Magical Realism at the Border of Techies and the Poor

App for Louisiana food stamps

New Orleans    Don’t get me wrong, I am 1000% in favor of techies of all stripes and sizes trying to figure out a way to impact on the lives and fortunes of low and moderate income families. Nonetheless, when I read an article about JPMorgan Chase putting up $30 million through its foundation to create a Financial Solutions Lab to supposedly “build affordable financial services” within their financial industry, all my antennae immediately go up because for the life of me that sounds like a way for Chase to divert money into a tax exempt arm to do research and development for its core business, rather than anything to do with philanthropy. How jaded have I become?!?

The New York Times published a puff piece about the effort in a special section on something they called “fintech,” which I would recommend against ordering at a restaurant no matter how much you like seafood. They highlighted a company called Propel that seemed amazingly well intentioned and dedicated. They had thought of developing an application for a smartphone that would help lower income families apply for food stamps. They were sent with the other Chase lab rats to walk the “mean streets” of San Francisco to get a better sense of the needs of the poor. Did I really say San Francisco, one of the richest cities in the United States? Maybe they were looking to see how many lower income families had managed to stay in San Francisco…but I don’t want to get off my subject here. Anyway, Chase gave Propel a quarter of a million bucks, and they ended up switching over to develop an app to allow a low income family to be able to determine the balance they have left on their food stamp card.

I guess that’s a good thing, though in my experience most food stamp recipients can tell almost anyone within a penny how much they have on their card at any time day or night during any month you might want to ask. Or they walk to the corner store and find out, but, let’s stay positive here.

You will need a smartphone though for this app to help you. We have this nagging problem of the widening gap in internet access but according to various Pew Research surveys 74% of families making less than $30000 per year now have sometime access to the internet. 13% of families with internet access making less than $30000 can only do so with a smartphone, so for the subset of those who are also eligible for food stamps of that 13%, the app might have some value.

Of course smartphones cost money, and if a family making under $30000 can afford a smartphone, that doesn’t mean they can afford unlimited access to data of course. 48% in fact report on Pew surveys that they pretty regularly get cutoff from their smartphones because they don’t have the money to pay the bill. 30% also report that they regularly exhaust the minutes on their data plan so essentially have to cut themselves off from using their phones to access the internet.

Don’t get me wrong. I’m not saying this is a solution looking for a problem. I’m just saying that this “fintech” pretense of supposedly helping low income families who are unbanked and victimized by their lack of affordable access to the financial system is way ahead of its time until there is equal access to the internet, the cost of devices are lowered, and the FCC forces the predatory telecoms to produce affordable plans for lower income families. In fact if Chase had been willing to really be charitable and invest $30 million in a campaign to make that happen PDQ in the US, then we would be talking about a real step forward where we could let a thousand apps bloom. Until then other than providing R&D for big banks, it seems the cart has once again jumped ahead of the horse.


LIBOR: Banking as a Criminal Conspiracy

Little Rock   Put London and banking in the same phrase, squeeze it into an acronym and snores start rising from nodding heads all around the world, and that’s too bad, because the LIBOR scandal that has erupted at Barclay’s and in Parliament will engulf the big US-based banks like Chase and Citicorp and might finally yield enough total revulsion and disgust at the greed and lack of good faith that has warped the culture of all banking institutions that reform might finally be possible, if not inevitable.

I used to hear the phrase LIBOR all of the time when we were in negotiations around banking agreements and home mortgages.  I can still remember having to ask one of my colleagues what the heck it was and then having to Google it later.  LIBOR is the London Interbank Offered Rate.   In plain English, that means that this is the rate used by banks when they loan money between each other.  An interesting article on its derivation ran this week and essentially it emerged over the last 20 or more years to replace the “prime” rate in prominence as a banking benchmark standing for the fairest lending rate fixed at a particular place in time.  The rate was arrived by consulting all of the major banks on what the rate they were using that day in lending money in major areas, throughout the high rate and the low rate, and then taking the average of the rest of the rates to equal the LIBOR for the day.

This was the gold standard of banking practice backed by the full confidence and good faith of the financial systems that this stood for something fair and certain about what constituted the real interest rates.  Results of the investigations revealed thus far have now proven that that was a total lie and what’s more, it is fairly clear that banking at the very top is certainly more of a criminal conspiracy than the MAFIA or the drug cartels might have ever imagined practicing.

Barclay’s will pay close to a half-billion in fines in Britain for their manipulation of the rates.  Unlike other criminal conspiracies, the $10 million dollar a year CEO of Barclay’s recognized no code of omerta and in trying to rationalize his own inept management (I’ll come back to this!), pointed his finger with clear evidence that the regulators turned a blind eye to the rate manipulations and other banks, like the big boys in the USA, were also involved in the interest rate fixing.   It is now clear that what was happening was the bankers and their traders were setting the average rates falsely during the financial crisis so that they seemed more financially solid than they were and with less interest rate cost and liabilities, and furthermore their own traders in some cases were gaming the rates both higher and lower, sometime against the interests of their employers in order to maximize their short term trades and therefore returns and therefore their personal rewards.

Whether subprime mortgage brokers, trading desk cowboys and cowgirls, or your regular banking shysters is it not finally abundantly clear that if you pay people based on their percentage of the kill, their systemic self-interest will bleed everything dry including their employers?  These CEOs are simply unable to surprise their employees on a banking model that is pay-as-you-go.  For all of their “not me’s” there are not enough mea culpas where they admit they simply are unable to curb the greed of their troops on a business model from the City of London financial district to Wall Street and beyond which incentivizes greed and therefore destroys institutions and makes the concepts of “trust” and “good faith” oxymoronic when it comes to banking.

Furthermore, who do you think was responsible for setting the LIBOR?   If you guessed the government or regulators, go to the back of the class.  The British Bankers’ Association was in charge and the very banks that were part of the criminal conspiracy were in fact heading up the committee that surprised the LIBOR rate setting for trillions of dollars worth of loans costing companies and governments billions and ordinary citizens thousands as well.  Unbeliveable!

Supposedly the UK Serious Fraud Office (SFO) is looking at criminal charges now, but the Wall Street Journal was pretty clear that their record to date is lame and, mostly noted by the Times, they have buckled in the face of business interests.  It is hard to believe that we will get much more from the USA side.

The least we should be able to expect is the end to the fiction that banks can self-regulate, that banks can supervise both trading and security of funds (how can we not bring back some form of Glass-Steagall?), and banking isn’t much more than criminal enterprise until government and citizens clean this mess up.  Given the low level of current interest rates and the practices of banks, it seems under the mattress may once again be a viable and secure option for handling your personal funds.

Traders crowd the sidewalks outside the New York Stock Exchange on the day of the 1929 market crash. The Glass-Steagall act followed. Photograph: Bettmann/CORBIS