Writing about lending encompasses the whole world of risk taking with other peoples money. After all what does a bank do or supposed to do? Take in deposits ie surplus money and lend it to people who need it. By this process monetary assets are deployed where they are needed and so long as the bank is properly managed the depositors don’t have to keep it in bundles of notes under the bed. At least that’s where we were until the last twenty years or so. However we are now in a through the looking glass world where nothing can be something and something can be created from nothing. Bitcoin is a case in point. A newspaper reported last week that the total value of all Bitcoin in circulation (ie on Blockchains servers) was roughly equivalent to the GDP of the Russian Federation. Today there is a story about an equity raise by US payment Fintech Stripe which might value the company at up to $ 115billion. Stripe and Bitcoin are connected by Elon Musk who owns Tesla. Stripe was set up in 2010 by the Collison brothers two very bright Irish Entrepreneurs from Tipperary who moved to Silicon Valley. Elon Musk was an initial backer. I know nothing about Stripe except that it has IPR in the payment space. IT is used by companies making lots of payments and is a contemporary of established concerns like PayPal. Tesla has a market capitalisation of in excess of $ 600 billion. And has a P/E ratio of 1100. It makes electric cars. One trick pony? Stripe has revenues of $ 450million but is presumably still burning cash. Bitcoin? Who knows. Ask a financial expert. Nothing is real anymore.
This item appeared on the same day that the UK insurance industry was urging the UK government to look at the EU’s Solvency 2 which forces Uk insurers to keep £ 95 billion in Ultra low risk assets. These assets will be primarily sovereign bonds some of which are at negative yields. So the argument goes this could release funds to finance green initiatives. So the deal is this. Insurers must keep a percentage of their assets in depreciating bond assets issued by states which can never repay the debts they have incurred in order to ensure that there are sufficient (low Risk) assets there to support claims in real money by insurance providers. This situation is getting worse not better. I cannot help feeling that it is just another example of the collective madness that has been sweeping the world since 2008.
Interesting survey piece by Finextra. Apparently machine learning and data science applications are struggling to understand situations that they haven’t seen before. I can’t say that I am surprised but the moving parts in risk situations have always been totally fluid and COVID is just another one of those unexpected events that have caused governments to act uncharacteristically. Well we human beings haven’t seen it before either but the key to programming is to develop scenarios that are plausible and then write the code. The modellers in and around SAGE the virus’s scientific group advising politicians in the UK have not exactly covered themselves in glory over the past year. The fact is that the number of moving parts are too many and the potential outcomes increase exponential with every change you make. Difficult perhaps but not wholly impossible but like the virus itself anomalies and mutant variants will always occur. Credit is an art not a science.
Howard Tolman is a well-known banker, technologist and entrepreneur in London,
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For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.
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