Biography
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Izabella Kaminska joined FT Alphaville in October 2008, which was, perhaps, the best time in the world to become a financial blogger. (Added bonus: there was a free breakfast trolly.) Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP’s internal magazine. She has also worked as a reporter on English language business papers in Poland and Azerbaijan and was a Reuters graduate trainee in 2004.

Everything she knows about economics stems from a childhood fascination with ancient economies, specifically the agrarian land reforms of the early Roman republic and the coinage and price stability reforms of late Roman emperors. Her favourite emperor is one Gaius Aurelius Valerius Diocletian.

She studied Ancient History at UCL, and has a masters in Journalism from what was then the London College of Printing.

And yes, she is also a second-generation West London Pole (who likes mushroom picking, bigos and pierogi).

Meanwhile, in a parallel universe…

The danger of pre-scheduled publication tools is that sometimes stuff happens….

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Camp Alphaville Emergency Brexit Update

Next Friday at 11am, up to a 1000 finance, business and economic experts will gather in the heart of London’s financial district to hear from an array of influential voices in this hour of Brexit, including amongst others: the ECB’s chief economist Peter Praet; the BoE’s chief economist, Andy Haldane; and the BIS’s head of research, Hyun Song Shin.

We had an inkling something like Brexit might happen, so we hedged our bets with programming contingencies (not least because last year’s emergency Greek panel looked like this):

Yes. Standing room only. Read more

London, fintech decelerator of the world

On the matter of London’s bid to establish itself as the fintech capital of the world, well known Twitter and blogging raconteur Dan Davies says:

Which fits quite nice with what a fintech/Brexit report commissioned by London FinTech Week at the end of May flagged. Read more

Cryptocurrency: No longer sticking it to the MAN

For those who thought things couldn’t get any more absurd with respect to the dumb-contract hack on the DAO (a.k.a the decentralised autonomous organisation which sits on the Ethereum blockchain and which was supposed to prove to the world that companies don’t need executives), you’re in for a treat.

On Wednesday an anonymous message posted on Pastebin said simply this:

We are an anonymous collective concerned with the lack of regulation in the cybercurrency sector.

(H/T Buttcoin reddit) Read more

In the name of Satoshi, who exactly are EITC Holdings?

Andrew O’Hagan’s 35,000 word write up of the Craig Wright Satoshi affair in the London Review of Books has been out and circulating since the weekend.

The market has had time to digest the information and yet it doesn’t look all that much like anyone has found much closure from the account. For now at least, more questions than answers persist.

Some interesting snippets nevertheless included: Read more

Brexit prep, fintech edition

Earlier on Tuesday we reported that Transferwise CEO Taavet Hinrikus had not yet considered making FX-volatility related Brexit contingencies for June 23 or the day after:

When asked whether Transferwise was making contingencies for Brexit-related volatility or interbank dislocations, Hinrikus said he had not yet considered it and that the company would be providing business as usual.

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Legal exploits and arbitrage, DAO edition

The cryptocurrency world has been rocked by a $60m hacking attack on the DAO, a decentralised autonomous organisation which sits atop the Ethereum blockchain and which had raised over $150m in ether funny money with which it was supposed to disrupt the modern corporation by making it leaderless.

A community-wide forensic review of what went wrong is now in process.

Ironically, the thing proving hardest for the community to digest is that the hack was more of an arbitrage than a hack by conventional standards. The flaw it turns out was in the logic of the underlying (not-so) smart-contract rather than the coding per se.

The attacker succeeded in other words mainly because he understood the contract terms and consequences better than its creators. (Who wants to bet he’s probably a lawyer?) Read more

What exactly is Transferwise?

For a company that prides itself on transparent fee structures, Transferwise — the UK-based FX money transmitting unicorn — has a fairly opaque way of delivering attractive exchange rates.

Competitors who have tried to reverse engineer TW’s rates have struggled, not least because pure brokerage models are not supposed to take principal trading risk when they aren’t able to immediately match buyers and sellers in the market.

To the contrary, they pass orders onto the wholesale interbank market through properly licensed institutions who take on the risk of supply/demand imbalances in their place. But this, alas, means brokers have to factor in the cost of wholesale liquidity, which inadvertently puts a floor on how low their own customer fees can go (at least if they plan to break-even). Read more

DAO hacking and dispute resolution

The Decentralised Autonomous Organisation (DAO) — the crowdfunded venture fund that invests in executive-free projects and is run on Ethereum’s blockchain — is being attacked, with over 2m ether missing so far.

