The Wise Guys Democracy

Modern societies are quite complex and it is virtually impossible for anyone to be completely and correctly informed on what is going on. Even assuming the access to a complete and correct set information (no fake or misleading news), understanding such a complexity requires a remarkable effort in terms of time deployed not to mention skills and abilities needed to achieve a full comprehension.

This has a relevant consequence for democratic process: we select candidates at political and administrative elections without fully understanding the consequences of our choice.

This phenomenon amplifies at least 3 common flaws of modern democracies:

1-The ability of lobbies and any other minorities with shared interests to promote policies aimed at obtaining gains for themselves at expense of the others because the less voters know and understand, the easier is to approve rules that can harm them.

2-The preference for policies with short term benefits over those with immediate costs and greater long term benefits because the balance between present costs and future gains requires time and education to be correctly assessed

3-The electoral competition based on emotional narratives and irrational beliefs rather than on pragmatic discussion of real problems because wrongly informed an poorly educated voters are the most likely target for political strategies based on emotion and ideology

How can all these problems be mitigated by social media technology?
The mechanism of social networks has proved to be quite effective for sharing information with a large number of people and to manage the individual reputation of community members.


This mean that the burden of fact checking activity and convenience assessment of public policy proposals could be conveniently split among a large number of individuals rather than carried out by a single institution and that reliability and independence of the analysis could be guaranteed by a peer review mechanism.

Assume to have a mass collaboration system similar to wikipedia with 2 main goals: 1) verify news and debunk fakes 2) perform a convenience analysis of political programs and proposals. Than imagine that this mechanism is part of a wider social network similar to Twitter so that content produced are user friendly and easy to share. Assume also to have a set of rules that grant reliability of content produced, minimization of noise and consistency of the network. Finally assume to have a compensation scheme that collects donations by users satisfied by the content found on the network and distribute rewards to those who produce them.

We may call this very peculiar social network “The Wise Guys Democracy” anddesign it for a large number of basic users that we may call “Citizens” and a limited number of “Wise Guys”. The system is based on 3 main rules:

Rule 1only wise guys can produce and edit contents (citizens can file questions and answering citizens questions is supposed to be the main driver of content production by wise guys)

Rule 2: the “wise guy” status is based on a reputation score determined by feedback received by other wise guys (administrators of the system creates the first wise guys and are supposed to monitor contents and user activity)

Rule 3: wise guys receive a reward for their activity financed with donations collected by other users (this is aimed to create a stronger incentive to wise guys )

Strong Lobbyists with deep pockets can hardly be defeated by a non profit initiative aimed at promote transparency and it would be naive to think otherwise. Nevertheless if a precise and independent assessment of any new policy proposal were available in a user friendly format it would be easier for the public to be aware of the consequences of their political choices and it would be harder for lobbyists to charge the public with unnecessary burdens.

The final target is not to have people make always the best decisions (it would be questionable how to determine what the best decision is) but to avoid as often as possible the worst ones.

The Wise Guys Democracy is a concept idea for a non profit and open source project aimed at improve transparency in political system and enhance awareness of voters regarding their choices. A more detailed description of how the project is designed will be provided in a separate post.

Originally published on Medium

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

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GLG – Gerson Lehrman Group – Council Member

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Bankit update on NPLs' Recovery Rates

The number 18 of Bankit Notes on Financial Stability and Supervision provides an update to NPLs’ Recovery Rates analysis performed in number 13 and 11. The note also illustrates the results of the yearly survey on NPL sales, conducted by Bank of Italy starting from 2016.

While it may be interesting and somewhat useful to observe trends in recovery rates and sale prices some caveats should be taken in consideration before trying to extract any conclusion.

Recovery of sold position is affected by several relevant factor including

  1. Sale to private entity vs sale vs GACs vehicle or state sponsored entity (AMCO, Altas Fund, REV)
  2. Sale within a market based restructuring plan (Unicredit, Banco BPM) vs “firesale” within a State driven process (MPS, Veneto Banca, BPV etc)
  3. Sale through a JV project with investor servicer (DoValue-Fortress, Intrum-Intesa,Banco BPM-Credito Fondiario) vs straight sale

Performance of recovery of not sold positions may be affected by the sale process e.g. we may assume that sold positions include the 2 extremes of best collateralized loas in order to get an higher price and oldest positions with highest provisions in order to help match buyers expected returns.

Given that the main price driver of secured loan sale is collateral evaluation that is substantially affected by location and asset type (a villa in Capri is quite different from an office in Reggio Calabria) maintenance and building completeness.

Looking at closing activity may be significant to get an idea of what is going on with banks’balance sheets, but it should be considered that a portion of these loans is still open on  GACs SPV with notes 

Finally we can say that assessing recovery performance of NPLs is a quite complex issue that can be properly evaluated only when all expected collections have been realized (not during intermediate sales) and taking in account recovery cost that may be significant.

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

Link to my updated business profile

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

Contents of this blog are free but time do have an opportunity cost. If like the contents and do want to reward the time deployed to produce them you can make a small donation via Paypal (if you prefere a bank wire send me a message via linkedin o Twitter)

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GLG – Gerson Lehrman Group – Council Member

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DBRS insights on Long-Term Nonperforming Loans

DBRS Morningstar Illustrative Insights delivers interesting and easy-to read infographics commenting on the global economy, one at a time. Today a very interesting one has been published regarding Long-Term Non Performing Loans.

