Coppola Comment

Two days after I published my last post , the ship went down. Voyager Digital filed for Chapter 11 bankruptcy protection .  The bankruptcy filing revealed the extent of its indebtedness. Tragically, most of its creditors are customers, some of whom hold claims worth millions of dollars. But its largest creditor is Alameda Research, to whom it owes $75m. This is the maximum that Voyager could draw down from Alameda's credit line in a 30-day period. So it appears that Alameda did not pull its credit line as I thought. Rather, Voyager maxed it out - but still ran out of money. Voyager's desperate shortage of cash is the proximate reason for its bankruptcy.  But for its customers, the hole in its balance sheet is the bigger problem. Voyager admits that it cannot repay all, or even most, deposits in full. Its press release outlines a resolution plan that distinguishes between two classes of depositor (click image for a larger view) : US dollar deposits on Voyager don't earn int...

Friday was quite a day. The crypto lender BlockFi provisionally agreed a bailout deal with FTX . The hedge fund Three Arrows Capital (3AC), already in compulsory liquidation in its home territory the British Virgin Islands, filed for Chapter 15 bankruptcy protection in the United States. And the crypto broker Voyager suspended trading and withdrawals .  Voyager's press release revealed a massive hole in its balance sheet. Some 58% of its loan book consists of loans to 3AC: And its loan book is nearly 50% of total assets: So approximately 28% of Voyager's assets are in default. And since 3AC now has creditor protection, Voyager must wait for bankruptcy courts to decide how much, if anything, can be recovered. That will take months.  But the balance sheet hole doesn't explain why Voyager has suspended US dollar withdrawals. Despite its apparently healthy "cash held for customers" balance, it seems to be dreadfully short of cash. There is something else going on he...

" USD-backed stablecoin is 10x better than your savings account ," runs the headline on an unsolicited press release in my inbox yesterday. And it goes on to explain: The average interest rate for savings accounts in the US currently stands at 0.09%, with some German banks even charging negative interest rates. Universal Protocol, a coalition of leading blockchain organizations, including Uphold, Cred, Blockchain at Berkeley, and Bittrex Global, has recently introduced interest rates of 10% p.a. for its USD-backed stablecoin UPUSD.  Ok, so they are issuing an altcoin at high interest rates. Why are they comparing this with FDIC-insured savings accounts? The UPUSD is a fully-transparent digital asset that is collateralized 1-to-1 with US dollars and held at US-domiciled, FDIC-insured banks.  FDIC-insured banks don't hold digital assets. They hold US dollars. So this should read "collateralized 1-to-1 with US dollars held at US-domiciled, FDIC-insured banks...

Krugman says we do not need new economic models, we just need to make better use of the ones we already have. Indeed, even very old models that we long since consigned to dusty archives can help remind us of things we have forgotten about. Financial crises, for example..... In his response to my speech at Manchester University in February - which became the post that whipped up the "state of macro" debate to which Krugman responded - Andrew Lilico gave four examples of economic models that in his view form the foundation of modern economics and (he claims) have not been shown to be inadequate or wrong. Lilico's four models are these: - Capital Asset Pricing Model - Modigliani-Miller Theorem - Efficient Market Hypothesis - Black-Scholes Option Pricing Model Hmm.Only the EMH would I think be regarded as a macroeconomic model - and even then, is it really more fundamental than Shiller's irrational exuberance ? When I was doing my MBA, we covered the other thre...

The latest in the Bulgarian bank saga. The audit report on Corporate Commercial Bank is out. It's very grim reading, but does that mean the bank will be closed down? Not necessarily..... Find out more here . (Forbes)

Joint post with  Euronomist . Recent developments in the Eurozone, specifically Cyprus where the first EU-dictated bail-in of bank depositors took place, brought to light an important issue which had been hiding in the shadows: the flawed nature of current deposit insurance schemes. Some advocate abolition of deposit insurance because it distorts incentives for banks and savers. But others believe that it is necessary to avert panic every time a bank nears its inevitable death. Yet although the two ends of the spectrum appear to disagree on the specifics of their proposals they both agree that the deposit insurance scheme needs to change if we want the future of both the financial sector and the wider economy be brighter than the present. In this article we present and develop a scheme which will address the need of depositors for safety without creating distorted incentives, while simultaneously helping to ensure the viability and stability of the banking sector in time o...