More information is available here.

We’re not hacking specialists and the story is still evolving, but… a couple of weeks ago we did get wind of an interesting story involving a Korean DAO investor (who goes by the name Patrick) who lost $100,000 worth of ether (7218 ether) due to what he claimed to be a vulnerability in the open-source Mist wallet offered by Ethereum. Read more

Reserve management and the DAO

The DAO is a decentralised autonomous organisation, which the cryptocurrency faithful believe could disrupt corporate structures forever. It is, to put it simply, a kind of crowd-funded investment fund.

It’s only been going for over a month or so but in that time the DAO has already raised stacks of illiquid and variably priced Ether (ETH) coupons for funding its potential ventures — worth some $150m at the last count (or there about, because mark to market).

The faithful say the DAO will solve the problem of how revenue can be generated within a purely decentralized environment, with its core supporters claiming it is superior to a normal corporation because all the decisions it makes are transparent and because, well, its finances can be audited by anyone, making corruption impossible. Read more

Do digital industries break capitalism?

A little snippet from Citi’s equity telecom analysts earlier this week via a note entitled “Will telecoms ultimately disrupt their own industry model?”. It pertains to the upcoming release of the IDATE Digiworld Yearbook on June 14:

The two leading, but also opposing, economic forces, which drive digital industries are: (a) benefits of size and network effects; and (b) disruptive innovation. This, according to the authors, leads to two paradoxically convergent potential outcomes: (1) dominance by the leading platforms, which enables their owners to generate significant value and cash flows or (2) economy based on sharing and collaboration.

The authors see both outcomes as potentially fundamental threats to capitalism.

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You can see the computer age everywhere but in the investment statistics

In case you missed it on Wednesday, Andrew Smithers’ letter to the FT offers a delightfully simple explanation to the productivity puzzle that continues to baffle the world.

It’s all because of a lack of investment.

Or, as Smithers puts it:

Sir, Productivity is not, as you claim, “the puzzle that baffles the world’s economies” (editorial, May 30). It is caused by low investment, which is essential to make technology effective. Productivity is not lower in China than in the US because good technology is unknown but because the capital stock is much lower. Equally US productivity does not reflect the use of the best technology. The average company is less productive than the best and cannot catch up without more investment.

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Textbook defying global dollar shortages

Take a long hard look at this chart:

It comes by way of Hyun Song Shin’s latest piece for the BIS, delivered to a World Bank conference on Wednesday. Read more

Brexit and the UK’s euro-clearing exposure

If you’re bored of Brexit “scaremongering”, this post is not for you.

For us, the following seems a much-underappreciated negative side-effect. And it’s fascinating one too (especially if you’re a fan of the “eurodollar financing caused this entire financial mess” angle). Read more

The petrodollar drawdown quantified

To what degree is the collapse in oil prices responsible for the contraction in cross-border financial activity and over-the-counter derivatives?

According to the BIS’ latest quarterly review, the slowdown — which began in earnest in early 2015, coinciding with the oil drop — broadened in the last quarter of 2015 to a $651bn contraction.

Of that, the biggest drop in cross-border claims was on euro area countries, at $276bn, whilst the overall advanced economy contraction was $361bn. Read more

How ‘Too Big To Fail’ is impeding innovation

Speeches from Paul Tucker, former deputy governor of the Bank of England, rarely disappoint in terms of insight, clarity and the pinpointing of factors which others dare not identify.

His keynote address to a Finance Watch conference on June 1 was no exception.

The prepared remarks can be found here, and the video — arguably even clearer — can be found here.

The crux of the message is this.

Financial resolution policy and technological innovation are intimately connected because without a well structured resolution policy finance has a habit of morphing into a peculiar form of asymmetrically socialised capitalism. Read more

The ECB’s momentous step into corporate asset purchases

The ECB will begin something truly unprecedented on Wednesday June 8. It will start buying corporate debt in a bid to push inflation to the hallowed 2 per cent mark and boost growth with it. What’s more, it will buy this debt both in the secondary market and the primary one.

