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We don’t think the dangers through. Another reason to like Square, and maybe PayPal

It’s super simple. Sign up for PayPal. Link it to your bank account. Suddenly you can buy stuff on eBay with one click. It’s so easy.

But is it? What happens if someone hacks PayPal and gets your bank information?

They can drain your precious bank account of all your hard-earned dollars.

Your bank may cover you for your losses. It’s not obliged. But the aggravation will drive you nuts. And the paperwork will tear up several forests.

There are several “solutions.” You can pay for eBay stuff using a credit card. You can set up a bank account with teeny money which is just for linking to PayPal and others. You can also ask your bank to send you alerts when $500 or more (or less) is removed from your bank account.

It’s not only PayPal, it’s your mortgage, your rent, etc. You have to disentangle those also, maybe.

The most critical thing is NOT to use checks. These little babies have your bank’s routing number and your account number on — all the information someone bad needs to drain money from your bank. Banks have auto bill pay and wiring. Much safer.

I don’t know where this all stops. A dear friend — we’ll call her KK — just had $32,000 removed from her bank account in small chunks. Because it was the holidays, she didn’t notice. But when she did, she freaked. She’s researched this thoroughly with her bank. No one seems to know (yet) how they got into her bank account and siphoned off the money. Everyone is still looking.

The bank says tighten up her userID and password. Her userID shouldn’t be her first and last name. Or something obvious. Her password should be long and complex. Which it was. She’s changing everything, including her bank account. The bank is giving her the $32,000 back.

Everyone is clueless as to how it happened. The finger of suspicion points at PayPal. But that wouldn’t stand up in a court of law. Going forward she’s making sure she gets alerts for any money that leaves her bank account.

There are clearly tools for banks and PayPals to secure their security. But what we learned from the hacking of Equifax’s 143 million accounts is that managements are too lazy, too cheap, or too stupid to keep up to date with industry-recommended security patches.

Personally, I just moved most of my money out of my checking account into my savings account, which they can’t get into. And I’ll close down PayPal.

And, by the way, don’t check boxes that say “Save my Credit Card Information.

Some banks have tools such as ACH debit blocks so that individuals/other companies can’t pull from your account. But some banks only extend that to businesses, not you and me.

As I was writing the above, I came across this fascinating piece in Seeking Apha. Enjoy.

The Government’s War On Money –About: PayPal Holdings, Inc. (PYPL)
by the Mad Hedge Fund Trader, at Seeking Alpha

Summary
+ Digital Payment stocks like PayPal increasingly popular with Millennials.

+ Parts of Europe have almost completely removed cash from circulation.

+ Marijuana stocks would be hard hit with the move to digital payments.

When I lived as a student in West Berlin during the 1960’s, I had a nice little side business.

I organized weekend walking tours through the Berlin Wall at Checkpoint Charlie to visit East Berlin for American students too afraid to go alone.

To pay for it, I smuggled US dollars my customers paid me in my boots, which I used to buy Ostmarks in the East at a 75% discount to the official price. I then covered lunch and all my other bills, booking a nice profit onthe day.

That would be much more difficult to pull off today, as governments around the world have launched a war on cash that will not end until its ultimate demise.

The truth is, governments hate cash.

This became clearly apparent when the government of India withdrew circulation of its two largest banknotes. Some 50% of Indian GDP is thought to take place in the underground economy in cash only.

The move caused a financial panic, as consumers sold gold (GLD) and other hard assets to meet bills because they were unable to settle accounts with the large denomination notes they had hoarded.

As we move towards an all-electronic economy, the few remaining purposes where cash is essential are largely illegal.

Waitresses, babysitters, and bookies don’t report income to the IRS. Nor do drug dealers.

This is a big deal because eight states legalized marijuana in the last election.

Since banks are still banned from handling pot proceeds, this booming business has to take place entirely in cash. Tales about of dealers making their runs with shopping bags full of $100 bills are rampant.

The IRS estimates that $460 billion in tax revenue is lost every year through unreported income, which is largely earned in cash.

Some half of the entire US paper money supply is held by foreigners, where it is used to evade taxes, bribe foreign officials, and finance terrorism.

The US government’s war on cash is not a new thing. In 1929, it cut the size of US banknotes by one third to save money on the cost of high-grade paper.

