Monday, May 30, 2011

Sony Playstation Network Hacking: Death Knell for E-Commerce?

After satisfying over 70 million loyal customers over the years, will the recent Sony Playstation Network hacking attacks spell the end for reliable retail-level e-commerce?

By: Ringo Bones

Near the end of April, 2011, Sony’s Global Playstation Entertainment System – that sells not only on-line computer game related upgrades and apps but also Sony-owned media like high-resolution movie and digital music downloads – has been subjected to a malicious hacking attack that had made virtually all of the company’s 77-million loyal customers’ credit card and personal details stolen. On-line security pundits say that this could be the most brazen act of cyber-terrorism of 2011. Sony’s top brass are virtually caught with their pants down during the most audacious cyber-attack that all they can do the weeks after the attacks was warn their clients of possible e-mail phishing scams given their e-mail and other personal details are already stolen by the hackers. Does this high-profile hacking attack the death knell for reliable retail-level e-commerce?

Sadly, the present state – as in year 2011 – internet is still akin to the 19th Century Wild West or large-scale pre Geneva and Hague Convention conflicts conducted during the Victorian Era where there are yet no legal precedents and internationally binding conventions governing cyber-warfare or defining acts of cyber-terrorism. Worse still, as recent as the 2011 Munich On-Line Security Conference, internet security pundits are still complaining on the ambiguity surrounding the internationally accepted legal definition of what constitutes a cyber-attack. It might be just an on-line commercial site that’s being attacked this time, but imagine America and Western Europe’s children’s hospital on-line databases being subjected to a cyber-attack similar to that on the Sony’s Global Playstation Entertainment System Network. Children in dire need of an organ transplant could die because the hospital’s database is compromised by a brazen cyber-attack. And the UN Security Council is already being criticized for not investigating states sponsoring global cyber-terrorism. Are we witnessing the start of a brave new world?

Monday, May 16, 2011

Ring-Fencing: Mitigating Banking Risks?

Proposed by the UK’s Independent Banking Commission, does the proposed splitting of bank’s investment arm from its retail arm really mitigate the financial risks of banks?

By: Ringo Bones

Ever since the collapse of Lehman Brothers back in September 2008 as the banking crisis went global, everyone of us has found out in a rather nasty way that there is an arm of banking that’s quite different from the one that we often avail the services of our local banks namely saving money and allowing us to write checks – it is called investment banking.

Investment banking is a specialized phase of banking concerned with gathering together the savings of the community for permanent or long-term use by private enterprises and the federal, state and local governments. In the early days, the policy of combining commercial banking with investment banking – although sound in theory – did not prove successful in practice.

Commercial banking affiliates, in their eagerness to participate in the long-term capital market, purchased numerous issues of new securities which later could not be sold to the investing public. To dispose of their frozen inventory of unmarketable securities, the affiliate banks frequently “dumped” them into portfolios of the commercial banks and received payment in cash. In this way, the affiliate banks kept themselves liquid, but the commercial banks frequently became owners of securities which were not of the highest quality – i.e. way below the Triple-A Rating of Standard & Poor’s and other top credit-rating agencies.

The folly of such practice became evident in the US Banking Crisis of 1932-1933 when commercial banks were forced to liquidate their investments in order to meet the demands of panic-stricken depositors. They discovered that many of the securities in their portfolios were completely unmarketable or could be disposed off only at prices below the original cost.

As a result of abuses stemming from the combination of investment and commercial banking under the same roof, reform legislation was quickly enacted to separate the two functions. The Banking Act of 1933 stripped commercial banks of the power to underwrite new security issues. They were permitted, however, to continue to act as wholesalers and retailers of federal, state and municipal bonds.

