Your weekly dose of the best offbeat finance news & links from around the web.

• How the mighty have fallen
• I can’t be the only one
• Panhandling, doggy style (profanity)
• Wendy’s dips a toe in human trafficking
• From 80s bandmember to King of Bonds
• Meet the newest venture capitalist

Sign up here to get Funny Money in your inbox every Friday!

Got some good links to share with Funny Money? Send it here!

Source: Mastercard

As you can see, #4 on the list is Kenya.

Why Kenya?

Mastercard considered 6 criteria for its list. Almost all of these factors focused on the strength of political and business institutions: a robust legal system, a credible yet flexible regulatory system, an up-to-date technical infrastructure. I.e. all the things you would expect a rich country to have.

Kenya is not rich, certainly not in comparison to these titans. But it does have one thing that makes it stand head and shoulders above the rest. And it’s the kind of advantage that money can’t necessarily buy.

Source: Mastercard

Kenya punches way above its weight in the mobile payments space for the simple fact that, more than everywhere else, its citizens are already doing it. 

OK. Kenya. So how did it get there?

One word: M-Pesa. Ashok V. Desai describes it best:

The way M-Pesa works is as follows. Suppose someone wants to send money to his wife in some other town or village. He goes to any M-Pesa counter, pays cash, and tells the girl to deliver equivalent cash to his wife. The girl takes the money plus a certain commission, rings up her correspondent in the wife’s village on her mobile phone, and tells her to pay the money to the designated person. The sender, in the meanwhile, rings up his wife and asks her to go and collect the money. The wife goes to the counter in her village and receives the money. The entire transaction can get over in a few minutes; the only red tape is a few entries and signatures for record.

Kenya has a population of 40 million. Roughly a half of them would be adults; of those 20 million, some 15 million, or three-quarters, use M-Pesa. M-Pesa has 30,000 branches — 25 times as many as Kenya’s biggest bank. Each does roughly 80 transactions a day; it comes to about 900 million transactions a year, or 60 per adult.

My first reaction upon reading the preceding was kinda like, “Hang on a minute — that’s not really my definition of mobile payments. It just sounds like Western Union 2.0.” This impression was also confirmed by a 2010 article in the Economist which mentions that “individual agents still handle the ‘last mile’ ”.

So in Kenya mobile payment is most definitely driven by the need for P2P money transfers due to lack of infrastructure. This is in contrast to developed countries, which are more driven by commerce and consumers’ desire for convenience.

Source: Mastercard

It will be interesting to see how Kenya’s mobile payments industry evolves, how innovative it becomes and whether developed countries will start taking a page of its playbook. (Which would mark yet another significant shift in global business history.) The country i’s now getting ready to sell its bonds to retail investors via the M-Pesa system. I can think of a few western countries who might want to look into a scheme like this.

1) EUR/USD
Foreign exchange, the largest, most liquid of all financial markets is giving a thumbs-down.The strength of the euro had defied its many skeptics, but it’s now at the lowest it has been since January. At last look it was trading in the mid-$1.2820s. Find the latest charts here.

2) German multi-nationals
You can see the recent weakness of the Xetra Dax here.

Source: http://www.4-traders.com/

And here’s some technical commentary on its next moves. Under normal circumstances German exporters would love a lower euro, but these are not normal circumstances. If Greece leaves, will more of the periphery countries follow and leave only a core of Germany, Finland (and the Netherlands?) behind? If this core managed to get past the initial negative market reaction to these exits, a “new Deutschemark” could rise to reflect its stronger current account position. This would be bad news for exporters.

But as this, and the whole financial crisis has shown, politicians and other leaders are the wildcard. The Wall Street Journal has this take from prominent currency analyst, Marc Chandler of Brown Brothers Harriman:

“The market is beginning to move as if we are at the edge of the abyss, and in the past, as we’ve gotten closer to the edge, policy makers have done something to pull us back,” Mr. Chandler said.

OK, so what does JPMorgan Chase’s trading scandal have to do with this? Some traders have told WSJ the following:

“the CIO unit owned a variety of investments, including European assets. If the group becomes more conservative, it could move to sell these other holdings, putting pressure on those markets, too.”

It would be a particularly bad time for JPM to embark on a fire-sale of European assets. To do so would say a heckuva lot about how worried JPM is about its poorly executed “spledge”.

