Wednesday, January 10, 2018

How to Cash In on Cryptocurrencies

Nowadays, it seems that anything connected to a cryptocurrency or a blockchain is bounding upward in value.  Companies that claim to have something to do with either are seeing huge leaps in market valuation.  People who were worth next to nothing a year or two ago now claim to be millionaires or maybe even billionaires.  There are lots of Cassandras out there warning against this latest fad, including, among others, Warren Buffett (  Buying a crypocurrency can be difficult because the markets for these things can be murky.  You may feel like you're getting a pig in a poke.  So how do you profit?

Well, I'm changing my name to CryptoLeo.  I expect my income and net worth to instantly increase by zillions.  Maybe cryptocurrencies are a bubble and will soon become a crisis.  But, as they say, never let a crisis go to waste.  Instead, cash in.

Sunday, December 17, 2017

How the Republicans Are Paving the Way For Single Payer Health Insurance

The proposed tax legislation sponsored by the Republicans in Congress and the Trump Administration would repeal the individual mandate in Obamacare.  This mandate, which requires all uninsured Americans to either buy health insurance or pay a penalty through their tax returns, is much detested by the political right.  But it is based on a sound principle of insurance.  Insurance works best when a large group of people work together to pool their risks.  Mandatory insurance on all registered vehicles is a good example of how an intelligent insurance systems works.  If the Republicans repeal the Obamacare individual mandate, then the private health insurance market for individual coverage will be severely distorted.  The healthy won't buy coverage until they get sick or are injured.  Since Obamacare forbids insurers from excluding prior medical conditions, people can game the system by not paying for insurance until they need a lot of health care.  Then they buy coverage and pay premiums that total only a smidgen of the actual cost of their care, while shifting most of their costs onto others.  Insurers would have to push up rates sharply and a lot more people would drop coverage--until they need a lot of healthcare, at which time they would game the system by buying health insurance.  The market for private individual health insurance would die.  Then, really large numbers of people would be uninsured.

Senator Susan Collins from Maine has tried to negotiate promises from Republican leaders in Congress and the Trump Administration for alternative funding for health insurance that would supposedly stabilize that market.  But with all the secret, back-room, opaque maneuvering and sneaky, swampy pork barreling that has gone on into putting together the proposed tax bill, one wonders how Senator Collins can be so sure these promises will be kept.  She has no meaningful recourse if they aren't.  Given how the proposed legislation is primarily a monumental looting of the U.S. Treasure by the rich and by large corporations falsely depicted as tax "reform" for the middle class, how can Senator Collins believe there is any good faith at all on the part of the Republican leadership?

The Republican destruction of the market for private individual insurance will pave the way for the expansion of Medicare to cover uninsured individuals.  Politically speaking, it is no longer acceptable to throw these people into the gutter.  Even President Trump recognized this when he promised that there would be insurance for everybody notwithstanding his efforts to repeal Obamacare.  But the underhanded tax law repeal of a health insurance measure--the individual mandate--vividly illustrates the difficulties of trying to use the private insurance market to provide universal health insurance coverage.  The Republicans leave no alternative except an extension of Medicare to uninsured individuals of all ages.

Virtually all industrialized nations today provide some form of universal, single payer health insurance.  Some allow supplemental private insurance for people willing and able to pay for premium level care.  Americans today view health insurance as something all should have, and a government program like Medicare is the only realistic way universal coverage can be provided.  Medicare isn't perfect.  But it works well, and ensures near universal coverage for people age 65 and older.  Its imperfections can be improved. It can and does work side-by-side with private insurance (such as Medicare D and supplemental policies).  Americans today won't tolerate their fellow citizens being tossed in the gutter because of health problems, in order to fund a monumental tax cut for the rich and powerful.  The Republicans will find this out in 2018 and 2020.

Saturday, December 16, 2017

The Trump Administration's Seven Dirty Words

The Trump administration has decreed that the Centers for Disease Control and Prevention cannot use seven words:  diversity, fetus, transgender, vulnerable, entitlement, science-based, and evidence-based.

Poor fetuses.  They've been around since time immemorial, and they're terribly vulnerable.  The best protection the modern world can offer them is science-based medicine.  There may be a diversity of views as to how best to take care of fetuses.  But evidence-based science provides the most knowledgeable foundation on which to have a dialogue about these issues.    Centuries ago, the Earth didn't flatten itself just because a lot of people thought it was flat.

