Tuesday , March 19 2019
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Yves Smith



Articles by Yves Smith

Shotgun Marriage: Deutsche Bank and Commerzbank Discuss Merger

2 days ago

Normally, when banks look into merging, the impetus is either opportunism, whether well informed or not, or desperation. The only thing that differentiates the possible combination of Deutsche Bank, long the sickest man of Europe, and not all that healthy Commerzbank is that the desperation isn’t driven by the usual urgency, that a bank is about to keel over, unless, as some wags speculate, Deutsche’s first quarter numbers are coming in so bad that the bank needs to have some of credible plan to Do Something before it announces the results. One commentor at the Financial Times reported that “DBK was and is having trouble with wholesale funding spreads widening very strongly.” That suggests that the German giant, after so many years of limping along, may be too close to a tipping point for

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“Middle Class” Once Meant Stability and Now Means Fragility

2 days ago

By Alissa Quart, Executive Editor, Economic Hardship Reporting Project. Cross posted from the Institute for New Economic Thinking website
feel that being middle class is not what it once was and that we are all running in place as fast as we can to stay the same, to quote Alice in Wonderland’s Red Queen,” Brenda Madison, an art director and graphic designer in Laguna Beach (Orange County), told me. “Never did I think I would worry that Social Security and Medicare may not be available in my future or that a medical injury or unexpected repair would bankrupt us.”
She and her husband, now in their middle years, “are not sure we will be able to retire in our home.”
Patricia Moore is a single mother of three who lives in a two-bedroom apartment in Los Angeles and a licensed vocational nurse

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Seeking Feedback on Possible Meetups: DC on Thursday March 28, Milwaukee on Wednesday May 1?

2 days ago

Dear readers,
I’m behind on meetups (due among other things to having been felled by that horrible winter bug) and wanted to take some steps to redress that.
We have a meetup scheduled by Katy for Minneapolis on Thursday May 2, location still in the process of being sorted out.
Would readers also be up for meetups on:
A week from Thursday, March 28, in DC? I’d probably stay someplace not in the pricey heart of DC, like Old Town or near the airport, but I look to readers for venue ideas. We did an Elephant & Castle once, which was a little awkward (the noise level was OK but the seating was restaurant seating so I had to be sure to hop tables) and a J.W. Marriott where an enterprising reader arrived early and took over a back section of their large bar area.
Readers have also asked about a

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TD Bank: America’s Most Inconvenient Bank

3 days ago

Do not bank at TD Bank. Don’t even think about it.
I became a customer via TD having acquired Commerce Bank, a 400 plus branch bank headquartered in New Jersey whose motto was “No Stupid Fees, No Stupid Hours”. Branches were open till midnight. If you kept a not-that-high balance, there were no ATM fees. And speaking of ATM cards, Commerce gave you them at the time of account opening.
Since being acquired by TD Bank, the service has worsened and fees are higher. It isn’t just that TD Bank gradually cut branch hours to being open only till 6:30 PM on weekdays and adding lots of fees. It also is far less careful about customer security and has technology shortcomings. The old Commerce ATM cards could be used to make purchases at stores but were PIN protected. TD Bank eliminated this feature

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Links 3/16/19

4 days ago

Dear patient readers,
In case you missed our note yesterday, one of the two key members of our moderation team is hospitalized and unlikely to be back in the saddle for at least two weeks. Please send her your best wishes for a recovery.
In the meantime, Lambert and I will do what we can to take up the slack, but please bear in mind we can only do so much, and forgive us since many of you will find if you comments get caught up in the moderation tripwires, that it may well take us longer to free them than usual. Ditto with fixing bad links in posts.
Study finds people in Ireland and Scotland made “bog butter” for millennia ars technica (Chuck L)
India follows China’s lead, bans plastic waste imports TreeHugger (resilc)
In Fatberg Fight, NYC Goes to War Against Flushable Wipes Bloomberg

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Outsourcing Giant Interserve with 65,000 Employees Collapses

4 days ago

Yves here. Forgive us for being a bit heavy on UK stories, but it is proving to be a case study in how end-state neoliberalism produces incompetence and corruption. As Don Quijones described, the failure of a second major outsourcing player in barely more than a year provides strong evidence that the UK approach to outsourcing government activities was deeply flawed.
By Don Quijones, of Spain, the UK, and Mexico, and editor at Wolf Street. Originally published at Wolf Street
Shares in UK outsourcing giant Interserve, which employs over 65,000 people worldwide including 45,000 in the UK, were suspended today after almost 60% of the firm’s shareholders, led by the US hedge fund Coltrane Asset Management, rejected a last-ditch debt-for-equity swap with Interserve’s creditors that would have

