U.S. Government Admits Using Fake Vaccination Programs to Gather Intelligence and Now Swears it Won’t Do it Again…

As someone who spends the vast majority of his time trying to keep up with what is happening in the world, I am always embarrassed when confronted by an extraordinarily important story that I somehow completely missed. The story I am referring to in this case is the fact that the CIA organized a fake vaccination program in Pakistan several years ago in order to get Osama bin Laden’s family DNA. The Guardian reported this back in 2011:

The CIA organised a fake vaccination programme in the town where it believed Osama bin Laden was hiding in an elaborate attempt to obtain DNA from the fugitive al-Qaida leader’s family, a Guardian investigation has found.

As part of extensive preparations for the raid that killed Bin Laden in May, CIA agents recruited a senior Pakistani doctor to organise the vaccine drive in Abbottabad, even starting the “project” in a poorer part of town to make it look more authentic, according to Pakistani and US officials and local residents.

The doctor, Shakil Afridi, has since been arrested by the Inter-Services Intelligence agency (ISI) for co-operating with American intelligence agents.

Naturally, many Pakistanis were none too pleased about this situation. After all, how would you feel if let’s say Chinese health workers were caught using the guise of humanitarian activities in order to spy on American citizens. Yeah, that’s what I thought.

So thanks to the CIA’s idiocy, the entire world will now never trust any vaccine program that has any connections to the USA. There has already been an armed backlash against American immunization programs where 56 people have died. Furthermore, there has been a resurgence of polio in Pakistan. Of the 77 cases of polio documented worldwide so far in 2014, 79% have been in Pakistan.

While this is horrible in its own right, there is a much bigger story here. The fact that the United States holds no claim to any sort of moral high ground whatsoever. Rather, due to the many factors that I have outlined on this site over and over, the U.S. is now seen, internally by its citizenry, as well as externally, as a thieving, corrupt, nuclear armed Banana Republic ruled by a cadre of childlike oligarch puppet figureheads concerned only with how much they can steal before society collapses. This has been proven and reinforced over and over again by stories such as this one, as well as the recent revelation of: Conspiracy Fact – How the U.S. Government Covertly Invented a “Cuban Twitter” to Create Revolution.

Screen Shot 2014-05-20 at 10.29.09 AM

Now we learn from Yahoo News that:

Amid a deadly backlash again vaccinations and a resurgence of polio in Pakistan, the White House has promised that the CIA will never again use an immunization campaign as a tool of spycraft. 

Sure, let’s go ahead and take professional liars at their word.

“I wanted to inform you that the Director of the Central Intelligence Agency (CIA) directed in August 2013 that the agency make no operational use of vaccination programs, which includes vaccination workers,” President Obama’s top counterterrorism and homeland security advisor, Lisa Monaco, wrote to the deans of 12 public health schools. Yahoo News obtained a copy of the May 16 letter (below).

“Similarly, the Agency will not seek to obtain or exploit DNA or other genetic material acquired through such programs,” Monaco wrote. “This CIA policy applies worldwide and to U.S. and non-U.S. persons alike.”

The Central Intelligence Agency had enlisted a Pakistani doctor, Shakil Afridi, to collect intelligence under the guise of an immunization effort in the city of Abbottabad as part of planning for the high-risk May 2011 raid on Osama bin Laden’s compound there.

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Gene Healy Says It’s Time To End Congress’s Blanket Authorization of Force

It may sound hard to believe, but Senate
Majority Leader Harry Reid, D-Nev., isn’t always wrong—at
least when he states the obvious: “9/11 is a long time
ago,” he said Wednesday, “and it’s something that needs
to be looked at again.” The “it” is the post-9/11 Authorization for
Use of Military Force resolution, or AUMF, adopted three days after
the terror attacks, and now going on its lucky 13th year. Gene
Healy says that after two imperial presidents in a row have treated
that authorization like a permanent delegation of congressional war
power to the president, it’s time to put an end to the policy.

View this article.

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The Veterans Health Administration Really Does Offer ‘Lessons’ in ‘Socialized Medicine’

Just a couple of years ago, Paul Krugman

pointed to
the Veterans Health Administration (VHA) as a “huge
policy success story, which offers important lessons for future
health reform.” He gloated, “yes, this is ‘socialized

Similarly, a letter touted by Physicians for a National Health
“the success of 22 wealthy countries and our own
Department of Veterans Affairs, which use single-payer systems to
provide better care for more people at far less cost.”

