(TOKYO) — The Mt. Gox bitcoin exchange in Tokyo filed for bankruptcy protection, acknowledging that a significant amount of the virtual currency had gone missing.
The exchange’s CEO Mark Karpeles appeared before Japanese TV news cameras Friday, bowing deeply for several minutes.
He said a weakness in the exchange’s systems was behind the massive loss of the virtual currency.
Speaking in Japanese at a Tokyo court, he apologized for the troubles he had caused so many people.
Kyodo News said debts at Mt. Gox totaled more than 6.5 billion yen ($65 million), surpassing its assets.
The exchange’s unplugging this week drew renewed regulatory attention to a currency created in 2009 as a way to make transactions across borders without third parties such as banks.
A major bitcoin exchange went offline late Monday evening, sending the value of the digital currency tumbling and feeding rampant speculation about its stability.
The website for Mt. Gox, a bitcoin exchange based in Tokyo, went blank late Monday night, after reports surfaced on Twitter and Reddit saying the company had halted all trading. In the hours since Mt. Gox went offline, the value of one bitcoin fell to $470, down from $550 just a few hours ago. The currency has long been volatile.
A purported Mt. Gox document that has been shared online says more than 740,000 bitcoin are missing from the exchange, a loss of $350 million, the Associated Press reports. In the wake of Mt. Gox’s failure, several other bitcoin companies issued a joint statement saying they are working to “re-establish the trust squandered by the failings of Mt. Gox.” The statement said that Mt. Gox’s closure “was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry.”
The closure of one of bitcoin’s largest exchanges comes as the digital currency has gained broader acceptance. The currency is “mined” by computers and gets more difficult to generate over time. There are currently more than 12 million bitcoin in circulation, more than half of the maximum 21 million that can be generated. Mt. Gox’s closure cost many currency traders all of the money they had invested in bitcoin. Kolin Burgess, a bitcoin trader who flew to Tokyo from London in an attempt to retrieve more than $300,000 worth of bitcoin, told the AP that Mt. Gox’s closure “hasn’t shaken my trust in Bitcoin, but it has shaken my trust in bitcoin exchanges.”
This post is in partnership with Inc., which offers useful advice, resources, and insights to entrepreneurs and business owners. The article below was originally published at Inc.com.
You’ve heard the advice before: Diversify, make time work for you, and embrace stocks. For most folks, those are the core pillars of any investment strategy. For business owners, that’s true only up to a point. You are different and need to invest accordingly.
That assumes, ahem, that you’re investing at all–and haven’t fallen for the old misconception that your company is the only investment you will ever need. Says Jeffrey Levine of Alkon & Levine, a Newton, Massachusetts, accounting firm specializing in small business: “I want entrepreneurs to know that the odds that their company will become a huge success–enough to meet all their financial needs through retirement–are against them.
So it’s important to put something aside on a regular basis.” In other words: Build your company as if it will last forever, but invest your personal wealth as if everything will collapse tomorrow. We talked with experts such as Levine and Allan Roth, of Wealth Logic, an investment-advisory firm in Colorado Springs, Colorado, about the other mistakes business owners make.
Here are some ways not to be your own financial enemy.
1. Be a conservative. You already believe that you aren’t like regular wage earners–and when it comes to investing, you’re not. Your salaried peers, even at the same age, are going to be more aggressive in their investments. “There is no single magic metric for entrepreneurs,” Roth says. “Adages like ‘Subtract your age from 100 and that’s the percentage of your portfolio that should be in stocks’ just don’t apply. It’s highly situational.”
That said, Roth suggests that entrepreneurs who have substantial assets invested in their companies should favor more conservative options. Moshe Milevsky, author of Are You a Stock or a Bond?, says launching a company is like investing in an über-growth stock: When it comes to your portfolio, you should be a little more bond-centric as a hedge against your risky line of business.
2. Save something. Please. It’s almost a cliche in the small-business community: You take every last dime in your pocket or every last dime from your friends and family and plunk it right into your business until death do you part. But as you can see from the chart (right), the return on that investment is far from a sure thing. Simply put, sinking your every last cent into your company isn’t a good idea.
