All items from Credit Slips

Interesting op-ed on digital wallets by Edward Castronova and Joshua Fairfield in the NYT. I'm a little more skeptical. Thoughts follow the break.

(1) We already live in a world of digital currency.
Thanks to fractional reserve banking and electronic records, most currency and transactions are electronic now, not cash. Most money is already digital; there is a right of paper convertibility, but we're in a digital currency world without involving Satoshis and Ripples (¿or is that ripplakh?). 
(2) Government Acceptance of a Currency Matters...A LOT. 



Posted 14 weeks 2 hours ago

ChessThe trial on the City of Detroit's restructuring takes a hiatus while insurer Syncora and others try to finalize a settlement. The deal seems to be a hybrid of enhanced treatment for Syncora's class of claims in Detroit's plan (class 9) and other value for Syncora alone, such as rights in Detroit property, and possibly a release from insurance obligations on interest rate swaps. The deal does not resolve class 9 objections as a whole.



Posted 14 weeks 3 days ago

Apple Pay has been getting a lot of attention, and I hope to do a longer post on it, but for now let me highlight one possible issue that does not seem to have gotten any attention. I think Apple may have just become a regulated financial institution, unwittingly. Basically, I think Apple is now a "service provider" for purposes of the Consumer Financial Protection Act, which means Apple is subject to CFPB examination and UDAAP. 

Here's the argument. Be warned:  this is a romp through some legal definitions. 
The CFPB has authority over two classes of people:  "covered persons" and "service providers".  The CFPB has authority over these classes to the extent they are offering a "financial product or service."  Apple does not currently fit within the definition of "covered person" because it is not offering a "financial product or service".  Apple Pay does not actually transmit funds (they way, say PayPal does); that's why Apple doesn't have a MSB license (as far as I'm aware). 



Posted 14 weeks 4 days ago

One of the competitors in the Great Mobile Payments Race is changing its name. Isis Wallet, a mobile payments joint venture of AT&T, Verizon, and T-Mobile is changing its name to Softcard for fairly obvious reasons. Isis Wallet operates by having the consumer store his/her payment card information on a "secure element"--tech speak for a tamper resistant chip that safely stores encrypted information.  (The particular secure element for Isis Wallet depends on the phone model.) That payment information is then communicated with merchants using NFC (near field communications, i.e., contactless).  Isis Wallet also integrates various loyalty programs and merchant offers (including some that are proximity based). As Apple's Apple Pay platform shows, mobile payments is becoming a crowded field with some real heavyweights. Yet, as I'll blog shortly, there are some real challenges ahead for anyone in the field. 



Posted 14 weeks 5 days ago

The Archdiocese of Milwaukee is one of 11 dioceses (plus 2 other Catholic-affiliated religious orders) to file under Chapter 11 -- and it likely will not be the last. All of the cases were filed in hopes of achieving global settlements of sexual abuse claims. The Milwaukee Archdiocese filed over 3.5 years ago, in January 2011, making it the longest running Diocese case. 6 of the 7 other dioceses that filed before it confirmed reorganization plans in an average of about 2 years after filing. The shortest time to confirmation was 10 months, while the longest was 2.75 years. The other diocese, San Diego, negotiated a settlement, via mediation, in approximately 9 months.

The Milwaukee Archdiocese and its creditors (predominately abuse claimants) have spent the last 3.5 years, despite a trip to mediation in 2012, primarily fighting over a $55 million trust fund established to pay for upkeep of the diocese's cemetery. Without the $55 million, abuse claimants are likely to receive no more than $4 million. The $4 million figure would be smallest settlement paid to abuse claimants in any of the Catholic Church bankruptcies so far. The cemetery trust issue is pending before the 7th Circuit. Meanwhile, attorneys' and other professionals' fees are rising, leading Judge Kelley to order the parties back to mediation, starting tomorrow.



Posted 15 weeks 19 hours ago

One of the post-bubble conventional wisdom stories that has gotten a lot of traction is that housing is a bad investment and that consumers would do better to rent and invest in the stock market.  The problem is that it's wrong.
The prooftext for the idea that housing is a bad investment is a straightfoward comparison of the returns on stock market indices with those on housing market indices.  If one compares the return on the S&P500 index vs. the S&P/Case-Shiller Composite 10 index from the beginning of the Case-Shiller data (1987) to present, one sees that the S&P500 went up 630%, while the Case-Shiller went up only 197%.  Even if one uses an average return (averaging the monthly index values, relative to the starting value), S&P500 is 244%, while Case-Shiller is 98%.  Ergo housing is a bad investment compared to the stock market, right?
That's certainly what a bunch of smart people have argued. (I won't link or name names, but Google isn't coy.) There are two problems with this line of argument.
First, it fails to account for the leveraged nature of housing investment.  Most homes are purchased on leverage, and housing is the only leveraged investment broadly available to the middle class. When one factors in leverage, housing massively outperforms stock market mutual funds, making it a pretty sensible investment in most cases.   



Posted 15 weeks 3 days ago

Ding Dong! The Witch is Dead! We have a contract fix against holdouts in sovereign debt restructuring. Here are my two cents on the proposed reforms, as of last Friday. Bottom line is way positive. In my admittedly biased opinion, this is unusually meaningful change. That said, after three days of celebrating in the press and debt relief circles, it is time for a bit of perspective.



Posted 15 weeks 5 days ago

3dPuzzlePlan confirmation time. Doesn't everyone relish a big trial? Headlines in national newspapers breathlessly proclaim that the fate of Detroit's future is in the hands of one single judge!
Well, no.
Let's get literal about the judicial role at this juncture. There's no way over the finish line without a determination by the bankruptcy court that the City has met its burden of showing its plan satisfies all legal requirements by a preponderance of the evidence.
This standard includes the City showing that the plan is not likely to fail. Back in January 2014, as the parties negotiated the plan's initial version, Judge Rhodes called for restraint in creditor demands, modesty in City promises:



Posted 15 weeks 6 days ago

Last December the FDIC put out for comment a proposal for a Single-Point-of-Entry (SPOE) Strategy to implement its Orderly Liquidation Authority (OLA) under Title II of Dodd-Frank. Single-Point-of-Entry has gotten a lot of policy traction. The Treasury Secretary supports it and there’s huge buy-in from Wall Street.  And it’s an approach that is likely to ensure financial stability in the event that a systemically important financial institution gets into trouble.  There’s just one problem with it.  SPOE means “No Bank Left Behind”.  



Posted 16 weeks 18 hours ago

Thoughts on cramdown and "make whole" call provisions, over at Dealb%k.



Posted 16 weeks 3 days ago