How could a bloated government bureaucracy achieve such low-cost
success? As we found out recently, it’s by
quietly sticking veterans on a waiting list and putting off their
treatment for months
—sometimes until the patients are far too
dead to need much in the way of expensive care. Which is to say,
calling it a “success” is stretching the meaning of the word beyond

And, while the White House insists it learned from press reports
about the secret waiting lists, Press Secretary Jay Carney
that the administration long knew about “the
backlog and disability claims” that have accumulated in the

This should surprise nobody. Canada’s government-run
single-payer health system has long suffered waiting times for
care. The country’s Fraser Institute
“the national median waiting time from specialist
appointment to treatment increased from 9.3 weeks in 2010 to 9.5
weeks in 2011.”

Likewise, once famously social democratic Sweden has seen a

rise in private health coverage
in parallel to the state system
because of long delays to receive care. “It’s quicker to get a
colleague back to work if you have an operation in two weeks’ time
rather than having to wait for a year,” privately insured Anna
Norlander told Sveriges Radio

An article in The Local
that “visitors are sometimes surprised to learn about
year-long waiting times for cancer patients.”

Britain’s single-payer National Health Service (NHS) is up front
about wait times for care, with the organization’s website
, “you have the legal right to start your NHS
consultant-led treatment within a maximum of 18 weeks from
referral.” Last year, the Daily Telegraph
that “waiting lists, which have hovered around 2.5
million patients in recent years, reached 2.88 million in June, the
highest level since May 2008.”

Why the common delays across single-payer health systems?

It’s like that sign you see in
car repair shops owned by wiseasses: “Fast. Good. Cheap. Pick Any

Advanced medical care costs a lot of money. Delivering
it quickly costs more. To the increasingly limited extent that it’s
allowed, American private medicine recognizes the compromises that
have to be made and offers a variety of coverage at different price
points—that is, you have some choice in which two you get. The
British NHS also recognizes the need to compromise—and there goes
“fast.” (The NHS is
known for holding back on “good,” too
, when further cost
controls are needed.)

The VHA has tried to pretend that compromises don’t have to be
made; that it can, somehow, deliver care to everybody without
worrying about cost. But it faces the same lack of infinite
resources as everybody else. If the VHA won’t charge more for quick
access to better care, fast will have to give. So we end up with
secret waiting lists.

The VHA also
often compromises on the good part
, denying that
illnesses exist, or that they’re military-related and therefore its

So the VA
really is a good example
of a single-payer, socialized
health system. Just not in the way that fans of that approach

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Following Latest Recall Shocker, GM Has Recalled 56% More Cars In 2014 Than It Sold In 2013

They don’t call them Government Motors for nothing.

Over the weekend we titled our summary of GM’s unprecedented avalanche of recalls so far in 2014 – the year in which the company’s criminal practice of covering up its faulty products became a congressional scandal –  as follows: “GM Set To Surpass Total Recall Record This Year.” Three days later we are happy to report that while Detroit, we not only have a big recall problem, we also have a new record, after moments ago GM just announced another 4 recalls affecting 2.4 million cars.

This brings the total number of vehicle investigations since the start of the year to 35, and with today’s four latest fiascos, has initiated a whopping 29 recalls. More importantly, this also means that the number of domestic recalls rises to 13.6 million, smashing the previous record of 11.8 million recalls in 2004, and brings the number of global recalls to 15.2 million: or a stunning 56% greater than the 9.7 million cars GM sold in all of 2013!

As was expected, as part of today’s most recent recall, GM took yet another charge, this time for $200 million. But don’t worry: hedge fund pandering sell-side analysts everywhere will be sure to addback these recurring “non-recurring” charges to EPS and all shall be well.

