CRIMINAL CAPITALI$M

Nikola’s Ex-CEO Has Sold Stock Almost Daily for Three Months

Craig Trudell
Thu, December 15, 2022 

Nikola And Plug Announce Strategic Collaboration To Push Hydrogen Economy

(Bloomberg) -- Nikola Corp.’s former chief executive officer has sold more than a third of his direct stock holdings since the electric-truck maker announced his retirement after the end of this year.

Mark Russell has offloaded just over 1 million shares worth $17.2 million, selling almost every day since Sept. 15, according to data compiled by Bloomberg. His latest disposal, disclosed in a regulatory filing Wednesday, leaves him with 1.96 million shares.

A representative for Nikola didn’t immediately comment.

Russell took over as CEO in the days leading up to Nikola’s merger with a blank-check company in June 2020, replacing founder Trevor Milton. Soon after the electric-truck maker made its stock market debut, Milton’s pronouncements about the pre-revenue company sent its market capitalization soaring, briefly surpassing Ford Motor Co.’s valuation. It has fallen precipitously since those heady days two and a half years ago.

Shares of the company declined 0.5% Thursday to $2.10 as of 1:50 p.m. in New York.

 The stock is down about 78% this year.

Milton was found guilty in October of securities and wire fraud. Russell told the jury during the monthlong trial that Milton often made exaggerated statements that concerned him and was focused on day-to-day moves in Nikola’s stock price.

While Russell testified that he had conflicts with Milton leading up to his dismissal in September 2020, the two are still linked through a jointly owned entity called T&M Residual. T&M holds about 8% of Nikola’s shares, according to data compiled by Bloomberg. Nikola has said Russell manages the T&M shares independently of the company.

Nikola announced on Nov. 3 that Russell would retire two months earlier than previously planned. He ceded the top job to Michael Lohscheller, an auto industry veteran who’s worked for manufacturers including General Motors Co. and Volkswagen AG. Russell remains on the company’s board.

CRIMINAL CRYPTO CAPITALI$M

FTX's alleged run-of-the-mill frauds depended entirely on crypto

How else do you create billions in collateral from thin air?

By Tim Fernholz


The arrest of FTX co-founder Sam Bankman-Fried on a variety of fraud charges has been greeted in some quarters as a vindication for the cryptocurrency economy. After all, the allegations focused on generic financial crimes, and the government agencies involved didn’t use the occasion to zero in on hot-button debates about how crypto assets should be regulated.


That has led to some celebration. “They’re not really crypto crimes—and that’s a big relief for the broader crypto industry,” is the summary offered by The Information. But don’t get it twisted. Beyond the court room, it’s clear that Bankman-Fried’s alleged fraud could not have been accomplished without crypto technology and the hype around it.

Related Stories
Sam Bankman-Fried's other big con was perfectly legal

Sam Bankman-Fried was arrested in the Bahamas one month after FTX's collapse

Consider the alleged fraud: The best picture we have so far is that FTX, the cryptocurrency exchange, took money from customers in exchange for purchases of, or bets on, a variety of crypto assets, while Alameda Research, Bankman-Fried’s hedge fund, also made bets on the exchange. The money that customers sent to FTX wound up at Alameda and was used to pay for the hedge fund’s failed bets, as well as a variety of personal and philanthropic expenses by Bankman-Fried and his inner circle. When enough customers asked for their money back, FTX declared bankruptcy.

Crypto ingredient 

1: The hype about the financial future you just can’t miss

Every con is a story. Why does the sucker part with their money? What compelled people to give $8 billion to FTX over its two and a half years of existence?

Analogous schemes in traditional finance, like commodities broker MF Global, which used $1.6 billion of customer funds to pay off a lost bet in 2011, or Bernie Madoff’s multi-decade Ponzi scheme, which robbed its victims of perhaps $19 billion before its collapse in 2008, did not manage to make off with so much money so fast. FTX depended on the crypto bubble and the perception that people were getting rich quick—an idea it drove with its own massive advertising campaign.

Of course, any asset class can be subject to bubble dynamics, from land in Florida to particularly attractive tulip bulbs. But usually there is some underlying material object, or at least a cash flow, behind the maniacal overbidding. The meme stock mania in recent years is likely to vaporize a lot of money, but however overvalued Gamestop’s stock is, the company still had revenue of more than $1 billion last quarter.

The underlying economic value behind FTX is a lot less clear.

Crypto ingredient 2: The power to create assets out of thin air

The balance sheet that Bankman-Fried was using in his last vain attempts to raise money showed that the bulk of the company’s “assets” were crypto tokens that were either created by or dependent upon FTX.