—

• Related story: The eurozone X-factor
• Follow the Finance Addict on Twitter and like our Facebook page.

1. JPMorgan was in much better shape than its nearest competitors, Citigroup and Bank of America.
2. Lloyd Blankfein, CEO of Goldman Sachs, would play the biggest bad guy in this drama. Jamie Dimon, on the other hand, was the man. (Or the least-hated banker, as the New York Times put it.)

Now that JPMorgan has just disclosed a loss of $2 billion from a trading “blunder” we are left to wonder: is it time for Jamie Dimon to bow out gracefully?

In a very broad sense you can see the mortgage crisis as one of levered beta: lots of people, from the biggest global banks to the humblest subprime homeowners, borrowed money in a bet that the housing market would continue to go up. When it didn’t the losses they suffered wiped out whatever own money they had put in, and then some. JPMorgan’s ability to escape the worst of this pointed to the existence of a pretty sharp skill in risk management. A skill which many lay at the feet of Jamie Dimon, himself.

But now JPMorgan Chase has lost a great deal of money on a trade:

1. that it insisted was not a bet, but rather an insurance strategy needed as part of its regular course of business
2. of which Dimon, himself, was fully aware
3. and which seemed so abnormally large and so potentially risky that traders from other firms apparently tattled about it to the press

then what other choice is there but for the CEO, which is in essence always a bank’s chief risk officer, to step down?

——
Follow the Finance Addict on Twitter and like our Facebook page.

While the U.S. may have the dubious distinction of hosting the most famous housing bust in recent times, it had plenty of company from other developed countries along the way.

The key difference between America’s housing bubble and Spain’s? U.S. housing prices have already fallen tremendously. On the hand many analysts say that Spain’s housing market has much further to fall. (See this and this.) And that doesn’t even take into consideration the effect of lenders offloading foreclosed homes onto the market, which hasn’t started yet.

Enter Bankia. It was born in 2010 out of the merger of seven Spanish banks, a few of whom were in deep trouble as a result of their exposure to property loans. Then some observers questioned whether Bankia’s creation was just a delay tactic on the road to a more costly, unavoidable outcome. Would the €4.5 billion it borrowed from Spain’s Fund for Orderly Bank Restructuring (FROB) prove to be just a drop in a leaky bucket?

Yes, is the unfortunate answer. Bankia, whose €52 billion exposure makes it the largest real estate lender in Spain, will see the €4.5 billion FROB loan converted to common equity. This means that the government — contrary to earlier promises it made to the Spanish public — will take a direct shareholding in the bank. Asking taxpayers to serve as the ultimate backstop is tricky, unpopular but not entirely unexpected. Welcome to the club, say the UK, Ireland, Switzerland and, of course, the United States.

No, the more delicate issue is the fact that Bankia — with strong government support — sold common shares to the public during an IPO last July. “There is a lot riding on this IPO,” is what the prime minister at the time, José Luis Rodríguez Zapatero, reportedly said. Indeed, the IPO was heavily marketed to retail investors in the country who took more than half of the offering “following a wide-ranging newspaper and television campaign urging Spaniards to invest in the ‘best of the new banks.’” Here’s more from an anonymous Spanish banking source, as reported by Reuters:

“The IPO [which was deeply discounted to begin with] went ahead because of national interest and every Spanish bank that bought shares did so knowing that there were problems of viability and that the share did not have much room to climb.” 

I think this guy might have a great future ahead of him as a prospectus writer. But seriously, will the average José will be as philosophical, given the shares’ recent performance?

Source: Bloomberg

Since last year’s IPO there has been a change in government. Zapatero’s leftist Socialists lost out to Mariano Rajoy’s center-right People’s Party last November. It will be interesting to see whether Spaniards will take account of this or whether they will still feel hard done by a political establishment that served as Bankia’s booster.

There’s a valuable lesson to be drawn from this whole episode, something that’s been proven time and again: patriotism is a fuel, a political force that can be used to meet economic ends. The eurozone is an economic experiment that’s flirting with disaster largely because of a lack of political will. A true united states of Europe — with a true European treasury issuing truly European bonds with joint and several liability — would put an end to the eurozone crisis at once. But politicians cannot make this happen until a majority of their constituents consider themselves to be Europeans first, and then German / Dutch / Italian, etc. second. Such widespread feelings of patriotism for Europe don’t seem to exist — and probably can’t exist without some sort of astroturf.

