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Frances Coppola

Frances Coppola

I’m Frances Coppola, writer, singer and twitterer extraordinaire. I am politically non-aligned and economically neutral (I do not regard myself as “belonging” to any particular school of economics). I do not give investment advice and I have no investments.Coppola Comment is my main blog. I am also the author of the Singing is Easy blog, where I write about singing, teaching and muscial expression, and Still Life With Paradox, which contains personal reflections on life, faith and morality.

Articles by Frances Coppola

The Peston effect

13 days ago

The last week or so has seen some of the worst bank communications since 2007, when the Bank of England started a bank run by leaking news of Northern Rock’s emergency liquidity request to the journalist Robert Peston. Then as now, awful communications have frightened the horses, triggered stampedes and caused banks to fail. Three banks in particular have shown an extraordinary insensitivity to popular fears: Silicon Valley Bank, Credit Suisse, and Wells Fargo. Two of these have paid a heavy price for their management’s inept handling of vital communications. But the third seems to have got away with it – this time. Next time, it might not be so lucky. Exhibit 1: Silicon Valley Bank (SVB)In the wake of Silvergate Bank’s failure, Silicon Valley Bank decided to restructure its balance

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Silvergate Bank – a post mortem

20 days ago

Silvergate Bank died yesterday. Its parent, Silvergate Capital Corporation, posted an obituary notice (click for larger image):Silvergate Bank bled to death after announcing significant delay to its 10-K full-year accounts and warning that it might not be able to continue as a going concern. We will never know whether it could have recovered from the bank run after the failure of FTX. The bank run after the announcement was far, far worse. The exit of its major crypto customers sealed Silvergate’s fate. But the agent of death was a government agency. On 7th March, Bloomberg reported that Silvergate Bank had been in talks with FDIC about a potential resolution "since last week". Many of us had expected FDIC to go into the bank last Friday with a view to resolving it over the weekend. We

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Lessons from the disaster engulfing Silvergate Capital

22 days ago

This is the story of a bank that put all its eggs into an emerging digital basket, believing that providing non-interest-bearing deposit and payment services to crypto exchanges and platforms would be a nice little earner, while completely failing to understand the extraordinary risks involved with such a venture. On 1st March, Silvergate Capital Corporation announced that filing of its audited full-year accounts would be significantly delayed, and warned that its financial position had materially changed for the worse since the publication of its provisional results on January 17th, when it reported a full-year loss of nearly $1bn.

The stock price promptly tanked, falling 60% during the day:  Platforms, exchanges and other banks halted or re-routed transactions on Silvergate’s SEN

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WASPI Campaign’s legal action is morally wrong

February 28, 2023

I haven’t written a post about WASPI for a very long time. I felt I had said everything I wanted to say, and it had become evident that the WASPI campaign and its offshoots had neither the widespread support nor the legal arguments that they claimed. Labour’s proposed £58bn payment to WASPI women contributed to its disastrous defeat at the 2019 General Election. And in 2020, the hardline Back to 60 group’s bid to overturn their state pension age rises failed in the Court of Appeal. The Government had no intention of compensating WASPI women for their lost pensions, and there was neither legal nor political means to force it to do so. The campaign seemed, in short, dead in the water. 

But it seems it isn’t, quite. Some years ago, WASPI campaign received legal advice that a challenge to

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Proof of reserves is proof of nothing

February 16, 2023

Proof of reserves is all the rage on crypto platforms. The idea is that if the platform can prove to its customers’ satisfaction that their deposits are fully matched by equivalent assets on the platform, their deposits are safe. And if the mechanism they use to prove this uses crypto technology, that’s even better.  Crypto tech solutions have surely got to be much more reliable than traditional financial accounts and audits – after all, FTX passed a U.S. GAAP audit. No, they aren’t. Proof of reserves as done by exchanges like Binance does not prove that customer deposits are safe. It is smoke and mirrors to fool prospective punters into relinquishing their money, just like claims that exchanges and platforms are "audited" or have "insurance". There are no audits in the crypto world,

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Binance and its stablecoins

February 13, 2023

Yesterday, the SEC issued a Wells notice to the stablecoin issuer Paxos, warning it that the SEC intended to take legal action against it for issuing an unregistered security. The security in question is the fully-reserved stablecoin BUSD (Binance USD), which Paxos issues expressly for use on the Binance crypto exchange. The Wells notice doesn’t apply to Paxos’s other fully-reserved stablecoin, USDP, which it issues for use on its own platform. 

