Eye2theLongRun

Matt Levine at Bloomberg is likely one of the best analysts Wall Street has. He is shrewd, unpretentious, on the money and his written output – daily – would easily match Tyler Cowan’s reading speed. He has a great description of El Salvador’s move to adopt bitcoin as its monopoly currency. It is “millennial capture” thumbnailed into a couple of thoughts and expressed succinctly….

“[T]his is an example of market segmentation by standing in front of a PowerPoint presentation at a Bitcoin party wearing a backwards baseball cap. This is market segmentation by slapping a cool name — “Volcano Bond” — on a bond that is strictly worse than a readily available alternative. This is market segmentation by combining a normal thing with (1) crypto and (2) a huge markup, and then marketing it to crypto people who want to pay the huge markup not to buy crypto (they can just buy crypto!) but to buy into a crypto adventure.”

While there is little doubt that digital currency will expand and perhaps clear the stage of other dangerous political instruments while shutting down the “Fed Watcher” industry to all our benefit…. There are likely to be stumbles along the way. Matt’s eyes are a great means for watching this. See Matt Levine – Bloomberg

The government has shown its typically regulatory interest in the burgeoning “buy now pay later” segment of the capital market. This “I can’t see the costs so it must be free” approach to relatively high risk easy come but not so easy go credit has been growing strongly in NZ just as it has elsewhere. Various “caring Ministers” have now shown considerable warmth to the idea of “saving” any poor darlings who get lost under this new money tree – and of course the weapon of choice is the fired up and ready to go legislative battery already operated by the various save our souls agencies.

There are, baldly, two choices here:

1. Crunch all providers of any form of credit even handedly and thoroughly consistently, with the full blast of the “Ministers know what’s the best risk for you, what you can afford and what you need and I’m going to stop you and anyone trying to say otherwise from moving outside my plan for you.” The “here for you cradle to financial grave” approach to financial security – which is, incidentally, popular with providers since it tends to handily exclude the competition and lock in profit for the incumbent.

Or

2. The far less popular, “time for some adulting. You know perfectly well there are no free lunches, and you know better than anyone else what you can and cannot afford. If you choose to disregard what you know in your head and your heart you stand to play your own Squid Game and lose. It has always been this way and with no “fools paradise regulation” to pretend to help you, you have learned how to deal with this. It’s a pain yes. But it’s realistic and long run you know you are better off”.

Unsurprisingly neither providers nor politician are in favour of this second approach. It generates competition, there are no babies to be kissed, it calls for “do nothing” and providers must seriously look after their would-be borrowers.

Either choice demands absolute consistency (or its simply not equitable or “fair”), serious enforcement (not cherry picking what regulators figure they can win in court) and it needs to provide disclosed risk low cost finance to those needing credit rather than a whimsical, dream on Yeah/Nah approach to capital.