Did you see Eoin Treacy’s guest post yesterday? It was about why most traders fail. It’s not because they aren’t smart or don’t have good information, but because they can’t overcome their cognitive biases.
He then showed how he’d managed to move past these biases himself by making a very simple and incredibly obvious discovery.
It’s one of those things that when you see it, you wonder how no one else has made that same connection. But like most things, it’s only easy to do or see with hindsight.
Eoin now manages a $600 million fund and consults for investment houses all around the world. What was his discovery?
But you’ll need to be quick. Eoin is taking this information offline at midnight tonight.
Now on with today’s essay…
Have you heard the one about the retired police officer who repossessed their local Bank of America?
Although it may sound like a joke, it’s anything but.
In 2009, retired police officer Warren Nyerges and his wife, Maureen Collier, bought a house in Naples, Florida.
They didn’t take out a mortgage and paid the full $165,000 asking price in cash.
Then in 2010 they were informed Bank of America was repossessing their house.
“This is a big mistake,” Nyerges recalled saying. “You must have the wrong house. We bought a foreclosure and don’t have a mortgage.”
They called and wrote to Bank of America explaining that they didn’t even have a mortgage and owned the home outright, but to no avail.
As the proceedings progressed they hired a lawyer, went to court and eventually Band of America backed down.
However, they were still out of pocket by $2,534 in lawyer fees. As is usual in these kinds of cases, the court ordered Bank of America to pay the couple’s fees.
But the bank refused. Well, it didn’t so much refuse as just ignore the court order.
“I talked to branch managers, I called anyone who would listen to me,” the couple told the Naples News. “And I wrote a certified letter to the president (of the bank). No response, nothing.”
After five months of calls and letters by the couple’s lawyer, Bank of America was still not responding. So they decided to repossess the bank in order to get what they were owed.
“They’ve ignored our calls, ignored our letters, legally this is the next step to get my clients compensated,” their lawyer, Todd Allen, said in an interview.
They legally foreclosed on Bank of America and turned up at the local branch with a bunch of police officers, the media and a removal truck.
“I’m either leaving the building with a whole bunch of furniture, or a check or cash or something,” Allen said.
He ordered the sheriff’s deputies to take desks, chairs, photocopiers, computers and whatever cash was there to settle the debt.
The bank manager was “visibly shaken”.
“Having two sheriff’s deputies sitting across your desk and a lawyer standing up behind them demanding whatever assets are in the bank can be intimidating, but so is having your home foreclosed on, when it wasn’t right,” Allen said.
Within an hour the couple had a cheque from the bank for $5,772.88 to pay their legal fees and additional costs.
It’s a crazy story, right? A one in a million chance that events could get that out of control.
But what if it’s not.
The system isn’t rigged against you, it just simply doesn’t care
What if stories like that are much, much more common than you think?
Only in the more common versions it’s the faceless corporation that wins?
The reason this story made headlines is because it is unusual. It doesn’t usually go down like that. Usually, the righteous couple loses. Usually the big bank wins.
Even in this case, the couple almost lost. Nyerges called 25 different law firms, but no attorney would take the case.
Twenty-five tries before he found a lawyer willing to take the case. And being a retired police officer, he will have been accustomed to legal proceedings and less likely to be intimidated.
Most people don’t have a background like that. Most people wouldn’t take 25 rejections and keep going. At some point most people would just call it quits and move on.
Back in 2010, this became a massive topic of debate in the US.
Bank of America, GMAC Mortgage and JPMorgan Chase were forced to freeze and review their foreclosures.
From a New York Times article that October (emphasis mine):
Bank of America, the country’s largest mortgage lender by assets, said on Friday that it was reviewing documents in all foreclosure cases now in court to evaluate if there were errors.
It is the third major lender in the last two weeks to freeze foreclosures in the 23 states where the process is controlled by courts.
That could mean tens of thousands of foreclosure cases would be in limbo for months or, if the consumers in default hire lawyers, years.
Spokesmen for the bank said that they were uncertain how many cases the lender currently had in court. They provided no timeline or explanation for the freeze, saying only that the bank planned to eventually resubmit all the cases.
