With the stock prices of both Credit Suisse and Deutsche Bank under pressure, many in the financial field are becoming concerned the world could be facing a renewed financial crisis. But this time around events could play out very differently. It might not even be banks that pose the greatest financial risk to consumers. It could be payment providers like PayPal.
The really big difference between 2007 and 2022 is that bank runs no longer look like the image above, they look like this:
That’s what I was faced with when I tried to transfer £500 from my PayPal account to a regular bank account. On Sunday morning the same message was still occurring. A quick scan of social media proved I was not alone.
“Boycott PayPal” was also trending on Twitter.
So what might the error message indicate about the business?
Here’s what we know so far.
In the last 48 hours a sneaky amendment to PayPal’s acceptable use policy widely captured the public’s attention. Free speech advocates had spotted that customers agreeing to the update would be allowing a sum of $2,500 to be lifted from their accounts if PayPal ever found them guilty of “sending, posting, or publication of any messages, content, or materials” that “promote misinformation” or “present a risk to user safety or wellbeing”.
When word got out, those already concerned about the company’s draconian turn started shutting their accounts and urging others to do the same on social media.
For some, the action proved the final straw.
On Saturday evening U.K. time, PayPal’s former president David Marcus distanced himself very clearly from the action. Elon Musk, whose pathway to billionairehood started in 2000 when his company X.com was merged with Peter Thiel’s Confinity to create the PayPal of today, later tweeted that he agreed.
Readers of the Daily Sceptic and members of the Free Speech Union (such as myself) will already know that over the past few months PayPal has been on a whirlwind tour of shutting down the accounts of platforms and media sites it has deemed guilty of spreading misinformation. In many instances, those affected, such as the Daily Sceptic, were not even consulted ahead of the fact and had little idea of what specific text, post or media had violated PayPal terms.
So why exactly would PayPal descend to this level of reputational self-harm?
It’s hard to know for sure, but chances are the decision rests on pressures PayPal itself is facing with respect to its legal duty to enforce Know-Your-Customer (KYC) and Anti-Money Laundering (AML) rules. If I was to take an educated bet, it’s the counterterrorism section of the rulebook that is most relevant.
These days it’s hard to imagine that banks weren’t always responsible for screening transactions and making judgements about their legitimacy. But until the Financial Action Task Force (FATF) was formed in 1989 with a view to combatting money laundering, banks only really cared about screening credit risk. It wasn’t until 2001 and the 9/11 attacks on the Twin Towers (and the introduction of the Patriot Act) that the scope of banks’ responsibilities in this field was expanded to include combatting the financing of terrorism too.
Tackling terrorist financing and criminality was easy enough when everyone was on the same page about what constituted terrorism or financial crime. But one man’s freedom fighter is another man’s terrorist. And in an increasingly polarised world, it’s become harder for ordinary bank employees to differentiate free-speech critical of authority from radicalising terrorist content, such as that distributed by Isis on social media to recruit new members.
It wasn’t the job they were hired to do.
Three factors have muddied the waters further.
The first is the scale of penalties directed at banks found in breach of AML/KYC regulation. The fear of being slammed with fines has made banks and payment providers like PayPal hugely risk-averse and inclined to err on the side of caution when facing any ambiguity. If something even whiffs of misinformation, from their point of view it’s better to shut it down than to run the risk of getting a fine.
Second, is a lack of resources. Human arbitration is costly, and screening activities would be unaffordable if they were to be done by living, breathing individuals. This is why banks and payment providers like PayPal have invested huge sums of money in cost-saving screening technology to detect illegal transactions both actively and preemptively. The problem here is that most of these tools, known as suptech or regtech, are algorithmically applied with limited human oversight. That means it’s mostly artificial rather than human intelligence deciding who gets to stay on a platform and who gets frozen out. As yet, robots are not well known for their sense of nuance, empathy or capacity to process ambiguity. How they decide what they decide is a black-box interpretation of the inputs they’ve been programmed with.