NPLs remain a focus for the European Commission as well as various European countries and banks. Both in terms of tackling the current issue amongst several countries, and in terms of ensuring a faster resolution of any potential future build-up of nonperforming loans. On 27 November, the European Commission put forward its position on a new mechanism for out-of-court enforcement on new loans to the European Parliament.

Accordgin DBRS and Morningstar this proposal is positive, but it realizes only a small marginal step towards helping to improve the handling of nonperforming loans

The proposal entails a common framework and mechanism for out-of-court settlements. The concept is to draft into new loan agreements a mechanism that would allow a creditor to take possession or sell on the collateral of the loan. These loan agreements would only be allowed for business loans where the borrower’s primary residence is not included in the collateral. They would only be for new loans once the proposal is adopted within national frameworks. The directive also aims to set some minimum requirements for adoption for countries to adopt for out-of-court settlements.

Read the full doc on DBRS website

DBRS has also analyzed the securitisation scheme recently adopted in Greece (similar to Italian GACs), which allows the banks to offload a large number of their aged loans.

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#Savethedate 13°CV Day

After the positive experience of 2018 CV Fintech day this year digital innovation applied to Credit Management and NPL market will be back on stage at the 13°CV Day on 20th November during the afternoon session.

Check the full agenda of the day 

Special Free Pass for the afternoon Fintech Session can be requested writing to c.riefoli@creditvillage.it

Full access at the whole event can be purchased at this link

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Italian banks and NPL Update 2019-10

Concentration through M&A seem to be a relevant trend among NPL investors and special servicers in Italy:

  • Credito Fondiario and Banca IFIS decided not to continue their exclusive negotiation to form a new platform with som 45m of Asset Under Management +additional 25m as Master Servicer
  • Intrum is said to be close to acquire Credit Management operations od Cerved Group that could be worth some 400m applying the same EV/Ebitda ratio of doValue.

Relevant transactions are also expected with

  • Unicredit selling 6 Bn (Project Prisma) of NPL -the porfolio includes a mix of secured and unsecured retail loans + a UTP portfolio with some 1 Bn
  • MPS that could be selling NPLs for 10bn in order to accelerate the balance sheet cleanup needed to make the bank appealing for potential buyers

Meanwhile the stock of Non Performing Exposures is close to a 10 year minimum as reported by NPL Market Watch issued by Banca IFIS

Reduction is quite remarkable also in broad European perspective

So far the outstanding NPL portfolios appear to be skewed towards corporate and secured loans

2019 Pipeline remain quite consistent

Even though 78% of AUM are concentrated in the top 10 special servicers a further consolidation process is expected that could potentially lead to a landscape with top 3 players covering some 60-65% of the market

GACS Scheme is expected to remain a key driver in the process reduction of NPL on Italian banks’ balance sheet while non GACs securitization schemes will be likely used to dispose UTPs

Savethedate IMN’s 4th Annual Investors’ Conference on Italian & European NPLs will return to Milan, Italy on 13 November 2019 to address the latest updates in the non-performing loan market.

Savethedate 13th CV Day will take place at Crowne Plaza Milan Linate on 20th November

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#SaveTheDate IMN’s 4th Annual Investors’ Conference on Italian & European NPLs

IMN’s 4th Annual Investors’ Conference on Italian & European NPLs will return to Milan, Italy on 13 November 2019 to address the latest updates in the non-performing loan market.

Link to event page

The conference will bring together leading representatives from major banks, private funds, law firms, rating agencies, service providers and more to discuss the industry’s pressing topics, including Overview of Italy’s Banking Sector, Overview of Key Government Efforts to Stabilise the Italian Banking Sector, Application to Other Mediterranean Economies: Implications for Spain, Portugal and Beyond.

Confirmed speakers can be found at this link

Keynote speech will be held by:

This year I am goingo to moderate the panel The Broader Investor Base: What to Expect as a New Entrant

Link to the full Agenda of the event

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Italian banks and NPL Update 2019-09

SGA the Italian state owned asset management company focused on NPLs and UTPs has changed its name in AMCO and presented positive results for first half 2019 with 20.6 Bn € of assets under management and 8.2m € net profit for half year.

The substantial decrease of NPL stock in Italian banks’ balance sheets has been achieved mostly using GACS securitization schemes and Originator – Investor long term partnerships or Joint Ventures both producing a substantial boost for servicing industry.

Increased volumes is one of the most relevant driver of consolidation process in special servicing industry with Credito Fondiario Fonspa and Banca IFIS studying a partnership in the debt servicing and Cerved considering the spin off of its Credit Servicing Unit.

The final landscape we can expect to see will be therefore likely to have a reduced number of large players that will probably cover some 2/3 of the entire market with smaller players dedicated to remaining market share and active ad a sub servicing level.

Savethedate on September 26th I am going to present a workshop at Banca IFIS‘ NPL Meeting

I will also be speaking at the NPL Investing & Servicing Summit | Athens October 17-18 in the New Developments & Opportunities Panel.

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Posted in Entering Italian NPL Market, Italian Banks, NPL e Distressed Assets | 1 Comment