Originally published at: Pluralistic: 23 Nov 2022 Citizens United and the FTX meltdown – Pluralistic: Daily links from Cory Doctorow
- Citizens United and the FTX meltdown: The Keating Five were amateurs.
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Citizens United and the FTX meltdown (permalink)
The collapse of the FTX cryptocurrency exchange and its affiliated businesses has left a million creditors holding the bag for a chaotically managed, corrupt enterprise that created vast personal fortunes for the conspirators who ran it, even as it stole the life's savings of retail investors who bought into its lies.
Could the unsuspecting public have been shielded from the FTX Ponzi scheme? Hindsight is 20/20, but there's good reason to believe that FTX could have been brought down in a controlled glide, rather than a nose-first crash landing and ensuing fireball.
Earlier this year, the SEC sent a letter to FTX seeking answers about its business practices – a letter that sought to determine whether FTX was as scammy as it appeared. The SEC never got the answers it sought, thanks to the intervention of eight Members of Congress – the "Blockchain Eight," four Dems and four Republicans – who wrote to Chairman Gary Gensler demanding that he back off:
Five of Blockchain Eight received substantial cash contributions from FTX founder Sam Bankman-Fried (SBF) or his employees or affiliated businesses and PACs. Bankman-Fried is widely characterized as a Democratic super-donor, but his political spending is basically 50-50:
SBF held himself out as a philosopher king, a devotee to esoteric ethical precepts and a concerned billionaire who was committed to saving the world from ugly political currents; after the collapse, he confessed that this was all marketing nonsense ("this dumb game we woke westerners play"):
SBF and his co-conspirators gave money to politicians to further their own ends, not to save the world. They understood that if they gave money to politicians, that politicians would intercede to keep regulators from keeping them honest.
The questions in the original SEC letter went to the heart of the FTX fraud, seeking to establish that FTX was marketing unregulated securities disguised as a "rewards" program, and that FTX was stealing from depositors and handing their money to its hedge-fund affiliate Alameda to gamble with.
Hedge-fund managers are notoriously bad at their jobs, generally underperforming a low-load S&P 500 index fund, but even by those low standards, Alameda was a very bad hedge-fund, losing $3.7b in a "raging crypto bull market."
SBF's reputation as a boy-wonder genius investor wasn't the result of the returns to Alameda, but rather, the seemingly limitless funds that Alameda could tap into for more failed investments. Those funds, we now know, were stolen from FTX's retail customers. This is exactly the kind of thing that an SEC investigation could have revealed.
The vast sums of (real) money the crypto industry pumped into electoral politics is closely related to its bull run – campaign contributions muzzled finance watchdogs, which let the industry defraud the public, which gave it more money for campaign contributions.
This is a completely foreseeable outcome of unlimited campaign finance, especially the "dark money" finance that the 2010 Citizens United decision unleashed. CU removed the final barrier to massive influence campaigns by the ultra-rich, who poured money into the political system:
The irony here is that the same wealthy people who argued that "money was speech" and campaign finance was merely a way for people to exercise their First Amendment rights are also the foremost proponents of a political ideology whose central tenet is "incentives matter."
These are the same people who say that every visit to the doctor should cost money, lest we create a "moral hazard" that invites people who aren't really sick to go bother the doctor for shits and giggles (it goes without saying that these co-payments are titrated to keep poor people from visiting the doctor, while the rich never feel the sting) (that's because rich people don't suffer moral hazard).
This belief in incentives as the final arbiter of all behavior is the fundamental tenet of economism, and it underpins all our cruelest policies. For an economismist, anyone espousing a sense of duty or mission is merely "virtue signalling":
This slavish belief in incentives is why would-be aristocrats like Sam Walton prohibited his executives from taking so much as a glass of water from vendors' salesmen, lest they become tempted into favoring the salesman's commissions over Walmart's profits.
But these exact same people profess a belief in unlimited political spending as a means to better governance. Somehow, a glass of water will corrupt a corporate buyer, but a $100m super-PAC donation will have no impact on the judgment of an elected official.
Covering the Blockchain Eight bribery scandal for The American Prospect, David Dayen hearkens back to the Keating Five scandal of 1987, when five senators wrote to the Federal Home Loan Bank Board to insist that they lay off Lincoln Savings and Loan:
Lincoln's chairman, Charles Keating Jr, had donated $1.3m to the Keating Five between 1982-7, and their letter convinced the FHLBB to close its investigation, whereupon Lincoln promptly collapsed, sticking the American public with a $3.4b bailout bill.