However, the proposed UK’s Independent Banking Commission definition of “Ring-Fencing” that is separating the retail banking arm from the investment banking arm of "universal banks" like HSBC for example is rather draconian in comparison to the Banking Act of 1933 - as in ring-fencing will end commercial bank’s permission to continue to act as wholesalers and retailers of federal, state, county and municipal bonds. Given that most banks are “Universal Banks” – that is they are virtually composed of a commercial arm and an investment arm – like HSBC for example, will these result in universal banks fleeing the UK’s rather draconian banking regulation? After all, many universal banks have already complained that the practice of ring-fencing could render their daily banking operations rather unprofitable. Will this eventually result in a rather "uncomfortable" revolutionary upheaval in the global banking industry?

Is Europe Running on a Two-Speed Economy?

Even though Germany recently made export profits it hasn’t seen since the 1950s while Greece and Portugal continues to wallow in debt, is Europe running on a two-speed economy?

By: Ringo Bones

Even when plagued by crushing debt, Greece managed a GDP growth of 0.8% during the first quarter of 2011, while Portugal slips back 0.7%, it was Germany who achieved a rather recent economic miracle by managing a GDP growth of 1.5% during the first quarter of 2011 – a feat only managed after the full benefits of the Marshall Plan took effect during the 1950s. But is this the surest proof that Europe is running on a two-speed economy?

Ever since the Greek debt crisis became headline news, EU markets had since been bracing for a Greek debt restructuring since near the end of 2009 and many a euro-skeptic had been bemoaning for years that the only beneficiary of the single European currency are German industrialists. Could it be that Europe’s two-speed economy is more of a political rather than an economic construct?

IMF Chief Rape Charge: Global Repercussions?

Even though it is yet too soon to tell whether he's guilty or not, does the rape charge aimed at IMF chief Dominique Strauss-Kahn can eventually result in global repercussions?

By: Ringo Bones

IMF chief Dominique Strauss-Kahn could be facing an uphill legal battle given that the chambermaid of a New York City hotel who accused the IMF chief of rape and unlawful imprisonment is described as a "model employee" of the hotel that the IMF chief stayed in. Dominique Strauss-Kahn was arrested after boarding a plane on his way to a very important meeting with the German chancellor back in Sunday, May 15, 2011.

As one of the worthy contenders for the next French presidency, the rape charges could not only jeopardize his political prospects but also came in a time when it had global repercussions - i.e. the IMF chief and his team are still formulating ways to help the economically ailing members of the Eurozone with their respective sovereign debt problems. Even though it is still too soon to tell how deep in trouble the IMF chief is since the NYPD forensics team are still gathering evidence of the alleged crime. Only time will tell if the incident will complicate the debt relief of ailing Eurozone countries.

Raj Rajaratnam: Guilty of Insider Trading?

Hailed as the landmark case in a generation that will clean-up Wall Street, was Galleon Group hedge fund chief Raj Rajaratnam really guilty of insider trading?

By: Ringo Bones

Basing on the court evidence that has been made public so far, the odds are really stacked against Galleon Group hedge fund chief Raj Rajaratnam. From an illustrious line up of witnesses like Lloyd Blankfein, CEO of Goldman Sachs, court-authorized wire-taps to the facts surrounding the controversial incident of calling another hedge fund manager just a few minutes after a supposedly confidential boardroom meeting that even a junior trainee knows better not to. Even though the New York court had sentenced Rajaratnam to a 15-year prison sentence, his legal team plans to appeal the guilty verdict. But could the case really prove to be a landmark as the biggest victory in a generation to clean up Wall Street?

Since the days of the Ronald Reagan, Americans always had a love / hate relationship with the rigmaroley high-brow get-rich-quick mystique surrounding Wall Street-based hedge fund trading; after all, getting obscenely rich after prognosticating which stocks will make it can be a very satisfying and rewarding experience, right? Anyway, the sad fact is that there are more people – i.e. novice traders - that had lost their life-savings in Wall Street based hedge fund trading because their hedge fund managers didn’t fully explain to them the risks involved. While those few who made millions more than once are eternally thankful that the US government haven’t managed to fully over-regulate Wall Street. Will the Raj Rajaratnam insider trading case prove the turning point in cleaning up Wall Street?