Crypto on Tap Today at Senate Banking Hearing: Two of Three Witnesses Will Push Nutty Ideas

By Pam Martens and Russ Martens: February 14, 2023 ~

Senator Sherrod Brown

Senator Sherrod Brown, Chair of Senate Banking Committee

To understand the deteriorating condition of American democracy, one needs to be able to spot corrupt patterns. Let’s take the Senate Banking Committee, for example.

We previously explained how the Senate Banking Committee has subpoena power to get at the truth but never uses it, relying on Senator Elizabeth Warren to send out an endless stream of letters demanding information – which typically never comes because the target of those letters knows that a failure to respond will not result in a subpoena.

The failure of the Senate Banking Committee to issue subpoenas stems from the fact that, according to the Congressional Research Service, the Senate Banking Committee has adopted a rule that requires a majority vote to issue a subpoena for documents or witnesses. And since this Committee has too many right-wing Republican members who take campaign funds from powerful players who want to keep a lid on the truth, the American people keep getting pablum from Senate Banking hearings, instead of the cold, hard facts.

The end results of these failures to issue subpoenas are that the American people have yet to see or hear any investigative findings about what really went down in the Fed’s historic trading scandal, despite the passage of more than 17 months; or what really occurred in the Archegos collapse, where mega banks were giving out 85 percent leverage on billions of dollars in concentrated stock positions via ginned up derivatives; or why the Fed needed to funnel trillions of dollars in repo loan bailouts to Wall Street mega banks in the fourth quarter of 2019, months before there was any COVID-19 pandemic anywhere in the world. (See There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders.)

The Chair of the Senate Banking Committee is Senator Sherrod Brown, a decent guy and a progressive from Ohio. But the makeup of the witnesses on tap for today’s hearing on the crypto crisis looks like something a right-winger put together.

One witness, Linda Jeng, is the top lawyer for the Crypto Council for Innovation, a lobbying group for crypto interests. She will be shilling today for crypto interests in much the same way that celebrities shilled for FTX and Sam Bankman-Fried in the lead up to $8 billion of FTX customers’ funds going missing.

On the website for the Crypto Council for Innovation, it lists its “Alliance” members. These include the following: Andreessen Horowitz – the venture capital firm that is a heavy investor in crypto and would severely suffer if crypto is banned; Coinbase – the publicly-traded crypto exchange that lost 86 percent of its market value last year; Gemini, a crypto exchange created by the Winklevoss twins, Cameron and Tyler, whose customers have been locked out of their interest-bearing “Earn” accounts to the tune of $900 million since November 16 of last year; and others with a vested financial interest in pushing crypto in a positive light to Congress.

According to Jeng’s written testimony, which has been posted on the Senate Banking Committee’s website, she plans to push the right-wing mantra that all those crypto frauds and crypto bankruptcies and billions of dollars in looted customer funds are “a failure of people, not technology.”

The crypto gang has apparently hired a p.r. firm to script its message because the same refrains are popping out of the mouths of multiple right-wingers in Senate and House hearings on crypto. One of those repeated refrains is this: “…we didn’t eliminate or ban banking after the collapse of Lehman Brothers….” Jeng also included that scripted phrase in her written remarks for today’s hearing.

Another nutty idea will be presented today by Yesha Yadav, a law professor at Vanderbilt Law School. Yadav, according to her written remarks, will recommend “self-regulation by cryptocurrency exchanges.” Given what the public knows thus far about what was going on at bankrupt FTX and bankrupt Celsius, that would be like giving Bernie Madoff’s co-conspirators self-regulatory powers after he was charged with the largest Ponzi scheme in history.

Damian Williams, the U.S. Attorney for the Southern District of New York, has called Sam Bankman-Fried’s collapsed crypto exchange, FTX, “one of the biggest financial frauds in American history.” New York State’s Attorney General, Letitia James, has filed a lawsuit against the co-founder of Celsius, Alex Mashinsky. In announcing the lawsuit, the New York State Attorney General’s office wrote this:

“Mashinsky repeatedly claimed that Celsius made safe, low-risk investments and only lent assets to credible and reputable entities. However, investors’ assets were routinely exposed to high-risk counterparties and strategies, many of which resulted in losses that Mashinsky concealed from investors. The collapse of Celsius has left many individuals in financial ruin. One New York resident mortgaged two properties to invest with Celsius. A disabled veteran lost his investment of $36,000, which had taken him nearly a decade to save up. Another disabled citizen, who depended upon government assistance to supplement his $8 per hour income, lost his entire investment.”

Three of the bankrupt crypto lenders and exchanges were extensively interconnected to FTX: BlockFi, Celsius, and Voyager Digital. The crypto “industry” is a tightly-wound, layered ball of fraud. The only way to effectively regulate it is to ban it altogether, as veteran investor Charlie Munger recommended in a recent Wall Street Journal OpEd.

The only refreshing voice at today’s hearing is Lee Reiners, the Policy Director at Duke University’s Financial Economics Center. Reiners will remind the members of the Senate Banking Committee that despite 14 years of hyped promises about the groundbreaking innovation that crypto was going to deliver, it has failed to materialize. Reiners’ written statement includes the following:

“By technology standards, crypto is not new. For comparison, the iPhone was introduced in 2007. Anyone who held a smartphone in their hand for the first time immediately recognized its transformative potential; now, 85% of Americans own a smartphone…After fourteen years and innumerable claims that crypto represents the future of money, finance, or something else, we have yet to see crypto’s killer use case.”

Reiners’ statement reminded us of what global economist Nouriel Roubini said about crypto in a Bloomberg TV interview in 2019:

“Crypto currencies are not even currencies. They’re a joke…The price of Bitcoin has fallen in a week by how much – 30 percent. It goes up 20 percent one day, collapses the next. It is not a means of payment, nobody, not even this blockchain conference, accepts Bitcoin for paying for conference fees cause you can do only five transactions per second with Bitcoin. With the Visa system you can do 25,000 transactions per second…Crypto’s nonsense. It’s a failure. Nobody’s using it for any transactions. It’s trading one sh*tcoin for another sh*tcoin. That’s the entire trading or currency in the space where’s there’s price manipulation, spoofing, wash trading, pump and dumping, frontrunning. It’s just a big criminal scam and nothing else.”

What else strikes us as untoward in what the Senate Banking Committee is doing is it calling academics and a lawyer for a crypto lobbyist to testify when there are more than 1,600 scientists and software engineers who have put their names to a letter sent to the Senate Banking and House Financial Services Committee that explains in detail why both crypto and blockchain are failed experiments in financial innovation. Many of these experts work in the technology field at companies like Google, and Apple and Microsoft. Why not call actual technology people to testify? Why not call those defrauded of their life savings to testify about what they want to see in the way of reform? Why not call the Big Law firm that seems to be entangled with an uncanny number of these collapsed crypto firms – Sullivan & Cromwell — to testify about what they knew and when they knew it. Sullivan & Cromwell is right now billing in the FTX bankruptcy case at an annualized rate of $147 million after failing to detect a litany of waving red flags that the business model of FTX was fraud.

In other words, the Senate Banking Committee members need to stop feeding pablum to the American people and actually do the job their constituents sent them to Congress to do.

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