This included most famously FTT, a token issued by FTX that was effectively linked to the exchange’s value. But it also included Serum, MAPS, and Solana—other coins whose value depended at best on realizing venture capital-style risk, and on the fact that a relatively small number of the coins were tradeable.

FTX’s customers probably didn’t realize how much of their deposits at the exchange were backed by these tokens. Indeed, the public revelation that Alameda had a huge position in FTT led to a fire sale of the tokens and the run that collapsed the exchange.

But the people operating FTX and Alameda, if you believe their public story about their actions reflecting mismanagement and not outright theft, thought the coins they helped create were sufficient collateral for obligations in US dollars. Cynical or not, absent their belief in tokenomics, this fraud would have crashed to a halt sooner than it did.

If FTX isn’t crypto, what is?

Some crypto true believers argue that FTX’s existence as a centralized exchange was the real problem here, and that truly decentralized on-chain transactions wouldn’t have led to similar dynamics. But they need to reckon with the fact that the value of their crypto investments is enormously dependent on the investor access provided by centralized exchanges like Coinbase, Binance, or FTX. Crypto as we know it seems to require exchanges and dollar-pegged stablecoins simply to function.

Another argument is that if crypto assets were properly regulated, this sort of thing wouldn’t happen. That may be true, but it’s also not clear what “proper” regulation would be—or that much of crypto’s “value” as a speculative asset or tool for regulatory arbitrage might be eliminated by the kinds of disclosure and capital requirements that apply to traditional securities or commodities.

One thing to watch will be what kind of recovery there is for the victims of this alleged fraud. MF Global’s customers were made entirely whole, with the owners and counter-parties of the firm taking the losses. For the Madoff fraud, two different funds have together distributed more than $17 billion to victims and other creditors by clawing back cash from beneficiaries of the scheme.

Similar efforts will likely follow at FTX, but will there be anything left in the rubble for them to return to investors?

FTX’s Bankman-Fried could face long road to fraud trial

Fri, December 16, 2022 

By Jack Queen

(Reuters) - FTX founder Sam Bankman-Fried was swiftly indicted after the collapse of his crypto empire, but a trial in New York is likely more than a year away as prosecutors build out their case and both sides spar over evidence.

The bare-bones indictment against Bankman-Fried - which could be amended with more details and co-defendants as the case progresses - suggests prosecutors have a long road ahead piecing together what they have described as one of the biggest financial frauds in American history. Pretrial litigation can also be a lengthy process as both sides argue over the admissibility of evidence, what can and cannot be argued at trial, and whether the case should be dismissed.

“A trial is probably 14 to 18 months out,” said Michael Weinstein, a white-collar criminal defense lawyer and former federal prosecutor.

On Tuesday, U.S. Attorney Damian Williams in Manhattan said a grand jury had indicted Bankman-Fried on wire fraud, securities fraud, commodities fraud, campaign finance law violations and conspiracy charges. Williams said the investigation is "ongoing" and that more announcements are to come.

The indictment came just weeks after Bankman-Fried's $32 billion crypto exchange collapsed - an extraordinarily fast turnaround for prosecutors.

Bankman-Fried has apologized to customers but said he is not guilty of any crime. A representative of the crypto entrepreneur declined to comment.

Bankman-Fried was arrested in the Bahamas on Monday but indicated he would fight extradition to the United States. He is behind bars in a Bahamian correctional center and will not enter a plea until he is arraigned in the United States. His absence keeps potentially years-long pretrial litigation on hold.

COMPLICATIONS

Legal experts are doubtful Bankman-Fried will prevail fighting extradition, though he could relent in the coming months after a Bahamian judge denied him bail. Bankman-Fried's lawyers filed a new bail request on Thursday.

Regardless of where Bankman-Fried is held, prosecutors will spend the coming months poring over evidence and interviewing witnesses before potentially filing a so-called superseding indictment with new details or co-defendants. The limited information in the indictment unveiled on Tuesday suggests there is plenty of work to do, according to legal experts.

“The indictment does not have smoking-gun details like emails and documents that you’re used to seeing in fraud cases,” said Renato Mariotti, a former federal prosecutor with experience in financial fraud cases. “That suggests that they put this together quickly, but they wouldn’t bring high-profile charges like this if they didn’t think they had the goods.”

FTX has been described by its restructuring executive as a chaotic operation that shuffled assets without basic accounting or record-keeping protocols, which will likely complicate prosecutors' efforts to build out their case further.

Securing the help of former FTX employees who can make sense of the incomplete records could take a long time, especially if negotiations for immunity or plea deals in exchange for cooperation are involved.

“They will need an insider who was part of the decision-making process or was privy to how things worked internally,” Weinstein said.

Williams, the U.S. attorney, on Tuesday pointedly addressed people who may have information about FTX's downfall.

