Posts Tagged ‘banking’

The Big Short: Inside the Doomsday Machine is a 2011 book by Michael Lewis. It is one of his best, perhaps second only to Flash Boys. I reviewed it in 2014. I recently watched the film adaptation. Coupled with The Blind Side makes me look like I am on kind of Michael Lewis-film binge, which I only noticed afterwards.

It is a reasonably good retelling of how it happened in the book. Not that you can do it justice in a two-hour film, but it is a good summary. Occasionally one of the characters would break the fourth wall and introduce celebrities offering sarcastic explanations of how the banks fucked us.

Speaking of fucking, the one thing that draws my attention was the phone call between Mark Baum and Greg Lippmann. I’m sure in the book Lippmann actually told Baum how he was going to fuck him, rather than the watered-down reconciliation in the film.

The film even had a moral point at the end, discussing how basically nothing has changed and we are just repeating the same old patterns. And that is why I am moving to Iceland in two weeks…

Boomerang is almost a follow-up book to Michael Lewis’s The Big Short, looking at the fall out of the global recession across the rest of the world. And by the “rest of the world”, it is basically Europe.

He first looks at Iceland in which he talks to a fisherman that became an investment banker. The whole financial crises can be summed up in the following conversation.

“You spend seven years learning to be a fisherman?” “Yes.” “And after that, you spent months training at the feet of a master before you felt you were capable?” “Yes.” “So why did you think you could be an investment banker without any training?”

He then moves on to Greece and talks about how they got into their financial mess. He claims that almost nobody on Greece pays their taxes, every government official takes bribes and that public employees have completely overrun the government to the point where they now get paid two or three times what any sensible country would pay them. I do not know how true all of that is. He finishes up by discussing Ireland.

It is an interesting, and quite a concise book which made it pleasurable to read. Some of it seems rather shallow though. How much can you rely on the stereotypes of Icelandic and Greek people that are put forward in the book? Probably less than our narrative-over-statistics obsessed minds would allow by default. Especially when he begins to talk about the German’s apparent love of shit. I even read what I would interpret as a Holocaust joke. Several times.

Further, he seems to contradict his earlier writing. The final part of the book talks about how much Germany lost in the sub-prime mortgage collapse. In The Big Short he talks about how American banks created credit default swaps that they did not really understand and how one of the people who saw it coming was Greg Lippmann from Deutsche Bank. In Boomerang he proposes the exact opposite – that the American banks knew exactly what they were doing in selling worthless assets to German banks.

In fact, the more I think about it, the more I think that what Michael Lewis has written in this book is actually complete bollocks. The collective lesson I took from Silver, Watts, Kahneman and Taleb is that the financial crisis was too complicated to predict, but humans have a tendency to add a narrative after to try and explain it to themselves in simple terms. Then Lewis comes along and says the financial crisis happens because the Greeks are lazy, the Irish are stupid and the Germans have a shit-fetish.

HSBC have had a number of what I would consider problems with their websites for the many years that I have banked with them. A few years ago I submitted an online feedback form, but nothing changed, so last month I wrote them a letter (as you do when you get to my age).

It would be nice if they could find the time to fix these issues. They recently had time to issue me a new, more complicated, security device and add an annoying pop-up trying to get me to install their Rapport malware for example. However, they have not had time to make their passwords case sensitive.

I really don’t know how these issues arise in the first place though. As I told them in my letter.

4 June 2014

RE: INTERNET BANKING

To Whom It May Concern:

I have been unable to locate a postal or email address for your internet banking service, so I have resorted to writing to the branch and hope that you will be able to pass it on to the relevant parties.

Over the past few years I have consistently run into a problem with your internet banking for my personal account.

When I go to “make a payment” I have the option of selecting “pay a bill or organisation” or “pay family, friends or other”.

I need to make a payment to HMRC, to which I am given the account number and sort code. But when I go to “family, friends or other” and try and enter the account details it says the payee already exists and that I must use “pay a bill or organisation”.

When I go to “pay a bill or organisation” I then have to select HMRC and then select one of their tax offices. But I have no idea which office I am supposed to pay. All I have is that the account name is HMRC and then I have the sort code and account number.

I do not for the life of me understand why you will not let me make a payment in the usual way using the sort code and account number.

However, even if we overlook that, how you expect anyone else to translate nonsense phrases likes “HMRC NIC DEF PYT”. I don’t know what that is! How is anybody supposed to know?

I have included a printed-out screenshot of the bewildering screen.

I think at very least you should list the sort code and account number next to each entry, and use descriptive names for them, so that we can check we are paying the right account. Better still, just allow people to make payments using the sort code and account number like you would reasonably expect to be able to do at any bank.