A few hours later, the New York Department of Financial Services (NY DFS) ordered Paxos to stop minting BUSD. In a consumer alert published on its website, the NY DFS said there were "several unresolved issues related to Paxos’ oversight of its relationship with Binance in regard to Paxos-issued BUSD." It didn’t specify what these issues were,

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The fatal flaws of Celsius Network

February 8, 2023

Celsius Network was never a real business. It did not have a viable business model. Really, it was a momentum trading scheme that relied on the premise that crypto prices would always rise. And when they didn’t, it resorted to fake valuations and market manipulation to escape insolvency. It was fraudulent from the start.  This is the conclusion I’ve reached after studying the U.S. Examiner’s final report (yes, I’ve read all 476 pages of it) and Celsius’s audited reports and accounts up to 31st December 2020.  There are no more recent audited accounts. It was due to file its 2021 accounts by 31st December 2022, but it did not do so. The accounts are now significantly overdue. I doubt if they will ever be filed. The U.S. Examiner’s report reveals deep and long-lasting insolvency, concealed

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Hollow Promises

January 23, 2023

Today, I bring you the sad tale of a crypto lender that promised safety and high returns to its depositors, but whose promises have proved to be as hollow as its name. Donut Inc., a self-proclaimed DeFi" lender, has a "Proof of Reserves" section on its website. This is supposed to reassure customers that their deposits are matched one for one by the platform’s liquid assets. I am firmly of the opinion that "Proof of Reserves" statements prove nothing without a corresponding statement of liabilities, since deposits aren’t the only form of liability, and encumbered assets can’t back deposits. But in this case, the "Proof of Reserves" is worse than useless. It is actually fiction. And it conceals a truly dreadful situation for Donut’s customers.  As of today, this is what the "Proof of

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Snake oil sellers in the stablecoin world

December 11, 2022

It’s been evident for some years now that those selling risky crypto products to risk-averse investors like to have federal branding on their snake oil. Tether claimed to have 100% actual dollar backing for its stablecoin. Various exchanges and platforms claimed that customer deposits were FDIC insured. The New York Attorney General showed that Tether didn’t have 100% dollar backing or anything like it. And now the FDIC has sent cease & desist orders to FTX, Voyager and several other crypto companies, it has become dangerous even to mention FDIC insurance in marketing material. But that doesn’t meant they’ve given up on the quest for a credible claim to Federal backing. The new Holy Grail is gaining access to Federal Reserve funding without becoming a licensed bank. Accordingt to

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The entire crypto ecosystem is a ponzi

November 26, 2022

The crypto ecosystem has grown massively in the last three years. Many of those participating in it have made life-changing amounts of money – on paper, or perhaps more accurately on computer. But  the problem with paper gains is that they tend to evaporate like the morning mist when the market turns. The crypto market turned towards the end of 2021 and is now firmly in bear territory. Bitcoin has fallen from above $60,000 in November 2021 to barely $16,000 now. For anyone who bought Bitcoin near the top, that is a mammoth real loss. And even though it is not a real loss for people who bought Bitcoin in the bear market of 2018 and have HODLed for years, it is still a mammoth paper loss. No-one likes to see an unrealised financial gain wiped out by the markets before they can claim

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The FTX-Alameda nexus

November 10, 2022

How did it all go so wrong, so quickly? Less than a month ago, Sam Bankman-Fried was the golden boy of crypto, with a net worth in the $billions, and his exchange FTX was valued at $32bn. Now, FTX has a gaping hole in its balance sheet, thousands of people have lost their money, and Sam is facing personal bankruptcy and, potentially, fraud charges. The short answer is – it didn’t. The hole in FTX’s balance sheet has existed for a long time. We don’t know exactly how long, but the size of the estimates (ranging from $6-$10 billion) suggests several months if not years. Sam has been trading while insolvent. He’s not the only crypto oligarch to do so: Celsius’s Mashinsky also traded while insolvent for an extended period of time. Trading while insolvent is illegal, of course. But in

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When populism fails

October 18, 2022

At the Battle of Ideas last Saturday, a panel on "populism" spent an hour and a half discussing everything except economics. Sherelle Jacobs of the Telegraph called for the Tory party to replace what she called a "twisted morality of sacrifice and dependency" with the "Judaeo-Christian" values of thrift and personal responsibility. And when a brave audience member asked "shouldn’t we be discussing economics?" Tom Slater of Spiked brushed him off and carried on talking about cultural issues. Economics be damned, populism is all about morality and culture. But important though morality and culture are, it is economics that really matters. Rudiger Dornbusch’s work on macroeconomic populism shows that populism eventually fails because the economics don’t work. And when it does, the people who

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What was the real reason for the Bank of England’s gilt market intervention?

