We all know how subprime lending triggered the Global Financial Crisis of 2008. We also know how faced with only two options — financial meltdown or the transfer of state wealth to the banking sector — governments felt they had no choice but to save the system at a cost to the taxpayer. But could something as innocuous as shoddy password management or a data breach lead to a very similar set of circumstances in the not too distant future? A group of experts gathered at the World Economic Forum at Davos to talk about cyber-resilience seemed to think that, yes, yes it could.
One of the reasons we’ve been sceptical about fintech’s capacity to greatly improve on the current (increasingly unscaled) financial system is that it’s inherently paradoxical. Finance isn’t like other capital goods, which can be mass produced to the advantage of everyone. To the contrary, some might argue, the value of finance is derived from its ability to properly ration goods (someone else’s current wealth) to the most productive and honest actors in society — who have already earned those access rights to goods or promise to earn them in the future — and withhold them from the least productive bad actors.
The first batch of reviews for Robert Gordon’s new book The rise and fall of American Growth: the US standard of living since the civil war, are feeding through the blogosphere. Here, for example is Diane Coyle’s take. She’s mostly appreciative of the work but not entirely convinced Gordon’s central thesis that innovation today is slower and less important than it was in the 20th century has been entirely proven. She is more sympathetic, however, about the issue of headwinds slowing down whatever innovation-driven growth there might otherwise be. We haven’t read the book ourselves yet, but reading Coyle’s review it’s clear Gordon uses the book to expand in more detail on some of the ideas presented in his October 2015 paper Secular Stagnation on the Supply Side: U.S. Productivity Growth in the Long Run. That paper, itself, expands on his core thesis that the days of miracle growth are long gone and that slower growth lies ahead.
The Pentagon wants to spend billions prepping for the next stage in warfare that it believes will be defined by advances in artificial intelligence and autonomy. US deputy secretary of defense Robert Work said on Monday that the 2017 fiscal budget request will likely ask for $12-$15bn for wargaming, experimentation and demonstrations to test out the military’s theories on AI and robotics “in human-machine collaboration combat teaming”, as detailed below. The vision of the military future that Work put forth? Motherships of drones releasing little baby drones from the air and the sea, infantrymen and women sporting exoskeletons and wearable electronics loaded up with combat apps, and lone mission commanders directing swarms of unmanned vessels to carry out operations.
It is a business now, some of these organisations have complexes not quite as big as Google but it is an office facility and people come to work. Instead of coming to work out how to create things for cell phones, they go after banks because that’s where the money is. That’s from cyber-security expert Clay Calvert, director of Cybersecurity at MetroStar Systems, who we contacted last week to get some insight on the multiple ways banking is turning into a cyber-security story. Also, we wanted to know the degree to which everything is spiralling out of control for banks because cyber criminals are now organising themselves in the style of more materialistic criminal syndicates before them. It is, experts fear, the beginnings of a new cold war, of Spectre-style proportions. The criminals aren’t lone hackers in basements anymore. They’re highly organised networks, often working out of jurisdictions which are happy to protect them.
GalaCoral has cleared the way for its £2.3bn merger with Ladbrokes by lining up the numbers for its bingo halls sale. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Asian marketsNikkei 225 up +121.82 (+0.65%) at 18,947Topix up +11.15 (+0.72%) at 1,559Hang Seng down -35.69 (-0.15%) at 23,116
Financial blogger Frances Coppola runs through how and why the “sharing economy” is grossly mis-representing itself to consumers by daring to suggest it’s anything but a traditional for-profit — or more pertinently rentier — enterprise. From Coppola: Indeed the whole idea of the “sharing economy” seems to be based not on the idea of working together to produce something for mutual benefit (the cooperative principle) but on millions of people scraping a living by selling services and renting assets to each other. How does this add value to the economy over the longer term? There is no production. It is entirely consumption. Recycling is all very well – and we do need secondary markets – but we cannot build an economy solely on sweating existing assets. An economy that exists solely on consumption has no long-term future.
From a speech by Cyril Roux, deputy governor of the Central Bank of Ireland on Sept 30 (our emphasis): The risk/reward trade-off for cybercrime is very attractive. Cybercriminals know there is a low likelihood of being detected, caught or prosecuted and many attack strategies can be executed cheaply. This has led to a substantial broadening of the attacker base. Due to the proliferation of the cybercrime-as-a-service business model, the cybercrime industry is no longer just the domain of highly skilled IT people.
The International Monetary Fund has sent a strong signal that it may walk away from Greece’s new bailout programme, arguing that it will not be able to participate if European creditors do not offer Athens substantial debt relief. The move again raises the pressure on Germany, which has opposed any debt relief, just as it prepares to seek the approval of its parliament to negotiate the details of a new bailout hashed out in a summit at the weekend. Meanwhile, economists remain sceptical that the EUR86bn agreement, which has ensured that Greece remains in the eurozone, will be enough to restore it to good health. (FT) In the news
Earlier this week we gave fintech people a brief guide to the Greek crisis in a bid to explain why payments technology is unlikely to be part of any solution there. On bitcoin specifically: why on earth would Greece want to replace the euro, a currency it already thinks too restrictive, with another which would be even more constraining and give Greeks even less control over monetary affairs!?