Using the word "transgender" forces one to confront the fact that transgender people exist.  If the term isn't used, it's easier to pretend they aren't there.  And if you can pretend they aren't there, then you don't have to think about what entitlements they should have.  If you are religious, you don't have to consider the possibility that they, too, are God's children.  Toddlers believe that if they close their eyes and can't see what's before them, it isn't there.  Apparently, the Trump administration has some serious growing up to do.

One wonders if the Trump administration is thinking that ignorance is strength, that ignorance is bliss.  Censorship is a tool of fascism and totalitarianism.  A free nation and a free people have no need to censor words.  Here are seven words that the Trump administration needs think about:  truth, knowledge, intelligence, freedom, thoughtfulness, decency, and compassion.

Friday, December 8, 2017

Bitcoin Futures and the Growing Systemic Risks of Bitcoin

Yesterday, Bitcoin rose above $19,000, only two days after it reached $12,000.  Then, it plunged some 20%.  As we said before, Bitcoin is in a bubble.  And things will get riskier soon.

Next week, on Dec. 10, 2017, Bitcoin futures contracts will begin trading on the Cboe.   On Dec. 18, 2017, they will begin trading on the CME.  Both the Cboe and CME are longstanding exchanges that trade many well-established financial products.  The commencement of Bitcoin futures trading lends Bitcoin a legitimacy it doesn't yet have.  Investors who may shy away from the little known, often foreign markets where Bitcoin is currently traded could be drawn to the Cboe and CME because they are well-known, located in America and regulated by the U.S. government.  American investors may become far more exposed to Bitcoin than they are today.  And that could be bad.

The underlying Bitcoin market is opaque, to say the least.  Much of it is overseas, and reliable transactional data is scarce. Ownership information is, by design, unavailable.  How does one price a futures contract when one doesn't have a good idea of what's happening in market for the underlying asset?

The Bitcoin futures market will also differ dramatically from Bitcoin in another aspect.  There is a limit on the number of Bitcoins that can be created:  21 million.  There is no limit on the number of Bitcoin futures contracts that can be created.  People who don't want to pay or mine for Bitcoins can trade futures instead.  Since futures contracts can be purchased on margin (i.e., with money borrowed from a brokerage firm, after putting some cash down as collateral), it may end up being cheaper and more potentially profitable to trade Bitcoin futures instead of Bitcoins.  The volume of Bitcoin futures trading could end up dwarfing the volume of trading in the underlying Bitcoins.  And there is no limit on how large the futures market could become.

If Bitcoin futures trading expands the way Bitcoin trading has ballooned, the amount of marketwide exposure to Bitcoin price movements could increase exponentially (or maybe even faster).  The volatility of Bitcoin's price could wreak havoc with investors trading futures contracts, who generally buy futures contracts on margin.  When the price of a futures contract purchased on margin drops, brokerage firms can ask for additional cash to be deposited as collateral (via a "margin call").  This cash has to be provided quickly or the brokerage firm may sell the futures contract to prevent further losses to itself.  Investors sometimes fail to provide the additional cash demanded, either because they don't have it or can't get to it fast enough.  Either way, the brokerage firm's sales then add to the downward pressure on the market.  That can push the price of the futures contract lower and result in more margin calls.  These in turn can produce even more selling, leading to a downward spiral.  That's what happened to stocks in the great stock market crash of 1929, and it could happen to Bitcoin futures contracts.

None of this requires that the Bitcoin futures market be cornered or otherwise manipulated.  It can happen from the daily craziness we already see in the Bitcoin market.  If a lot of investors dive into Bitcoin futures, the aggregate risk created could be immense.  Abrupt price drops such as we have recently seen (i.e., 20% a day) could be catastrophic for investors trading on margin.  Widespread failures to meet margin calls can endanger the financial stability of brokerage firms and clearing houses.  Some may collapse, something that happened after the 1929 stock market crash.  That, in turn, could put the financial system at risk.

