Question without notice: when a State, a nation, a country... to what other power earthly or divine should we turn... is subject to the influence of "a shadow financial system" and cannot even decide, resolutely, ruthlessly, mercilessly, not just to regulate it, but to destroy the leeches, parasites, scoundrels, criminals who run these "technologies"... don't you just wish for a mad moment that the Taliban or some irate unforgiving God could just put an end to this outrage?
The crypto crowd gets loud and proud on Capitol Hill
Money talks in Washington and the digital finance industry has plenty of it
Montage of cryptocurrencies and the US Capitol
The US Senate passed the $1tn infrastructure plan without the changes sought by the crypto industry, but its advocates expressed satisfaction nonetheless, feeling they had demonstrated clout © FT montage; Getty Images
August 14, 2021 4:00 am by Gary Silverman
The US cryptocurrency industry has just revealed a significant new capability. It has proved conclusively that it can make itself heard on Capitol Hill.
The crypto crowd piped up as the US Senate was finishing work on President Joe Biden’s $1tn infrastructure plan. In the days before the proposal passed on Tuesday, the debate stalled as the industry furiously protested tax reporting requirements being proposed for crypto “brokers” in the interest of helping to pay for all that upkeep.
The industry did not get what it wanted right away. But it still might, and in the meantime, its partisans have been fired up, suggesting the battle in the nation’s capital over how to tax and regulate the trade in cryptocurrencies could grow in intensity.
“We need to destroy crypto’s enemies before they destroy us,” Ryan Selkis, chief executive of the Messari crypto data firm, said in a tweet during the debate, adding in an interview that he hoped industry advocates would work to defeat their intransigent foes at the polls.
The crypto furore was surprising because the Senate took up the issue by accident. Its focus was on infrastructure, and the challenge at hand was to find ways to pay for it without raising taxes, an exercise that some commentators likened to looking for change under federal sofa cushions. Reaching deeply, the Biden administration estimated the US could collect $28bn in taxes owed under existing laws by crypto investors.
That was where things got tricky. To help make sure this money materialised, the bill required crypto brokers to issue the customary tax forms reporting investment income to customers and the government. It defined a broker as any person who “for consideration” — meaning money, basically — regularly provides “any service effectuating transfers of digital assets on behalf of another person”.
The crypto industry recoiled at this definition, arguing that it was so broad it would cover everyone from crypto miners to software developers working on decentralised finance (DeFi) platforms. Requiring folks like these to issue tax forms, they said, would drive the industry offshore, and reduce, rather than increase, the revenue raised.
The Senate took these complaints seriously, which makes sense given the size of the industry levelling them. Money talks in Washington and the crypto crowd has lots of it: the purported value of cryptocurrencies approaches $2tn.
More surprising was that the Senate response involved rival amendments crafted by two bipartisan groups of lawmakers — an oddity in today’s divided US. Both sought to dispel worries about the broker tag being applied to people validating transactions on distributed ledgers. But one raised fears in the industry that people working on “proof of stake” networks could be deemed brokers. That could hurt ethereum, the blockchain underpinning much of DeFi, since it plans to convert to such a system.
Eventually, a compromise was agreed, but all came to naught when Senate leaders sought “unanimous consent” to bring the proposal to the floor without slowing down the infrastructure bill. One senator, Republican Richard Shelby, objected in a failed bid to force consideration of his amendment on national security.
Crypto bros stay loyal despite gathering crackdown
The infrastructure plan was passed without the changes sought by the crypto industry but its advocates expressed satisfaction nonetheless. They felt they demonstrated clout, slowing down the legislative process and building support for changing the broker definition, possibly in other legislation or maybe through regulation. To that end, they secured statements from two prime movers behind the bill — Republican Rob Portman and Democrat Mark Warner — expressing their belief that neither crypto miners nor hardware or software vendors are crypto brokers.
“What we learned is that crypto is a force to be reckoned with,” said Kristin Smith, executive director of the Blockchain Association. “Crypto is more than an industry. There is an entire network of individuals building and supporting those networks. That has turned out to be an incredibly organised community.”