September 30, 2022

Why did the Bank of England intervene in the gilt market this week? The answer that has been doing the rounds is that it was protecting the solvency of pension funds. But this doesn’t make sense to me. The Bank doesn’t have any mandate to prevent pension funds going bust. And anyway, the type of pension fund that got into trouble isn’t at meaningful risk of insolvency. There was never any risk to people’s pensions. I don’t think the Bank was concerned about pension funds at all. I think it had a totally different type of financial institution in its sights. Let’s recap the sequence of events from a market perspective. This was, on the face of it, a classic market freeze. Pension funds sold assets, mainly long-dated gilts, to raise cash to meet margin calls on interest rate swaps (of which

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Celsius is heading for absolute zero

August 16, 2022

Yesterday, the failed crypto lender Celsius filed a monthy cash flow forecast and a statement of its assets and liabilities held in the form of cryptocurrency and stablecoins. They showed that the lender is deeply underwater and will run out of money within two months.  Today, Celsius presented an update regarding its chapter 11 bankruptcy plans. Reading this, you’d think it was a different company. Liquidation isn’t on the agenda. No, they are talking about "reorganization" and and seeking debtor-in-possession (DIP) financing: DIP financing is a specialist form of finance for companies in chapter 11 bankruptcy to enable a company to continue operating. It usually takes the form of term loans. DIP loans are secured on the company’s remaining assets and are typically senior over all other

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Why Coinbase’s balance sheet has massively inflated

August 15, 2022

Coinbase recently filed its interim financial report. It makes pretty grim reading. A quarterly net loss of over $1bn, net cash drain of £4.6bn in 6 months, fair value losses of over 600k… To be sure, Coinbase is not on its knees yet. It still has $12bn of its own and customers’ cash (both are on its balance sheet), and a whopping asset base. In fact its assets have increased – a lot. As have its liabilities. Coinbase’s balance sheet is five times bigger than it was in December 2021. Here’s Coinbase’s balance sheet, as reported in its 10-Q filing. I’ve outlined the relevant items in red:  There’s a new asset called "customer crypto assets" worth some $88.45 bn, matched by a new liability called "crypto asset liabilities". This asset and its associated liability are by far the biggest

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The ones who stay in Omelas

August 12, 2022

Ursula Le Guin’s short story "The Ones Who Walk Away From Omelas" contains a terrible moral conundrum. Many people have agonised over it: to my knowledge, no-one has solved it. Attempts that I have seen all in some way change the framing of the story, whether by justifying blood sacrifice, insisting that there must be a better way, or creating a better alternative. But if you change the framing, you have not solved the problem. You have avoided it.As I read through Le Guin’s story to the end, I recognised the moral conundrum. It is similar to the one I posed in this piece. In Le Guin’s story, as in mine, the facts don’t matter. It is what people believe that matters.In Le Guin’s story, millions of people believe their happiness and that of everyone they love – indeed, their very existence

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Where has all the money gone?

July 28, 2022

The collapse of Terra in May sent shock waves round the crypto world, triggering domino-like collapses of crypto companies. One of those companies was the investment fund Three Arrows Capital. At the time, everyone thought 3AC was a conservatively-managed investment company that was simply the unfortunate victim of an unforeseen event. If anyone was to blame for 3AC’s collapse, it was Do Kwon.  How wrong they were. Since 3AC was ordered into liquidation by a British Virgin Islands court, more  and more creditors have emerged from the woodwork claiming they are owed money. The liquidators have filed emergency motions to freeze 3AC’s assets because there is evidence that funds are being moved out of reach. And 3AC’s co-founders, Su Zhu and Kyle Davies, have done a runner, though Bloomberg

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Why Celsius Network’s depositors won’t get their money back

July 14, 2022

The crypto lender Celsius has filed for Chapter 11 bankruptcy. This should come as a surprise to absolutely no-one, though the grief and pain on Twitter and Reddit suggests that quite a few "Celsians" didn’t want to believe what was staring them in the face. Celsius suspended withdrawals nearly a month ago. So far, every crypto lender that has suspended withdrawals has turned out to be insolvent. There was no reason to suppose that Celsius would be different.  Celsius’s bankruptcy filing says the company has assets of $1 – 10 bn and a similar quantity of liabilities: This doesn’t tell us much about the extent of the company’s insolvency. But rumours have been circulating of a $2bn hole in its balance sheet. In May, according to Coindesk, the company said it had $12bn of what Celsius calls

