Michael Pascoe: Trillion-dollar government failure, Dopesick and an Istanbul taxi driver
Of all the cryptocurrencies, Bitcoin is the most popular. Photo: Getty
The puff of dust just visible across the far valley beyond the ridges is the last sign of a trillion-dollar horse long bolted, the gate not just left open but held ajar by dopey politicians and regulators – or worse.
The aforementioned regulators can now be relied upon to sheepishly focus on their shoes while trying to avoid the issue of their uselessness.
The politicians who were party to the failure, who cheered the free-running horse, will quietly pretend it was nothing to do with them as the inevitable inquiries start after that dust has settled.
I’m referring of course to the crashing crypto Ponzi scheme, whereby hucksters and scam artists have made fortunes and mug punters have been taken for a ride.
The hard-luck stories have already started about people who have lost all or much of their savings by being suckered into the crypto maze.
They will have nowhere to turn for help because they were playing in a totally unregulated casino, a lawless space where operators invented new games at will, feeding greed and fantasy.
If you want to read something funny – funny if you have a dark sense of humour – try Treasury’s ‘Crypto asset secondary service providers: Licensing and custody requirements’ consultation paper published a week before Josh Frydenberg’s last budget.
“The government is keen to harness the economic benefits from the technological innovations arising from the crypto ecosystem for Australia and create a local crypto ecosystem that consumers can trust. This will need to be done while managing the risks crypto assets could present to consumers, the financial system, and the real economy.”
The gate, the horse, bolted thing.
More fundamentally, it appears Treasury had been suckered/pressured into treating the massive Ponzi scheme as if it wasn’t a massive Ponzi scheme. A Senate select committee chaired by crypto fanboy Andrew Bragg seemed to gain sway with its October final report recommending full speed ahead on encouraging the “crypto ecosystem”.
The report takes much more notice of crypto promoters than sceptics but it certainly gets one thing right.
While noting a survey claiming an astonishing 25 per cent of Australians have bought cryptocurrencies (I use the term loosely), “making Australia one of the biggest adopters of cryptocurrencies on a per capita basis”, “Australia has not yet introduced fit-for-purpose regulatory systems for these emerging technology sectors”.
Two months ago, APRA announced its ‘Crypto-assets: Risk management expectations and policy roadmap’ which promises lots of consultation before arriving at some sort of destination in 2025. (Nothing like a four-year policy roadmap to allow plenty of reaching out, touching base and circling back.)
APRA chief Wayne Byres.
With masterful understatement, APRA chairman Wayne Byres wrote: “As the Basel Committee on Banking Supervision has noted, certain crypto assets have exhibited a high degree of volatility and could present material risks as exposures increase.”
Good one, Wayne.
It’s four years since the general manager of the Bank of International Settlements (the central bankers’ central bank) condemned Bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.
Most banks don’t want to touch cryptocurrencies or clients in the cryptocurrency game because, aside from speculation, the main purpose of crypto is money laundering, extortion, weapons trading and dealing in drugs and paedophile porn – anything that people want to keep out of authorities’ sight.
Guess what? Crooks operating in those areas and the people providing services for such crooks have a high propensity to be at least a little crooked.
But as the bubble has bubbled and the speculation reached into the trillions, the honeypot has started to attract banks wanting to play footsie with it and politicians hoping to appear hip.
Australia’s regulatory ineptitude, letting the horse bolt and trample plenty of hapless civilians along the way, is small beer though compared with the global leader in financial engineering and politics for sale – the United States.
When the gun lobby can so easily buy American politics while children are being slaughtered, there’s no surprise the crypto industry is pouring money into politicians.
I just finished watching Dopesick, the excellent and frightening dramatisation of how the Sackler family’s Purdue Pharma effectively started the American opioid crisis, including its hiring of former regulators and big names – Rudy Giuliani was a grub long before he teamed up with Trump. There are similarities with crypto.
As Robert Reich has summarised, the crypto industry: “… has hired scores of former government officials and regulators to lobby on its behalf – including three former chairs of the Securities and Exchange Commission, three former chairs of the Commodity Futures Trading Commission, three former US senators, one former White House chief of staff, and the former chair of the Federal Deposit Insurance Corporation”.
“Former treasury secretary Lawrence Summers advises crypto investment firm Digital Currency Group Inc and sits on the board of Block Inc, a financial-technology firm that is investing in cryptocurrency-payments systems.”
All this while the current SEC chair describes crypto investments as “rife with fraud, scams, and abuse”.
Professor Robert Reich
“In the murky world of crypto DeFi, it’s hard to know who provides money for loans, where the money flows, or how easy it is to trigger currency meltdowns,” writes Professor Reich.
“There are no standards for risk management or capital reserves. There are no transparency requirements. Investors often don’t know how their money is being handled. Deposits are not insured. We’re back to the wild west finances of the 1920s.”
Those 1920s wild west finances gave the world the crash of 1929. After the event, it resulted in the Glass-Steagall Act to separate gambling from banking.
But money talks and buys policy. Glass-Steagall was steadily watered down, giving the world the GFC.
And now it’s enabling the massive crypto Ponzi scheme, a speculative racket with no redeeming social features and a great deal of harm as carbon is burned to produce speculative playthings and tools for crime.
I happen to be filing this from Turkey. High inflation and the consequently weak lira have made crypto very popular here. People were told it was a hedge against inflation, easy protection from the lira losing value.
If you’ve caught a few Istanbul taxis, you’ll know the ride can be “interesting”.
On Friday, while dodging through Istanbul traffic, the driver kept flicking from Google Maps to a bright red precipitous graph and occasionally to a list of ticker codes – various cryptos. He was a middle-aged man watching his savings disappear.