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**JULY 25, 2022**
Kuttner on TAP
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**** The Zombie Survival
of Crypto
Will the Treasury rescue a scam sector just as it collapses of its own
weight?
In the stock market dive, cryptocurrency has lost far more value than
the market as a whole, confirming the view that it was mostly a Ponzi
scheme all along, enriching the early movers and fleecing the suckers.
Not to mention its lack of transparency and the environmental cost of
crypto "mining," which consumes vast amounts of electricity.
The mother of all crypto, Bitcoin, lost more than 56 percent of its
value in the second quarter. Despite the techno whizbang and hype about
easy payment, crypto was created to solve a non-problem, except for scam
artists and others with an illicit need to launder money.
Now, just as the whole sector is collapsing of its own weight, here come
the Treasury and the Fed to rescue it, perhaps bringing along the House
Financial Services Committee with them. The Treasury, and to some extent
the Fed, are both played by Nellie Liang, who is undersecretary of the
Treasury for domestic finance.
Liang spent most of her career at the Fed. She is an enthusiast of
financial "innovation" and relatively gentle regulation, as well as a
master of turf consciousness. She has had substantial influence on Janet
Yellen, formerly at the Fed, now Treasury secretary.
Liang heads a president's working group on regulation of stablecoins,
a form of crypto that is supposedly guaranteed to hold its value,
because it is backed by more traditional forms of actual money (and
therefore we need stablecoins
**why**?). For the most part, stablecoins have been used for
transactions in other forms of crypto.
Liang's vision, expressed in testimony and briefings, is that
stablecoins could have wider uses in ordinary payments, and have lower
costs than, say, credit card payments or Venmo. So far, they have not
been used much if at all for that purpose. Liang also supports the idea
of non-banks issuing stablecoins as long as they are fully backed by
other short-term securities.
Financial press reports
and leaks say that the House Financial Services Committee is on the
verge of writing a bipartisan bill that follows Liang's model.
This policy issue combines a philosophical and regulatory argument with
a struggle over turf. According to my sources, the agencies that favor
tougher regulation, such as the SEC, CFTC, and the FDIC, are wary of the
whole approach, as government endorsing the kind of innovation that
invites trouble. One person who hasn't weighed in is Yellen, which
makes critics wonder if there is really a unified Treasury position.
Liang's view is that the Treasury is best positioned to regulate this
stuff, for banks and non-banks alike, because it is in charge of
"prudential regulation"-capital standards, leverage ratios, and the
like. The SEC's view has been that if it quacks like a security, then
it's a security and the SEC should regulate it.
My view, for what it's worth-and I was once chief investigator of
the Senate Banking Committee-is that the entire crypto sector is
mischief, and the last thing it needs is government certification that
the wise guys will only circumvent. If the last collapse proves
anything, it's that the financial sector needs simplification, not
further complication understood only by insiders.
~ ROBERT KUTTNER
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