In fact, treating your business as your sole investment is the ultimate “antidiversification” strategy. Says Levine: “To me, it always makes sense to save for a rainy day…build your business and your portfolio.”
3. Startups have their own tax privileges. Especially in the startup years, you may have tax-savings options that employees don’t. Here’s one sometimes overlooked move that has helped owners who are booking losses. Wealth Logic’s Roth suggests a Roth IRA conversion strategy. Normally, when converting from a traditional IRA to a Roth IRA (no relation), investors pay tax. But an owner suffering a loss can often make the conversion tax free–by offsetting losses from the business against income from the conversion. Bottom line: You move tax-deferred IRA funds to a tax-free Roth IRA without paying taxes, or by paying only a low marginal rate.
4. Don’t fall in love with your own expertise. ”One common mistake that entrepreneurs make when investing,” says Roth, “is to invest too heavily in the industry that their business is in. They feel that because they know that sector so well, they stand a better chance of success.” Far from guaranteed.
Sure, you might get lucky, and your sector could leave the S&P in the dust. But keep in mind that such outperformance can also reverse. Remember those banks a few short years ago or tech in 2000?
(WASHINGTON) — The Federal Reserve agonized in 2008 over how far to go to stop a financial crisis that threatened to cause a recession and at times struggled to recognize its speed and magnitude.
“We’re crossing certain lines. We’re doing things we haven’t done before,” Chairman Ben Bernanke said as Fed officials met in an emergency session March 10 and launched never-before-taken steps to lend to teetering Wall Street firms, among a series of unorthodox moves that year to calm investors and aid the economy.
“On the other hand, this financial crisis is now in its eighth month, and the economic outlook has worsened quite significantly.”
The Fed on Friday released hundreds of pages of transcripts covering its 14 meetings during 2008 — eight regularly scheduled meetings and six emergency sessions. The Fed releases full transcripts of each year’s policy meetings after a five-year lag.
The 2008 transcripts cover the most tumultuous period of the crisis, including the collapse and rescue of investment bank Bear Stearns, the government takeover of mortgage giants Fannie Mae and Freddie Mac, the fateful decision to let investment bank Lehman Brothers fold in the largest bankruptcy in U.S. history and the bailout of insurer American International Group.
For all its aggressive steps in 2008, the transcripts show the Fed failing at times to grasp the size of the catastrophe they were dealing with. Bernanke and his top lieutenants often expressed puzzlement that they weren’t managing to calm panicky investors.
As late as Sept. 16, a day after Lehman Brothers filed for bankruptcy, Bernanke declared, “I think that our policy is looking actually pretty good.”
The Fed declined at that meeting to cut its benchmark short-term rate. Yet just three weeks later, after the Fed had rescued AIG, Bernanke felt compelled to call an emergency conference call. In it, he won approval for a half-point rate cut.
Early in the year, some Fed officials had yet to appreciate the gravity of the crisis. In January, Frederic Mishkin, a Fed governor, missed an emergency conference call because he was “on the slopes.”
“I think in Idaho somewhere,” Bernanke said.
The crisis had been building for months. In the Jan. 21 conference call, Bernanke rallied support for a deep cut in interest rates. He warned that market turmoil reflected investors’ concerns that “the United States is in for a deep and protracted recession.”
Bernanke apologized for convening the call on the Martin Luther King holiday. But he felt the urgency of the crisis required the Fed to act before its regularly scheduled meeting the next week. It approved a cut of three-fourths of a percentage point in its benchmark for short-term rates.
The transcripts show that Bernanke enjoyed the support of Janet Yellen, who succeeded him this month as Fed chair, for the unconventional policy actions he was pushing. At the time, Yellen was head of the Fed’s San Francisco regional bank.
At an Oct. 28-29 Fed meeting, Yellen noted the dire events that had occurred that fall. With a nod to Halloween, she said the Fed had received “witch’s brew of news.”
“The downward trajectory of economic data,” Yellen went on, “has been hair-raising — with employment, consumer sentiment, spending and orders for capital goods, and homebuilding all contracting.”