Known as the corporate sector purchase programme (CSPP), market watchers say the move could push the cost of borrowing in euros to new lows. Some even argue the programme could become the central bank’s most market disruptive intervention yet. Read more

When fails-to-deliver prompt stock market under performance

Academic research on short-selling has for years flirted with the theory that fails-to-deliver represent a binding constraint which prevents informed short-selling in the underlying stock, which thus leads to stock overvaluation.

Without the capacity to short-sell efficiently, stocks become illiquid, volatile and overpriced. Or so the theory goes.

Thomas Stratman and John W. Welborn, both of George Mason University, beg to differ. In a new piece of research in the Journal of Empirical Finance, they suggest the exact opposite may be true precisely because the capacity to fail-to-deliver can be used as a proxy for naked short-selling. Read more

Why the digital drug model may be floundering

In an audio interview last week with technologist Tim Ferris, Silicon Valley’s most ardent defender and promoter, venture capitalist Marc Andreessen, came out against the tech industry’s obsession with freemium models, noting that:

MA: The number one thing – just the theme and we see it everywhere – the number one theme with our companies have when they get really struggling is they are not charging enough for their product. It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume. And we just see over and over and over again people failing with that because they get in the problem we call too hungry to eat. They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it. And so they can’t afford to hire the sales rep to go sell the product. They can’t afford to buy the TV commercial, whatever it is. They cannot afford to go acquire the customers.

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Shared database anarchy + blockchain

In the course of bringing you the FT’s Festival of Finance Camp Alphaville, the FT Alphaville team has stumbled into a modern day administrative nightmare which we presume applies more broadly to everyone.

It seems, if you put one team into a position where they must liaise with at least three separate departments simultaneously, then give them all access to a version-controlled shared drive without a clearcut executive process to go with it, what you end up with isn’t work-flow harmony but unbounded database hell. Read more

Why Uber’s capital costs will creep ever higher

So Saudi Arabia has invested $3.5bn in Uber, the ride-hailing app, making it the largest single investment ever made in a private company.

Talk of war chests and global expansion abounds. But perhaps what the above really implies is that Uber’s famous capital-light model is about to get much more capital intensive — especially as it moves towards rolling out the much hyped self-driving fleet. If that’s the case, investors need to pay attention. Along with capital intensity come limitations to the exponential growth rates investors have come to expect. Read more

The financial reserve vs real-world inventory discrepancy

Financial institutions don’t like idle capital. Idle capital depreciates. Idle capital doesn’t make anyone any return. Idle capital is an opportunity cost for the system.

Scores of financial panics have over time, however, taught financial institutions that sometimes keeping idle capital in reserve (ideally in the form of highly liquid assets guaranteed by an authority with the capacity to tax the system on demand) is a good idea, mainly because externalities can hit and because, try as we might, everything in the real world doesn’t always square up perfectly with expectations. People deemed sturdy long-term liquidity providers can, when panicked, turn into ravenous liquidity consumers. And so forth. Read more

Bitcoin companies come of age; start moaning about unfair playing fields

Blockchain/fintech/bitcoin conferences are ten a penny these days, and we don’t mean to bore you with the minutiae of what went on at yet another one. But there was one thing that came out of a conference we attended in Istanbul this week that does bear noting.

We’ll call it the coming age of bitcoin companies, by way of the moan factor. Read more

Why the death of cash may have been exaggerated

The Cambridge Security Initiative jointly led by Sir Richard Dearlove, former chief of the Secret Intelligence Service, and professor Christopher Andrew, a former official historian of MI5, is a think tank specialising in security and intelligence.

The initiative has released a report on cashless society, authored by Alfred Rolington and the verdict is… cash is still king, and don’t expect to see it disappear any time soon.

This, however, runs contrary to the rhetoric of some central bankers these days, among them Andy Haldane, the BoE’s chief economist who has floated the idea of having the central bank issue its own digital cash as a means of combatting the zero lower bound. Haldane has also said central bank–issued digital currencies form a core part of the Bank’s research agenda as a result. Read more

Dear fintech firms, advertising standards are a thing. Thanks, the FCA

Earlier this month Transferwise, the FX platform which loves to bash banks while parading women in scantily clad clothing in cold places for the sake of proving they have nothing to hide, got slammed by the UK Advertising Standards Authority for making claims about its service which the company couldn’t necessarily deliver on.

