My dialogue with Matt Levine on the future of finance

by on October 31, 2017 at 2:04 pm in Economics, Law, Web/Tech | Permalink

Here is the back and forth, it is more Matt than I, but plenty of both of us.  Here is one excerpt:

Matt: …I think the possible surprise here lies in the connection between finance and identity. People are sort of inchoately aware of it now; we use the term “identity theft” to mean “someone using your name and Social Security number to get a credit card.” But most people don’t really think of their credit report as being central to their identity. Really ambitious proponents of blockchain technology, though, envision a world in which a lot of identity information — your citizenship and marital status and college degrees and employment and certifications and whatnot, maybe your fingerprints and retinas and DNA, as well as of course your credit information — are encoded on a blockchain and used in every aspect of your life. (India has a governmental system a little bit like this, and China is building one, though the blockchain vision usually involves decentralized non-governmental systems.)

I think that the idea that financial intermediaries should be the keepers of identity is pretty uncomfortable, but then, the idea that Facebook would be the keeper of identity seems like it would be uncomfortable, and in fact Facebook has quickly taken over a lot of the work of verifying identity, at least online. One thing that we might see in the next 20 years is a fight between financial institutions and social networks and decentralized blockchain builders over who gets to be the keeper and verifier of everyone’s identity.

Recommended.

1 v5 October 31, 2017 at 2:22 pm

Levine is great, I’d be interested in seeing a full-on Conversations with Tyler.

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2 Anonymous October 31, 2017 at 2:38 pm

It seems that “blockchain” is increasingly used as a digital security handwave, which is curious because “blockchain” has not proven theft free. (The point of attack just move to account holders etc.)

Maybe we should focus on security and identity more directly, and not just dream that it will be handled “in the cloud, magically.”

https://www.theatlantic.com/international/archive/2014/01/lessons-from-the-worlds-most-tech-savvy-government/283341/

How are Estonian public keys holding up?

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3 Anonymous October 31, 2017 at 2:40 pm

Oh oh.

https://www.schneier.com/blog/archives/2017/09/security_flaw_i.html

File under “security is hard, especially in practice” I suppose.

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4 Ray Lopez October 31, 2017 at 3:05 pm

My identify was hacked back in the early 1990s, before identify theft was cool. I learned that (1) when you destroy a credit card, it is not in fact inactivated by the credit card company until a couple of weeks later, at least back in the day, (2) the Secret Service handles identity theft for some strange reason, and mine was in the World Trade Center of NYC despite the theft being in California, (3) you, the victim, are in the yes of investigators the prime suspect, (4) they finally caught the scammer, in Florida, which publishes arrests, and I even have the photo of the fake “Ray Lopez” (a black man from West Africa); he jumped bail and for all I know is back to his old habits, if he’s still in the USA, (5) it took me countless affidavits and seven years of having my credit frozen, so I could not even open another bank account, much less another credit card, but luckily I had an account with Bank of America, with branches in all major cities, and as a high-powered white collar professional I did not need credit anyway. And I lost no money except for my lost time. It was annoying but not so bad.

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5 efm October 31, 2017 at 6:28 pm

I’m sorry I suffer from moral fatigue, feels good though, to be that high, no man, shit I feel like I do anything, set fire to water

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6 Anonymous October 31, 2017 at 6:46 pm

I have been experimenting with freer syntax, but I also had to get up at 3am to make a connection. Possibly a bad combination.

Still, it is a simple message:

Security is hard.

Beware any handwaving that makes it “easy.”

Remember that any security that proves mathematically still has to be implemented, and maintained, used, by fallible humans.

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7 GoneWithTheWind October 31, 2017 at 7:21 pm

We could fix identity theft with one simple change. Put all the responsibility on the person providing credit or accepting credit. That is if someone uses John Doe’s name and SSN to get a credit card then 100% of the cost and effort to clean up the mess is on the credit card company that issued the fraudulent credit. If someone uses John Does credit card or card number to purchase goods or services than the responsibility to fix it is 100% the problem of the merchant. This will force them to better police their system and better confirm identity.

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8 Stormy Dragon October 31, 2017 at 3:06 pm

What happens when the “keeper and verifier of everyone’s identity” declares that you’re not you?

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9 rayward October 31, 2017 at 3:29 pm

Cowen is essentially confirming, in the context of finance, what we already know: https://www.nytimes.com/interactive/2017/10/13/opinion/sunday/Silicon-Valley-Is-Not-Your-Friend.html Do those in Silicon Valley have any conscience, do they have any sense of duty to promote the common good, or is their only objective the pursuit of wealth? I’ve criticized Silicon Valley as a bunch of skimmers, using whatever at their disposal (data, algorithms) to get their little fingers in every transaction and collect their toll charge. And I’ve also pointed out that Silicon Valley’s vanity projects (flying cars and spaceships to Mars) are nothing more than a diversion to convince the rest of us that they are doing something worthwhile.