Here are the highlights from today’s announcement:

In a continuing effort to quickly address emerging safety issues, General Motors announced today it is recalling about 2.42 million vehicles in four separate U.S. recalls. The recalls are for:

  • 1,339,355 Buick Enclave, Chevrolet Traverse, GMC Acadia full-size crossovers from the 2009-2014 model years and Saturn Outlooks from 2009-2010 because front safety lap belt cables can fatigue and separate over time. In a crash, a separated cable could increase the risk of injury to front seat passengers.
  • 1,075,102 of the previous generation 4-speed automatic transmission Chevrolet Malibu and from the 2004-2008 model years and Pontiac G6 from the 2005-2008 model years  because of a shift cable that could wear out over time, resulting in mismatches of the gear position indicated by the shift lever. 
  • 1,402 Cadillac Escalades and Escalade ESVs from the 2015 model year because an insufficiently heated plastic weld that attaches the passenger side air bag to the instrument panel assembly could result in a partial deployment of the air bag in the event of a crash.
  • 58 Chevrolet Silverado HD and GMC Sierra HD full-size pickups from the 2015 model year because retention clips attaching the generator fuse block to the vehicle body can become loose and lead to a potential fire.

GM has added 35 product investigators since the beginning of 2014, and, including those announced today, has initiated 29 safety and non-compliance recalls in the U.S. so far this year. Two of the recalls involve fewer than 100 vehicles.


* * *


GM stopped sale of the 2015 Escalade and Escalade ESV and sent overnight letters, called and emailed the 224 customers who had taken delivery of the vehicles and instructed them to not let occupants sit in the front passenger seat until the vehicle has been serviced. GM knows of no crashes or injuries associated with the Escalades.


* * *


GM expects to take a charge of up to approximately $400 million in the second quarter, primarily for the cost of recall-related repairs announced in the quarter. This amount includes a previously disclosed $200 million charge for the five recalls announced May 16.

Here is the full list of recalls announced just in 2014. Considering we are barely five months into the year, expect this to grow substantially by the end of the year.


And the chart that puts it all in context: the amount of recalls in the first five months of 2014 alone is more than 15 times greater than the total recalls announced in 2013, and is 70% greater than the total number of recalls announced in the prior five years combined!

Once upon a time, executives would lose their jobs for such an unprecedented, and ongoing fuck up not to mention criminal cover up. But this is the New Normal, in which this company only exists because of the government’s blessing. And one certainly wouldn’t want to imply that once the government gets involved in the private sector all hell breaks loose, now would one?

via Zero Hedge http://ift.tt/1oNVJ0z Tyler Durden

Gabriel Kolko, RIP

"Pull the string! Pull the string!"The leftist historian Gabriel
Kolko has
at age 81. He wrote many books that drew interest from
libertarians, from
Railroads and Regulation
(1965), on the early history
of the Interstate Commerce Commission, to
The Limits of Power
(1972), on the early history of
the Cold War. But the Kolko book that libertarians love to
invoke the most is
The Triumph of Conservatism
(1963), his history of the
Progressive Era. Pushing back against liberals who celebrate the
first two decades of the twentieth century as a time when the
government finally started to tame big business, Kolko made a
strong case that big business had in fact played a major role in
designing and imposing the new regulations. In this way, he showed,
companies were able to eliminate competition that could not be
stopped by market means. “As new competition sprang up,” he wrote,
“and as economic power was diffused throughout an expanding nation,
it became apparent to many important businessmen that only the
federal government could rationalize the economy….[I]t was not
the existence of monopoly that caused the federal government to
intervene in the economy, but the lack of it.”

Since The Triumph of Conservatism was
published, we’ve seen half a century of scholarship on the
Progressive Era; Kolko’s book is by no means the last word on the
period. But it’s a fine entry point into that scholarship, a
disinfectant that clears away both liberal myths about benevolent
reformers and conservative myths about independent, market-loving
businessmen. And it was a watershed moment in the New Left’s
emerging critique of the corporate state, a critique that converged
with the arguments coming from free-market libertarians.

Kolko was initially puzzled by this convergence. In 1973, when
Reason was assembling a list of college professors whose
courses might be of interest to libertarian students, Kolko reacted
with this letter:

Over time this attitude softened, and Kolko came to speak favorably
of libertarian scholarship on such subjects as the New
. In his 2006 book
After Socialism
he firmly rejected the socialist
tradition, though he did not leave the left. “After Stalin, Mao,
and Blair, socialism is today irreversibly dead both in practice
and theory,” he wrote, then added that “capitalist theories are no
less erroneous and irrelevant.”

So that’s where the scholar stood at the end of his life. But
his scholarship, meanwhile, had much to teach both the socialists
and the capitalists whose ideas he dismissed. Requiescat in

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Survey: Millennials Love Big Government?