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Of Course We Can Pay for a Green New Deal, but We Can’t Escape Hard Choices

4 days ago

Yves here. This post on the Green New Deal highlights an issue that hasn’t come close to getting the attention it warrants: the operational and organizational demands. However, it’s odd that the author does not consider revenue sharing, a program launched by that great American socialist Richard Nixon. Nixon believed that the federal government was better at collecting taxes, but states and local governments could often spend money better, by virtue of being closer to needs in their communities and often having smaller and therefore less costly bureaucracies.
By Rob Macquarie, an economist working on the financial system and its links to sustainability, democracy and inequality. He tweets @RJMacquarie. Originally published at openDemocracy
Thanks to the formidable advocacy of Alexandria

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Bill Black: Three Natural Experiments Documenting Krugman’s Bias Against MMT

4 days ago

By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Originally published at New Economic Perspectives
Third article in a series on MMT[1]
I urge readers to review Scott Fullwiler’s brief paper on the theoretical and predictive successes of MMT scholars on a topic of enormous theoretical and practical importance.  You do not need economics training to understand it.  Fullwiler reports the results of two “natural experiments.”  In this context, this means an unplanned experiment.  The twin experiments were:
What would happen if orthodox scholars tested the predictive strength of MMT?
How would Paul Krugman react to an orthodox scholar’s

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Links 3/15/19

5 days ago

Dear patient readers,
One of the two key members of our moderation team is hospitalized and unlikely to be back in the saddle for at least two weeks. Please send her your best wishes for a recovery.
In the meantime, Lambert and I will do what we can to take up the slack, but please bear in mind we can only do so much, and forgive us since many of you will find if you comments get caught up in the moderation tripwires, that it may well take us longer to free them than usual. Ditto with fixing bad links in posts.
Live: Massacre at the mosques – gunmen kill multiple people, Christchurch under siege New Zealand Herald. 40 people dead was the count at 3:00 AM EDT.

49 people have died in the New Zealand mosque shootings, Police Commissioner Mike Bush says. One person has been charged with

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Brexit: The Kindness of Strangers

5 days ago

The UK is rudderless as Brexit looms. Theresa May was never in control; her fundamentally wrongheaded approach to the negotiations of thinking the UK had the advantage, compounded by the massive own goal of calling snap elections, led to the EU steering the negotiations at key junctures. But May was still able to exert influence even as her authority kept eroding. She still has perhaps one play left, but even if she prevails, the UK will need to petition the EU for an extension. Ian Dunt, in a despairing post, Britain pleads to extend Article 50: This is one of our darkest hours, summed up where things stand:
We are no longer in control of our own destiny….We are now at the mercy of others. This is what Brexit has done to what was, just a few years ago, one of the most powerful countries

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Prominent CalPERS Beneficiaries Send Forceful, Savvy Objections to the Proposed Private Equity Scheme; Contrast With Canned Letters CalPERS Pressed Allies to Submit

5 days ago

Normally, CalPERS stakeholders, even important ones, hew to a ritual level of deference in interacting with the CalPERS board, even when protesting against the giant fund’s plans. That posture has always bothered me, since it seems to go beyond famed California nice, as well as the upper class norm of hewing to standards of discourse, and that includes not making too much of a fuss about anything. For a society that prizes the appearance of egalitarianism, it’s awfully reminiscent of subjects petitioning a monarch.
So it is refreshing as well as revealing that two prominent retirees sent blunt letters that object strenuously to CalPERS private equity plan. The fact that they felt compelled to send forceful and well-documented missives says they are alarmed. They see CalPERS intending to

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A Way-Too-Early Handicapping of the 2020 Presidential Race

5 days ago

By Thomas Neuburger. Originally published at DownWithTyranny!
[embedded content]A cigarette, martini, a staircase and Bette Davis — the 2020 election in a nutshell
There are two groups of candidates in the Democratic candidate field. The first group contains people like Bernie Sanders. The second group contains all other candidates whom corporate Democratic power brokers will find acceptable.
That makes handicapping this field pretty easy, at least so far. Note that it’s very early days still, so this is a way-too-early set of predictions.
Characterizing the Pool of Voters
Before we begin, however, the pool of voters must also be grouped, since they have a role in the coming drama. The three main groups of voters are:
Rebels against the pre-Trump status quo (2020 “change” voters).
Those

