Monday, May 11, 2015

Dude Where's My Blockchain?: Izabella Kaminska On Financial Cartels

"Monopolists lie to protect themselves. They know that bragging about their great monopoly invites being audited, scrutinized and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly..."
  Wall Street Journal, Sept. 12, 2014

From FT Alphaville: 

Why are the great and the good of the banking and financial services world suddenly extolling the virtues of blockchain, the technology that underpins the artificial scarcity of bitcoin?

Possibly because they’ve finally figured out that what the technology really facilitates is cartel management for groups that don’t trust each other but which still need to work together if they’re to protect the value and stability of the markets they serve.

Cartel enforcement, in that sense, appeals to all sorts of financial players from bankers and commodity producers to general asset creators.

Though, we’d argue, it’s particularly applicable to entities whose cost of supply almost nothing — namely, those entrusted to create financial assets out of thin air in prudent and controlled form (a.k.a banks) not least because of the overriding short-term incentive to abuse the “we won’t oversupply” trust for one’s own individual gain.

As an aside, one of the key reasons central banks came about is precisely because centuries of banking history taught governments that too many cooks in the money-creation kitchen spoils the broth no end, hence it does makes sense to allow a government-mandated cartel-mechanism to exist to apply an artificial cost of supply where there wouldn’t be otherwise. For further reading on that, see Goodhart.

But the same logic also applies to commodity producers. Note, as an example, comments last week from Glencore CEO Ivan Glasenberg about who really may be to blame for the 40 per cent plus fall in the company’s share price:
“Unfortunately, our competitors . . . have produced more supply than demand and commodity prices are down for that reason,” Mr Glasenberg told shareholders at the company’s annual meeting in a casino in Zug, the low-tax city near Zurich in Switzerland.
It’s not our fault governor! It’s the wider system’s unconstrained supply rate.”

But suppose the rate of production could be algorithmically controlled to make it more difficult to mine commodities, money or financial assets as and when too many entities enter the system? And suppose, on top of that, such a mechanism was dubbed “technology” instead of a cartel system outright....MORE
See also the Financial Times: "Nasdaq adopts bitcoin backbone for stocks"

Insight into an obsessive: I read the “It’s not our fault governor!..." as the Cockney "guvnor" which immediately morphed into Gunvor which is the world's fourth largest oil trader.

I may have been doing this too long.

Speaking of which, here are a couple arguments against Mr. Thiel's thinking on monopolies:

From The Interpreter: "Why Peter Thiel is wrong about monopolies" and at Medium, the slightly more emphatic: "Why Peter Thiel is Dead Wrong About Monopolies".