Of course, everyone thinks the Fed will bail us out.  There seems to be an assumption in the market that the Fed has always bailed us out and always will, so risk is irrelevant.  But this is no longer true, if it ever was.  The Dodd-Frank Act, much detested by conservatives, limits the extent to which the federal government can underwrite financial market bailouts.  There is no insurance covering market losses in futures accounts.  So investors taking losses in this scenario, and their brokerage firms, are pretty much on their own. 

Some might think that the way out of this dilemma is for investors and firms to hedge their exposure.  That way, if the market goes bye-bye, the losses are passed to whoever gave them the hedge.  But, from a systemic basis, hedges don't solve the problem.  Financial risks, once created, don't go away by themselves.  When they result in a loss, the loss lands somewhere.  If not on the original investor, then on the person who provided the hedge (or if that person hedged the hedge, then on the person providing hedge for the hedge, and so on).  No matter how long one extends the chain of hedges, the loss will land somewhere

If those losses are concentrated into one or a few firms, the result could be seriously bad in a systemic way.  That's what happened during the financial crisis of 2008, when very large amounts of derivatives market losses from mortgage-backed or mortgage-related investments were concentrated at a single large insurance company--AIG--which, had it collapsed, would have taken down the world's financial system.  As things happened, U.S. taxpayers, in a ceremony M.C.'d by the Fed, bailed out AIG and the world financial system, which although gasping for breath, was able to limp along and muddle through. 

Could Bitcoin futures losses end up concentrated in a way that would put the financial system at risk?  That will be the challenge for financial regulators, in the U.S. and elsewhere.  Since Bitcoin is traded around the world, regulators in the U.S., Europe, China, Japan and elsewhere need to be alert and communicate enthusiastically with each other.  Given the astounding celerity at which Bitcoin trading has ballooned, and the jaw-dropping volatility of Bitcoin prices, there is every reason to believe that Bitcoin futures could provide a ride as wild as, or wilder than, the Bitcoin monster roller coaster.  And the world may well not be prepared for what could happen.

Wednesday, November 29, 2017

How Much Damage Will the Bitcoin Bubble Do?

Bitcoin is a bubble.  There's no doubt about that.  Its value has risen 1,000% this year, and indeed by $1,000  (or about 10%) on each of the past two trading days.  This morning, it popped over $11,000 before dropping about 18% (i.e., over $2,000), all in one trading day.  That's volatile.  That's a bubble if ever there was one.  We once again have graphic evidence that there are a lot of stupid idiots in the financial markets.  History teaches that market stupidity can have major, and indeed systemic, consequences.  Those of us careful enough to avoid Bitcoin may nevertheless be adversely affected by the idiots.  The question at this point is how much damage will this bubble do.

The investors who trade Bitcoin can be found all over the world.  Their personal losses, although potentially large in the aggregate, may be spread out and therefore appear to have a  relatively diffuse impact.  A person who risked and lost most of their net worth on Bitcoin can now look forward to uncomfortable (to say the least) discussions with their spouse and children.  But that personal loss won't affect the rest of us.

The potentially widespread and even systemic impact of Bitcoin losses could come from where and how Bitcoin was traded.  Bitcoin is traded on exchanges and through brokerage firms.  If investors were trading on margin (i.e., with borrowed money) and can't repay the loans, the brokerage firms will take the loss.  If the customers were able to transact directly with a Bitcoin exchange, the exchange takes the loss.  Or, if transactions went through a brokerage firm that sent them to an exchange and the firm can't pay the exchange what it owes for trades, the exchange takes the loss.  There is no organized settlement and clearance process for Bitcoin.  Unlike stocks and bonds, there is no clearing firm, with substantial amounts of capital, to protect against large scale defaults in payments.  If a Bitcoin exchange collapses, the firms and individuals to whom it owes money may be S.O.L.

If a brokerage or proprietary trading firm takes Bitcoin losses, it still needs to pay its obligations.  In order to do so, it may begin liquidating other assets it holds--stocks, bonds, commodities and currencies.  If the firm's losses are big enough, its selling may affect the price of those other assets.  If those other assets begin to sag, other investors (who may not be involved with Bitcoin at all) may begin to sell in order to limit their losses.  This increases the downward pressure on those assets, which may lead in turn to yet more selling.  The potential for a more widespread market crash may develop.

