Campaign Action
The many, many pages of glowing media devoted to Bankman-Fried previous to FTX’s collapse never failed to include stories of his frugal lifestyle and his love for charity. They didn’t include much mention of the $240 million luxury estate in the Bahamas where Bankman-Fried was eventually arrested. They certainly didn’t talk about how the executive team had dipped into the assets lodged with FTX to reward themselves with what may have been a third of all the wealth that ever passed through their fingers.
Bankman-Fried was also frequently held up as someone who supported the regulation of cryptocurrency, and in public appearances he said he welcomed regulatory scrutiny to help the market gain legitimacy. However, back in November in an interview with Vox, Bankman-Fried put it a little differently.
Bankman-Fried has largely avoided criticizing regulators. But in our conversation, he dismissed their role. He characterized his past conciliatory statements—like when he said just last month that some amount of crypto regulation would be “definitively good”—as little more than “PR.” In doing so, he all but confirmed the view of critics who have argued that his overtures to Washington were much more about image than substance.
Or, to put it in Bankman-Fried’s own words, “fuck regulators.”
In a Wednesday press release, FTX noted much of the money FTX execs carted away was now in the form of real estate and other businesses, including “substantial” transfers to subsidiaries in the Bahamas and other jurisdictions. In other words, they took the money and they did everything to hide it. Good luck getting it back.
Bankman-Fried currently faces a dozen criminal charges related to fraud, campaign finance violations, money laundering, and conspiracy to commit fraud. But since Donald Trump once got away with 106 counts of money laundering by paying a fine, and walked away from thousands of cases of fraud by paying another fine, it wouldn’t be surprising if the charges against Bankman-Fried end up netting him a less time in jail than the average sentence for shoplifting a small item.
How does the downfall of FTX relate to the recent failure at Silicon Valley Bank (SVB)? Well, to start with, here’s a sequence of events at FTX that Walter Einenkel put together last November:
- Crypto exchange CoinDesk published a report showing that most of FTX’s assets led back to FTT tokens.
- FTX customers began selling both FTX stock and trying to get at their funds.
- Another widely hailed crypto giant, Binance, announced that it would be getting out of the FTX token business.
- FTT token prices plummeted.
FTX described all this as “a run on the bank.” But it actually seems to be a case of investors suddenly realizing that the bank was already empty.
Now here’s how the Associated Press described the failure of SVB.
The bank failed after depositors—mostly technology workers and venture capital-backed companies—began withdrawing their money creating a run on the bank.
Silicon Valley was heavily exposed to tech industry and there is little chance of contagion in the banking sector as there was in the months leading up to the Great Recession more than a decade ago.
When AP says that SVB was “exposed to the tech industry,” a big part of what they mean is that among its biggest investors were “stable coin” minter Circle ($3.3 billion), crypto exchange Block-Fi ($227 million), and crypto exchange Coinbase ($240 million).
What about Signature Bank, which also went down with SVB? According to Forbes:
The shutdown of Signature Bank raises major questions for the crypto industry, as the bank was one of the first to open its doors to digital assets. The bank has stated its digital-asset clients held $16.5 billion in deposits, according to the New York Times. It previously sought to lower its exposure to crypto—which accounted for nearly a quarter of its total deposits in September 2022—following a tumultuous year the industry faced in 2022.
Oh, and speaking of gambling on tokens that have questionable intrinsic value, let the The New York Times explain one of the other ways SVB was known to generate profit.
One of Signature’s specialties was financing the purchase of taxi medallions, which authorize holders to operate cabs.
In New York City, those medallions were around $25,000 when first issued in the 1960s. By 2005, they were going for over $300,000. In 2010, $600,000. In 2013, the price of a medallion topped $1 million. A no-lose market!
Except by 2018, they fell to under $200,000. In 2019, almost half the medallions up for auction had no bidders. Then … wait. Is that the smell of tulips in the air?
In 2008, bankers got in trouble by latching onto instruments such as credit default swaps with values that could be inflated beyond all reason—even beyond the worth of all the other forms of wealth on the entire planet. Regulators put a stop to that, but only after it crushed the banking system.
Bitcoin was invented in 2009, right in the shadow of that crisis. It was designed from the outset to be not just free from government control and anonymous, but to be unable to be regulated and untraceable. The value of cryptocurrency, just like those credit default swaps, is untethered from reality. They are worth whatever anyone can get for them.
That investment firms based around exchanging nonsense tokens of incalculable value should be unstable shouldn’t surprise anyone. That banks that become heavily connected to cryptocurrency inherit that instability also seems like a given. But banks have gone from dipping their toes in crypto to being way over their heads.
As The Business Times reported this week, “Crypto bros are quite literally becoming bankless and unbankable” and the scramble to pull the U.S. banking system out of the fire is “sending a message that volatile tokens and decentralised finance need to be kept far away from traditional finance.”
Why would any bank or investor want to place their funds in an area with foundations of jelly? Because just like those bankers in 2008, and just like those executives at FTX, they’re gamblers. Without regulation, they will always underestimate the risk and overestimate the potential gain.
Check with any pit boss in Vegas. That’s what gamblers do.
Crypto bros aren’t welcome at the banks right now because banks are scared. Give it a week. Without regulation, they’ll be back with an even more elaborate, can’t possibly fail scheme. That’s why bank regulations have to be not just robust, but forward-looking enough to allow for closing down the next get rich quick scheme. And the next one.
But hey, one of these companies had a gay woman on its board. Why bother to deal with massive fraud, or to take steps to prevent it happening again, when such a good scapegoat is available?
Progressives have had tremendous success passing all sorts of reforms at the ballot box in recent years, including measures that have expanded Medicaid, increased the minimum wage, and created independent redistricting commissions. How have Republicans responded? By making it harder to qualify measures for the ballot.
On this episode of The Downballot we take a deep dive on the GOP's war on ballot initiatives, which includes burdensome signature requirements that disproportionately impact liberals; ramping up the threshold for passage for citizen-backed measures but not those referred by legislatures; and simply repealing voter-passed laws Republicans don't like. But Republican power is not unfettered, and Stephen explains how progressives can fight back by defeating efforts to curtail ballot measures—many of which voters themselves would first have to approve.
Comments are closed on this story.