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10 msgkings October 31, 2017 at 3:45 pm

Yes we know already, you are unafraid of mindless repetition. You don’t even slow down when your hypocrisy as a lawyer collecting your (hourly) toll charge is noted. It’s ok if you charge for your services, but not tech companies, we get it.

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11 Wonks Anonymous October 31, 2017 at 4:44 pm

As far as we know, Bitcoin (and its blockchain) weren’t even created by a “company”.

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12 A Truth Seeker October 31, 2017 at 4:56 pm

I thought Silicon Valley was my friend. We ate out and laughed together so many times. Many it only want me for my body.

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13 rayward October 31, 2017 at 4:53 pm

Cowen: “Big data and algorithms will become so good that only the good credit risks will be able to borrow. Of course this will help many creditworthy people, but the social-insurance function of credit might disappear with large numbers of risky borrowers locked out of the loan market and perhaps some insurance markets too. In economic lingo, separating equilibria may replace pooling equilibria and it may become harder to protect against risk.” I didn’t write that, Cowen did. You got a problem with it, address Cowen not me. I’ve commented many times that Amazon, by destroying retail, is blocking the path to success for millions of ambitious entrepreneurs. Is that a good thing? Sure, for people who want to buy a product sold at a loss because Amazon doesn’t need profits to prosper. Is that how capitalism is supposed to work? Something like scales fell from Cowen’s eyes.

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14 A Truth Seeker October 31, 2017 at 4:54 pm

So that is, red China’s bandits’ totalitarism is the future: “a boot stamping on a human face – forever”. America exchangesmits freedom for a mess of bits. That is why young Americans fought in Lexington, Normandy, Iwo Jima, Pusan and My Lai.

“And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.”

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15 Matthew Young October 31, 2017 at 5:47 pm

Matt is a little naive abut the technology.

In fact, no human verifies our identity, the crypto card in our dominant hand has the job. Once the cash card verifies the hand that holds it, then the sandbox will allow the cash card to work the automated trading pits.

From factory to the cash cards, no human is allowed to view the private keys. If you all want to find me the government has to use shoe leather and wait until I buy a pizza.

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16 amartya sen October 31, 2017 at 7:27 pm

breaking the Third Commandment is through the use of profanity using God’s name in abusive restrictions on the quartering of soldiers in private homes
Thou shalt not steal. (Exodus 20:15) This amendment codifies the right to a jury trial in certain civil cases

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17 carlospln October 31, 2017 at 8:01 pm

Levene was good.

Two points:

1) ‘Creditworthiness’ is a continuum, not a discrete breakpoint. The growth of ‘subprime’ lending tracks the decline and shrinkage of the US middle class over the last two decades.

2) To Matt’s first point, another way of saying this is that there are no new products in retail finance [This was Peter Drucker’s point in the 1980’s]: The innovations are in distribution channels, e.g. ATM’s -> telephone banking -> EFTPOS -> Internet banking -> mobile banking. The ‘vanishing act’ as he frames it is the increasing convenience of accessing one’s accounts, without having to visit a branch.

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18 Nigel October 31, 2017 at 8:42 pm

The Chinese social credit system establishes some rather more disturbing interactions between identity and credit:
http://www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion

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19 Pshrnk November 1, 2017 at 11:41 am

They pretty much did this on Black Mirror.

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20 Ricardo November 1, 2017 at 8:23 am

As Anonymous says, this seems to be another case where someone invokes the “blockchain” as a magical solution of sorts. Identity theft is when someone impersonates you. Putting all your identifying information on a decentralized blockchain doesn’t stop anyone from impersonating you and, in fact, might make it easier.

One less sexy solution to identity theft is to require every person applying for a credit card to go in person to a branch of the issuing institution or the local post office and get fingerprinted and photographed (very easy and non-invasive with modern technology). Credit bureaus could store this same information on file and it would be much easier to prevent and punish fraud.

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21 charlie November 1, 2017 at 9:49 am

I am waiting for a blockchain that can do blog comments are currency.

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22 Bernard Guerrero November 1, 2017 at 4:19 pm

“TC: Perhaps I expect bigger changes than you do, so let me follow up on a few possible future scenarios. Here’s one to start with: Big data and algorithms will become so good that only the good credit risks will be able to borrow. Of course this will help many creditworthy people, but the social-insurance function of credit might disappear with large numbers of risky borrowers locked out of the loan market and perhaps some insurance markets too. In economic lingo, separating equilibria may replace pooling equilibria and it may become harder to protect against risk.”

Every employer I’ve had for the last decade on Line 1…..

The actual impact, as ML alludes to, is that better credits are identified more readily (and get better or more numerous offers), while worse credits get priced more appropriately (right down to the folks where you need a payday lender willing to take a crap shoot on them.)

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23 Daemon tools lite November 9, 2017 at 8:21 am

and get fingerprinted and photographed (very easy and non-invasive with modern technology). Credit bureaus could store this same information on file and it would be much

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