MAKING PAYMENTS ON BUSINESS BANKING

Another piece of feedback I think is important is regarding your business internet banking. When you go to make a payment on there, you are able to go to “new payee” and enter the account details.

However the sort code is only 4 characters wide and the account number box is only 6 characters wide.

As you know, sort codes are 6 characters long and account numbers are 8 characters long.

This means that it is very difficult to check you have entered the correct account number and sort code because they do not fit in the box at the same time. I have enclosed a printed-out screenshot with this letter to demonstrate the problem.

As a software consultant, I have literally no idea how this situation could arise. Surely, if even the most basic testing can been carried out on your website, someone would have spotted that this was a significant design defect.

I would suggest that the boxes are extended so that you are actually able to see both the sort code and account number.

Yours faithfully,
Chris Worfolk

I received a letter back from them saying they had passed my feedback on. The issues still seem to be on their website though, as shown by this screenshot:

Clearly there is not enough space in those boxes to enter the account number and sort-code and be able to see the full number to check you have entered in correctly. I would not even dare pass that code to a tester; Chris K would be appalled.

If I ever get the time I am going to write a browser plugin to fix these issues myself.

Last month I received a set of bank statements for a bank I have never been a customer of.

9 June 2014

Dear Lloyds Bank:

Please find enclosed some documents that you recently sent me out of the blue. I am not sure why these documents were sent to be as I am not, nor have I ever been, a Lloyds Bank customer. I used to have a Lloyds TSB account, but I closed that down several years ago.

Yours faithfully,
Chris Worfolk

A month later and I have heard nothing back. So I sent them another letter.

14 July 2014

RE: NOT A CUSTOMER

To Whom It May Concern:

Following on from my letter sent to you on 9 June 2014, I enclose further documents you have sent to me. I once again remind you that I am not a customer of Lloyds Bank. If you continue to hold my personal details without my consent, or continue to send me unsolicited mail, I will file a complaint with the Financial Ombudsman Service.

Yours faithfully,
Chris Worfolk

After they they called me and said they were sorting out and would be sending me £30 compensation.

Liar’s Poker is the first book Michael Lewis published and the one that transformed him from a bonds salesman to a writer. It tells the tale of how he came to work at Salomon Brothers and key figures at the company that oversaw rise and fall. It’s an interesting insight into the excess of Wall Street.

The Big Short is a book by Michael Lewis that tells the story of the 2008 financial crises and some of the people who saw it coming. Lewis is a great writer. He takes a subject which is fundamentally rather dull and boring, and tells stories in such an accessible and engaging way that it is difficult to put it down.

It preaches a similar story to that of his later book, Flash Boys. That is that almost nobody in the banking industry really knows what is going on. They churn out new products and new systems so fast that none of them really understand it. Their, and our doom. But at least it makes good reading.

Two of the books I have read recently, Everything Is Obvious and The Signal and the Noise, made references to Burton Malkiel’s book “A Random Walk Down Wall Street”. They pointed out that the stock market is entirely unpredictable and therefore investment bankers are just guessing. I was curious to read more, so I picked up the book itself.

An index tracks stock market movements. For example the FTSE 100 tracks 100 companies on the London Stock Exchange, while the Standard & Poors (S&P) 500 or Russell 3000 track a far more broad range of stock prices. These therefore provide a good indication of whether the stock market moves up or down.

Now take a mutual fund – these are professionally managed funds that the general public put their money in for someone to manage on their behalf. The benchmark here is not whether they can grow their investment, but whether they can grow their investment at a better rate than the index (because the stock market generally moves up anyway). If they were just guessing, you would expect 50% of mutual funds to beat the index, and the other 50% to fail, in both cases just due to chance.

However, the research, as discussed at length in A Random Walk Down Wall Street, shows that only 40% of mutual funds can beat the index! This is not just guessing – this is worse than guessing. Professional investment managers not only do not add any value to the funds they are managing, they actually subtract value.

You could make the case that there are just a lot of bad fund managers. However, the research refutes this too. As Malkiel describes, if you take the top performing funds over a five year period they almost invariably fail to beat the index over the next five year period.

This should not actually be that surprising. The Wall Street Journal has long shown that throwing darts at the stock listings produces a better return than the experts; a noticeably better return once you adjust for risk. To see it in practice (I include this as an anecdote to make the facts more believable) just watch the BBC documentary Million Dollar Traders in which eight complete notices only lose 2.5% in a period where their multi-millionaire master-of-trading coach loses 5%.