"If you have not reached out to us to talk to us, I would encourage you to do so, and do so quickly."

(Reporting by Jack Queen in New York; Editing by Noeleen Walder and Matthew Lewis)

FTX files in bankruptcy court to sell four of its businesses
Aislinn Murphy
Thu, December 15, 2022

FTX, formerly one of the largest cryptocurrency exchanges in the world, is seeking to sell four of its businesses.

In a filing submitted Thursday to the Delaware bankruptcy court, FTX said it is soliciting bids for Embed Financial Technologies, LedgerX, FTX Japan and FTX Europe.

According to the filing, the cryptocurrency exchange said the four businesses have "experienced regulatory pressures which merit an expeditious sale process," as well as "significant customer and employee attrition pressures," according to the filing.

WHERE DID THE MONEY GO IN FTX CRYPTO COLLAPSE?

Representations of cryptocurrencies are seen in front of an FTX logo and decreasing stock graph in this illustration from Nov. 10, 2022.

"Because each of the Businesses was acquired by the Debtors fairly recently, but before the Debtors commenced these Chapter 11 Cases, the Businesses have each operated on a generally independent basis from the Debtors’ other operations, holdings and investments," the filing stated.

"The relative independence of each of the Businesses’ operations from the remainder of the Debtors’ core business operations make a potential sale process for each of the Businesses relatively less complex."

FTX FRAUD WILL MAKE ‘ENRON LOOK LIKE PEANUTS’: FORMER US ATTORNEY

FTX has received "significant interest expressed by third parties" about acquiring the units and determined "pursuing one or more sales of the Businesses is important to preserve and maximize the value of the Debtors’ estates," according to the filing.

The court document included a detailed outline of how bidding and auctioning the businesses would work, including deadlines for submitting bids, conducting auctions and holding hearings to consider any sales.

This illustration photo shows a smartphone screen displaying the logo of FTX, the crypto exchange platform, with a screen showing the FTX website in the background Feb. 10, 2022.

FTX, once valued at $32 billion, filed for Chapter 11 bankruptcy in November along with Alameda Research, West Realm Series and 130 affiliated companies. At the same time, founder Sam Bankman-Fried stepped down as the crypto exchange’s CEO, handing over the position to former Enron liquidator John J. Ray III.

Authorities arrested Bankman-Fried in the Bahamas earlier in the week. He has since been hit with charges from the Southern District of New York and the Securities and Exchange Commission.

Sam Bankman-Fried, co-founder and CEO of FTX, in Hong Kong, China.

Bankman-Fried is accused of "perpetuat[ing] a scheme to defraud customers of FTX by misappropriating billions of dollars of those customers’ funds," according to the Department of Justice’s press release.

SAM BANKMAN-FRIED'S RELATIVES ASKED BAHAMAS PRISON IF HE COULD GET VEGAN MEALS THERE: REPORT

He allegedly used customer funds for "his personal use to make investments and millions of dollars of political contributions to federal political candidates and committees and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency hedge fund also founded by the defendant," the release said.

GLOBALIZATION

Hormel Foods (HRL) Expands With Stake Buyout in Garudafood

Zacks Equity Research
Fri, December 16, 2022 

Hormel Foods Corporation HRL announced its acquisition of a minority stake in Indonesia-based food and beverage company, PT Garudafood Putra Putri Jaya Tbk. Notably, Hormel Foods bought nearly 29% of shares of Garudafood from CVC and other shareholders.

The move is likely to help Hormel Foods to expand its presence in Indonesia and Southeast Asia. The addition of branded portfolio, including Garuda peanut snacks, Gery biscuits and confectionary products, as well as Chocolatos wafer sticks, are expected to be accretive to HRL.

Prior to this, Hormel Foods acquired Planters snacking portfolio from The Kraft Heinz Company in June 2021 and Texas-based pit-smoked meats company, Sadler's Smokehouse, in March 2020. The buyouts are in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

On its last earnings report, management stated that it concluded the integration of the Planters business, progressed with its six strategic priorities, navigated through a tough operating landscape and laid the foundation for the next step of its Go Forward (GoFWD) initiative.

As part of this plan, Hormel Foods transitioned to three operating units — Retail, Foodservice and International — and started operating under its new model on Oct 31, 2022. The initiative will simplify the company’s approach to customers and operators, and enable faster decision-making.

Also, Hormel Foods’ One Supply Chain initiative has centralized operations, logistics and sourcing decisions to fuel the efficiencies for the company. The modernization of its technology and e-commerce abilities, including Project Orion, the formation of the Digital Experience Group and the transformational efforts at Jennie-O Turkey Store bode well.