Market conditions had “taken a ghastly turn for the worse,” she said. “It is becoming abundantly clear that we are in the midst of a serious global meltdown.”
Yellen had downgraded her economic outlook and was predicting a recession, with four straight quarters of declining growth. The recession was later determined to have begun in December 2007. It lasted until June 2009.
The Fed’s moves failed to prevent colossal damage from the crisis. The U.S. economy sank into the worst recession since the 1930s. But Fed officials and many economists have argued that without the Fed’s aggressive actions, the Great Recession would have been more catastrophic, perhaps rivaling the Great Depression.
“I really am extremely nervous about the current situation,” Mishkin said at a July meeting. “We’ve been in this now for a year, but, boy, this is deviating from most financial disruptions or crisis episodes in terms of the length and the fact that it really hasn’t gotten better. We keep on having shoes dropping.”
Even as they grappled with a floundering financial system and an economy in freefall, Fed policymakers wondered how history would judge them. Bernanke, acknowledging that they were operating in “the fog of war,” said in late October: “I would defend what we’ve done in terms of the general direction, acknowledging that execution is not always perfect and that communication is not always perfect.”
But Bernanke wrestled with doubts, too. At an April meeting, he said: “I play Jekyll and Hyde quite a bit and argue with myself in the shower and other places.”
By the end of 2008, the Fed had made seven rate cuts, leaving its benchmark short-term rate on Dec. 16 at a record low near zero. It remains there today. Many economists don’t think the Fed will start raising rates until late 2015 at the earliest.
The Fed that year also launched other never-before-tried programs to get money flowing to parts of the economy that were desperate for credit.
Yet Fed policymakers fretted over the unprecedented steps being taken. Thomas Hoenig, head of the Fed’s Kansas City regional bank, expressed concern during a July 24 conference call that the Fed might continue its extraordinary lending to Wall Street firms into 2009.
“This seems to take us away from, rather than toward, backing out — and I really am a bit concerned about that,” Hoenig said.
Bernanke countered that the Fed was “not in this business indefinitely … But at the moment, conditions do not seem considerably better, and I don’t think that at this moment we really should be reducing our support to the market.”
Jeffrey Lacker, head of the Richmond Fed, worried at the March 10 meeting about accepting mortgage bonds as collateral for Fed loans to Wall Street firms. “This proposal crosses a bright line that we drew for ourselves in the 1970s in order to limit our involvement in housing finance,” Lacker said.
But Timothy Geithner, then head of the New York Fed, countered that the Fed was a stronger institution than in the ’70s. “We need to be flexible and creative in the face of what are really extraordinary challenges,” Geithner said.
On Oct. 7, Bernanke called an emergency conference call to seek approval for a half-point cut in the benchmark rate. Five other central banks in Europe and Canada had agreed to take similar steps.
“It’s just a sign of the extraordinary times that we’re currently living through,” Bernanke said. “Virtually all the markets — particularly the credit markets — are not functioning or are in extreme stress.”
The proposal was unanimously approved. Some Fed officials worried that it still wouldn’t be enough.
“I don’t think that anything that we do today — cutting the funds rate 50 basis points or whatever — is going to make the next couple of months in terms of the overall economy any less painful,” said Charles Plosser, head of the Philadelphia Fed.
Plosser said it was important for the Fed to invoke broader economic concerns to justify its actions beyond the turmoil in the stock market.
One Fed official asked Bernanke if the sharp rate cut meant further cuts would occur at forthcoming meetings.
“I feel rather unconfident about predicting the path of rates six months in the future,” Bernanke replied, “because I’m not quite sure what is going to happen tomorrow at this point.”
I am a retired accountant & tax consultant now devoting much of my time to upgrading my own website, writing up my blog. I play sports on a weekly basis and is engaged in some voluntary work. I am also an amateur astronomer doing online research and quite proud of my research project. Details of my research in astronomy can be viewed on my website. Just click on any blog title ( in green colour ) or hit the link in my complete profile to access my website.