Of course it is hard to believe. Why are all these people employed if they add no value? That is a fact I find hard to reconcile. Surely if we are talking about efficient markets, at least one bank would have realised they could fire all these traders and replace them with monkeys? Counter arguments to this suggest that the average trader actually earns a pittance, and that because it is in the interest of traders (justifying their own job) and brokers (getting rich of the transaction fees from all this needless trainers) to maintain the illusion that they actually do something, the industry keeps selling these products to the general public who simply don’t realise.

The evidence, at least if Malkiel is to be believed, is clear. You should invest all your money in an index tracker with the lowest fee you can find. That produces the most consistent returns compared with a mutual fund that charges you higher fees to produce a lower return. Nate Silver says the same thing.

In the final part of the book, Malkiel goes on offer some investment advice for those who do not want to use an index fund. He also hints that he picks individual stocks too. This is odd as it goes against a lot of what the evidence he has presented says, but is consistent with what the psychology says – that we have a really hard time accepting what the scientific evidence says when it contradicts our own pet theories, achievements and so called “common sense”.

Were you under the impression that you were not allowed to cover your face while in a bank, because of security seasons? I was. But it turns out that I was mistaken.

For privacy reasons, I’ve hidden the identity of the subject, but as you can see, this is a bank customer who has clearly hidden their face. Why is this an issue? Because if they are, but I am now, that is religious discrimination. You have to treat everyone equally, and if you grant or restrict extra privileges for one specific group, you are discriminating.

I wrote to HSBC to ask them to clarify the situation.

To Whom It May Concern:

I was of the understanding that when using your bank, I was not allowed to cover my face for security reasons. However, when I visited your branch on 17 April, I noticed a customer using the banks facilities while wearing a full-face veil. I was hoping you could clarify whether these restrictions have been relaxed?

Yours faithfully,
Chris Worfolk

HSBC phoned me a few days later in response. They said that balaclavas and motor cycle helmets were specifically band, because they are associated with burglaries, but I was otherwise free to cover my face while using their bank.

Did you know what with someone’s name, bank account number and sort code, you can set up a direct debit in their name and clean out their account?

Maybe you did. Maybe you had heard about it but thought it was just an urban legend. Maybe you didn’t. The issue came up in 2008 when someone used Jeremy Clarkson’s bank details to set up a fraudulent direct debit, after be made his bank details publicly available to prove that you couldn’t commit direct debit fraud simply with a few numbers. Of course, you actually can.

Ideally of course your bank details wouldn’t be in the public domain, but for some individuals and organisations, charities like ours for example, it’s fairly unavoidable that they end up getting out there.

This results in rather a lot of direct debit fraud.

The Gym, PureGym, Sky and Elephant are just some of the companies that seem apparently happy to let people pay for their services by using a charity’s name and bank details.

Is to too much to ask for banks to ensure the direct debits are legitimate? At HSBC, you have the option of placing care messages on your account. So you can be notified of all direct debits set up – it’s nice to get a letter to tell you there has been direct debit fraud on your account, but that they let it go through anyway – really reassures you that they know what they’re doing.

Worse still, however, is that we have now blocked all direct debits now need to be confirmed with one of the trustees – yet when I checked the mail the other day I found no less than five new direct debits that had been set up without our authorisation. Ridiculous.

Last week, we tried to get Elina’s bank account sorted out. When she originally set up the account with Lloyds TSB, they would only give her a cash card account, which is a weird account that has limited functionality, including not being able to use Link ATMs. They kept saying they could eventually change it, but they never have, despite nagging.

So we went into HSBC as I bank with them and have generally had less bad experiences than other banks. They weren’t too happy about doing it at 2:30pm on a Saturday, but eventually agreed to see us. However, they then moaned that we only had two months of bank statements, not three, and so couldn’t continue. So we stormed out of there.

Next we went to Lloyds TSB and once again asked them if they could upgrade the account. They said that their old system that isn’t 100% accurate said no, they couldn’t give her a real current account, but they couldn’t check for sure as their new system wasn’t working. They couldn’t give us a reason either – just “computer says no”, so we left there too.

The next bank along the street was Natwest who aim to be “Britain’s most Helpful Bank”. That is an admirable aim, but then, when you think about it, it’s really like being “Britain’s most gentle rapist” = admittedly more gentle than other rapists, but still ultimately a dick that abuses everyone who comes near it.

So we decided to skip that one and pop in to Nationwide, who are a building society.

They closed at the same time as HSBC, but were willing to set up the account anyway. Indeed, our account manager Shabana actually kept the branch open for us for an extra half an hour while we sorted everything out! She talked us through all their accounts and they immediately accepted Elina for a proper account.

I was so impressed, that I left with a new current account for myself as well! Of course, time will tell whether they continue to deliver on customer service, but so far it has been an incredibly refreshing experience.