Going into fiscal 2023, the company remains well-placed in the retail, foodservice and international channels, and expects to fuel top-line growth. Increased brand investments, higher production capacity and HRL’s initial GoFWD actions are likely to support top-line growth. Management anticipates earnings growth to be backed by its Foodservice and International segments, together with supply-chain enhancements.

Consequently, HRL projects net sales of $12.6-$12.9 billion for fiscal 2023, indicating 1-3% growth from the fiscal 2022 reported level. Earnings per share are envisioned to be $1.83-$1.93, suggesting 1-6% growth from the fiscal 2022 reported level.

That said, the company anticipates operating in a difficult, volatile and inflated-cost environment in fiscal 2023. Cost inflation, especially related to logistics, operations and raw material inputs, remains concerning.



Zacks Investment Research


Image Source: Zacks Investment Research

NHTSA opens probe into GM’s

self-driving ‘cruise’ unit following

major accidents

Fri, December 16, 2022 

The National Highway Traffic Safety Administration (NHTSA) has opened a probe into GM's self-driving "cruise autonomous driving" unit after multiple reports of the vehicles crashing on the road.

Video Transcript

DAVE BRIGGS: The National Highway Traffic Safety Administration has opened a probe into GM's Cruise autonomous driving unit after a number of reports the vehicle's crashing on the road. Yahoo Finance senior autos reporter Pras Subramanian here with more on this story. What's going on?

PRAS SUBRAMANIAN: It's kind of another black eye for the self-driving industry here. You know, Cruise, GM's big autonomous division out in San Francisco, apparently a couple of crashes here with cars that were inappropriately hard braking or becoming immobilized while operating. So basically the car, like right here in motion, it comes across a hazard, and it stops and panics. And what happens is it becomes an object in traffic that's stuck there. And people have to get out in the middle of traffic, so it's problematic.

So apparently, there's three accidents, three hard braking accidents with this, and a number of other incidents that we don't know about. GM says-- their crew says they're complying with the investigation and that they've done 700,000 autonomous miles with the system. So it's still happening. They want to try to expand their-- probably right now, they're in 30% of SF. They want to expand to 100%. So not exactly easy when you've got kind of some issues in a probe going into it.

But I will say this, though. This comes after Ford pulled the plug on Argo AI, their autonomous division. And then also we have Tesla still under investigation with NHTSA because of these crashes at accident scenes. So it's still-- this technology is still very nascent.

DAVE BRIGGS: Years and years away, isn't it?

JARED BLIKRE: I guess I can sleep well at night knowing that the default action, if we have an AI algorithm controlling a car, rolling down the streets of San Francisco or whatever it is, it goes into panic mode, and it just sits there.

PRAS SUBRAMANIAN: It stops, yeah.

JARED BLIKRE: It just stops.

Ford hikes price of cheapest F-150 electric truck variant to nearly $56,000

Thu, December 15, 2022 


(Reuters) - Ford Motor Co has raised the price of the cheapest variant of its F-150 Lightning electric truck by 9% to $55,974, the company's website showed on Thursday.

The automaker has raised prices for its electric pickup trucks twice in a span of three months, as it navigates higher costs and supply chain snags.

Automakers across the globe, including Tesla Inc and Rivian Automotive Inc are also struggling with higher prices of raw materials such as lithium and have warned that high costs were here to stay.

Ford, which has previously said it was targeting annual production of 150,000 Lightning pickups by the fall of 2023, did not immediately respond to a Reuters request for a comment on the price hike.

The company's shares were down about 3.5% in afternoon trade amid declines in the broader market.

It was, however, not immediately clear when the price hike occurred.

The move comes on the heels of the automaker adding a third work crew at an assembly plant near Detroit as it boosts production of its F-150 trucks.

(Reporting by Nathan Gomes in Bengaluru; Editing by Shinjini Ganguli)

Goldman to cut thousands of staff as Wall Street layoffs intensify -source

Goldman Sachs’ Solomon ‘misjudged’ architecture of consumer banking business: Reporter

Fri, December 16, 2022 
By Saeed Azhar and Lananh Nguyen

NEW YORK (Reuters) - Goldman Sachs Group Inc is planning to cut thousands of employees to navigate a difficult economic environment, a source familiar with the matter said.

The layoffs are the latest sign that cuts are accelerating across Wall Street as dealmaking dries up. Investment banking revenues have plunged this year amid a slowdown in mergers and share offerings, marking a stark reversal from a blockbuster 2021 when bankers received big pay bumps.

Goldman Sachs had 49,100 employees at the end of the third quarter after adding significant numbers of staff during the pandemic. Its headcount will remain above pre-pandemic levels, the source said. The workforce stood at 38,300 at the end of 2019, according to a filing.

The number of employees that will be affected by the layoffs is still being discussed, and details are expected to be finalized early next year, the source said.