But the problem of outrageous marketing claims in fintech goes far beyond the Transferwise case. As a rule, it hails from the tech VC mentality of “if we market it, and people like it, we can build it later — and if we can’t deliver on our initial claims, we’ll just adapt until the money runs out”. Read more

Is the atomic weight of cobalt 58.9?

It is.

And is the connection between China Molybdenum and Freeport, one of Africa’s largest copper mines — which it bought for $2.7bn earlier this month — also something to do with cobalt? It surely is too. China’s security of cobalt supply. Read more

Blockchains, bazaars and price fixing cartels

While in Istanbul for a blockchain conference, we came across Matt Levine’s latest Money Stuff column, in which he observes the following about the Libor manipulation and anti-trust case:

It is fairly well established that a bunch of big banks manipulated the London Interbank Offered Rate, and that the dollar numbers attached to Libor manipulation are quite large, so a bunch of investors and plaintiffs’ lawyers got together a while back to sue the banks and get some of those dollars. One of their main theories was that the banks’ collusion to manipulate Libor was an antitrust conspiracy. But the district court threw out this theory, reasoning that it can’t be an antitrust conspiracy for the banks to get together and agree on Libor, because banks getting together to agree on Libor is just Libor. It can’t be illegal to do anticompetitive stuff with Libor, because Libor isn’t a competitive market; it’s “a cooperative endeavor,” so the fact that the banks cooperated in setting a false Libor, while it might be bad, can’t be an antitrust violation. I am not an antitrust expert but I found this interpretation clever, and fairly convincing.

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If it’s free, it’s not neutral

In the run up to Camp Alphaville on July 1, we’re profiling the panels and discussions we’ve got lined up by trying to explain why we chose the subject in the first place.

So here’s the rationale and background to the “End of the Free Internet” panel which I will be moderating at noon on the day, featuring the FT’s chief commercial officer, Jon Slade, Deutsche Bank’s chief data officer JP Rangaswami, Ctrl-Shift’s strategy director Alan Mitchell, and Felix Salmon, senior editor at Fusion and general besserwisser.

The premise is simple: the days of free content, free web platforms, free digital services and freemium generally may be coming to an end.

The key to this about turn is the long term un-sustainability of cross-subsidised business models based on advertising or data resale, as well as the true cost of supporting and protecting our internet infrastructure from tragedy of the commons side-effects. When the bow breaks — and it will, because fixed costs are a real thing, people don’t like watching ads, and privacy is a big deal — the economic impact could be much more severe than anyone expected. Read more

Mt. Gox and the mother of all short squeezes

When Mt. Gox, the Japan-based bitcoin exchange run by Mark Karpeles, stopped honouring redemptions on February 7, 2014, the company initially blamed the affair on an obscure tech fail known as a malleability issue. Many, however, were unconvinced by the explanation, suspecting foul play, a hack or an inside job.

When Mt. Gox filed for bankruptcy on February 28 it emerged 750,000 of customers’ bitcoins had been lost, plus 100,000 of Mt. Gox’s own stash — a sum collectively worth $473m at prevailing exchange rates. Karpeles himself, however, insisted the exchange had been the victim of external sabotage or fraud.

Time went by. Customers put their complaints to the authorities. Alas, not much in the way of information came their way. At some point, rumours began to emerge that much of the run-up in bitcoin’s price to a record $1216.73 in November, 2013, had been driven by a bespoke algorithmic programme known as the Willy Bot, developed by Mt. Gox for its own profit, and that this punting bot may have been the cause of many of the losses. Without concrete evidence, however, this too remained a theory. The mystery prevailed. Customers began to accept the reality: the money was gone and they’d never get it back because that’s what happens when you punt on an unregulated exchange. Read more

Saudi Arabia’s IOUs

Something of significant note just occurred in the global oil hierarchy.

According to a Bloomberg report filed on Wednesday afternoon (UK time), Saudi Arabia may be considering paying some outstanding bills to contractors using government-issued bonds.

Contractors, they added, would be able to hold bond-like instruments until maturity.

This is quite something, not least because paying your contractors with short-term bonds is not entirely dissimilar to paying them with IOUs. Read more