Senate Banking Hearing on FTX Collapse Pits a Courageous Law Professor Against Paid Shill Kevin O’Leary

Gunnar Larson g at xny.io
Thu Dec 15 07:48:38 PST 2022


https://wallstreetonparade.com/2022/12/senate-banking-hearing-on-ftx-collapse-pits-a-courageous-law-professor-against-paid-shill-kevin-oleary/


By Pam Martens and Russ Martens: December 15, 2022 ~

Kevin O'Leary Testifying at Senate Banking Committee Hearing, December 14,
2022
Kevin O’Leary Testifying at Senate Banking Committee Hearing, December 14,
2022

If you are an average American without insider knowledge of how Congress
works these days, you might have felt that you had stepped onto the set of
Alice in Wonderland while watching the Senate Banking Committee hearing
yesterday.

The hearing was convened to examine the sudden collapse of the crypto
exchange, FTX; its tentacles that reach into the federally-insured banking
sector; and legislation that may be required to rein in the mushrooming
risks that crypto poses to U.S. financial stability.

Given that more than one million customers of FTX cannot get access to the
money or crypto “investments” in their potentially worthless accounts; that
the kingpin of this operation, Sam Bankman-Fried, was indicted on Tuesday
by the U.S. Department of Justice on eight criminal counts; and that a
federally-insured bank, Silvergate Bank, that held FTX customer deposits,
has seen its publicly traded parent (Silvergate Capital Corp., ticker SI)
lose 87 percent of its market value year-to-date, one might have expected
that serious consideration would have gone into the selection of the four
witnesses that appeared at yesterday’s hearing.

Instead, the Republican crypto shills on the Senate Banking Committee made
the public suffer through the alternative-reality ruminations of Kevin
O’Leary, a cast member of the TV program, “Shark Tank,” who admits to
receiving $15 million from FTX to be its “ambassador.” O’Leary is a named
defendant, along with other celebrities who took money to promote FTX, in
multiple class action lawsuits. He thus has an incentive to spin the
narrative away from fraudulent conduct. In his opening remarks at the
hearing, O’Leary also admitted to being “a shareholder in multiple
companies involved in crypto.”

Along with multiple Republican Senators on the Senate Banking Committee,
O’Leary attempted to push the narrative that the collapse of FTX has
nothing to do with crypto itself; that crypto continues to offer great
promise. O’Leary told the Committee that if legislation were passed to ban
banks from engaging in crypto activities, he would “short every American
bank stock.” (To “short” means to bet on a decline in price.) O’Leary also
insisted that once crypto is regulated, it “is going to be profound in
terms of how it changes the cost, the efficiency, the audit ability, the
productivity of the banking sector.”

There is, in fact, zero evidence to suggest that crypto offers any
productive use for the financial sector, as more than 1,600 scientists and
software engineers have already explained in a detailed letter to the
Senate Banking Committee and as was detailed by a serious witness at
yesterday’s hearing — Hilary J. Allen, Professor of Law at American
University Washington College of Law.

Hilary J. Allen, Professor of Law, American University Washington College
of Law
Hilary J. Allen, Professor of Law, American University Washington College
of Law

Professor Allen’s research focus is in the area of financial stability
regulation. She is the author of Driverless Finance: Fintech’s Impact on
Financial Stability, released by Oxford University Press in January.
Professor Allen also worked in 2010 with the Financial Crisis Inquiry
Commission to study the causes of the financial crisis of 2007-2008. She
made the following key points at yesterday’s hearing, either in her verbal
or written testimony:

“The problems at FTX were not a one-off, but part of a cascade of
interconnected failures in the highly leveraged crypto financial system.”

“Another key flaw in the ‘this wasn’t about crypto’ narrative is that many
of the problems at FTX arose because of a feature that is unique to the
crypto industry: cryptoassets (like the FTT token) can be created out of
nothing by anyone with computer programming abilities. I have previously
explained that this unlimited supply of cryptoassets allows for significant
leverage, making the crypto ecosystem very fragile. The unlimited supply of
cryptoassets also ensures that frauds are particularly easy to perpetuate:
when an entire industry is built on an asset type that can be manufactured
at zero cost, has no fundamentals, and trades entirely on sentiment,
traditional checks on fraud (like valuation methodologies and financial
accounting) will inevitably break down.”

Crypto tokens “are minted out of thin air.”

“What the public actually needs is protection – individual investors need
protection from crypto frauds, and our broader financial system also needs
protection from crypto’s booms and busts.”

“A ban on crypto would be the most straight-forward way of protecting both
investors and the financial system: it would end the uncontrolled creation
of cryptoassets and also ensure that cryptoassets never require a bail-out.
If policymakers don’t wish to proceed with a ban, then they will need to be
careful to ensure that any laws they do adopt don’t inadvertently encourage
the proliferation of cryptoassets or bring those cryptoassets closer to the
core of our financial system.”

“Crypto should also not have the CFTC [Commodity Futures Trading
Commission] as its primary regulator. The CFTC has no statutory investor
protection mandate, has limited experience regulating retail-dominated
markets, and the application of the CFTC’s self-certification regime to
crypto would allow an unlimited supply of cryptoassets to proliferate.”

Professor Allen’s slap down of the idea of allowing the CFTC to regulate
crypto seemed to age Senator Cynthia Lummis (R-WY) by about 20 years. When
Lummis took her turn at questioning the witnesses later in the hearing, her
face showed serious signs of stress. That might be because the legislation
she has co-introduced with Senator Kirsten Gillibrand (D-NY) to allow the
CFTC to oversee crypto, was just exposed in the hearing as a sell-out to
crypto interests. (See our earlier report: After Crypto Money Piled into
Campaign Coffers of Senators Lummis and Gillibrand, They Introduced a
Sweetheart Legislative Bill for Crypto.)

Another witness at yesterday’s hearing was Ben McKenzie, the actor and
crypto researcher who has a book coming out next year with journalist Jacob
Silverman, Easy Money: Cryptocurrency, Casino Capitalism, and the Golden
Age of Fraud. McKenzie demonstrated an acute understanding of the
fraudulent aspects of crypto, stating:

“ ‘Cryptocurrencies’ are not currencies by any reasonable economic
definition, as they are unable to fulfill any of the three functions of
money. They are a poor medium of exchange, unit of account, and store of
value. Bitcoin cannot work as a medium of exchange because it cannot scale.
The Bitcoin network can only process 5 to 7 transactions a second. By
comparison, Visa can handle tens of thousands. To facilitate that
relatively trivial amount of transactions, Bitcoin uses an enormous amount
of energy. In 2021, Bitcoin consumed 134 TWh in total, comparable to the
electrical energy consumed by the country of Argentina. Bitcoin simply
cannot ever work at scale as a medium of exchange.”

The fourth witness, Jennifer J. Schulp, was another crypto-friendly
narrator from a suspect nonprofit – the Cato Institute, which was
previously secretly owned by the fossil fuel billionaires, the Koch
brothers, and a handful of other men.

You can watch the full hearing at this link.
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