The bank is weighing a sharp cut to the annual bonus pool this year, a separate source familiar with the matter said. That contrasts with increases of 40% to 50% for top-performing investment bankers in 2021, Reuters reported in January, citing people with direct knowledge of the matter.

"GS needs to show that its costs are as variable as its revenues, especially after a year when it provided special rewards to top managers during the boom times," wrote Mike Mayo, a banking analyst at Wells Fargo.

"Goldman Sachs now needs to show that it can do the same when business is not as good and that they live up to the old Wall St. adage that they 'eat what they kill,'" he said in a note.

The company's stock fell 1.3% in afternoon trading alongside shares of JPMorgan & Chase Co and Morgan Stanley, which fell 0.6% and 1.3%, respectively.

Goldman shares have slumped almost 10% this year. But they have outperformed the broader S&P 500 bank index, which is down 24% year to date.

CONSUMER BANK STRUGGLES

The latest plan would include hundreds of employees being cut from Goldman's consumer business, a source said.

The bank signaled it was scaling back its ambitions for Marcus, the loss-making consumer unit, in October. Goldman also plans to stop originating unsecured consumer loans, a source familiar with the move told Reuters earlier this week, another sign it is stepping back from the business.

Chief Executive Officer David Solomon, who took the helm in 2018, has tried to diversify the company's operations with Marcus. It was placed under the wealth business in October as part of a management reshuffle that also merged the trading and investment banking units.

Trading and investment banking — the traditional drivers of Goldman's profit — accounted for nearly 65% of its revenue at the end of the third quarter, compared with 59% in the third quarter of 2018, when Solomon took the top job.

Semafor earlier on Friday reported that Goldman will lay off as many as 4,000 people as the bank struggles to meet profit targets, citing people familiar with the matter.

Goldman Sachs declined to comment.

The latest plans come after Goldman cut about 500 employees in September, after pausing the annual practice for two years during the pandemic, a source familiar with the matter told Reuters at the time.

The investment bank had first warned in July that it might slow hiring and reduce expenses.

Global banks, including Morgan Stanley and Citigroup Inc, have reduced their workforces in recent months as a dealmaking boom on Wall Street fizzled out due to high interest rates, tensions between the United States and China, the war between Russia and Ukraine, and soaring inflation.

(Reporting by Saeed Azhar and Lananh Nguyen; Additional reporting by Noor Zainab Hussain and Mehnaz Yasmin in Bengaluru; Editing by Mark Porter)

A Week After Morgan Stanley Layoffs, Goldman Sachs Axes 4,000 Jobs

Vandana Singh
Fri, December 16, 2022 


Goldman Sachs Group Inc (NYSE: GS) plans to lay off around 4,000 employees as it struggles to navigate a difficult economic environment, though no final list has been drawn up.

As per Semafor, managers have been asked to identify low performers.

After adding significant staff during the pandemic, the bank had around 49,000 employees at the end of the third quarter. Headcount will remain above pre-pandemic levels, which stood at 38,300 at the end of 2019.

In a typical year, 2%-5% of Goldman lays off or receives no bonus — "zeroed out" in industry parlance.

Related: Goldman Plans Combining Investment Banking and Trading Units In Major Organizational Overhaul.

The dealmaking and fundraising activities have slowed down, and the Wall Street bank finds it challenging to meet profitability targets.

In September, Goldman Sachs announced laying off about 500 bankers. The CFO also said that it would slow its hiring pace and be slower in replacing departing staff due to economic uncertainty.

Almost a week back, another Wall Street giant, Morgan Stanley (NYSE: MS), trimmed its workforce by about 2%, affecting around 1,600 positions.

Switzerland's second-largest bank, Credit Suisse Group AG (NYSE: CS), said it was shedding 2,700 full-time staff, accounting for about a third of its planned cuts and a fifth of its 52,000 global employees.

It expects the total staff base to shrink to 43,000 by the end of 2025 through further job cuts and natural attrition.

Morgan Stanley Sees Slowing Business, Downsizes 2% Workforce

 

Millennials’ average net worth: 

How the nation’s largest working

generation stacks up against the rest

Ivana Pino

Thu, December 15, 2022 

Two economic recessions, a pandemic, and a crippling student loan crisis can definitely put a wrench in your wealth-building journey. And for millennials, this is certainly the case.

With the younger half of this generation just making its mark on the labor market, and the older half entering its prime earning years, here’s a look at how this group has grown and maintained wealth.

Average net worth of millennials

Millennials are classified as those born between 1981 and 1996; the oldest members of this generation are in their early forties, the youngest in their mid-twenties. Many members of this generation are reaching their higher-earning years, starting or already building families, businesses, and becoming homeowners.