The third issue is the structure of the KYC/AML policing system itself. Since the scale of the task is so enormous, it goes beyond the scope and capacity of any existing government agency. Knowing this, governments, very similar to how they managed the enforcement of lockdown policy, realised it would be more cost-efficient to outsource the policing of their own rules to the banks and payment companies directly. But this is a strategically coercive dynamic. If payment companies don’t fall in line, they risk having their licences removed and their businesses shut down. Non-compliance is therefore not an option. PayPal isn’t perfect, but the pressure it is facing is very similar to the pressure pubs, restaurants and supermarkets faced under Covid. The structural problem here, as with the retail sector during Covid, is those payment companies are not legislative specialists. They take for granted that the governments know what they are doing and that the rules they are setting are human rights compatible and in line with the laws of the land. Nor do the payment companies have the capacity to investigate the rights and wrongs of every case. This is a job for the legal system, which is already excessively costly to access for most ordinary individuals.
This in itself is a huge blind spot for the financial system. There’s a very strong case to be made that the way democratic governments have gone about enforcing AML legislation is not compatible with human rights at all. The enshrined right of habeas corpus might even be under threat. The FATF has itself belatedly realised this. Back in October 2021, it noted in a “stock-take on the unintended consequences of the FATF standards” that (my emphasis):
Situations have arisen in the course of FATF evaluations concerning the interaction between the FATF Recommendations on combating TF (particularly R.5 and R.6) and due process and procedural rights (e.g. to legal representation, fair trial, and to challenge designations, etc.), which have been considered on a case-by-case approach as they arise in specific country contexts. In addition, the FATF has also been made aware of instances of the misapplication of the FATF Standards, which are allegedly introduced by jurisdictions to address AML/CFT deficiencies identified through the FATF’s mutual evaluation or ICRG process, potentially as an excuse measures with another motivation. This information often comes as a result of stakeholder input or when the attention of the FATF or its members is drawn to a particular issue, such as when another international body is reviewing legislation or actions are taken by national authorities. Analysis in the stocktake has therefore focused on the due process and procedural rights issues most often arising in evaluations or feedback.
The stock-take identified the following factors as key examples of where misapplication of FATF standards had affected due process and procedural rights:
- excessively broad or vague offences in legal counterterrorism financing frameworks, which can lead to wrongful application of preventative and disruptive measures including sanctions that are not proportionate;
- issues relevant to investigation and prosecution of TF and ML offences, such as the presumption of innocence and a person’s right to effective protection by the courts;
- and, incorrect implementation of UNSCRs and FATF Standards on due process and procedural issues for asset freezing, including rights to review, to challenge designations, and to basic expenses.
Readers can hopefully see the issue.
The entire regulatory system since 2008 has focused on ensuring that the 24-hour payment banking infrastructure we have become used to will never face the risk of going down again.
Put bluntly, the style of service disruption currently being experienced at PayPal is something major banking and payment institutions are not supposed to be able to get away with. At least not for long. So yes, it does feel like a big deal.
For the most part, the practice of shuttering access through website maintenance, downtime or error messages is more commonly seen at cryptocurrency platforms during extreme bitcoin selloffs. Closing access to people’s accounts or pretending to do website maintenance often gives operators the time to raise the liquidity they need by slowing redemptions. But it’s far from a transparent or honourable policy.
For PayPal to have triggered a run on itself because it was merely following government orders is not just unfortunate, it is careless. But it also speaks of a deeper problem at the heart of the anti-money laundering regulatory structure. The entire system we have created may no longer be fit for purpose. Consider, for example, that despite many billions of dollars spent on FATF compliance, a company like Wirecard, whose business model in retrospect looks to have been based on fraud as a service (FAAS), could so easily rise to the top of the German stock market. Nor has any of the regulation been successful at combatting the type of electronic financial fraud (mostly based on phishing attacks or social engineering) that impacts users every day.