Last week Youth Engagement Fund and Project
New America released a new survey
on millennial ideology
. Millennials—roughly defined as those
aged 18 to 33—are my people. I tend to stick up for us. I tend to
take heart in this generation’s support
for marriage equality and ending the drug war
, among other

But holy geez Gen Y, this is a poor showing. On
measures from “creating jobs” to “making college affordable” to
“protecting the rights of women,” millennials overwhelmingly said
they favored greater government involvement. And when asked whether
they would rather have government “off their backs” or “on their
side,” 59 percent of millennials voted for friendly

For the survey, Harstad Strategic Research polled more
than 2,000 18- to 31-year-olds in March and April 2014. Of course,
it should be noted that Youth Engagement Fund, Project New America,
and Harstad are all progressive organizations. Perhaps there’s some
subtle linguistic bias driving these results? One can

Harvard University’s Institute of Politics and Pew
Research Center have also recently released surveys on Gen Y
political attitudes. While some broad similarities can be seen
among these, “it is not easy to make direct comparisons across
polls (most obviously, because of differently worded questions and
other methodological issues),” as 
Tierney notes
 at The

All three polls showed more millennials aligned with Democrats
than Republicans. But they also showed relatively large subsets of
political independents—50
percent in the Pew survey
, 38 percent in
Harvard’s survey
, and 19 percent in this latest survey. And
while this one undeniably detects a strong big government,
progressive streak in young people, Harvard’s research may paint a
decidedly more libertarian picture. From
Casey Given at The Hill

“Regarding fiscal discipline, Harvard’s November
 survey reported 58 percent support for reducing food
stamps to 2008 levels and limiting the program’s growth to the rate
of inflation. The same survey also showed strong support of
reducing military expenditures, with 51 percent approval of
decreasing the Navy fleet to 230 ships and 70 percent of lowering
the nuclear arsenal to 1,5000 warheads. Regarding social tolerance,
Harvard’s April survey reports 66 percent support of legalizing
marijuana for medical purposes and 61 percent responding that ‘a
friend’s sexual orientation is not important to me.'”

Writing in The Washington Post yesterday, British
political scientists
Anja Neundorf and Kaat Smets cautioned
against reading too much
into any of these millennial surveys, noting “the importance of
distinguishing between the effects of aging and the effects of
belonging to a certain cohort or generation when predicting
political attitudes and behaviors over the lifespan.” A series of
articles in the
latest issue
 of the journal Electoral
, co-edited by
 look at the impact of aging and
generational cohorts on voting behavior

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Credit Mania Update – The Chase for CCC-Rated Bonds

I hadn’t focused on the latest bout of credit market frothiness until the last couple of months, as investor activity has become so preposterous and disturbing that I simply couldn’t ignore it any longer. Before reading the rest of this post, I suggest catching up on two pieces I highlighted recently on the topic, which should help set the stage:

Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled

Guest Post: Is There a Massive High Yield Credit Bubble?

Moving along to today’s piece from the Wall Street Journal, which focuses on investors’ insatiable appetite for CCC-rated bonds. We learn that:

Large investors are rushing into the riskiest corporate bonds, frustrated by low interest rates on safer investments and convinced that even companies with shaky finances are in little danger of default.

One sign of that rush: Investors have been buying up corporate bonds with a triple-C rating, a grade that analysts and investors consider highly speculative.

That buying is driving up prices on those bonds and pushing down their yields, which this month fell to 8.187% on a closely watched Bank of America Merrill Lynch index—the lowest level on record. 

This embrace of risky bonds and the retreat from risky stocks reflect a world where interest rates are staying much lower, much longer than most had expected, some investors say. “What we’re seeing is the continued search for yield,” says Matthew Rubin, director of investment strategy at Neuberger Berman, which oversees $247 billion.

The 12-month trailing default rate from low-rated corporate borrowers edged up to 1.7% in April, from a six-year low of 1.57% in March, according to Standard & Poor’s Ratings Services.

The yield gap between junk bonds and U.S. government debt—a measure of the premium investors receive for taking on the risk of junk bonds—has narrowed. On triple-C-rated debt, that gap recently hit 6.97 percentage points, the lowest since November 2007. The all-time low of 4.14 percentage points was hit earlier that year.

A little too many comparisons to 2007 for my taste.