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Mars or Mercury Redux: How Geopolitics Influence Bilateral Trade Agreements

5 days ago

By Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, Arnaud Mehl, Principal Economist in the Directorate General International, European Central Ban and Livia Chiţu, Economist in the Directorate General International, European Central Bank. Originally published at VoxEU
Both economics and geopolitics matter for trade agreements. In particular, defence pacts raise the probability of a trade agreement between a pair of countries by as much as 20 percentage points. This column estimates that were the US to alienate its geopolitical allies, the likelihood and benefits of successful bilateral agreements would diminish significantly. Expected trade creation from an agreement between the US and EU countries would decline by 0.6% of total US

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Links 3/14/19

6 days ago

Chickens ‘gang up’ to kill intruder fox on French farm BBC (Dr. Kevin)
These states want you to eat more roadkill Popular Science (resilc)
A ‘Bomb Cyclone’ Is Thwacking The Central U.S. NPR (David L)
Scientists ‘reverse time’ with quantum computer in breakthrough study Independent (David L)
Sensors go undercover to outsmart the brain Harvard Gazette. John C: “erhaps under the heading ‘Our Coming Cyborg Selves’?”
Ketamine: Now By Prescription Slate Star Codex. UserFriendly:
Anecdotally, I have found racemic Ketamine does wonders for my depression but once S-Ketamine was found to be a more potent dissociative and started replacing the racemic it didn’t work as well. Making people jump through hoops like this to get a shittier more expensive version of one of the safest, most essential drugs

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Brexit: Send in the Clowns

6 days ago

Just when you thought the UK’s approach couldn’t possibly become more shambolic than it has been, its leaders manage to outdo themselves.
Even though Parliament delivered the expected outcome of voting against a no deal Brexit, the process got so utterly out of control that the Government whipped against its own motion. And it probably didn’t help that May had promised MPs a free vote….so why was whipping happening in the first place?
Moreover, as we’ll describe below, the amendment that caused the train to go off the rails, which provided for a more comprehensive “no deal” position than May had put forward, won by 312 to 308 despite the Government’s opposition, yet another black eye for May. And the main motion passed by a 43 vote margin…despite the Government whipping against that too.

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MMT Responds to Brad DeLong’s Challenge

6 days ago

By L. Randall Wray, a professor of economics at Bard College. Originally published at New Economic Perspectives
In recent days MMT has captured the attention of anyone who can fog a mirror—even those long thought dead. The critics are out in full force—from the crazy right to the insular left. A short list includes Doug Henwood, Jerry Epstein, Josh Mason, Paul Krugman, Larry Summers, Ken “Mr Spreadsheet” Rogoff, Bill Gates, Larry Fink, George Selgin, Noah Smith, and Fed Chairman Powell. After laboring for a quarter century in the wilderness, the developers of MMT are pilloried for unleashing a theory that is “crazy”, “disastrous”, “hyperinflationary”, “nonsense”, “garbage” and just plain “wrong”.[1] Summers here; Rogoff here; Powell here; Krugman here; and here for Kelton Response
What all

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Martin Wolf: Why Economists Failed as “Experts”—and How to Make Them Matter Again

6 days ago

Yves here. Even though Martin Wolf’s post makes many important observations, I feel the need to take issue with his conclusion. Economists have been and continue to be enormously successful as experts. PhDs in economics make roughly twice as much as those in other social sciences. Economists are the only social scientists to have a seat at the policy table. And they continue to do so, despite their colossal failure in the global financial crisis, with no serious change in the discipline and no loss of reputation of any prominent economists.
Neoclassical economics became important in large measure to show that markets delivered efficient outcomes, and efficiency was seen as tantamount to socially desirable. That’s before considering that highly efficiency almost always comes at the expense

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Brexit: Chaos Visible

7 days ago

Theresa May’s second go at getting her deal passed, where the only change of importance was the proximity of the vote to the crashout date, was like her first, an even bigger failure than anticipated. A loss of 100 seemed to be a magic number of sorts, since being ~50 votes shy seemed inevitable given the continued opposition of the ERG (aka the Ultras) and the DUP. There’s no way to pretty up a 149 vote defeat.
Nevertheless, it was easy to see that May’s one trick pony of running the clock out to put pressure on the EU and Parliament had already broken down in the home stretch. Some readers were kind enough to say they’d been looking for more Brexit posts in the last week, but despite the UK press again trying to present May as sallying forth to wrest concessions from bullies in the EU,