We need to seriously ask if the benefits outweigh the collateral damage also being incurred.
But while PayPal might not be entirely responsible for its own actions on the KYC/AML front, its business model may be more vulnerable to this sort of fallout than most people appreciate. The culpability for that lies with PayPal exclusively.
A key revenue generator for the group has always been the interest revenue it absorbs from all the customer balances it holds. (You may not have realised it, but if you have any significant sums in a PayPal account, you won’t be collecting interest on them.) A large outflow of deposits could easily inhibit the company’s ability to raise this income and harm its overall revenue-generating capability. (You don’t have to hold balances at PayPal to use it.)
More critical for PayPal at this juncture will be its inability as a payments company to access the central bank lender-of-last-resort backstop. That means if the group is genuinely facing challenges meeting transfer and redemption requests, it will only be able to turn to wholesale liquidity markets to make up the difference. The degree to which customer balances are locked up in harder-to-liquidate securities or bonds will largely determine its success here. Frustratingly for PayPal, in the current illiquid bond market, there’s a good chance that selling these quickly and without a loss could be challenging. The alternative path for PayPal will be to use these securities as collateral for temporary loans. But the expense here is potentially open-ended if there are no obliging counterparts. That may (or may not) be why the company is currently restricting transfers.
Before rushing to conclusions, it’s important to stress the company still has recourse to liquidity from fully-funded (in fact over-collateralised) entities. We may not know the makeup of that liquidity, but solvency is unlikely to be an issue over the longer term. The biggest problem facing users today will be uncertainty over how quickly they can transfer funds out of the PayPal ecosystem.
What I can say is that in the modern digital age, bank runs will be different. We may even long for the days when tellers transparently shut up shop when the vaults ran dry. At least it was clear what was going on. These days, on the other hand, it will become ever harder to differentiate a bank run from a maintenance issue on a website. Such matters will be shrouded in plausible deniability and uncertainty. Suffice it to say, corporate communication departments will always err towards disinformation of their own sort, that any such outage is nothing out of the ordinary.
Even more concerning is that in the event of a run, customers will no longer be able to tell if those with better connections aren’t unfairly cutting ahead of them in the redemption queue. Virtual queues may seem technologically efficient, but there’s no transparency to them at all.
That’s why if you’re caught out by any of these policies you already don’t stand a chance of getting your account back unless you have existing connections to the management or a platform of your own. None of this is progressive or encouraging.
Izabella Kaminska is the Editor of the Blind Spot, a financial news media service focused on the news everyone else is missing.
PayPal was not contacted for this piece, which is based on the opinions of the author.
Stop Press: PayPal has now done a reverse ferret, claiming the new Acceptable Use Policy, containing the threat of the $2,500 fine, was issued in “error”. MailOnline has the story. As Kyle Becker pointed out on Twitter, PayPal is claiming its new policy to fine users $2,500 per infraction for “misinformation” is, in fact… misinformation.
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Would be nice to see the points for the UK parties
…particularly concerning ‘green’/net zero matters.
I think Noah’s last paragraph nails it, pretty much. There are other things, of course. People are suffering under all of the agendas being pushed by governments in the West, but immigration is the biggie.
On the topic of Europe and migrants…More regarding the paying off by the German government of actual dangerous criminals, just to get them out of the country. Sounds like a deterrent to me ( not );
”Last week, the German government, led by social democrat Olaf Scholz, deported 28 convicted criminals to Kabul. Among them was a rejected asylum-seeker who took part in the brutal and cunning gang rape of a 14-year-old girl. According to the German mainstream media, each of the deported criminals, including the gang rapist, was given 1000 Euros in cash to help start a new life back home in Afghanistan.
This is civilizational decline in action. It’s essentially a new Danegeld, one that sees Taxpayer’s money paid out by a morally adrift leftist system that prostrates itself in front of child-raping criminals for fear of being thought of as ‘racist,’ ‘uncaring,’ and ‘impolite.”