In 1970 the US Treasury banned the circulation of the $10,000, $5,000, $1,000, and $500 bills to halt mafia money laundering. Since then, the IRS has been the biggest beneficiary of the move.

Large denominations US bills are now solely the domain of collectors.

The US government would love to get out of the cash business, as it is so expensive to run. It spends about $737.4 million a year just to print American $1, $2, $5, $10, $20, $50, and $100 notes.

Paper dollar bills, which are actually made of 75% cotton and 25% linen, are completely worn out and have to be returned in only 18 months.

Coins are even a bigger loser. It costs more than two cents to make a penny.

Since the advent of color printers, counterfeiting has exploded. North Korea runs almost its entire economy on fake $100 bills, which are said to be the best in the world.

Today, some 80% of the entire $1.34 trillion M1 notes and coins in circulation in America are in the form of $100 dollar bills. That works out to $4,200 per person. Where has all that money gone?

The US is now considering eliminating even this convenient denomination. While $1 million in $100’s can fit into a tote bag, that quantity of $10 bills would weigh 220 pounds, a quantity much more difficult to sneak around.

An all-electronic economy would certainly pose some privacy problems, as it would leave a massive paper trail on everything you do.

When you get audited by the IRS, the first thing they do it obtain your past three years of bank and credit card records detailing your every transaction.

State authorities will pursue phone records to establish your physical presence to verify residency. So how long did you really spend in tax-free Florida last year?

It would also pare back illegal immigration, as this is another industry that runs entirely on cash. Once here, undocumented workers are often paid in cash in restaurants and on construction sites.

There is Truly No Place to Hide

Other countries are already well ahead in the war of cash. In Belgium, some 93% of all financial transactions take place electronically.

Sweden has also been pushing hard on this front, taking the M1 money supply there down by 27% over the past two years.

Many small businesses there now post signs saying they don’t accept cash. The goal is to move to an all-electronic economy.

The preferences of Millennials are also moving us towards the cashless economy.

This trend manifests itself with online payment systems like Paypal (PYPL) whose stock has been the recipient of torrid strength and will clearly outperform as digital payment systems become more mainstream.

Have you every been in line at Starbucks and noticed that the kid in front of you just paid $2 for a cup of coffee with his credit card? Or maybe he swiped his Apple Pay account on his iPhone?

Whatever the means, it is clear that hard cash is about to become a dinosaur.

Recommended weekend reading

+ A Bitcoin Rival Mints Wealth to match even Zuckerberg

SAN FRANCISCO – The virtual currency boom has gotten so heated that it is throwing the list of the world’s richest people into disarray. Consider what has happened to the founders of an upstart virtual currency known as Ripple, which has seen its value skyrocket in recent weeks.

Click here. 

+ Mark Zuckerberg’s 2018 Resolutions

His goals for Facebook, which will transform it. Facebook is one of my biggest holdings

Click here. 

+ All about the business of Addiction.

 addiciton

addiction-superJumbo-v3

These long, well-researched articles on our nation’s opioid crisis are engrossing, frightening, and apparently without easy solution. You need to read these.

Click here.

Estonia, the Digital Republic
Its government is virtual, borderless, blockchained, and secure. Has this tiny post-Soviet nation found the way of the future?

Click here. 

+ The Best Toys That Teach Kids How to Code
Coding is a fundamental skill for children to learn in school, but it is more than just feeding programming into a computer. Learning to code teaches valuable cognitive skills like critical thinking and problem solving. As coding moves from school to home, many toy manufacturers are responding with gadgets that turn homework into a game.

Click here.

 

Favorite bathroom sign

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HarryNewton
Harry Newton, who’s finally feeling 100%. Figure one day recovery for every one hour of time difference. Israel is seven hours different. So seven days recovery. That worked for me.

  • TomFromVa

    3 comments:

    1. if you think getting rid of cash and making everything electronic is good, read up on China’s Social Credit Score system

    2. teaching kids to code – start with Lego Mindstorms – coolest toy ever

    3. recovering from travel – simple – stay up through dinner and then get 10 hours sleep – presto, problem solved

  • gerryb

    PayPal is OK. Just set it up to draft a credit card instead of your bank account.

    • Lucky

      That is what I do, however, I believe you still have to register a checking account with PayPal…I use them repeatedly. If they were to be hacked and retrieve all the customer information it is likely they will get my bank account also…I keep only house money in that account so not too concerned. All charges go against credit card automatically.