27 Nov 2012

There's a Frankenstein's monster in the financial system

The Depository Trust & Clearing Corporation (DTCC) is quite possibly the biggest company you've never heard of...

Its website says,
"DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC has operating facilities and data centers in multiple locations in the United States and overseas.

"In 2011, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.7 quadrillion. Its depository provides custody and asset servicing for securities issues from 122 countries and territories valued at US$39.5 trillion."

DTCC and its subsidiaries hold and process almost all of the physical paper collateral of the financial world.

It looks like DTCC and its subsidiaries have played the main role in leveraging paper collateral (which represents real assets) probably worth several hundreds of billions of US$ into notional assets worth several trillions US$... Most of these so-called assets are TOXIC and existing essentially as electronic data!

DTCC was in the news recently beacuse Hurricane Sandy flooded the DTCC vault at their ironically-named "55, Water Street" address. Potentially destroying several trillions in paper securities!

According to Michael Bodson, Chief Executive Officer and President of DTCC,
"DTCC’s lower Manhattan headquarters, and likely our sealed securities vault, sustained water damage from storm flooding. While it would be premature to make an accurate assessment as to the full impact of the water damage to the vault or its contents, investors who held certificates in the vault as part of the DTCC’s book entry system are not at risk of losing the value of their holdings. These physical certificates represent securities held in paper form. DTCC maintains electronic records of the full contents of the vault which can be replicated if the physical certificates are damaged or destroyed."


You see, DTCC has been trying (hard) to eliminate paper securities in favour of a purely electronic version!

The reasons sited are familiar...
- it's a meaningless old system (uncool?)
- it's cumbersome & costly
- it's less convenient to hold and transact than electronic version
- there's widespread acceptance of technological alternates
- there's falling demand for the physical version

If you step back, you realise that THESE are the very same lame excuses trotted out against physical/paper money vs. digital/electronic money.

But why is DTCC so keen to get rid of physical securities?

DTCC is accused of being at the centre of a notorious web of financial wheeling-and-dealing that's inflating the value of securities by trillions of US$ by trading 'Phantom Shares' - that is, securities that DO NOT EXIST! All we need to remember is that in an investigation, an inventory of physical securities is much more difficult to manipulate than electronic data.

Here's an award-winning Bloomberg Special Report on 'Phantom Shares' and DTCC from 2007...


14 Nov 2012

Strong headlines (still) sell

I came across two articles recently - one, in the Harvard Busines Review blog network, and the other, on Forbes online. They caught my eye because of their use of dare-you-to-not-look headlines.

The first, posted on 9 August was titled, Marketing Is Dead.

The Second, posted on 11 November is titled, The End of the Expert: Why No One in Marketing Knows What They're Doing

Both articles are quite explicit in their message. The traditional way of Advertising & Marketing is over. This is the age of Digital Marketing and all things that start with "mobile" and end with "app".

From The End of the Expert: "It’s less about advertising and more about creating an experience that transforms what it means to be a customer of a brand." And Marketing is Dead avers: "Several studies have confirmed that in the "buyer's decision journey," traditional marketing communications just aren't relevant."

Their nonsensical gobbledygook might have unnerved a few old-timers and convinced some readers that resisting the iGods is futile... But I find it amusing that to make their points-of-view heard, both authors sneakily picked a tool from the bottom drawer of a Junior Copywriter's desk - a flagrantly provocative headline!

Obviously, it still works. I read their senseless s**t.

12 Nov 2012

Suit-bashing (for a good cause)

A bunch of creative people in Ireland's Ad community let off some steam - while helping out a good cause!

They put up an exhibition of designer A3 posters of their "favourite worst quotes from clients". The exhibition is supposed to kick-off "with a few drinks" (but of course), and the proceeds go to help a children's hospital.

There are many more gems - like this one at www.sharpsuits.net.

7 Nov 2012

Before TV became the Idiot Box

Before Television came be referred to as 'Idiot Box', there was this.

(This is the one-hour final episode of the BBC satire Yes, Minister. It's sequel Yes, Prime Minister is equally hilarious. Put down any hot beverages - and enjoy.)

I wonder if the abysmal, narcissistic and 'dumbed down' standards of TV programming today reflect the falling calibre of the programme creators - or of their viewership?

But is the 'idiot box' the cause - or the effect?

Consider the definition of 'idiot' in democratic Athens. According to Wikipedia, the binary version of the Ancient Library at Alexandria, "An idiot in Athenian democracy was someone who was characterized by self-centeredness and concerned almost exclusively with private — as opposed to public — affairs."

In other words, does the 'idiot box' specifically caters to the self-absorbed herd? Or does it cause the viewer to turn into one of the sheeple who follow meekly without critical thinking or questioning accepted conventions?

Hmm, a point to ponder...

5 Nov 2012

Why the Government is the only client worth having now

- Advertising spends are a good indication of business confidence. WPP, the world's largest advertising network by far, has cut growth forecasts twice since August over fears that clients will be slashing budgets into 2013.

- Part-time are on the rise in India according to a World Development Report 2013 on Jobs. Mid-size businesses are not growing and are reducing overheads by hiring temps.

- Morgan Stanley is forecasting a slow-down in global demand for IT services. They are predicting "decelerating revenues in both consulting and outsourcing through Q2 2013 reflecting the weak discretionary spend environment".

Everywhere one looks there's monetary easing, fiscal stimuli, bank recapitalisations, international trade deregulations, flourishing stock markets and even debt bailouts for propping up corporate, public sector and sovereign entities who made bad financial decisions... the professional world NEVER had it this good!

At least theoretically, world markets should be awash in liquidity and easy credit - and the global economy should be booming right now.

Instead, we have serious financial crises looming across the world. Any little one 'black swan' event may tip-over the global financial dominoes.

Businesses in the traditional economic powerhouses - the US, the UK, the EU - and even the BRICS are gasping for air. Unemployment is a serious social issue because businesses are not investing in new projects. Professional incomes are stagnating because businesses are not competing to hire the best qualified people.

Spending is decelerating in every sector - but in government! So governments are now the 'spenders' of last resort.

The real economy - of market supply and demand - is over... And the only thing left standing is crony capitalism. Sometimes, it is disguised as Public-Private Partnership, which truth-be-told is just a euphemism for "privatised profits and socialised risks".

Look around you... How many mid-size businesses do you now that are NOT directly or indirectly working for the government?

I'll say this again... Businesses that do not have a client-base that's skewed heavily in favour of government contracts or sub-contracts could be in serious trouble very soon.