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The EU Is Facing Gigantic Questions About Its Future That Are Hidden in Obscure Bank Policy Decisions

7 days ago

By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute
After dramatically lowering its growth forecast for the European Union (EU), the European Central Bank president, Mario Draghi, announced that the ECB would keep interest rate rises on hold for at least another year, as well as resuming the bond-buying operations for the national debt of the members of the Eurozone (EZ). The latter was particularly surprising, as it marked an abrupt reversal of a policy that was discontinued at the end of last year.
But the about-face points to both the ongoing structural weaknesses inherent in the single currency union, as well mounting political and economic challenges to the EU as a whole. These are the consequences of a

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What’s New About Fake News?

7 days ago

Yves here. The intensity and crudeness of propagandizing has gotten worse in the Trump era, but it’s not as if we weren’t swimming in a sea of disinformation before (think the classic example of agnotology, the prolonged campaign by Big Tobacco to discredit science connecting cigarettes to cancer and other health problems, which has been closely copied b big Energy to discredit the science connecting human activity to climate change). As one reader put it, the US had the feel of the late USSR, where many people had lost trust in official media and hte statements of political leaders because they’d been on the recieving end of obvious lies one too many times. When and how we reached a fake news tipping point isn’t clear, but as Dorman stresses, one of the big reasons we are here is that too

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JJ Jelincic: CalPERS’ Plan to Create 2 New Private Equity Companies, Give Away Billions With No Control Makes No Sense….Except to Make Fund Managers Rich

8 days ago

By JJ Jelincic, a former board member of CalPERS
The new CalPERS Private Equity Business Model (which used to be “CalPERS Direct” even if it never was) is in trouble.
It simply makes no sense. Both Marcie Frost, CalPERS CEO, and Ben Meng have acknowledged that they don’t know if the model will work and even if the model works they are not sure CalPERS can execute it.  For instance:
Staff has offered no explanation how small startup companies can find opportunities the major players with many more employees cannot find.
Staff has offered no explanation how these startups, whose goal is to acquire assets i.e. get more private equity exposure, will show any price discipline.
Staff has said Pillar IV (“Warren Buffett style investing”) will have higher costs and lower returns than traditional

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Bill Black: MMT Takes Center Stage – and Orthodox Economists Freak

8 days ago

By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives
First Article in a Series
The massive, coordinated assault on Modern Monetary Theory (MMT) scholars by the most elite forces of orthodoxy represents a watershed moment in economics, but we must not lose sight that the real attack is actually on progressives, particularly the newly elected progressive members of Congress plus Elizabeth Warren, and Bernie Sanders.  Even that statement is incomplete, for it is the combination of the rise of these progressive elected officials, the 2020 presidential election (and nomination battle), and the

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Medicare for All (the Perplexed)

9 days ago

Yves here. Michael Olenick is correct to point out how one of the many bad features of US exceptionalism is that we refuse to learn from the experience of other countries, particularly with health care. And that’s before you get to the fact that big swathes of the public have been propagandized to view foreign “socialized” medicine programs as failures and thus regard like Medicare for All and other single-payer initiatives with suspicion.
Having said that, there would be transition issues with the adoption of any Medicare for All type program in the US. However, what isn’t sufficiently well recognized is that US doctors are already being “transitioned” to corporatized medicine, where they are employees of large health care organizations and have little autonomy.
By Michael Olenick, a

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Is a War With Iran on the Horizon?

9 days ago

By Bob Dreyfuss, an investigative journalist and founder of TheDreyfussReport.com. He is a contributing editor at the Nation, and he has written for Rolling Stone, Mother Jones, the American Prospect, the New Republic, and many other magazines. He is the author of Devil’s Game: How the United States Helped Unleash Fundamentalist Islam. Originally published at TomDispatch
Here’s the foreign policy question of questions in 2019: Are President Donald Trump, Israeli Prime Minister Benjamin Netanyahu, and Saudi Crown Prince Mohammed bin Salman, all severely weakened at home and with few allies abroad, reckless enough to set off a war with Iran? Could military actions designed to be limited — say, a heightening of the Israeli bombing of Iranian forces inside Syria, or possible U.S. cross-border

