Bits about Money

Ok, so if you want to read https://www.bitsaboutmoney.com/, which is now publishing less than once a month, you prefer to refresh the website once a week hoping there's an article to read? That's unimaginable to me. Most of the writers I read publish infrequently. Email is great. I don't have to be on any social media. Articles come in and I can read them at my leisure.

Oh, and of course I read Patrick McKenzie: https://www.bitsaboutmoney.com And subscribe to Bloomberg's Matt Levine's "Money Stuff" newsletter and podcast: https://www.bloomberg.com/account/newsletters/money-stuff

Chiming in with a few of my favorite "Levine-likes": - For aviation disasters and safety, can't beat Admiral Cloudberg: https://admiralcloudberg.medium.com/ - For more about the financial sector, Patrick McKenzie is solid gold every time: https://www.bitsaboutmoney.com/ (and I believe an HN regular as well!)

This is absolutely fantastic, it reminds me of Bits About Money[0] [0] https://www.bitsaboutmoney.com/

Think of something like home owner insurance. Your insurance rates depend on exactly how your home is built, what type of heating system it has, where it is, etc. The rates, carefully calculated by actuaries, act as a signal to you as to how dangerous your house is to yourself, but also to others. If you set your house on fire due to negligence and cause the next house to burn, you might be liable for damages there as well. Forcing everyone to buy such insurance forces everyone to fully pay for the expected cost of the danger inherent in their house. Over time, this causes houses to be constructed in a safer manner. If people are not forced to buy insurance, they don't buy it, and so this evolution over time does not happen. Also see [1]. Some financial tools are amazingly clever - whether they are morally good or bad. Bits about Money is a great blog to build insight into some of these constructions [2]. Another example for your initial question is car seats for kids. If you don't force em, nobody buys em. Then their kids die. [1] https://en.wikipedia.org/wiki/Moral_hazard [2] https://www.bitsaboutmoney.com/

1. Moving stuff in a ledger from A to B (sending money around in general) is all fairly trivial from a technology standpoint, but only a minuscule part of what financial institutions are doing. They spend a lot of money and effort on combatting fraud and making sure rules and regulations (KYC, AML, CTF, sanctions, etc.) are being followed. (The crypto bros (and some FinTechs) solve a tiny part of the puzzle with a new technology (not even good/efficient tech in case of crypto), and then think that they alone have solved it, and that the rest is easy, and that they are now in a position to take over finance. Not so.) 2. Costs vary tremendously by jurisdiction and industry structure. In Europe, bank transfers within the SEPA region are basically free (instantaneous transfers might cost 35 cents or so). Bank transfers, direct debit, and standing orders have been ubiquitous and cheap for a long time, and checks and credit cards are rarely used (on the continent; the UK is closer to the US system). There was no need for PayPal, as it was fairly trivial to pay bills. (Only when Ebay bought PayPal and made it the default payment method did PayPal get any traction in Europe, I think.) Similarly, credit card interchange fees are capped at 0.5% in the EU. That means fewer card rewards (which arguably benefit mostly the rich), and less credit card marketing. The banking system in the US is quite crap, but that's not due to stupidity, but a mix of a) well intended regulation that…

I'm bored, so I'll respond. But where to begin? First, the most basic role of money is to be a medium of exchange. With reasonable overhead and in acceptable time, people need to be able to exchange money for goods and services. Crypto fails this in every practical way. If I want to buy pizza with bitcoin, my overhead exceeds the value of the pizza, the average time to make the purchase is longer than the average time to order, have it made, delivered, and get eaten by my family. (Have you ever SEEN hungry teenagers tear into pizza.) Also if people started trying to buy pizza with bitcoin, you'd quickly run into the problem that the maximum number of transactions per second on the bitcoin network is a fraction of the number of pizzas sold per second. Yes, yes. This is all improvable. I've heard that for years. But these issues are not new, and haven't gone away. OK, what next? You are making a big deal out of the fact that there are poor people in horrible third world countries who want to use crypto to escape authoritarian oversight. At best this is a red herring, I lean towards calling it disingenuous. A far more important use case for crypto is crooks trying to get paid for their ransomware attacks without themselves being caught by law enforcement. And the third world has benefitted far more from payment networks like M-PESA than all of crypto. Besides, the single best way to help the poor people in horrible third world countries is to continue the…