In order to reduce the potential for market contagion, financial regulators need to identify the firms and exchanges where the impact of Bitcoin losses may be concentrated and take steps to limit the damage.  That would be pretty hard, since Bitcoin trading is, by and large, unregulated and there is no organized way to find out where the losses and risks may lurk.  In other words, we may not find out how bad things are until the losses have landed in our laps.

When Bitcoin was trading for a few hundred dollars (in those ancient times as far back as a year ago), the potential for major or systemic loss was almost nonexistent.  But when Bitcoin rises by 10% a day and drops 18% in a day, while trading around $10,000 or more, the losses may be much, much larger and the potential for major or systemic losses increases commensurately with the increases in transaction amounts.  Even though they could have shrugged a year ago, regulators and creditors of Bitcoin exchanges and traders need to start paying serious attention.  The volatility in Bitcoin could easily get worse before it gets better.  Bitcoin may soon trade for $25,000, $50,000 or even more.  The losses, when they inevitably come, could involve mucho dinero--and we mean mucho.  Failure to give Bitcoin their full attention could be very costly and painful, not only for players in the Bitcoin markets but also for we innocent bystanders.  The time for vigilance has arrived.

Tuesday, November 14, 2017

Is Inflation Hitting Bitcoin?

Bitcoin is supposed to be insulated from inflation.  Because there is a predetermined limit to the number of Bitcoins that can be created (21 million), Bitcoin supposedly should not be subject to anything like the monetary actions of governments, which can inflate fiat currencies by printing more money.  There was an operational problem in August 2010, when someone created 184 million Bitcoins in a single transaction.  But this transaction was voided and the operational problem dealt with.  Thus, the 21 million coin limit was preserved.

Nevertheless, Bitcoin is subject to inflation risk.  Inflation results from increasing the amount of a currency.  Although the number of Bitcoins is limited, the number of digital alternatives to Bitcoin is not.  Other cryptocurrencies, such as Ethereum, can be created with relative ease.  There are few barriers to entry.  Some 1100 cryptocurrencies now exist.  Among them is Bitcoin cash, created by the Bitcoin community with features that make it easier than Bitcoin to use for transactions.  The Bitcoin community also created Bitcoin gold, a cryptocurrency created to facilitate decentralized mining (Bitcoin itself is now dominated by a small number of large miners).  As these alternatives proliferate, the value of Bitcoin can fluctuate wildly.

So far, Bitcoin has recovered from its sharp drops, and continued an overall upward trend in value.  But volatility attracts fast money, and cash seems to be flowing into the Bitcoin market for speculative purposes.  This may not end well.  Hot money never stays in one place for long.  With all the alternatives to Bitcoin, and the low barriers to entry for more, numerous other venues for volatility and speculation are or will become available.  Speculators will stampede to whatever market appears to offer larger and quicker profits.  The effect on Bitcoin could be similar to inflation.  As cash flows away from Bitcoin, its value will diminish.  Pause and think before you buy Bitcoins.

Thursday, October 26, 2017

Trump Should Be Unhappy that Mueller Is Investigating a Democrat

News services report that Special Counsel Robert Mueller is now investigating Democratic lobbyist Tony Podesta for possible failure to register as a foreign agent.  (See  This isn't good news for Donald Trump.

Democrats might be embarrassed or concerned by this new development, because Tony Podesta is the older brother of John Podesta, the manager of Hillary Clinton's recent presidential campaign.  But it's also bad news for President Trump and other Republicans caught up in Mueller's investigation.  By including a Democrat within his purview, Mueller undermines any contention that he is politically biased and demonstrates his neutrality.  That strengthens his credibility, whether he eventually seeks charges against Republicans, Democrats or both.  Republicans feeling any satisfaction from the news of Mueller's investigation of Tony Podesta need to rethink things. 

Tuesday, October 10, 2017

Pizza With Panache: A Tale of Crime on Wall Street

                                                                              Rated 5 Stars on Amazon

Once upon a time, I was a lawyer at the U.S. Securities and Exchange Commission, doing stock market investigations.  I'm still recovering.  As one of the twelve steps, I wrote Pizza With Panache, a fast-paced, satirical novel of crime on Wall Street. Deceits swirl around duplicity as the rich try to get richer without doing any honest work. Fred Farquhar, a successful pizza franchise owner, doesn't think he's getting rich fast enough. He enlists Adam, a Wall Street analyst, to feed him inside information, which Fred uses to trade stocks in a secret foreign bank account. Greed abounds as Fred's foreign banker, Enrico, and Adam's buddy, Alain, join in the illicit insider trading.