According to the Federal Reserve’s 2019 Survey of Consumer Finances, millennials have an average net worth between roughly $76,000 and $436,000. And according to a 2022 report, millennials have more than doubled their total net worth, reaching $9.38 trillion in the first quarter of 2022, up from $4.55 trillion two years prior.

How does millennials’ net worth compare to other generations?

Compared to other generations, the average millennial’s net worth only outpaces Gen Z. The average millennial under age 35 has a net worth of about $76,000; those over age 35 stand at over $400,000. Members of Generation X have average net worths between $400,000 and $833,000, and older generations including baby boomers and the Silent Generation have average net worths of over $1 million.

View this interactive chart on Fortune.com

“Millennials earn more money than any other generation at their age, but hold much lower wealth due to cost of living outpacing wage increases,” says Molly Ward, certified financial planner at Equitable Advisors, based in Houston. “Also, with boomers, as they married young there were often two wage earners in a household, so net worth increased. Millennials are often living on one salary, as they might not marry young or marry at all.”

What has shaped millennials’ net worth and financial future?

For many millennials, the path to building wealth hasn't been without its challenges. A rising inflation rate, higher cost of living, and multiple economic downturns have made it a bit more challenging for members of this generation to grow their net worths.

Staggering student loan debt has made it difficult for this generation to build wealth

College is significantly more expensive than it used to be, and millennials’ wallets have felt the burn. In fact, college tuition has increased by 1,375% since 1978, more than four times the rate of overall inflation, according to a study by Georgetown University.

While Gen Z holds the title for carrying the most student loan debt of any generation, a similar percentage of Gen Zers and millennials carry student loan balances over $50,000. Steep student loan balances have made many members of the millennial generation delay or completely write off important, wealth-building milestones like saving for retirement or homeownership.

Data from Bankrate shows that 68% of millennials who took on student loan debt for their higher education delayed a major financial decision as a result of their debt. That's higher than it has been for older generations: About 54% of Gen X and 42% of boomer borrowers said they have delayed a major financial decision due to their student loan debt.

Millennials have endured two financial recessions in their lifetimes

Millennials lived through two recessions before the age of 40 that significantly influenced their job prospects, earning opportunities, and ability to pay down debt—entering the workforce during one of the most challenging job markets. For millennials between the ages of 16 to 24 during the 2007 to 2009 recession, the unemployment rate hit a high of 19%, compared to a high of 7% to 9% for older generations.

The COVID-19 pandemic set this generation back as well, considerably depleting wealth that was built by this generation during its recovery period. According to the same Georgetown University study, 38% of millennials received or sought financial help or assistance during the pandemic, and 35% reported having spent their savings or delayed saving/paying off debt.

Wages have not kept pace with the cost of living

According to data from the U.S. Census Bureau, the median millennial household pre-tax income was $71,566 in 2020, and many workers across all generations report that they are not earning enough. Two-thirds of American workers report that their salaries are not keeping pace with inflation, and the percentage of employees considering quitting a job is at a four-year high, according to a new CNBC survey in partnership with Momentive.

US Regulators Warn About Risks of Deeper Crypto-Wall Street Ties

Allyson Versprille and Christopher Condon
Fri, December 16, 2022 



(Bloomberg) -- The top US financial regulators are worried about the prospect of deeper ties between digital-asset firms and Wall Street.

The Financial Stability Oversight Council said Friday that interconnections between crypto firms and traditional financial institutions remain limited. However, entanglements could rapidly increase and put the broader system at risk, they warned in an annual report.

US officials have long been concerned about looming threats from the digital-asset industry much of which operates in regulatory gray areas. The issues have been underscored this year amid market turmoil, the bankruptcy of crypto lenders, and, most recently, the collapse of the exchange giant FTX.

“Crypto-asset activities could pose risks to the US financial system if their interconnections with the traditional financial system or their overall scale were to grow without adherence to or being paired with appropriate regulation,” Treasury Secretary Janet Yellen said on Friday about the findings. “Recent crypto market developments have demonstrated the importance of Congress and regulators acting on the report’s recommendations.”

FSOC, which was formed after the financial crisis, is led by the Treasury secretary and includes the heads of key agencies such as the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission. The group is tasked with identifying risks to financial stability and responding to emerging threats.

Recent volatility in digital-asset markets has hit many crypto investors hard, with some losing their entire life savings. Still, traditional financial institutions have been largely insulated from those problems due to the current regulatory framework and the limited overall scale of crypto activities, FSOC said in its annual report.

Yet there is some overlap, and ties could strengthen — for instance, through banks holding reserve assets backing so-called crypto stablecoins, they said. Those tokens serve as a key on and off ramp between crypto and mainstream finance.