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July 14, 2022

Two days after I published my last post, the ship went down. Voyager Digital filed for Chapter 11 bankruptcy protection. The bankruptcy filing revealed the extent of its indebtedness. Tragically, most of its creditors are customers, some of whom hold claims worth millions of dollars. But its largest creditor is Alameda Research, to whom it owes $75m. This is the maximum that Voyager could draw down from Alameda’s credit line in a 30-day period. So it appears that Alameda did not pull its credit line as I thought. Rather, Voyager maxed it out – but still ran out of money. Voyager’s desperate shortage of cash is the proximate reason for its bankruptcy. But for its customers, the hole in its balance sheet is the bigger problem. Voyager admits that it cannot repay all, or even most, deposits

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The sinking of Voyager

July 3, 2022

Friday was quite a day. The crypto lender BlockFi provisionally agreed a bailout deal with FTX. The hedge fund Three Arrows Capital (3AC), already in compulsory liquidation in its home territory the British Virgin Islands, filed for Chapter 15 bankruptcy protection in the United States. And the crypto broker Voyager suspended trading and withdrawals. Voyager’s press release revealed a massive hole in its balance sheet. Some 58% of its loan book consists of loans to 3AC:And its loan book is nearly 50% of total assets:So approximately 28% of Voyager’s assets are in default. And since 3AC now has creditor protection, Voyager must wait for bankruptcy courts to decide how much, if anything, can be recovered. That will take months. But the balance sheet hole doesn’t explain why Voyager has

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There’s no such thing as a safe stablecoin

May 31, 2022

Stablecoins aren’t stable. So-called algorithmic stablecoins crash and burn when people behave in ways the algorithm didn’t expect. And reserved stablecoins fall off their pegs – in either direction. A stablecoin that does not stay on its peg is unstable. Not one of the stablecoins currently in circulation lives up to its name. Don’t believe me? Well, here’s the evidence. Exhibit 1, USDT since the end of April:Exhibit 2, USDC over the same time period:(charts from Coinmarketcap)Both coins de-pegged on 12th May. Neither has returned to par. Stable, they are not. And no, USDC is not "more stable" than USDT. A stablecoin that can’t hold its peg when everyone is piling into it is no more stable than one that can’t hold its peg when everyone is selling it. Indeed, since stablecoins can be

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The Great Unemployment Fudge

May 13, 2022

In the U.S., we are told, the post-World War II period was a golden age of full employment. High wartime government spending had brought to an end the double-digit unemployment and misery of the Depression, and as war gave way to peace, unemployment settled at a non-inflationary level of 3-5%. It’s known as the post-war "economic miracle".But it’s a myth. There was never full employment. The low unemployment of the post-war years is a massive statistical fudge. In fact, over five million people lost their jobs immediately after the end of the war, most of whom never worked again. But they were never listed as unemployed – because they were women. The Great Unemployment Fudge started in the "Depression of 1946", described by the Cato Institute as "one of the most widely predicted events

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Sleepwalking into war

March 8, 2022

In a broad-ranging discussion the other day about the path of political and economic policy over the last decade, I found myself returning again and again to events in 2014. Events that were apparently unrelated: Bulgaria’s banking crisis, Moldova’s banking fraud, the collapse of Banco Espirito Santo, the election of Syriza in Greece, the first Scottish independence referendum, UKIP’s success in two Westminster by-elections as well as local and European elections. And in Ukraine, the Euromaidan revolt followed by Russia’s annexation of Crimea and invasion of Donbas. "Why do all roads lead back to 2014?" I found myself asking. The financial and political eruptions of 2014 marked the start of a major shift in the global geopolitical landscape. But it was not clear where the faultline lay.