The ultimate political test of this community, however, has yet to come. In his comments, Warner pointed to the challenge, saying the US should not permit the “creation of a shadow financial system beyond the reach of established rules to combat illicit finance and tax evasion”.
This is a live issue. Much of the work of the crypto community today is in DeFi, which uses so-called smart contracts to replace the financial intermediaries that governments rely on to help enforce the law.
At a certain point, the crypto community could face pressure to fill that void. When that day comes, the industry will have to do more than make complaints. It will have to assume responsibilities, too.
Here is the relevant passage, which in its formulation of what is contemplated should result in the immediate brutal immolation of the utter beasts behind this fresh ungodly abuse!
"The ultimate political test of this community, however, has yet to come. In his comments, Warner pointed to the challenge, saying the US should not permit the “creation of a shadow financial system beyond the reach of established rules to combat illicit finance and tax evasion”.
This is a live issue. Much of the work of the crypto community today is in DeFi, which uses so-called smart contracts to replace the financial intermediaries that governments rely on to help enforce the law."
Law? Did I read "law"?
And does the FT call this coven of thieves, bandits, fraudsters... a "community"?
How can it be a "challenge" for the highest "lawmakers" in the most powerful nation on earth even to consider these callous criminal scams to receive legal sanction?!
I was fumbling for an apt word to qualify this moral morass: oh, yes. An abomination! That's the fitting word: an abomination!
As I argued earlier, central banks have now hooked their financial systems or "pyramids" to intensive care QE support. The term structure of interest rates through bonds is so far stretched out that ANY attempt to retrace it will result in the cataclysmic collapse of the entire financial structure. So it is a bitter satisfaction to find that more people begin to agree with me (and Hyman Minsky, if he were still alive). Here is:
Quitting QE may be harder than the Bank of England believes
It is rash to pretend that withdrawal of support for bond markets will be straightforward
Putting the QE juggernaut into reverse was always likely to be fraught but the BoE’s approach risks adding extra complexity to the process © Financial Times
August 13, 2021 9:50 am by Tommy Stubbington
After more than a decade of quantitative easing, the Bank of England will soon have almost £900bn of government bonds on its hands. The central bank last week offered the first detailed plan of how it aims to get rid of them, as it gradually tightens monetary policy following the Covid-19 pandemic.
It made the process sound positively serene. Once interest rates have climbed to 0.5 per cent, the BoE will stop reinvesting the proceeds of maturing bonds that it owns — leading to a steady depletion of its holdings. When rates reach 1 per cent, Threadneedle Street will consider selling some of its gilts back to the market.
The BoE’s Monetary Policy Committee was confident that reducing its stock of assets would have less impact on monetary conditions than buying them in the first place did. Governor Andrew Bailey added in his press conference that the unwinding of QE would proceed on “autopilot” along “a gradual and entirely predictable path”.
The breeziness seems odd, particularly given the market upheavals caused by the Federal Reserve’s past attempts to shrink its balance sheet, both in 2013’s “taper tantrum” and then in the Fed’s own experience of “quantitative tightening” three years ago.
The BoE argues QE announcements in the past may have provided a “signal” about policymakers’ assessment of the economy and how they would react to it, indicating to markets that interest rates would stay low for longer. By contrast, announcements of the reduction of the stock of purchases would contain no such signal, the BoE said.
There are two big problems with this claim. First, the BoE also said that quantitative tightening would go ahead only “if appropriate given the economic circumstances” — making it hard to escape the conclusion that such a decision would indeed convey some signal about the economy.
The second issue is more fundamental. Central bankers are in control of what they say, but they cannot dictate what the market hears. A survey by the Financial Times this year of big investors in gilts uncovered a widespread belief that the BoE’s QE programme was a thinly veiled scheme to finance the government’s deficit, rather than an attempt to ensure the central bank met its inflation target by stimulating the economy.
If the BoE and investors are talking at cross purposes, it is no mere academic matter. The central bank’s ability to influence the economy with its monetary policy is mediated by financial markets. If borrowing costs rise, growth is likely to slow. Fluctuations in the value of the pound can have a large impact on inflation.