These scoundrels garner filthy lucre so fast they attract the attention of law enforcement.  Nick Papadakis, an SEC enforcement lawyer, is fed up with his job.  He made the mistake of doing good work, and now is rewarded with more work: the investigation and the responsibility to train Ethan, a new guy.  The last thing Nick wants is a high-pressure investigation where he needs to train a new guy.  But the thievery is so appalling, Nick gets interested and investigates aggressively.  He is obstructed by slippery defense lawyers and harassed by scheming supervisors hoping to steal the credit for his success.  He desperately hopes to escape his job.

If you've ever wondered what a government stock market investigation looks and feels like from the inside, read Pizza With Panache.  If you’ve ever thought that Wall Street is crooked, big law firms are ruthless sweatshops, bureaucrats poison the government, no good deed goes unpunished, and the only solution is to escape your job, this is the book for you.  It's available at:


Pizza With Panache by Leo Wang


If you want to read on a PC, laptop, or tablet, you can get the novel from Smashwords, which offers several different formats.

 Other online booksellers carry the book as well.  Check with your favorite bookseller if you don't want to go to any of the websites listed above.  Many thanks.

Monday, October 9, 2017

Freeze Your Credit and Make 'Em Change

Of all the massive hacks of recent years, the Equifax hack may be the worst.  Some 145 million persons had their personal information stolen.  Even though other hacks may involve larger numbers (the Yahoo hack may have victimized 3 billion--yes, billion--accounts), Equifax had the crown jewels:  Social Security numbers, birth dates, home addresses and phone numbers, and some credit card account numbers and drivers license numbers.  Bad guys can use this information to open phony credit card and other loan accounts in your name, steal your tax refund, grab your Social Security check and get prescription drugs in your name (which could interfere with your ability to get medications and maybe even implicate you in police investigations). 

What to do?  The best thing is to freeze your credit accounts.  These freezes, called security freezes, prevent new creditors and other persons from getting access to your credit information unless you specifically authorize it.  It doesn't stop existing creditors and their collection agents, or the government from getting access.  But it puts a substantial barrier in the way of fraudsters.  It's not perfect--the bad guys might still try to use your stolen personal information to snare your tax refund or your Social Security benefits, or snag some opiods in your name.  But a credit freeze is a lot better than the alternatives.  Forget about credit monitoring and fraud alerts--they aren't great protection.  And a credit lock isn't as good as a credit freeze.  Credit freezes give you legal protection under state law, while a credit lock is just a contract with the credit reporting agency that may be difficult to enforce.  Credit locks may also cost you more in fees (which is one reason the credit reporting agencies might want to sell you a credit lock). 

Credit freezes can be a little inconvenient, because you have to lift them any time you want to apply for credit.  But that is a lot less bother than the aggravation of cleaning up your credit after the bad guys have impersonated you (a process that can take months or years).

One more reason to freeze your credit is to make the idiots (the ones that got hacked) change things.  The credit reporting agencies and banks and other lenders don't like freezes.  They interfere with business and revenue flow.  The credit reporting agencies and lenders have a harder time making money if a lot of people freeze their accounts.  And that is the point.  The current system using Social Security numbers as universal identification numbers has just been blown up by the Equifax hack.  For all practical purposes, you have to assume that your Social Security number is publicly available.  You have no privacy any more.  You're not safe, and your finances are not safe.  The SSN system of personal identification is now completely kaput.

Make 'em change.  Freeze your credit and take profit opportunities away from the credit reporting agencies, and the banks and other lenders.  Faced with a business downturn, these massive institutions will lead the way to change.  With the potential loss of who knows how many millions of dollars of profit, they will implement posthaste new and improved systems of personal identification.  Either that, or their senior executives' stock options will belly flop.  And that they won't allow.  So freeze your credit.  It might be the best thing you can do right now for your financial privacy.

