the video, security personnel thrash FEMEN activists protesting Silvio Berlusconi.

And the Wall Street Journal reports on the messy Italian election results, "Italy Vote Brings Political Gridlock":

ROME—In a national election meant to push Italy further down a path of economic reform, voters delivered political gridlock that could once again rattle Europe's financial stability.

Markets fell in response to returns. Yields on 10-year Italian bonds jumped 0.45 percentage point in mid-morning trading to 4.81%, their highest level this year. Spanish yields were higher by nearly 0.2 percentage point, and bonds of Portugal and Greece were hit as well. Bond yields rise when their prices fall.
In early trading, stock markets in France, Germany, Spain and Italy were each down around 2%. Hardest hit was the Italian benchmark, which traded down around 4%. Italian banks suffered particularly. UniCredit SpA fell sharply.

The Dow Jones Industrial Average swung nearly 300 points Monday, ending with its worst day in almost four months, as the prospects of a stable government appeared to drop.

A majority of voters endorsed parties that had promised to tone down or even reverse the financial sacrifices Italy has promised its European partners, giving surprise lifts to both the center-right coalition of former premier Silvio Berlusconi and a party of protest led by a former comedian.

Early Tuesday, the left-wing coalition led by the Democratic Party's Pier Luigi Bersani appeared to have gained a razor-thin victory in the lower house of parliament over the center-right coalition headed by Mr. Berlusconi—29.6% to 29.2%, final data from the Interior Ministry showed. By leading the vote count in the lower house, the Democratic Party will automatically get the majority of 340 out 630 seats and, therefore, will likely receive the mandate to form a government.

he Senate, however, appeared headed for political impasse. The Democratic Party was the leading vote-getter in the upper house as well, by less than one percentage point. But its 31.6% result fails to provide its coalition with a majority to pass legislation. If a new government isn't able to guarantee clear parliamentary support, Italians could return to the polls within months.

Battle lines were already being drawn late Monday. The Democratic Party declared slim victories in both houses, saying it will keep Italy's interests in mind during this "very delicate situation for the country." But a top official in Mr. Berlusconi's center-right coalition said he is asking the country's interior minister to call the vote a draw.

The apparent stalemate reflects the groundswell of support for former comedian Beppe Grillo's Five-Star Movement. His throw-the-rascals-out platform drew enough voters to give it nearly as many votes as Italy's mainstream coalitions—25.6% in the lower house, according to final data from the Interior Ministry, making it the single largest party in that house.

More at Business Week, "In Italy's Disarray, Berlusconi Emerges Anew as a Power." And at the Economist, "Italian politics: A dangerous mess."

'It was really awkward because he kept telling me that I was the perfect girl for him, but that a low credit score was his deal-breaker...'

Times have changed, I guess. My credit was shot when I met my future wife. And I was working minimum wage and driving a beaten down Toyota 2x4 pickup. I had a smokin' hot physique back in the day, so I guess that explains it.

In any case, a great piece at the New York Times, "Perfect 10? Never Mind That. Ask Her for Her Credit Score":

As she nibbled on strawberry shortcake, Jessica LaShawn, a flight attendant from Chicago, tried not to get ahead of herself and imagine this first date turning into another and another, and maybe, at some point, a glimmering diamond ring and happily ever after.

She simply couldn’t help it, though. After all, he was tall, from a religious family, raised by his grandparents just as she was, worked in finance and even had great teeth.

Her musings were suddenly interrupted when her date asked a decidedly unromantic question: “What’s your credit score?”

“It was as if the music stopped,” Ms. LaShawn, 31, said, recalling how the date this year went so wrong so quickly after she tried to answer his question honestly. “It was really awkward because he kept telling me that I was the perfect girl for him, but that a low credit score was his deal-breaker.”

The credit score, once a little-known metric derived from a complex formula that incorporates outstanding debt and payment histories, has become an increasingly important number used to bestow credit, determine housing and even distinguish between job candidates.

It’s so widely used that it has also become a bigger factor in dating decisions, sometimes eclipsing more traditional priorities like a good job, shared interests and physical chemistry. That’s according to interviews with more than 50 daters across the country, all under the age of 40.

“Credit scores are like the dating equivalent of a sexually transmitted disease test,” said Manisha Thakor, the founder and chief executive of MoneyZen Wealth Management, a financial advisory firm. “It’s a shorthand way to get a sense of someone’s financial past the same way an S.T.D. test gives some information about a person’s sexual past.”

Actually, Ms. LaShawn has some pretty great teeth --- and then some.

RTWT at that top link.

Added: I can't resist adding this passage:

Lauren Dollard, a 26-year-old assistant at a nonprofit in Houston, said her low credit score had helped to stall her romantic plans. Her boyfriend is wary of marrying her until she can significantly pay down the more than $150,000 she owes in student loans and bolster her credit score, she said.

I personally wouldn't marry someone who ran up that much in college debt. The numbers I read about in student loan debt these days are literally obscene. No one should ever take out that much debt for any kind of degree, any kind, including an attorney, doctor, or whatever. You start out your professional life in financial bondage. Talk about a higher education bubble. Oh brother...