The moratorium is likely to further fuel the uproar over the foreclosure tactics of the big lenders, which continued to have political ramifications on Friday.
The bank didn’t even know how many cases it had in court!
The systems the bank used had got so complicated and so abstract that no one knew how they worked or what actions they were taking.
This is not just a problem with mortgage providers though. It’s a problem with almost all banking. Almost all computer systems, in fact.
Take the “flash crash” on the pound in October 2016. What caused it? No one knows. The system is too complicated to unravel.
From a Guardian article written at the time:
Traders were baffled by the overnight “flash crash” in the pound, with theories emerging about what happened to send the currency over the edge.
The pound fell by 6% to $1.1378, having dropped by 10% before one of the more outlying major trades was cancelled.
Analysts pointed to possible causes including rogue computer trades, an accidental “fat finger” transaction and tough comments from the French president, François Hollande, on Brexit negotiations.
The most popular theories revolve around algorithmic trading, also known as black box trading.
That fact these systems are now so unwieldy and so difficult to understand has left them with many, many vulnerabilities.
Collect free money from your local cash machine
Almost every week we hear about a new hack or a new leak or a new cyber warfare allegation.
And these hacks are making certain criminal gangs a lot of money. I wrote in April that ATMs have spit out over $1.25 billion of free cash to hackers since 2013.
From my piece:
Go to an ATM at the right place, at the right time, and you could be collecting a whole lot of free money.
Over $1.25 billion has been spewed out by cash machines, in over 40 countries, since 2013.
Now, had you managed to be at the right cash machine at the right time to collect this money, you’d have had to fight off a “money mule” to get it.
Of course some ordinary people will have been offered cash by these ATMs, for no apparent reason. But the majority was collected by criminal gangs.
In fact, it was just one criminal gang, known as Carbanak.
Carbanak is responsible for what must be, by far, the biggest bank heist in history. The fact is, no one actually knows how much money it has stolen altogether.
A 2015 report by Kaspersky Lab put the figure around $1.25 billion. But that was before Carbanak developed its most sophisticated techniques. And it continued to operate until its alleged mastermind was caught last month.
Now, I say alleged, because this was such a big operation, it’s doubtful any one person was in charge. It’s also doubtful that such a mastermind would be as stupid with their money as our alleged mastermind was.
So, there is every chance Carbanak is still taking billions from banks, all around the world.
These hacking stories have never been something that’s bothered me.
Even after “falling victim” to cybercrime myself, it didn’t occupy much time in my head.
How I was digitally robbed
Last year someone somehow cloned my bank card. I found out because when they tried to make a transaction it flagged up on my bank’s fraud system and it immediately called me.
It seemed someone had tried to make a purchase on my card three miles from where I had just done, within about one minute of my purchase.
My bank blocked that transaction and let mine through. How did it know I was the real me? Because it fit in with my spending pattern. I was usually around the area I was on any given Thursday lunch time.
Being me, I didn’t believe it was actually my bank on the phone and hung up. I later found my bank’s official fraud hotline number and rang it myself to check it was all real. It was. My bank cancelled my card and sent a new one that arrived the next day.
It was nothing more than a minor inconvenience for about 24 hours.
The most disturbing thing about the event for me, I think, is that my bank has such a detailed profile on me that it will know where I’m likely to be and what I’ll be buying on any given day.
Incidents like this are commonplace. Almost everyone I know has been subject to card cloning or fraudulent transactions.
And yet, no one really thinks about it because it usually gets sorted out relatively fast.
But as we’ve seen with the story I opened today’s essay with, this is not always the case. When the system works in your favour, it’s fine. When it doesn’t, you’re in for a world of hurt.
The last time I wrote about cybercrime, I got a lot of people writing in. So this time, I’d like to take a poll.
I’ve set up a very simply three question survey about cybercrime. You can take it here. It will take you around six seconds to fill out.
And don’t worry, you won’t have to submit any personal information, not even your email address. But the results would be good to see, as I’ll be writing more about cybersecurity in the coming weeks.
Until next time,
Editor, Exponential Investor