Under Merkel, persecuted people—brave Afghan Hazara women or Iranian women fighting against tyranny—were left in limbo in countries like Turkey or Pakistan, unable to secure legal visas to Germany or afford a ticket out of hell. Meanwhile, privileged, fighting-age young men with no evident history of political dissent were able to afford to pay traffickers tens of thousands of euros to enter Germany illegally.
Once there, these men received generous public support by posing as ‘politically persecuted people.’ This comes even though many of these young men actually regularly go on holiday back to the countries where their life is supposedly ‘in danger.’
In 2019, the consequences of Merkel’s woke, unselective immigration policies led to tragedy in Illerkirchberg. After a party, a 14-year-old girl was lured to a refugee shelter that the government had opened in the village. There a group of foreign, asylum-seeking young men drugged her and then raped her nine times.
Many Germans today do not want to see what is happening with their society. They do not see the shadows rising up yet again. Blinded by Germany’s current prosperity, they do not wish to break with political correctness to consider what future portends for their democratic society.
Instead, they hide behind the meaningless words of myopic leaders like Olaf Scholz, who assure them with powerful platitudes that everything will be all right. Instead of fixing the deep-seated failures at hand, these politicians engage only in electoral cosmetics.”
https://www.americanthinker.com/articles/2024/09/german_gov_to_foreign_criminals_rape_a_14_year_old_get_1000_to_start_a_new_life.html
Blinded by Germany’s current prosperity,
This is ebbing away on a weekly basis as companies file for bankruptcy, close down or move production out of Germany. Educated young Germans are leaving in drives creating a skills shortage for companies remaining in Germany. Tax income that relies a lot on sales tax is falling fast as people are getting poorer due to rising costs and of course high electricity costs due to the Energiewende insanity.
Sorry but you can’t represent my views on social issues and economic issues with a dot on a two dimensional graph. Not in a way that is anything but superficial and ultimately meaningless.
In any case, I don’t need a contrived pseudo-scientific study to explain why “populist” politicians are gaining popularity.
The establishment is aggressively pushing policies that are radical and unpopular. Net zero, large scale immigration, trans rights, equity and diversity being several clear examples.
And to make it even worse, the establishment labels opposition to these policies as extremist when it is the policies that are extremist and the opposition which is sensible and moderate. i.e. it is gaslighting the population.
So any politician who stands up to establishment radicalism is going to (a) get the support of people and (b) be called radical, extremist, far right etc.
There’s the entire explanation right there. No need for contrived graphs.
The only way to represent and analyse the views of large numbers of people is graphically.
paragraph after paragraph describing the views of each interviewee would not get to the heart of the matter.
That sounds sensible. But reasoning along those lines is probably what “climate scientists” use to justify their bullshit models.
Some simplifications and approximations may serve as faithful enough representations of reality and some may be complete distortions. Some may say nothing at all.
It really depends. What I know for sure is that my political position cannot in any accurate or meaningful way be represented on that two dimensional graph. And I doubt very much most other people’s can either.
Your last paragraph. Quite so, and we all change our views and positions as we progress through life and events unfold.
Trying to quantify the qualifiable, beloved of Statists, to produce a number that is ‘representative’.
There is no representative view of a mass of people, there is no one animus, no single ‘Will of the People’.
Thus is why the Parties all wander around in an imaginary ‘centre ground’ which supposedly represents what everyone wants.
And having different shapes, rather than just different colours, helps those than can see different shapes, but not different colours.
Thank you.
Indeed. But sadly not enough Europeans support “populists” for many of them to get into power.
Less so if the electoral system is rigged to underrepresent them.
In any case, I agree support is still low and likely to remain that way for as long they suppress it with the mind trick and brainwashing that makes people think that moderate policies are extremist ones.
Yup, the mind trick might eventually be dispelled when things get really bad, but then I kept thinking the “covid” nonsense would collapse because it was so invasive and such obvious bollocks.
