Break It. It Make Sense

I am flummoxed!

How does WeWork go from a peak valuation of 47 billion to an expected value of about $8 billion?

Are there any lessons for firms currently disrupting the banking and finance space?

What is true banking?

1. Digital services is transforming economies. Until now, the bank and finance industry has withstood the tumult (The Economist May 4th 10th 2019).
2. Banks are special beast. They engage in risk management and maturity transformation. They are interconnected with each other and they have deep linkages to other economic sectors.

Leading up to the 2008 Great Financial Crisis (GFC), banks performed poorly at risk management. But was it is just banks that under-performed?

Other factors contributed the last crisis. One factor that indisputable is that human failures, whether it was bankers, governments, regulators and consumers, was at the heart of the last crisis!

There are people behind the firms currently disrupting the banking sectors. Humans are greedy!

Consequently, as someone engaged in public policy, I worry went I read about firms like WeWork. Wework's conception and birth is not different from that of other start-ups in era of tech disruption.

Break it, it make sense. Make crazy tonne of money. Burning through a tonne load of VC funding. Expect meteoric and exponential growth. Profit will come later!

This same philosophy underpinning the digital disruption in banking and finance. But for the sake of societies, please remember banking is a different beast!

I get the piece about about increased competition in banking and payments. The banking sector is by nature monopolistic. More competition is good. But let us remember that stringent regulation and capital requirements serve as barriers to entry for good reason. Yes, in period when we can all climb to the top of Mount Everest, why not just let all and every have their own airline or fly their own planes. Let us all realize the dream of capitalism and globalisation! And while we are at let us just create our own virtual assets or stablecoins! Why not?

Deep down something tells me that regulations are necessary evils. With or without deposit insurance schemes, systemic bank failures can become a burden on society.

I get the piece about financial inclusion and the unbanked. But let us just palm off the most vulnerable class of people in our societies to Mr. Mark Zuckerberg and just erase Cambridge Analytica from our memory.

So how does a firm go from a peak valuation of 47 billion to an expected value of about $8 billion?

Speculation and greed. And so, silly me is worried.

I am worried about how the new entrants banking and payments are being funded.

I am worried about SoftBank and its Vision Fund because their tentacles are everywhere.

I worried because I remember Long-Term Capital Management L.P. (LTCM) and Enron. 

Surely let us disrupt banking.

Break it! It Make Sense!