Decoding what the MPC is trying to achieve with QE “is like trying to understand the Enigma machine”, said Richard Barwell, head of macro research at BNP Paribas Asset Management. He argued that the committee’s members did not even seem to agree on how QE worked — so little wonder investors were confused.
Gertjan Vlieghe, an external member of the MPC, said in a speech last month that he did not expect the extra £150bn of bond purchases unveiled last November to have provided any additional stimulus to the economy: rather they were a kind of insurance policy against a return of the turmoil that struck markets at the start of the pandemic. Perhaps Vlieghe, who has departed the MPC since last week’s meeting, was being unusually frank, because this explanation appears at odds with the central bank’s previous rationale for the latest round of QE.
In any case, if policymakers wanted to reassure markets they were ready to step in if gilt prices tanked, why not just say so? Bailey has been keen to distance himself from any suggestion that the BoE is blurring the lines between fiscal and monetary policy by using QE to finance the government’s budget deficit.
But investors already believed that the MPC was practising an implicit version of the Bank of Japan’s “yield curve control” policy, in effect using its bond buying to stop gilt yields from rising rather than attempting to push them lower.
Or if the extra QE was meant to tell investors something about the future path of interest rates, providing direct guidance would surely be simpler. Instead, the MPC opted for what Barwell called “probably the most expensive signal in the history of monetary policy”, and one that markets struggled to parse.
Putting the QE juggernaut into reverse was always likely to be fraught. But the BoE’s approach risks adding an extra layer of complexity to the process, which could have a much bigger market impact than Bailey and his colleagues anticipated, according to Mark Dowding, chief investment officer at BlueBay Asset Management.
A report by the House of Lords economic affairs committee — which includes former governor Mervyn King — last month stated that the central bank had become “addicted” to QE. The word earned a rebuke from Bailey, who said it had a “very damaging meaning for many people who are suffering”. But whether or not the BoE is addicted, it is rash to pretend that quitting will be straightforward.
"Addiction", "quitting"... Never were words applied more aptly!
In this piece, Enwar Prasad warns against the catastrophic mayhem that "financial technology" is likely to wreak. Prasad deserves merit for stressing the "likelihood", not just the possibility, of disaster. Where henisnwrong is (a) in believing that these are difficult"technologies" - they are not! They are just applications of existing tools that the lawlessness of criminals and the connivance of "absentee states" is allowing to perpetrate. Prasad refers to these criminals doing "the heavy lifting": yes, lifting immense social resources from the mouths of vast human populations!
Here is Prasad:
Governments must help manage the risks of fintech
Even the relatively low cost of entry into new digital markets does not guarantee fair competition
The Alipay service is displayed on a food stall in Hangzhou, China. Fintech is putting banking and other services literally in the hands of consumers
The Alipay service is displayed on a food stall in Hangzhou, China. Fintech is putting banking and other services literally in the hands of consumers © Qilai Shen/Bloomberg
August 12, 2021 11:55 am by Eswar Prasad
The writer’s next book is ‘The Future of Money: How the Digital Revolution is Transforming Currencies and Finance’
Financial innovation sometimes brings great rewards. It can make the financial system more accessible to underserved segments of the population and improve lives. But some innovations can lead to disaster, which usually hurts the poor more than others.
Governments must find the right balance between promoting innovation and managing risks. As the world economy recovers from the Covid recession, which has exacerbated inequalities, the stakes could hardly be higher. The pace of innovations, including some truly groundbreaking ones, has picked up, heightening the urgency of addressing this question.
In the early 2000s, financial innovations took the form of new products that ostensibly made it easier for consumers to get credit and for investors to generate higher returns and better manage risk. The hubristic notions that financial engineering could itself create value, and that the private sector could adequately manage risks on its own, culminated in a spectacular collapse.
The latest wave of innovation is underpinned by new technologies that are encapsulated by the term “fintech”. Fintech is putting banking and other services literally in the hands of consumers. We can now make payments, do basic banking and even trade stocks with apps on our mobile phones.
The fintech revolution has the potential to democratise finance. Digital banks, robo-advisers and online platforms that directly connect savers and borrowers are transforming financial intermediation. They have made saving and credit products easily available even to low-income households as well as those in rural and remote areas, while encouraging entrepreneurial activity.