Maybe soon they wont be able to hide it……’It’ being the replacement of the native population and the crimes that they import. It is hard to hide the scumbags that go round stabbing young girls, even for those dumb middle classes who are the worst to drink the diversity & climate Kool Aid.
Not so far they don’t, but they will learn when any vote by anyone against what the “popular” desire is achieves exactly the opposite.
There will come a time when only 65% for AfD etc will be enough, and then the left will want to change the rules.
After 14 years of unconservative government from the Tories, SIX MILLION people still voted for them despite a credible alternative (Reform) being available.
Astonishing really.
But really once you realise that everything in the human mind is a huge simulation made up of simplified representations of physical reality plus models of made up, abstract ideas, then you can’t help but accept how susceptible to programming we are.
I would say you can probably predict to a very high degree of certainty how a person votes based on the media they consume.
Our media is our programming.
I think many did not think of Reform as being a credible party, which of course while they remain owned by Farage they are not. Their challenge is to take control from Farage and become a proper party as soon as possible. Next May’s local elections are crucial to the development of Reform.
What’s wrong with Farage, according to you, and why are they not a “proper party”? Proper or not, they were surely better than the Socialist Woke Tories.
Opinion polls show support for Reform as increasing substantially since the election. Reform are now pushing 20 percent.
It seems that the winning of real seats in the Commons has concentrated people’s minds.
Because we are all supremacists, racists, phobes, anti-science, uneducated, ill favored Nazis and Hitlers of course.
Right wing really is not a useful term to describe the demands of voters to protect our culture, social cohesion and safety. Left winger used to think those were important; just remember the arguments about coal mines in the UK in the 1979s and 1989s.
Left wing, socialist politics has been advancing relentlessly for over a hundred years based on one simple fiendish mind trick: making people think conservatism is right wing.
Conservatism is really by definition centrist. It is the ideology that things should remain as they are as much as possible and any changes should be slow and small. That is the very epitome of balance.
The opposite of making society more socialist and socially “progressive” isn’t not changing things and leaving it as it i. It’s making society LESS socialist and less socially progressive. But that hasn’t been much of an option in the last hundred or so years because everyone has been convinced that standing up firmly for keeping the status quo is “far right”.
Less Socialism is difficult to impose, but it comes from having more independent thinkers, more informed debate, a better understanding of reality, like there’s no money tree, and returning to traditional values in the Arts and Humanities, with Science and Engineering projects being influenced by, yes, those with Science and Engineering knowledge and experience.
Using ‘Not Left’ is as bad as ‘Don’t be negative’.
It would be interesting to repeat the analysis with more recent data. Have the purple and green blobs moved closer together or further apart?
I suspect they have moved further apart – unless the recent ‘populist’ elected politicians have had enough effect to broaden the green blob.
Some supporting evidence from Germany here;
”Support for another term of the federal coalition government is currently at 0 percent, according to the latest ZDF political barometer.
Just 23 percent of the country wants Chancellor Olaf Scholz to remain in post after the next federal election — 74 percent are against it.
Even supporters of his own SPD party want him gone at the election — 49 percent to 47 percent don’t want him to run as the party’s candidate for chancellor.”
https://x.com/RMXnews/status/1832061998772711486
Why do Europeans support those politicians whose policies will best serve their wishes and interests rather than those of the entrenched ruling elite and a globalist nexus of fraudsters, grifters, charlatans, misanthropes, and evil-doers whose intent is to immiserate and impoverish them?
Let me think.
“While voters have similar views to politicians on economic issues…”
Evidence from observation shows that neither politicians nor voters have the faintest idea about economics, so that diagram is meaningless.
Proof: a welfare state complete with its magic money tree, fiat money, astronomic debt.
The notion of a welfare state was invented by Otto v. Bismarck as one prong of his two-pronged strategy to fight socialism (the other was outlawing socalist parties like the SPD). But the German Empire had (until 1914) a gold-based currency and strictly adhered to the principle that the state cannot spend money it didn’t earn first.