Just understand that your pension is going to be stuffed completely full like a Thanksgiving Turkey with the most toxic financial shit you can imagine by the time this thing blows sky-high.

Muppets will lose, as always.

Full article here.

In Liberty,
Michael Krieger

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Credit Mania Update – The Chase for CCC-Rated Bonds originally appeared on A Lightning War for Liberty on May 20, 2014.

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NSA Records All Cell Phone Calls in the Bahamas, Finds Some Guy Mailing Marijuana

They know what you did last summer.If you’ve been to the Bahamas
recently, the National Security Agency (NSA) knows who you called
and what you said while you were there. If you called some guy
whose number a friend of a friend provided for you to score some
weed while on the island to help you relax, because you’re one of
those people who actually gets even more wound up while on
vacation, the NSA knows that, too.

The latest big revelation from Edward Snowden’s files is that
the NSA has the ability to record and store the content (not just
the metadata) of all cell phone conversations in the Bahamas and at
least one other country. The Bahamas: A hotbed of terrorism
activity? Of course not. But the popular small island could serve
as a nice testing ground for this surveillance system, code-named
SOMALGET. Snowden’s primary partners in document-dumping, Glenn
Greenwald and Laura Poitras, analyzed the info along with Ryan
Devereaux at
The Intercept

SOMALGET is part of a broader NSA program called MYSTIC, which
The Intercept has learned is being used to secretly
monitor the telecommunications systems of the Bahamas and several
other countries, including Mexico, the Philippines, and Kenya. But
while MYSTIC scrapes mobile networks for so-called “metadata”
– information that reveals the time, source, and destination
of calls – SOMALGET is a cutting-edge tool that enables the
NSA to vacuum up and store the actual content of every conversation
in an entire country.

All told, the NSA is using MYSTIC to gather personal data on
mobile calls placed in countries with a combined population of more
than 250 million people. And according to classified documents, the
agency is seeking funding to export the sweeping surveillance
capability elsewhere.

The program raises profound questions about the nature and
extent of American surveillance abroad. The U.S. intelligence
community routinely justifies its massive spying efforts by citing
the threats to national security posed by global terrorism and
unpredictable rival nations like Russia and Iran. But the NSA
documents indicate that SOMALGET has been deployed in the Bahamas
to locate “international narcotics traffickers and special-interest
alien smugglers” – traditional law-enforcement concerns, but a
far cry from derailing terror plots or intercepting weapons of mass

Since the Bahamas are a popular travel location for Americans,
and since many Americans have homes there (the article notes that
Bill Gates and Oprah Winfrey have residences there), SOMALGET is
then sweeping up the content, not just the metadata, of untold
numbers of conversations by U.S. citizens.

According to the documents, one other country is getting the
full recording treatment, but The Intercept has decided to
keep the identity of this country a secret because of “credible
concerns that doing so could lead to increased violence.”
Speculation immediately followed that the country they’re refusing
to identify is Afghanistan. Since the system seems to operate with
the help of private firms providing access with wiretap equipment,
it seems possible these people are the ones The Intercept
is trying to protect from harm (it’s also possible that the private
contractors have no idea of the extent of access they’re

One memo indicates that the relationship between the Drug
Enforcement Agency (DEA) and foreign governments may be how the NSA
is putting these surveillance tools into play. The way The
describes it, the DEA may be requesting legal,
specific wiretaps to snoop on targets, with the NSA then using that
access to snoop on the whole network.

What is the NSA getting out of this? Possibly not a whole

[T]he NSA documents don’t reflect a concerted focus on the money
launderers and powerful financial institutions – including
numerous Western banks – that underpin the black market for
narcotics in the Bahamas. Instead, an internal NSA presentation
from 2013 recounts with pride how analysts used SOMALGET to locate
an individual who “arranged Mexico-to-United States marijuana
shipments” through the U.S. Postal Service.

Not even the NSA is immune to crowing about the low-hanging
fruit they’ve gathered to make an extremely expensive system appear
to be successful. But it’s important to remember who “low-hanging
fruit” is to any sort of law-enforcement agency. It’s not the big
drug lords and heads of terror organizations. It’s average joes who
don’t have the resources to protect themselves and are in difficult
economic situations. Is catching a guy mailing dope from the
Bahamas to the United States what this program is all about?