Digital payments that are cheap, quick and efficient are proving a boon for consumers and businesses. Disruptive change is coming to international payments, which have long been expensive and time-consuming. For economic migrants sending remittances to their home countries and many low-income countries that rely heavily on such flows, this is a blessing. Better payment systems will benefit domestic and international commerce.
Technology is not an unqualified blessing, however. Computer algorithms that dispassionately render verdicts on creditworthiness and loan qualifications in principle reduce overt racial and other forms of bias. But algorithms built by humans and benchmarked against historical data can end up reinforcing existing biases.
Digital access and financial literacy are still unevenly distributed. As the Gamestop saga showed, naive retail investors are often the last to join the party when speculative frenzies erupt, and they are left nursing losses when the frenzies end. Governments must still work to protect investors and ensure basic financial literacy, so that investors understand the products on offer and risks involved.
Moreover, even the relatively low cost of entry into digital markets does not ensure an easy path for new entrants and fair competition. Network effects that benefit incumbents can lead to even greater concentration in the digital realm. China’s government gave Alipay and WeChat Pay free rein, which they used to create innovations that expanded financial access to the masses and helped in the fight against poverty. But these two platforms now dominate the payments landscape, acquiring so much power that the Chinese authorities recently cracked down on them.
India’s Unified Payments Interface provides a model for how a government can foster private sector innovation and competition in financial services, without directly intruding in this sector. The Indian government created a public digital infrastructure with open access that provides easy entry for payment providers, ensuring a level playing field for established operators and new entrants.
Aadhaar, a biometric identification scheme, makes it easy for even illiterate and poor individuals to establish their identity, facilitating access to the financial system. The government has proposed regulations to give consumers control over use of their data.
Fintech regulatory “sandboxes” that allow new products and services to be tested in a controlled environment and in a limited scope can also help balance regulators’ concerns with the inherent riskiness of innovations.
Fintech can play a powerful role in democratising finance in advanced and developing economies, but its perils must not be discounted. While the private sector should be left mostly unshackled to do the heavy lifting, governments have an indispensable role in securing the benefits and managing the risks.
Here is where Prasad is right:
"In the early 2000s, financial innovations took the form of new products that ostensibly made it easier for consumers to get credit and for investors to generate higher returns and better manage risk. The hubristic notions that financial engineering could itself create value, and that the private sector could adequately manage risks on its own, culminated in a spectacular collapse. "
But here is where he is "idiotic" wrong:
"The latest wave of innovation is underpinned by new technologies that are encapsulated by the term “fintech”. Fintech is putting banking and other services literally in the hands of consumers. We can now make payments, do basic banking and even trade stocks with apps on our mobile phones. "
This is total garbage! These "innovations" or "technologies" are simple extensions or applications of existing tools that have developed hand in hand with the internet. Prasad is committing the equivalent error of calling Facebook a "technology" when in fact it was and is the most jejune application of engineering and algorithmic tools already in use widely elsewhere! We don't need to invoke Isaac Newton here ("I stood on the shoulders of giants") to conclude that "FinTech" is simply the unabashed, shameless abuse of existing techniques in the pursuit of illegal and dangerous transactions in the financial sphere with the backing of extremely powerful financial interests (as was the case with Facebook and other FAANGS) with the aim of stealing social resources from the vast majority of people on the planet!
Just to bring home the profound idiocy (yes, idiocy can be profound), of Eswar Prasad above, take a look at this gem from the last quotation:
“Fin tech is putting banking and other services literally in the hands of consumers…”
This statement is so daft as to induce one to suspect dishonesty! Far from putting banking “in the hands of consumers”, all blockchain crypto transactions, let alone share dealing and the likes, MUST BE CONDUCTED THROUGH BROKERS! This is a truth and a fact so utterly translucent and obvious that it bears no proving! Far from eliminating brokers and intermediaries, fin tech is multiplying to buggery and unimaginable levels of skulduggery the numbers of intermediaries rushing to profit, legally and not, from this apparently “democratic empowering… technology”! By the way, none of these technologies have freed us from the Taliban, who seem to ignore them thoroughly and blissfully…
Prasad now THREATENS to publish a book on “The Future of Money”! The man is devoting himself to prophecy now! We await in awe, mindful of the three witches in Macbeth, in the finical ether of fin tech where “fair is foul and foul is fair/ hover through the fog and filthy air”.