Saturday, September 30, 2017

Donald Trump Needs To Stop Campaigning

Donald Trump was elected President by running an unconventional campaign featuring politically incorrectness, the bullying of people weaker than he (like the father of a veteran killed in action, a former beauty pageant winner, and so on), claims of business competence, and appeals to racial and ethnic prejudice.  Since his inauguration, he's demonstrate scant ability to govern.  He has accomplished essentially none of his campaign priorities.  His most significant legislative achievement to date was achieved by striking a deal with Congressional Democrats.  His administrative actions can be reversed by the next President.  His Cabinet and White House staff consist of a kaleidoscope of people coming and going, while hundreds of lower level appointed positions remain unfilled (perhaps because many potential candidates shy away from the chaos and controversy of the Trump Presidency).  His tax reform proposal, announced just a few days ago, already appears to be quietly losing the Congressional majorities it would need to be enacted.  America's standing with its allies in Europe and Asia is weakening, while Russia and China have become emboldened to pursue their international ambitions more aggressively.  Perhaps worst of all, Trump, who has reached an age where one might have expected he'd have some maturity and wisdom, has allowed himself to be drawn into a juvenile but nuclear confrontation with a fat kid in North Korea who can't even get a decent haircut.  His poll ratings have set new lows for a first year President.  His managerial ability is vanishingly thin, and he's needed to bring in a former Marine Corp general as chief of staff to restore order.

Trump's response to his poor public standing has been to conduct campaign style rallies where he's fallen back on coarse pronouncements reminiscent of his campaign. He picked a fight with NFL players over their exercise of First Amendment rights, even though he seems content to let white supremacists and neo-Nazis speak their minds.  And he Twitter-bullied the mayor of San Juan, who had the temerity to plead for more aid for her suffering constituents in hurricane-ravaged Puerto Rico.  Oliver Twist had it better than she does. 

Trump seems to be a one-trick pony.  He can't do anything except campaign.  His executive abilities are close to non-existent.  He appears to be learning the hard way that, when you're President, there is no bankruptcy court you can duck into in order to relieve the pressure.  The tactics of your business career won't work in government.  The pressure will continue every day, relentlessly, and campaigning does nothing except foster a momentary illusion that things aren't quite as tough as they really are.  

Trump's response to the Hurricane Irma's impact on Puerto Rico illustrates the problem.  Anyone with a smidgen of managerial ability would have realized immediately that Puerto Rico and the U.S. Virgin Islands would be the most difficult relief challenges of this hurricane season.  Even though Texas, Louisiana and Florida took really hard hits too, they are connected to the rest of the U.S. by highways, railroads, the interstate power grid, and Jones Act waivers for their ports (allowing much faster transit of aid by ship).  Aid can reach them much more quickly and in much larger amounts. Isolated by the sea, Puerto Rico and the U.S. Virgin Islands would obviously present much greater logistical challenges, and major managerial attention to their relief would self-evidently be required.  But Trump seemed almost inclined to benign neglect of the islands (a perception exacerbated by his blame-the-victim bullying of the mayor of San Juan), and his administration only very recently managed to cough and choke its way to a Jones Act waiver for the islands.  Underneath all this, it's not hard to perceive yet another manifestation of Trump's bigotry against Hispanics, which first glaringly emerged with his "rapists" comment about Mexican immigrants early in his campaign. Trump's bigotry may score points with his base, but it also strengthens the perception among many,  many others that he's just a bush-league poseur who managed, possibly with underhanded Russian help, to sneak his way into the White House.

At the age of 71, it's doubtful that Trump, with his ingrained stubbornness, will change and improve.  But if there's any hope for the Trump Presidency, it would come from his aversion to failure.  He's failing badly as President--really badly--and change is his only option.  He's getting nowhere by repeating the same mistakes. Notwithstanding the unvarnished loathing of the legions of Trump-haters, the man has the potential for a somewhat and maybe even reasonably successful Presidency.  He isn't bound by ideology, which gives him the flexibility to put together working, bipartisan coalitions.  We saw this in his deal with Congressional Democrats over the debt ceiling and budget.  He's sometimes open to persuasion--contrary to the isolationist leanings of his campaign, he's now authorized an increase of troop strength in Afghanistan.  His tendency to conduct more rallies whenever the going gets tough is like children closing their eyes so that others can't see them.  He has to figure out that this doesn't work, and that he needs to do what will work.