It bears repeating here that the AfD is a centre-right party whose manifesto contains all the usual classics for that, eg,
Link to the complete manifesto in English:
https://www.afd.de/wp-content/uploads/2017/04/2017-04-12_afd-grundsatzprogramm-englisch_web.pdf
It’s worth having a look at that to get an idea what Scholze, Faeser, Lang and their ilk really refer to when they apply the label Nazi to their political opponentw (the ‘Nazi-light’ label right wing populist is never really meant that way — It’s always Nazis! when preaching to the choir itself).
Populism is a smear name. To the liberal elites it is a name used to imply dog whistle, the mob, thoughtless politics. As a result it is ok to ignore and or also call it far right.
Could it be that we are sick of having to endure taxation, pain and misery for things that we know are not true, and corruption of our society and government by the very people who we have supposedly put in those places by our ‘democratic process’.
Great article Noah, but for crying out loud,
“In terms of analysis, Günther began by creating two broad indexes”
=
“Günther began by creating two broad indexes”
Please, avoid the ridiculous phrase ‘in terms of‘. It rarely contributes anything to an argument, while making the speaker sound like a Labour politician or BBC sports programme presenter (or just about anyone else on television for that matter).
Er, because they are popular?
LOL. Unpopular populism?
We already know populism is popular because it meets unmet political needs.
Let us not forget the loony left racist antisemitic genocidal rent-a-mob for months has been demonstrating against Israel and for the genocide of all Israelis ‘from the river to the sea‘.
There are so many political issues affecting the majority to protest about but they ignore them. Those issues are politically inconvenient and predominantly affect indigenous white people in the UK.
And they tell us migrants are welcome all the while as fighting age young men literally invade illegally our shores in rubber boats.
This is whilst failing to protest against homelessness of our ex-military and the mental health issues they suffer like PTSD.
They fail to protest homelessness of 80,000 young Brits.
They fail to protest the collapse of public services like health and GP appointments.
They fail to protest the scandal of joblessness in the many deprived regions of the UK.
And why do they protest gender equality for a tiny minority?
Its because they have run out of issues like ‘gay’ rights which are no longer a problem.
Is there a political ‘Right’? Or is it that the existence of views dubbed ‘Left’ creates a contrast to other views which are then dubbed ‘Right’.
Loony – too damn right – and we see them right at the top of government.
The two Davids – Minibrain and Lamebrained Lammy – are great examples.
But how many more are there who are not so visible publicly.
Research described in this DS article – assuming it is reliable – is helpful in being a little bit more specific and helps explain.
It is a little superfluous because it confirms what we already know.
Unmet political needs will remain unmet whilst there remains a loony left.
Is there a sensible left?
There used to be long ago before unseen external interests set about winding up political activists to destabllise the western world.
They say Tony Benn was a ‘good’ Leftist, against handing sovereignty away is very commendable. People mention Ken Livingstone but they should watch when he was interviewed on GBN about Lockdowns. Their authoritarian streek breaks out.
With long gaol terms for tweets, given enough time we’ll all be in the gas chambers faster than two shakes of a lamb’s tail for voting against them.
I think it is more fundamental than that. Establishment parties aren’t just more Left wing on social issues – the issues they care about and talk about are different from the voters.
Establishment parties care about net zero, diversity and inclusion, trans rights and virtue signalling globalist nonsense. The voters just want the politicians to sort out the mess of creaking public services, crumbling social cohesion, lack of patriotism and a cost of living crisis caused by expensive energy.
People can see that the obsessions of the Establishment are wrecking the foundations of our society, and they want that to stop.
They say the madness will end when all the money runs out!
If our Labour government follows the lead of the Tories of the last 14 years, borrowing £128 billion pa it will soon especially if interest rates jump to 15% in one day as they did once before.
It won’t be £100 billion pa in interest repayments but £300 billion pa, so the borrowing of £128 billion pa will jump to £328 billion pa – roughly.