Like the Keating Five, the Blockchain Eight set out to stop regulators from investigating a company that was engaged in a titanic fraud. Like the Keating Five, the Blockchain Eight benefited from sizable campaign contributions from the industry they caped for.
Unlike the Keating Five – who faced a Senate ethics inquiry and sanctions – the Blockchain Eight are completely unrepentant. The Eight's ringleader, Rep Tom Emmer (R-MN) has even accused SEC Chairman Gensler of secretly being in the tank for FTX:
Just last week, Emmer told the Blockchain Association, "You are here to stay…[nobody should] rush in and put a huge wet blanket of regulation atop this industry just because something didn’t go right."
Emmer is on the House Financial Services Committee, along with five other members of the Blockchain Eight: Ritchie Torres (D-NY), Josh Gottheimer (D-NJ), Jake Auchincloss (D-MA), Warren Davidson (R-OH), and Ted Budd (R-NC). This is the committee charged with investigating the FTX fraud.
The great irony of the right's incentives exceptionalism and its belief in unlimited political bribes is that it leads to the creation of a larger state. Allowing companies to bribe politicians and capture regulators fuels both corporate growth and corporate corruption.
If the state is to counter that corruption, it must be as powerful as the companies it oversees. The bigger those companies are, the bigger the state has to be. If you truly want a less intrusive, less muscular state, the first step is reining in corporate power.
(Image: Cointelegraph, CC BY 3.0, modified)
Hey look at this (permalink)
- Displaying the Dead https://publicdomainreview.org/essay/musee-dupuytren-catalogue
UK Regulators Want Apple to Open its App Store Doors to Cloud Gaming https://gizmodo.com/apple-google-uk-investigation-cma-xbox-cloud-gaming-ios-1849814144
EFF 2021 annual report https://annualreport.eff.org/
This day in history (permalink)
#10yrsago Hacker’s ad for a Yahoo email-stealing exploit, up for sale at $700 https://krebsonsecurity.com/2012/11/yahoo-email-stealing-exploit-fetches-700/
#10yrsago Saudi Arabian women tracked at the border with system that SMSes their husbands when they leave the country https://english.alarabiya.net/articles/2012%2F11%2F22%2F251255
#10yrsago Staffers for millionaire/wrestling magnate/failed GOP Senate candidate say they were stiffed, got bad checks and condoms: “you’re screwed” https://web.archive.org/web/20121127171815/http://connecticut.cbslocal.com/2012/11/21/checks-issued-by-mcmahon-campaign-reportedly-bounce/
#5yrsago Blame the US Retail Apocalypse on hedge funds and financialization, not Amazon and Walmart https://www.bloomberg.com/graphics/2017-retail-debt/
#5yrsago Women are fleeing Donald Trump’s Republican party in droves, and the GOP has no idea what to do about it https://www.theatlantic.com/politics/archive/2017/11/why-republican-women-arent-galvanized-by-the-trump-era/546533/
#1yrago The definitive answers to Disney's pernicious queueing debates https://pluralistic.net/2021/11/23/jump-in-the-line/#stay-in-your-lane
- The Bezzle, a Martin Hench noir thriller novel about the prison-tech industry. Yesterday's progress: 690 words (64570 words total)
Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. (92849 words total) – ON PAUSE
A Little Brother short story about DIY insulin PLANNING
The Internet Con: How to Seize the Means of Computation, a nonfiction book about interoperability for Verso. FIRST DRAFT COMPLETE, WAITING FOR EDITORIAL REVIEW
Vigilant, Little Brother short story about remote invigilation. FIRST DRAFT COMPLETE, WAITING FOR EXPERT REVIEW
Moral Hazard, a short story for MIT Tech Review's 12 Tomorrows. FIRST DRAFT COMPLETE, ACCEPTED FOR PUBLICATION
Spill, a Little Brother short story about pipeline protests. FINAL DRAFT COMPLETE
A post-GND utopian novel, "The Lost Cause." FINISHED
A cyberpunk noir thriller novel, "Red Team Blues." FINISHED
Currently reading: Analogia by George Dyson.
Latest podcast: Sound Money https://craphound.com/news/2022/09/11/sound-money/
- Conversation with Tim Wu, Informed/Knight Foundation (Miami), Nov 30:
Library Learning Experience/American Library Association (New Orleans), Jan 27-30
Australian Digital Alliance Copyright Forum (Canberra), Feb 17:
Antitrust, Regulation and the Political Economy (Brussels), Mar 2:
- New Books Network
Business Without Bullshit
Team Human interview
- "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com
"Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The Washington Post called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html
"How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59 (print edition: https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)
"Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html
"Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.
- Red Team Blues: "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books, April 2023
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