Overall, FSOC identified several gaps in the current US framework for regulating digital assets, such as a lack of federal oversight of tokens that aren’t considered legally to be securities under the SEC’s remit like Bitcoin. Fixing that blindspot would require Congress to write a new law.

How Washington regulates crypto — or doesn’t — has been thrust into the forefront after FTX and a web of related companies collapsed last month. The firm’s co-founder, Sam Bankman-Fried, is now in locked up in the Bahamas and facing extradition to the US to face a range of criminal charges. He has also been sued by the CFTC and the SEC.

Before FTX’s collapse, the exchange had been pushing for US approval to take the middleman out of crypto derivatives trading. The controversial proposal, which could have eventually encroached on a function managed by Wall Street brokers, was withdrawn after FTX and more than 100 related entities filed for bankruptcy last month.

On Friday, FSOC said in its report that regulators should assess the “impact of potential vertical integration by crypto-asset firms,” citing proposals to give retail customers direct access to markets by removing traditional intermediaries.

Other Risks

The council’s report also identified several non-crypto issues as representing threats to financial markets and financial institutions.

FSOC said enhancing the resilience of the $24 trillion Treasury securities market, which has had several bouts with low liquidity, remained a priority. The group also said regulators should review market structure issues that may contribute to “liquidity challenges.”

The regulators said it supports initiatives from the SEC and other agencies to address possible risks from investment firms.

“The hedge fund industry has grown considerably over the last five years,” the report said. “Over the same period, qualifying hedge funds’ presence in the critically important short-term funding markets and the US Treasury market has increased markedly.”

The report included a section on global risks, with one focus on China that mentioned difficulties in the real estate sector there and implications for that country’s financial institutions and markets. FSOC also reiterated a call for states and federal agencies to work together to gather data to assess the risks posed by climate change.

“Climate-related financial risks could contribute to financial instability through numerous channels, including financial intermediaries experiencing significant losses, impairment of financial market functioning, or the sudden and disruptive repricing of assets,” the council said.

Record $1.5 Trillion Rift Opens Between Mutual Fund, ETF Flows

Isabelle Lee
Fri, December 16, 2022




(Bloomberg) -- Investors are spurning mutual funds at a record clip, driving a $1.5 trillion gap in the flow of money from the old-school investment vehicles and into ever-popular ETFs.

The divide this year between the two investment types widened to an all-time high, up from $950 billion in 2021, according to data compiled by Bloomberg Intelligence. The growing disparity is one measure of the speed with which ETFs are eating into the market dominance of mutual funds.

The tide has been shifting for years in an embrace of ETFs’ easier-to-trade and tax-friendly structure. But the market turmoil and a fixed-income rout amid aggressive Federal Reserve rate hikes in 2022 further accelerated the divide as investors elected to make faster moving bets in exchange-traded funds over their staid brethren.

“Bonds having their first major bear market in over 40 years has resulted in a colossal industry-altering move from mutual funds to ETFs,” according to Todd Sohn at Strategas Securities.

“It’s been a development really two years in the making, going back to the Fed buying fixed-income ETFs in 2020, and then the rise of inflation and a tighter Fed resulting in a major bear market for bonds,” the ETF strategist said.

Mutual funds saw investors pull $480 billion out of fixed income, the first yearly outflow for the asset class since 2015. At the same time, ETFs have raked in bond investments of $184 billion as of Dec. 15, less than the over $200 billion seen in the prior two years.

The unusual year for stocks and bonds, where both markets tumbled in near total lockstep, has put pressure on money managers to seek hedges elsewhere amid surging inflation and tightening monetary policies that drove yields higher. This may have prompted investors to increase their weight in bonds, according to Sohn.

“There are investors out there who need to re-up their weight to fixed income given the decline and so using ETFs is another route to do that,” Sohn said.

ETFs have been gaining ground across the board, luring in nearly $588 billion so far this year and are on course for their second-best ever annual haul, according to Bloomberg Intelligence data. Meanwhile, mutual funds have seen roughly $950 billion of cash leave the asset class, the biggest outflow on record.

ETF investments now make up about 28% of total US fund assets, up from around 20% five years ago, Bloomberg Intelligence data show.

The chance to lock in mutual fund losses and offset capital gains tax, a practice called tax-loss harvesting, is also helping drive the migration out of mutual funds this year.

“Right now may be an opportune time to move into ETFs offering similar market access without running the risk of facing huge capital gains,” said Cinthia Murphy, director of research at ETF Think Thank. “The numbers would suggest a lot of investors are making this transition out of mutual funds, adopting the typically-lower cost and more tax-efficient ETF wrapper.”