The Chinese market sell-off abated on Thursday morning, as Beijing rolled out further measures to boost liquidity and calm investor nerves following days of sharp share price falls. The banking regulator said it would allow lenders to ease margin requirements for some wealth management clients, and encouraged banks to offer financing to companies seeking to buy their own shares. The authorities had taken drastic action to try to prop up sinking stocks on Wednesday by banning listed company shareholders with big stakes from selling shares and using central bank money to bolster the market. The securities regulator banned listed company shareholders with stakes of 5 per cent or more from selling any shares for six months. The ban also applies to senior company executives and board members, regardless of the size of their stakes. (FT) In the news
What-used-to-be the world’s most secretive summer-retreat/talking shop, Bilderberg (less secret now they have a website) is convening in Austria over the next four days. Promised topics include: Artificial IntelligenceCybersecurityChemical Weapons ThreatsCurrent Economic IssuesEuropean StrategyGlobalisationGreeceIranMiddle EastNATORussiaTerrorismUnited KingdomUSAUS Elections
You can sign up to receive the email here. Deutsche Bank’s executive shake-up, Erdogan poll blow, China’s labour unrest Deutsche Bank’s co-chief executives Anshu Jain and Jürgen Fitschen became the latest heads to roll at top banks, which since the financial crisis have been hit by tougher regulation, sluggish markets and a string of fines over misconduct.
You can sign up to receive the email here. Iranian officials took nuclear talks to the wire, raising a further obstacle by saying that they are no longer willing to ship their atomic fuel out of the country – a critical element of a proposed deal and one with which Iran had previously been on board. (NYT) Meanwhile tensions were rising elsewhere in the Middle East as Arab leaders hatched plans for a joint military force, underlining Middle Eastern Sunni nations’ determination to challenge Iran’s expanding influence in the region. (FT)
You can sign up to receive the email here. Israeli leader Benjamin Netanyahu urged the US Congress to defy the Obama administration and block a nuclear deal with Iran. The deal now on the table would begin a “countdown to a potential nuclear nightmare” in the Middle East, he said. Barack Obama retorted that Mr Netanyahu “did not offer any viable alternatives”. (FT)
You can sign up to receive the email here. Morgan Stanley will pay $2.6bn to settle claims that it mis-sold mortgage-backed securities in the run-up to the financial crisis. The US Department of Justice had charged half a dozen banks with mis-selling – this settlement brings the total of mortgage-relatedpenalties to about $40bn. Goldman Sachs is likely to be the last of the banks to settle its case. (FT)
You can sign up to receive the email here. The European Central Bank extended another EUR5bn in emergency loans to banks in Greece after fears that a spate of bank withdrawals could dry up funding. (FT)
You can sign up to receive the email here. Greek bailout talks broke down in recriminations after six hours. Eurozone finance ministers trying to hammer out a solution in Brussels were not even able to agree a way to take negotiations forward.
This guest post is from the co-authors of UBS’s white paper for the WEF meeting in Davos, which gets underway today. Note that one of the co-authors, UBS Wealth Management’s global chief investment officer Mark Haefele, will be fielding questions on the technology chapter during Wednesday’s Markets Live session at 11am.
Sign up here and get the email every morning. The French government said it would deploy 10,000 troops to bolster security around the country but cracks are already beginning to appear in the united political front that was on display at rallies on Sunday. Opposition politicians are pressing for an inquiry into the attacks and the authorities’ failure to prevent them. (FT)
The traditional Santa rally seems finally to be here , bringing pre-Christmas cheer to markets. Global bourses are buoyant and US index futures show the S&P 500 will gain another 12 points to 2,073 at the open on Friday, nearly matching its record high and taking its surge in just three sessions to 5.1 per cent. (FT)
Last week we attended the SINET conference on cyber-security innovation. One discussion we didn’t get the chance to follow up on at the time, but which we think is worth coming back to, related to the speed of technological development, and how the invention of quantum computing systems and artificial intelligence could soon pose a serious risk to global cyber defences. James Mawson, editor-in-chief of Global Government Venturing, wrapped up the key points nicely in an editorial (our emphasis): The speed of technology change makes the challenge of security an issue. Michael Trevett, senior information risk owner at the UK government’s Cabinet Office, in a networking lunch on risk management in a world of fast-paced technological change, posed a series of questions about how organisations could cope with the speed of change. If technology improves so rapidly, identifying what is important and protecting that rather than everything might be helpful, he said.