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The SEC’s Bitcoin ETF Standoff

January 28, 2022

Another day, another application for a spot Bitcoin exchange-traded fund (ETF) rejected. Yesterday, the SEC rejected an application from Fidelity’s Wise Origin Bitcoin Trust, the fifth such rejection in three months. Back in November, the SEC rejected an  application from Van Eck Bitcoin Trust, and in December it rejected applications from Kryptoin Bitcoin ETF Trust and Valkyrie Bitcoin Fund.And on 20th January, it rejected First Trust Skybridge Bitcoin ETF Trust’s application.  Valkyrie had already had an application for a Bitcoin futures ETF approved by default. So the rejection of its spot ETF came as something of a surprise. Indeed, some analysts seem to have expected the SEC’s default approval of Bitcoin futures ETFs for Valkyrie and ProShares in October to open the floodgates for

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The tangled web of sex and gender

December 21, 2021

As many of you probably know, I have had to take a break from writing recently because of a broken wrist. But I did manage to write responses to this Twitter thread from Shaun Lawson. I was uncomfortable about responding on Twitter to Shaun’s questions, so decided to write them in a Word document and send them to him privately. But on reflection, I believe my views are every bit as worthy of a hearing as those of the trans activists and gender critical people who express themselves loudly all over social media. Twitter is a bear pit, so I’m publishing them here. As the trans rights debate is extremely toxic, comments are moderated. I will delete comments that are personal attacks on me or anyone else or that are grandstanding a personal agenda.   

I dislike the widespread, and often

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How to use People’s QE to fight climate change

November 1, 2021

This is the uncut version of the final chapter of my book, "The Case for People’s Quantitative Easing". It was written May/June 2018, so is slightly out of date (though I have updated it in places). But I believe its conclusions are right. So I am publishing it now to coincide with COP 26. I’ve also included an updated version of the original postcript of the book, which seems to me to be very relevant now – not least because the first part of the Dune epic has just been released!
There is scientific consensus that
climate change is radically changing the nature of the planet, with profound
implications for the future of humanity and indeed for life on earth as we know
it. Already, the effects are becoming apparent: ice caps are melting, sea
levels are rising, global temperatures are the

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Maya Forstater’s human rights problem

October 3, 2021

Maya Forstater’s Employment Tribunal hearing comes up soon. This is her second hearing: the judge in the first hearing dismissed her case with a controversial judgment that described her "gender critical" beliefs as "not worthy of respect in a democratic society". She appealed this judgment, and in June this year the Employment Appeals Tribunal (EAT) found that the judge had erred in law and her beliefs were protected under section 10 of the Equality Act. The EAT instructed that a second Employment Tribunal should consider whether the discrimination she complained about in the original hearing was "because of or related to" her beliefs. Forstater may or may not succeed in her discrimination case against her employer. She is far from the only person to hold "gender critical" beliefs: if

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JP Morgan’s Coffee Machine

September 3, 2021

It’s now widely accepted, though still not universally, that banks create money when they lend. But it seems to be much less widely known that they also create money when they spend. I don’t just mean when they buy securities, which is rightly regarded as simply another form of lending. I mean when they buy what is now colloquially known as "stuff". Computers, for example. Or coffee machines. Imagine that a major bank – JP Morgan, for example – wants to buy a new coffee machine for one of its New York offices (yes, it has more than one). It orders a top-of-the-range espresso machine worth $10,000 from the Goodlife Coffee Company, and pays for it by electronic funds transfer to the company’s account. At the end of the transaction JP Morgan has a new coffee machine and Goodlife has $10,000

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Crypto’s Weimar

June 18, 2021

A cryptocurrency has just re-enacted the Weimar hyperinflation.Yesterday, the price of the cryptocurrency TITAN crashed to zero, and its related stablecoin IRON fell off its USD peg, trading as low as 69 cents to the dollar. It was a sudden and dramatic collapse that left investors shocked and bewildered. Equally shocked and confused, the coins’ issuer launched an immediate investigation: Iron Finance issued its post mortem a few hours later. This is the key paragraph:Later, at around 3pm UTC, a few big holders started selling again. This time, after they started, a lot of users panicked and started to redeem IRON and sell their TITAN. Because of how the 10mins TWAP oracle works, TITAN spot price drops even further in comparison to the TWAP redemption price. This caused a negative

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Bank capital and cryptocurrencies

June 15, 2021

The BIS’s draft proposals for capital regulation of stablecoins and cryptocurrencies have just been released. The headline proposal was a risk weighting of 1250% for what the BIS called "Group 2 cryptoassets", which includes all cryptocurrencies, all algorithmic stablecoins, and reserved stablecoins  that don’t meet the capital, liquidity and disclosure requirements for "Group 1 cryptoassets" specified in the same document. Bitcoin and Ethereum, the two major cryptocurrencies, would fall into Group 2, along with most existing stablecoins. The proposals were widely misunderstood in the crypto community. As ever, much of the misunderstanding was about the nature of bank capital. Many people confuse bank capital with reserves. Reserves are cash deposits at the central bank and vaulted

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