P2P Currency Exchange?

The P2P phenomenon which started with online communities and has now spread to lending money, couch surfing and music swapping has another possible application: currency exchange.

The reason I mention this is because of the highway robbery some currency exchange outlets are carrying out. To give you an example:

Last week I took a trip to Sydney. I bought some A$ at Christchurch airport through the BNZ. Their rates are always very good usually a spread of around 2-2.5%. Now that’s still pretty big but remember these rates are change maybe once a day max and the markets can be moving as much as that. I bought some US$ at 0.7929 knowing the market was actually trading at 0.7945 so i was getting an almost at market rate.

But when I arrived in Sydney I checked out the rates available at Travelex. These guys are offering outrageous prices (unfortunately they are at Auckland airport also).

Their spreads on A$ to NZ$, US$ and GBP were 20%, 15.6% and 22.4%.

Who are these guys kidding. In market vernacular I could drive a bus through that spread (more like a fleet of them).

So what to do? Well we have P2P lending now established in many commonwealth countries. So how about extending that to provide a currency service within the new distributed network.

It’s food for thought.

Securities Commission wakes up

I like this piece from Micheal Coote on the NZ Securities Commission. He contrasts the approach of US authorities in throwing the book at white collar fraudsters with the rather ame approach of Seccom here in simply posting binding undertakings on its website from offending parties.

It reminds me that nearly 4 years ago i tried to interest Jane Diplock and the Commission in looking at finance companies. There was no reply. Sometimes i wonder what they get paid for. Trawling through their website I came across this speech by Jane Diplock to the International Investment Funds Assocation late in 2007. She is also the Chairman of the International Organisation of Securities Commissions.

It was a mind numbingly boring speech about global regulation of capital markets. Read it if you can’t sleep tonight. What surprises me the most is the lack of concern about the state of global markets, given the speech was dated 1st November 2007. That just about sums it up for me.

What have they been doing? Not much from what I can see. Meanwhile 17 NZ finance companies have gone under and the global capital markets are in dissarray.

But wait maybe they are onto something going by her concluding remarks

“We are at the cusp of a new global adventure into new realms of mutual recognition and consistent standards around the world. We live in exciting times!”

Strewth!

G7 calls for major review of global financial system

The G7 communique from the current meeting makes for interesting reading. Their focus has been wide ranging and, for a change, not just on currencies though the headline statement does make a clear reference to recent moves.

What I took note of was their concerns around bank capital. This is really where the crunch point is located. They call for the Basel Committee to review liquidity risk management guidelines and a quick disclosure of write downs ands revaluations (or in reality devaluations).

The accounting for off balance sheet items was also raised, particularly the valuation of assets in a time of financial stress. That should cause palpitations amongst traders of credit default swaps. Quite frankly some of this stuff can only be valued when its traded. The idea that there is some kind of two way market is really a myth. That in itself should make regulators, as well as bank shareholders, sit up and think about some of the toxic trades sitting around on the books.

They also call for a speedy implementation of Basel II. I think they should tear up Basel II and move straight onto Basel III but more on that another time.

They realise the game is up and the time has come for a thorough overhaul of the system itself. It will be interesting to see how this plays out as more and more unwinding takes place. As far as currencies go, China was gently reminded to hurry up and revalue the Yuan and the market was reminded that G7 wasn’t happy about some of the moves we had in March.  Whether that helps the $ is anyone’s guess but they better have an intervention plan up their sleeves before the $ takes another big dump.

The markets had a nice rally but reality is never too far away in markets and the last couple of weeks may have just been a pause for thought.

The American Monetary Reform Act

With the financial system gutted and exposed like big swordfish from the Grand Banks, it’s time to have a look at a proposal for monetary reform. Stephen Zarlenga from the American Monetary Institute has put together a proposal that rests on the US constitution no less.

As many people are starting to learn, the 1913 Federal Reserve Act “effectively ceded the sovereign power to create money delegated to Congress by the Constitution to the private financial industry”. It was led by none other than JP Morgan himself. There is some interesting history of how the Act was actually passed during the small hours of the morning whilst no one was looking.

As Jim Rogers suggested yesterday, the Fed could be abolished or as Stephen proposes, be purely a bank of issue, supplying money as required by the government.

Now there are many ways to approach the issue of interest free money into an economy but for now I would just like people to read through the proposal and see what they think. Pass it to friends, schools and universities. People should be discussing this openly.

The AMI hold talks around the US all year round so get in touch and find out when they are coming your way.

Its your Congress and its your money.

Socialism for the Rich

Thanks to Christoph for this story. Jim Rogers has been on the wires lambasting the Fed for pumping out cash left, right and center. He has called the bailing out of investment bank Bear Stearns as “socialism for the rich“.

I like that. He calls for the Fed to be abolished. Now we’re talking.

Let’s face it, market rally or not, the $ is still in serious trouble and banks are still going to be under severe pressure. Watch for the lawsuits to come flying out now. Charles Schwab is being sued for “untrue” statements regarding the diversification of certain funds. We are going to see this more and more as people start to take a closer look at the way investment products have been sold.

You could say this is an outcome of an asset bubble bursting. People rush round looking for someone to blame when they lose all their money. “Caveat Emptor”  is conveniently forgotten and another investment generation is left to learn the lessons that previous ones failed to pass on or more likely were ignored in their attempt to do so.

How do people feel out there? I know 95% of my readers are from the US so maybe you have had some first hand experience you would like to share.

Fed cuts 75 bps: Is it enough?

Fed just cut the fed funds and discount rate by 75bps voting 8-2. The 2 against were for less aggressive cuts.

Overall the market wanted a bit more but still rallied initially. Better than expected numbers from Goldman Sachs and Lehmans helped with overall confidence

So what now? Well it’s hard to say. I don’t think much has changed and its hard to justify a big market rally from here. So the best to hope for is some stability from here.

I think the focus will now shift back to the banking sector and who is next up for refunding.

As for the market I expect that to come under further pressure.