Still, the $15 trillion mutual fund universe far outweighs the $6 trillion ETF market. Mutual funds, for one, have been around longer, and taxes on gains for longer-term holders make them harder for investors to switch, said Drew Pettit, director of ETF analysis and strategy at Citi Research. People also stay invested in mutual funds because the more established asset class offers more strategies.

“Not all of the mutual fund strategies that are out there have made their way into ETFs,” Pettit said in an interview at Bloomberg’s New York office. Although, he noted, conversions of existing mutual funds into ETFs are slowly shifting the dynamic.

“We don’t have this huge ground swell of hedge fund-like strategies and ETFs, but more and more of that is coming to market,” he said.

--With assistance from Sam Potter.

The FTX Meltdown Calls for Higher Standards in Crypto Journalism

Christopher Robbins
Thu, December 15, 2022


The law is catching up with Sam Bankman-Fried (SBF), co-founder and former CEO of collapsed crypto exchange FTX.

The whole situation has led to a loss of trust in the cryptocurrency industry, which needs to be addressed by financial advisors.

If there is a bright side to this mess, it’s that the traditional finance (Tradfi) industry has managed itself through these types of crises regularly over the past century. Memories of the Occupy Wall Street movement and the massive Bernie Madoff Ponzi scheme still loom large in the industry.

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Now FTX’s bankruptcy is rippling through the crypto industry and impacting other major exchanges like Binance and Coinbase. Can any of these exchanges be trusted as a place to store crypto?

The best answer we have right now is probably “maybe.”

We’ve talked about the issue of trust in the crypto space – that it’s hard for advisors to tell clients where to store their crypto because there is no one perfect answer for everyone. It’s hard to know which service providers to trust.

Well, that concern about trust applies equally to crypto journalism, as we have lately been thrown into doubt over whose advice to take.

Crypto journalism and trust

When CoinDesk published a piece by Ian Allison revealing problems with the FTX balance sheet and tipped off the entire meltdown, it provided perhaps one of the better examples of independent journalistic reporting. CoinDesk’s parent Digital Currency Group (DCG) also owns crypto trading firm Genesis, which was forced to halt withdrawals and thrust under regulatory scrutiny following the FTX collapse.

But a recent turn of events has revealed that journalism in crypto has also contributed to increasing distrust. A great example is the revelation over the past week that Bankman-Fried was secretly the financial backer of The Block, another cryptocurrency news publication.

Those of us journalists covering crypto know that finding and delivering trustworthy information in the industry has been hard enough to begin with.

Crypto journalists have already had to contend with the most aggressive financial marketing blitz of the last 20 years as startups and incumbents alike tried to capture some of the benefits of the crypto gold rush. So while many of us searched in earnest for good sources to share information on a very new and sometimes arcane phenomenon, we have had to sort through the people talking about their own book and looking for free advertising space to pitch their product.

We’ve also had to deal with conflicts of interest. Crypto publications are supported by advertisements of crypto companies, naturally. But in the traditional news industry there is typically a strict separation between the editorial content and what is advertised.

You may notice that the websites you read my material on are supported by advertiser dollars – but those dollars don’t impact what I write or what I get to cover. Nothing should be able to stop a good journalist from being a truth-teller and a tireless pursuer of fact.

Political implications of mistrust

Bankman-Fried has had tendrils that wrapped around so many entities within and outside of the digital assets industry – it’s hard to tell what’s legitimate anymore.

It seems that even those of us working in the margins of the cryptocurrency industry are going to be directly impacted by the avalanche of distrust that Sam Bankman-Fried and FTX have set off.

The revelation of Bankman-Fried's funding of CoinDesk competitor The Block comes at a time when trust in the media is at an all-time low, especially online where the depths of social media censorship and cooperation with public and political officials are only now being seriously plunged.

But SBF’s influence didn’t stop there. On Tuesday, a federal indictment was unsealed in New York alleging that FTX client funds were used to fund the campaigns of recently elected public officials from both major parties, in hopes of influencing the future direction of crypto regulations.

Nevermind that we’re also in an era of declining trust in elections and public institutions that has led to civil unrest at the U.S. Capitol in recent years.

A word of caution

As we come to the end of a tumultuous year, it’s still very hard to know who is really a truth-teller in the crypto industry right now, even for those of us trying to cover the industry.

When information is tainted by questionable actors like Bankman-Fried, the deliverers of information are rendered less worthy of trust.

This issue of misinformation is especially important to keep in mind as an investor in the crypto space. Nowhere is misinformation better reflected than in cryptocurrency prices.

While we’ve discussed some of the fundamentals behind various crypto tokens – like the network effect and processing power – the main driver of token prices is human sentiment, and human sentiment is flawed and easily misled.

Is bitcoin really worth $17,800? Is ether really worth $1,300? Like with many of the serious questions in finance, the best answers we have are “maybe” and “it depends.”