Given that this massive NSA surveillance program hasn’t actually
succeeded in catching terrorists or stopping terrorist plots, one
doesn’t have to be a conspiracy theorist to note that the
government rarely shuts down massive programs just because they
aren’t successful. And, as The Intercept reminds, the DEA
has been using information gathered through secret surveillance to
launch criminal investigations against Americans and then trying to
hide the source through its
“parallel construction” process

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Advisor To Turkish Prime Minister Kicks Protester, Takes Sick Leave For Leg Pain

For those curious how much further into banana status the “developed” world may further drop, look no further than Turkey which is rapidly becoming the case study of banana governance par excellence.

Last Wednesday, PM Recep Erdogan (who has already served the maximum three terms as prime minister and is expected to run for president in August) visited the coal mine in the western town of Soma where 282 miners were killed in a tragic mining accident which also was the country’s worst mining disaster. But if the purpose of his visit was political and to generate empathy brownie points with the local population, things quickly turned sour after angry protesters heckled Erdogan and scuffles broke out between demonstrators and police in Soma, forcing the Turkish leader to take refuge in a supermarket before being driven off in a black vehicle.

What happened next was shocking: according to Turkish newspaper Hurriyet a protester kicked a vehicle in Erdogan’s convoy, prompting the special forces police to jump in and force the man to the ground. Then Yusuf Yerkel, an advisor to the Rukish prime minister, kicked the protester “three or four times,” the paper said. Unfortunately for Yerkel, the moment was caught on video and immediately made the rounds on recently unbanned Twitter.

As Haaretz reports Twitter was quickly abuzz with posts condemning Yerkel’s action and an opposition party demanded an explanation for it.

“Do his responsibilities include beating up and kicking protesters or citizens? On which legal grounds was he given this authority?” lawmaker Ugur Bayraktutan asked in a question submitted to parliament for the government to answer. The prime minister’s office distanced itself from the incident, with one official saying the issue was Yerkel’s “own personal matter.”

But that’s not the punchline.

What was the proverbial cherry on top is that yesterday Yerkel “went on sick leave due to soft tissue trauma he sustained in his right leg. According to the report in Hurriyet an Ankara hospital granted Yerkel a week of sick leave to recover from his injuries.

So let that be a lesson to you: the next time you kick protesters already manhandled by angry cops, be prepared to reap the soft-tissue consequences. And if doing so in the US, be sure to have Obamacare for when the doctor invoice with many zeros comes in the mail.

via Zero Hedge http://ift.tt/1qS8JEq Tyler Durden

Payment Processors, Patents and a Dollop of Healthy Paranoia

picsay-1400512647Reggie Middleton discussion UltraCoin at the 2014 FinTech conference at Dechert LLP.

Coindesk asks “Do Patent Filings from eBay and Western Union Pose a Threat to Bitcoin?” I feel  the question is in and of itself missing the point. To explain this fully, I have to share a little bit about myself, particularly my weaknesses. I’m the type of person who is very knowledgeable about his strengths and his weaknesses, but sometimes I don’t see my strength for what it is, and that is tantamount to a weakness in a highly competitive environment.

Case in point, in discussing whether or not competing patents have been filed for smart contract transacion processes by those who seek to be in my space with my contract engineer (a very skilled software architect and IP attorney), I displayed what I considered a healthy level of paranoid concern. I found it hard to believe that no one bothered to patent the most innovative, disruptive and groundbreaking aspect of this new crop of digital currencies – the ability to program them. As those who follow me know, I’ve spent a lot of resources developing, designing, refining and patenting advanced smart contracts (see How Reggie Middleton’s Start-up Patented The Future of Global Finance!). I actually found it highly unlikely that no one had come up with this idea before me. Matt (my contracts engineer) said, “You know, it actually takes an uncanny amount of vision to have seen the scope of this stuff and act upon it, not to mention to have done so 6 months ago. Not many people are like you.” Right then and there, it hit me. People really do not see things the way I do! 

Most know me from my prescient calls in banking, finance, real estate and tech (see Who is Reggie Middleton?). I’ve demonstrated a knack for seeing future trends and determining when things (such as valuations and opportunities) are out of whack. With that being said, the big media interest in Bitcoin combined with the increasing VC interest in Bitcoin companies (reference BitPay Gets $30 Million in Venture Capital Funding) is a very good thing for the industry, but also illustrates shortsigtedness in both the investment community and many practitioners.