> This assumes good faith, which doesn't match reality. It's about control, not protecting children. “Never attribute to malice that which is adequately explained by stupidity.” > Given your idea of a physical card, kids will find a way to use the card of their parents. Sure there are kids who have access to their parents credit card with the PIN, but how frequent is that? In every system, fraud will exist, but that doesn't mean the system is worthless. “The optimal amount of fraud is non-zero”: https://www.bitsaboutmoney.com/archive/optimal-amount-of-fraud/

For background on KYC in the banking context @patio11's podcasts and essays are worth consuming: Patrick: Yes, so "Know Your Customer" (KYC) and "Anti-Money Laundering" (AML) are mandatory elements of the international compliance regime that have been in place in the United States since the early 1980s. Over time, this regime spread globally, largely fueled by the U.S. leveraging the dollar as a tool of foreign policy—a point where I find myself agreeing with critiques from the crypto community. Their complaints about this are largely accurate. You can see this clearly in the documents as these laws were passed and as supranational bodies increasingly tightened regulations on banking secrecy havens. https://www.complexsystemspodcast.com/episodes/true-crime-banking-edit… https://www.bitsaboutmoney.com/archive/kyc-and-aml-beyond-the-acronyms…

https://www.bitsaboutmoney.com/archive/optimal-amount-of-fraud/ Classic patio11 article.

The details sure are light, but it tracks with how banks and processors work. There's lots of indirect language and polite pressure involved, and famously, opaqueness behind decisions. Consider this excellent article on debanking by an author who works at Stripe: https://www.bitsaboutmoney.com/archive/debanking-and-debunking/ The machine grinds on regardless if we agree with it or not.

Patio11 has a fantastic writeup on exactly this: https://www.bitsaboutmoney.com/archive/regulation-e/

> what specific reason they have for triggering KYC/AML As far as I understand, they're often not allowed to disclose that. E.g., https://www.bitsaboutmoney.com/archive/seeing-like-a-bank/ > In the specific case of “Why did the bank close my account, seemingly for no reason? Why will no one tell me anything about this? Why will no one take responsibility?”, the answer is frequently that the bank is following the law. As we’ve discussed previously, banks will frequently make the “independent” “commercial decision” to “exit the relationship” with a particular customer after that customer has had multiple Suspicious Activity Reports filed. SARs can (and sometimes must!) be filed for innocuous reasons and do not necessarily imply any sort of wrongdoing. > SARs are secret, by regulation. See 12 CFR § 21.11(k)(1) from the Office of Comptroller of the Currency...

patio11 wrote a great article and podcast about debanking and anti-money laundering processes last year, it was eye opening how kafkaesque these things are: https://www.bitsaboutmoney.com/archive/debanking-and-debunking/

Apple is worth trillions of dollars. Just treat it as a business expense. https://www.bitsaboutmoney.com/archive/optimal-amount-of-fraud/

> The laws against that are very strict, incentivizing companies to overshoot and block false positives. On that note[1] is a good read (Cmd+F: "suspicious activity report"), although this specific case is about gift cards, but the AML/T&S etc. space is remarkably similar. [1] https://www.bitsaboutmoney.com/archive/debanking-and-debunking/

Yes, extremely, especially for confirming loans: https://singlefamily.fanniemae.com/originating-underwriting/loan-limit… Patrick McKenzie (https://news.ycombinator.com/user?id=patio11) has a great deep dive on this: https://www.bitsaboutmoney.com/archive/mortgages-are-a-manufactured-pr… Closing/switching costs are certainly a consideration still, but the "Truth in Lending Act" (TILA) made it easier to compare the all-in cost by providing a standardized APR number, which is what the dashboard focuses on.

> a private company shouldn’t have to decide what counts as “illegal” content under threat of legal action. Immediately reminded me of patio11's amazing write up[1] of debanking, featuring banks being deputized as law enforcement for financial crimes (which is completely non controversial), and even used as a convenient tool to regulate other industries that the white house didn't like (kinda controversial). [1]: https://www.bitsaboutmoney.com/archive/debanking-and-debunking/

In this case? Not that I know of, but I'm not following closely. In general? Absolutely - search 'Operation Chokepoint'. There's a great summary in the middle of this (very long) article under that header: https://www.bitsaboutmoney.com/archive/debanking-and-debunking/

