Posts

Maya Forstater's human rights problem

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Maya Forstater's Employment Tribunal hearing comes up soon. This is her second hearing: the judge in the first hearing dismissed her case with a controversial judgment that described her " gender critical " beliefs as "not worthy of respect in a democratic society". She appealed this judgment, and in June this year the Employment Appeals Tribunal (EAT) found that the judge had erred in law and her beliefs were protected under section 10 of the Equality Act. The EAT instructed that a second Employment Tribunal should consider whether the discrimination she complained about in the original hearing was "because of or related to" her beliefs.   Forstater may or may not succeed in her discrimination case against her employer. She is far from the only person to hold "gender critical" beliefs: if the Tribunal concludes that her employer was right to dismiss her, then other people might feel unable to express their beliefs for fear of losing their

JP Morgan's Coffee Machine

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  It's now widely accepted, though still not universally, that banks create money when they lend. But it seems to be much less widely known that they also create money when they spend. I don't just mean when they buy securities, which is rightly regarded as simply another form of lending. I mean when they buy what is now colloquially known as "stuff". Computers, for example. Or coffee machines.  Imagine that a major bank - JP Morgan, for example - wants to buy a new coffee machine for one of its New York offices (yes, it has more than one). It orders a top-of-the-range espresso machine worth $10,000 from the Goodlife Coffee Company, and pays for it by electronic funds transfer to the company's account. At the end of the transaction JP Morgan has a new coffee machine and Goodlife has $10,000 in its deposit account.  What exactly is this money, and how is it created? I had a long argument with people on twitter who insisted that JP Morgan would pay for the coffee ma

Crypto's Weimar

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  A cryptocurrency has just re-enacted the Weimar hyperinflation. Yesterday, the price of the cryptocurrency TITAN crashed to zero, and its related stablecoin IRON fell off its USD peg, trading as low as 69 cents to the dollar. It was a sudden and dramatic collapse that left investors shocked and bewildered. Equally shocked and confused, the coins' issuer launched an immediate investigation:  Iron Finance issued its post mortem a few hours later. This is the key paragraph: Later, at around 3pm UTC, a few big holders started selling again. This time, after they started, a lot of users panicked and started to redeem IRON and sell their TITAN. Because of how the 10mins TWAP oracle works, TITAN spot price drops even further in comparison to the TWAP redemption price. This caused a negative feedback loop, as more TITAN was created (as a result of IRON redemptions) and the price kept going down. A classic definition of an irrational and panicked event also known as a bank run. At the ti

Bank capital and cryptocurrencies

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The BIS's draft proposals for capital regulation of stablecoins and cryptocurrencies have just been released. The headline proposal was a risk weighting of 1250% for what the BIS called "Group 2 cryptoassets", which includes all cryptocurrencies, all algorithmic stablecoins, and reserved stablecoins  that don't meet the capital, liquidity and disclosure requirements for "Group 1 cryptoassets" specified in the same document. Bitcoin and Ethereum, the two major cryptocurrencies, would fall into Group 2, along with most (possibly all) existing stablecoins.  The proposals were widely misunderstood in the crypto community. As ever, much of the misunderstanding was about the nature of bank capital.  Many people confuse bank capital with reserves. Reserves are cash deposits at the central bank and vaulted currency. They enable customers to withdraw cash and make payments out of their deposit accounts. Without them, banks would have to go to the market for funding

Tether’s smoke and mirrors

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Tether has issued what it calls a “ breakdown of its reserves ”. It actually consists of two pie charts. Here they are: Seriously, this is all Tether has seen fit to reveal.  Furthermore, the pie charts only purport to show the breakdown of Tether’s reserves on the 31st March 2021. We do not know whether Tether’s reserves still have the same composition now.  Nonetheless, the crypto world took these charts as an indication that Tether was, if not fully cash-backed, at least mostly. “76% of its reserves are in cash or cash equivalents, whereas banks only have 10%!”, crowed several people. In both the reserve report and the monthly attestation , Tether takes “reserves” to mean total consolidated assets. The monthly attestations from Moore Cayman essentially say:  1. Tether’s total consolidated assets exceed its consolidated liabilities  2. Tether’s total consolidated liabilities exceed the quantity of tokens in issue  3. Therefore Tether’s reserves exceed the quantity of tokens in issue

Calculus for Economists

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Gabriel Sterne complains about economists' loose use of mathematical terminology:  Of course, it's not just economists who use "increase" and "accelerate" interchangeably. But economics is a mathematical discipline, and in mathematics, "increase" and "accelerate" mean different things. So is Gabriel's observation true, and if it is, is it a problem? To test Gabriel's hypothesis, I ran a little Twitter test. I asked this question:  This was of course far from rigorous: the sample was self-selecting, there was no way of restricting it to economists (though I did ban finance tweeps from answering), and it all depended who was on Twitter this morning. And the terminology I used was itself confusing - deliberately so, since this is how economists often write.  But the results were nevertheless interesting. Most non-economists got the answer right. Physicists, in particular, understood it straight away. But most economists who answered

David and Goliath

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Yesterday, someone who had been watching one of my (all too frequent) Twitter arguments about money made this comment:  The "unknown person with few followers" was my protagonist. And the blue tick "classical expert" was me. I am Goliath.  But ten years ago, I was David. Armed only with Blogger and Twitter, and my knowledge of banking and finance, I set out to slay the financial Philistines that rampaged across the internet in the aftermath of the 2008 financial crisis. I published my first Coppola Comment post on 20th February, 2011. It throws slingshots at a media pundit who had written an article about short selling, on which he was far from expert. You can still read it , if you like.  My early posts were rough and ready, and my terminology is at times excruciatingly loose, but I was sure of my subject. I understood British banking and financial markets well, though I had left RBS nearly ten years before. It was evident to me that the 2008 financial crisis in th