The problem with the processors…

When bitcoin is as easy as PayPal to use then it will be on the path to mass adoption, but to assume that’s the most lucrative path to take in bitcoin company private equity investment begs the wrong question. Here’s the strategic landscape as I see it.

Bitcoin is very inexpensive to use as a transfer agent. A transaction may be safely sent without fees if these conditions are met (this is excerpted directly from the Bitcoin Wiki, verbatum):

  1. It is smaller than 1,000 bytes.
  2. All outputs are 0.01 BTC or larger.
  3. Its priority is large enough

Otherwise, the reference implementation will round up the transaction size to the next thousand bytes and add a fee of 0.1 mBTC (0.0001 BTC) per thousand bytes. Note that a typical transaction is 500 bytes, so the typical transaction fee for low-priority transactions is 0.1 mBTC (0.0001 BTC), regardless of the number of bitcoins sent.

Bitcoin as of 5/18/2014 is $444.74m, thus the fee for this transaction is roughly 4 cents, if not outright free. If a processor is transferring $10,000 on behalf of a customer, whether at one time or 100 times throughout the course of a month, the processor’s fee cost would range from $0 to $4, while the processor would likely charge (as of the date of this writing, $0 to $100). The traditional processors such a Visa or Paypal  would charge hundreds (as in up to 50x more!) for the same deal!

That 25x markup on the high end is significant (even for the Bitcoin companies), and ripe for disintermediation itself (that’s right, the disintermediaing agents are poised for disintermediaion). Particularly once the UX of Bitcoin evolves, as email and web browsing did, and users realize how easy and cheap it is to jump onto the blockchain and do this stuff themselves.

Even assuming users don’t follow the historical model of those that left proprietary walled gardens (think AOL) and jumped directly into the open World Wide Web themselves, there are no material barriers to entry to enter into the processing business other than potentially a money transmitter license. The only material barrier, hence the business opportunity, is that Bitcoin is cumbersome to use. As the UI/UX polish increases and the amount of competitors in the space increase, the lower the prices charged – hence the margins – will be.

With such low barriers to entry and potentially humongous markups to exploit, what do you think happens next? The wild, untamed hordes of competitors swoop down upon the masses, and we have a concerted race to zero, and likely negative margin as competitors attempt to make processing a loss leader to draw users into the folds of richer, higher margin services!!!

 The race to marginal zero, then negative, does not make a strong business plan. So, what do these companies such as BitPay, Coinbase, etc. do once that point is reached (rather quickly)? They look to value added (high margin) services on top of their low margin, utility-like payment infrastructures.

Enter smart contracts and the true use of programmability in the crypto-currencies. The easiest and the likely first implementation of such will be multi-sig operations which allow multiple parties to share funds without having to worry about trusting and single party in a transaction. Our ZeroTrust Letters of Credit (patent pending) is just such a product. It allows for multiple parties to tranfer payment for simple and complex transactions contingent upon the mutual agreed upon successful execution of said transactions. This is done without the parties having to:

  1. Know each other
  2. Trust each other
  3. Have any form of proximity to each other;

and can be done using micropayments all the way up to multi-million dollar macro payments. The barriers to this business are much higher. For one, it takes more than just programming code. You have to be able to congeal the legal logic of the conventional law in equity contract into code. You have to be able to congeal the business logic into code, and you have to be able to implement it into the blockchain or whatever other underlying transmission mechanism you choose to utilize.

Once the race to negative zero is in full swing, a few of the wiser companies will wake-up and say “Hey, there has to be a better way, and we think we found it!”. It is at that point Reggie Middleton’s UltraCoin products and assets will shine. It is not hard to foresee that the entrenched companies (Visa, Mastercard, PayPal, Western Union) may enter a bidding war with the new comers armed with material VC warchests (much more than we’re seeing with $30 million investments of today – all over the guys who had the foresight to see the next evolutionary step in plain vanilla payments – smart transactions and self-executing digital contracts and transactions.

We’re actively looking for financial and intellectual capital. If you, as an accredited investor, are looking for an opportunity in the higher end of the digital currency space, I think we should talk. In addition, if you are a higher level Java/C++ developer willing to take risk, we need to talk. I’m available at reggie at ultra-coin.com.

via Zero Hedge http://ift.tt/1qS5GMm Reggie Middleton