>In the article the author says we should use "pre-approved vendor lists" or "streamlined approvals" and that sounds great in principle, but could also easily be exploited. As patio11 would say, "The optimal amount of fraud is non-zero". Fraud is bad, but if fighting fraud involves so much red tape that it costs more than whatever petty corruption could ever cost, it's bad. [1] https://www.bitsaboutmoney.com/archive/optimal-amount-of-fraud/

"Community banks mostly don’t have programmers on staff, and are reliant on the so-called “core processors” ... This is the largest reason why in-place upgrades to the U.S. financial system are slow. Coordinating the Faster ACH rollout took years, and the community bank lobby was loudly in favor of delaying it, to avoid disadvantaging themselves competitively versus banks with more capability to write software (and otherwise adapt operationally to the challenges same-day ACH posed)." From the great blog Bits About Money: https://www.bitsaboutmoney.com/archive/community-banking-and-fintech/

This is an excellent writeup. This rhymes with the complexities noted in https://www.bitsaboutmoney.com/archive/why-is-that-bank-branch-there/. Lots of seemingly little things that are necessary to get something off the ground.

What can you pay with if you're doing financing? If they don't accept credit cards, they make way more than twenty cents back with reduced fees. If you finance on an Apple Card you don't get the 3% cash back (last time I looked). Unless interest rates drop to 0% they're obviously still losing money, but if you follow the logic of everywhere that allows BNPL[0] you make it up by having more purchases than you would otherwise. [0]: https://www.bitsaboutmoney.com/archive/buy-now-pay-later/

Hey Patio11, totally off topic but I did want to say thank you for recommending "The Dragons Banker" in your October "Fiction and Finance"[1] post, it was a wonderful read in the under-served "person who is very good at their job does great work in wild circumstances" genre. Thank you for writing a relaxing and lighthearted recommendation post in your otherwise pretty serious newsletter, I hope it can remain an October tradition. [1] - https://www.bitsaboutmoney.com/archive/fiction-about-finance/

If you have too much free time, it may be worth reading the (long) "Debanking and Debunking" essay for an exploration of all of the perverse and bizarre behaviors that result from banks' fear of AML/KYC regulatory action. My favorite example is how banks are required to file secret "suspicious activity reports" (SARs) about their customers. Even knowing about the existence of SARs can be grounds to get a SAR written against you. How's that for thoughtcrime? Link: https://www.bitsaboutmoney.com/archive/debanking-and-debunking/ HN discussion: https://news.ycombinator.com/item?id=42371476

That blog has a lot of choice quotes along the same lines. Another favorite: https://www.bitsaboutmoney.com/archive/money-laundering-and-aml-compli… > This [KYC/AML] will affect the typical user of the financial system precisely zero times during their lives. I've been affected by this nonsense, and so have friends and family. Quite inconvenient when you're trying to buy a house and trying to keep things moving on time. I may not be "typical" but my mother certainly is. I can tell that patio11 is highly invested in the finance industry, not wanting to burn bridges, and I think he is incentivized to try to make people believe that KYC is beneficial and highly effective, but it's just not the case. It reminds me of the people inside Google working on their auto-banning systems who won't admit that it doesn't always work perfectly.

Patrick McKenzie's Bits About Money https://www.bitsaboutmoney.com/

Related: https://www.bitsaboutmoney.com/archive/optimal-amount-of-fraud/ > To prevent this conversation from being painfully abstract, let’s scope it to one particular type of fraud against one particular type of actor: the bad guy steals a payment credential, like a credit card number, and uses it to extract valuable goods or services from a business. This is an extremely common fraud, costing the world something like $10 to $20 billion a year, and yet it is actually fairly constrained relative to all types of fraud. > This fraud is possible by design. The very best minds in government, the financial industry, the payments industry, and business have gotten together and decided that they want this fraud to be possible. That probably strikes you as an extraordinary claim, and yet it is true.

How much you want to bet one or both of these folks saw patio11's Seeing Like a Bank here on Hacker News a few months ago, read it, then read Seeing Like a State, and then wrote this? Because I did the same thing (my version for my problem still in draft) https://www.bitsaboutmoney.com/archive/seeing-like-a-bank/ https://news.ycombinator.com/item?id=38180477 Also, Seeing Like a State seems to be something of an cult classic on this forum: https://www.google.com/search?q=seeing+like+a+state+site%3Aycombinator…

If you're interested in this topic, you may want to read through some of the Bits about Money essays/newsletters: https://www.bitsaboutmoney.com/