——

Follow the Finance Addict on Twitter and like our Facebook page.

Your weekly dose of the best offbeat finance news & links from around the web.

• Best money face I’ve seen yet
• Cool Britannia
• Octopi Wall Street
• The Tale of the Tortoise and the Hare: 2012 edition
• Because it doesn’t actually grow on trees
• You know times are tough when even the White House won’t pay its contractors 

Sign up here to get Funny Money in your inbox every Friday!

Got some good links to share with Funny Money? Send it here!

1) U.S. government support for the young industry is now on a path that, if unchanged, will result in a 75% decrease from 2009 levels.

2) Weaker economies mean less support for clean energy from other major investing countries. For example, China. 

Found via: Sustainable John

3) Meanwhile the shale gas revolution….

Source: US Energy Information Administration; found via Finfacts.ie

4) …Has increased natural gas supply, causing natural gas prices to drop and making clean energy less competitive.

(Of course, the relative advantages of clean energy vs. fracking depend on your point of view).

These days the ever-decreasing cost of natural gas makes the business case for the private sector  – which desires fast, monetary returns on its investments — much weaker.  Which means that the clean energy industry needs even more government support to survive; instead this support is being yanked away. A highly partisan political atmosphere in a presidential election year only makes it more difficult for the Obama administration to give any support to the nascent industry.

Note, however, this ironic twist: the low natural gas price that resulted from the shale gas revolution means that the fracking frackers and those who love them may soon start to clamor for their own government support. See this and this.

——
Follow the Finance Addict on Twitter and like our Facebook page.

• European elections and political developments showing a growing frustration with the economic leadrship thus far
• a US job market that is just.not.improving fast enough
• a tech bubble that may or may not exist, as its darling Facebook approaches its IPO
• intriguing political developments in China that may lead in any number of directions.

Your weekly dose of the best offbeat finance news & links from around the web.

• A visual representation of Chesapeake CEO Aubrey McClendon and his board of directors
• How Yahoo CEO Scott Thompson must be feeling right about now
• Meet the adorable competition
• Monster.com recruiting goes horribly wrong
• The jelly donut economy

Sign up here to get Funny Money in your inbox every Friday!

Got some good links to share with Funny Money? Send it here!

Monthly volumes for credit derivatives fell to an average of 9,098 from 11,357 in 2010 according to the survey of 60 ISDA members. Before the financial crisis, credit derivatives were one of the fastest growing sectors of the over-the-counter market.

This represents a year-over-year drop of about 20%. Credit default swaps (CDS) were not the only laggards: commodity derivatives fell by 24% and currency options were down by 16% from 2010 to 2011.

ISDA seems to be grasping at straws when it comes to explaining why last year’s volumes wilted. It mentioned changes in the population that it surveys and guesses that overstatement from the prior year may have caused the dramatic swing. Could there be other explanations?

As you probably remember, the second half of last year marked the return of great uncertainty around the crisis in Europe. As banks became more nervous about the risk exposure of their peers, they may have demanded more and better collateral in order to participate in the derivatives trades. This may have had a dampening effect on the general deal flow.

But the fall in credit default swaps still surprises, even in the face of this credible explanation. After all, CDS has been one of the standard ways to either hedge a real exposure or to place a bet that a firm (or a country) will get into trouble. So in an environment of increasing fear, one would rather expect CDS volumes to go up, not down.

Here’s another plausible explanation that would certainly not be welcomed by ISDA: the saga surrounding the Greek default may have caused CDS to lose its general credibility as an effective edge.

After months of speculation the Greek government finally restructured its debt in March. Right on cue we saw S&P’s declaration on Wednesday that the country is no longer in selective default. It may be done and dusted now but there was certainly a point, starting in October of last year and lasting right up until March, where there were huge questions as to whether the CDS would provide any benefit to those who had bought it as protection in just such a scenario. Back then many — including the Finance Addict — wondered whether CDS was being dealt a mortal wound. Why would anyone pay for credit protection when they might still be left unprotected?

There’s no real way to prove a linkage between the two facts, but one can’t help but wonder if the decreased trade volume was a sign of CDS buyers going on strike.

——
Follow the Finance Addict on Twitter and like our Facebook page.