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Links 3/9/19

10 days ago

Labradors rescued after two days stuck in Auckland swampland: ‘We’ve been completely beside ourselves New Zealand Herald
This butterfly’s wings are transparently toxic Popular Photography (David L)
Barking drones used on farms instead of sheep dogs Radio New Zealand (resilc) 🙁
Scientists Might Finally Know Why Some Icebergs Are Bright Green Gizmodo (Kevin W). They’re Irish?
India stops waste plastic imports as China’s ‘recycled commodities’ ban triggers trash crisis in US RT (Kevin W)
Amid the opioid crisis, a different drug comes roaring back Economist (resilc)
Boy spent 47 agonizing days in ICU with tetanus. Parents still refuse vaccines Ars Technica (Chuck L). He’s lucky to be alive.
The CDC is Studying the Rise in Electric Scooter Injuries For the First Time as Startups Expand To

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Economic Consequences of the U.S. Convict Labor System

11 days ago

By Michael Poyker, Postdoctoral Researcher, Columbia University Graduate School of Business. Originally published at the Institute for New Economic Thinking website
hile labor coercion in agricultural and preindustrial economies is well-studied, few papers address the effects of coercive institutions in an industrial setting (Naidu and Yuchtman, 2013). The most common form of labor coercion in modern times is convict labor: it is still widespread, not only in developing countries but also among the world’s most developed countries. This practice is potentially important to the economy because a large share of labor, working at significantly below the minimum wage, could impose externalities on the broader non-coerced segment of the labor market.
In 2005, the U.S. convict-labor system

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Charter School Cap Efforts Gain Momentum

11 days ago

By Matthew Gardner Kelly, Assistant Professor of Education, Pennsylvania State University. Originally published at The Conversation
From California to Wisconsin, efforts to stop charter school growth are gaining momentum. In the April 2019 mayoral election in Chicago, both candidates say they want to halt charter school expansion.
Financial issues lie at the core of these efforts.
Schools were hit particularly hard by the 2008 recession. Many states cut education funding. As a scholar of school finance, I would argue that charter school expansion is making this bad situation worse.
Trends in School Finance
In my home state of Pennsylvania, schools watched US$1 billion disappear when former Gov. Tom Corbett, a Republican, both cut state funding and refused to replace federal stimulus

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Links 3/8/19

11 days ago

Don’t Sell Out the Arctic National Wildlife Refuge to Oil Companies Audobon Society (guurst). Please consider signing.
Triton is the world’s most murderous malware, and it’s spreading MIT Technology Review (Robert R)
Encouragement Without Education Backfires On Recycling Efforts Gizmodo. Someone on my floor is horrible about recycling. Puts non-recyclable stuff in bins and also puts stuff that is recyclable in wrong bin.
Expedia: A Cautionary Tale For Cryptocurrency In Travel Forbes
More people in their 30s and 40s are having strokes. How to recognize and prevent them MPR News (UserFriendly)
Study reveals how psychedelic psilocybin improves long-term creative thinking New Atlas (David L)
China?
>U.S.-China Trade Deal Isn’t Imminent So No Summit Date Set, Envoy Says Wall Street Journal.

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CalPERS/Investor Alert: Award Winning Study Debunks “Warren Buffett” Fund Strategy; Buffett Does Better in Stocks Than Private Companies

12 days ago

We’d been skeptical of longer-dated private equity funds as soon as we heard about them. Marketed as emulating the strategy of Warren Buffett, who has about 2/3 of the value of Berkshire Hathaway’s holdings in stakes in private companies, these funds were set to have lives of 20 years (as opposed to 10 for conventional private equity funds1) and planned to hold the individual portfolio companies longer than the “typical” five years.2 The private equity industry push for these types of funds occurred when top general partners were warning that they expected performance to decline in the future. These longer-lived funds looked like an effort to lock up money during a what could have been a last hurrah for the industry.3
But the Warren Buffett branding, and the pretense that these long-hold

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Can the US Treasury Run Out of Money When the US Government Can’t?

12 days ago

Yves here. One quibble with an otherwise very informative post. Tymoigne claims that informed commentators understood that S&P’s threat to downgrade the US credit rating, which it delivered on, would be a nothingburger. That’s false. The business and even political press had leading stories virtually daily that a downgrade would be a meteor wiping out the dinosaurs level event, with famous deficit hawks leading the hysteria. This site was virtually alone in arguing otherwise. I had to be more cautious that I liked at the time because I thought it was possible that there might be a short-lived downdraft.
By Eric Tymoigne, Ph.D., Associate Professor of Economics at Lewis and Clark College and Research Associate at The Levy Economics Institute. His research expertise is in: central banking,

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