Here is precisely what i was saying about Osama/Obama. This is the kind of degradation that will bring our societies down faster than Afghanistan...
Lockdowns are highlighting how the most "essential" services are indeed the most productive: no production without essential services... and how these are the least rewarded while the bullshit jobs belong to the well-paid few. This incongruity can be overcome within national economies if and only if essential work is performed by disenfranchised guest migrant workers. On a planetary level, however, such an undemocratic global division of labour must give rise, as it is doing, to uncontainable conflict.
One of the worst side effects of the false private vs. public dichotomy is that the most vital social functions are 'public'. Hence, in every crisis, the absentee state is very late to the rescue, as Paul Krugman argues in this piece.
This piece on Phil Agre, an early critic of AI, is quite thrilling. You can see that I have already raised many of the criticisms of IT and AI that this brilliant mathematician elaborated a long time ago. Regrettably, the article keeps referring to undifferentiated “technology”. But it does refer to the fact that much of this technology is really pedestrian even when it is massively consequential in terms of its questionable social effects. Far too many people lionise the “innovation” of Big Tech when in fact what they mean is… how far-reaching and intrusive it is!
My own studies - on Schumpeter or Hannah Arendt, for instance - have focused on the fact that “data collection” is in reality “data selection”. That the collector is more akin to a dictator. That there are no “data” (Latin for “givens”) but rather “takings” or interested assumptions.
Another lacuna, a very simple-minded one, is to assume that the manipulation of information to induce consumer behaviour is not dictatorial because it is carried out by a multiplicity of agents. Yet the same can be said of every dictatorship! Dictatorships are characterised as much by actions as they are by omissions. Nowhere is it written that an authoritarian state must be “interventionist”! One of the worst aspects of dictatorships is precisely to allow “the will of the people” to take effect: which explains how Hitler and Mussolini could win plebiscitary elections or assemble immense crowds without so much as moving a finger! And who could forget Mao’s Cultural Revolution?That is the whole point to the absentee state: - that in given circumstances it can be a “negative” yet still very much authoritarian state!
One of the most significant aspects of advanced capitalism is “the concentration of capitals” whereby the average rate of profit is centralised by governments through the central setting of interest rates and the control of the money supply. This centralized command of aggregate economic activity does not have to be dictatorial, but it is clear evidence and proof of how it is possible for seemingly “decentralised” decision makers or “financial markets” to impose choices on society in a thoroughly authoritarian manner! Henry Ford used to say that you could choose any car colour you liked - so long as it was black! Similarly, Apple and Samsung give us “choices” that amount to next to none at all!
One of Joseph Schumpeter’s greatest insights on capitalist “innovation” is that it is the capitalist, NOT THE CONSUMER! who decides on the content of innovation. As Steve Jobs is said to have done, he KNEW what the consumer DID NOT EVEN KNOW HE WANTED!
That was Schumpeter. But Max Weber, who witnessed the fall of the Wilhelmine Prussian state, argued against him that, "all things equal" (caeteris paribus), the power of a state depends on how compact and cohesive its population is. In a capitalist economy, that depends on how well production (not consumption!) responds to the real needs and wants of its population.
The trouble with Big Tech is that it does not seek to find out what those needs and wants are, but rather it manipulates them to quicken and intensify consumption, with a consequential weakening of the sphere of production and productivity. Hence, there is a net debilitating transfer of wealth and power from the productive sectors of society to the bullshit jobs, those that have either no effect or at worst have a stultifying and debilitating effect on productivity. Call this "the Opium War" effect. For the past 40 years, China has been busy MAKING AND DOING, whilst the West has been busy staring at "screens"! And devouring quantities of fentanyl made in China!
As the Apple CEO said, if we need technicians, in the West it's impossible, in China we can have entire stadiums full... Learning by doing...