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

Gunnar Larson g at
Tue Feb 14 06:44:47 PST 2023

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

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

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. It’s
right now billing in the FTX bankruptcy 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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