I’ve been working on the Libra book — specifically, the July 2019 US Senate and House hearings, with David Marcus.
Nobody else seems to have said this — but I’m pretty sure the Senate and House hearings are the precise moment that Libra, as presented in the white papers, was a dead project. Everything since then has been the hot air slowly wheezing out.
The media coverage at the time doesn’t really paint this picture — but that was written quickly to deadline, based on bits of the audio. I have the luxury of the C-SPAN closed-caption summaries, video to check precise wording, and future knowledge of just what the tricky points turned out to be. [C-SPAN Senate hearing; C-SPAN House hearing]
I’ve spent about twenty hours on the hearings so far, and that’s just summarising them. If I’m not literally the first person to go over the C-SPAN summaries, I am one of extremely few. (Like, I’m sure someone at Facebook prepared a transcript.)
Republicans and Democrats united in a spirit of true bipartisanship — they hated everything about Libra the moment they saw it.
Politicians are mostly not stupid. You get the occasional omni-incompetent dunderhead, or someone promoted above their abilities — but for the most part, you have to be reasonably bright, or you’ll get eaten alive.
And, of course, the job selects for good talkers, who can express themselves concisely and eloquently. I thought my June 2019 Foreign Policy piece went in hard [Foreign Policy] — but I got nothin’ on the honorable gentlemen and gentlewomen. They nailed every issue in vicious detail. I could easily just restate my theses using their words.
Regulators and legislators had Libra’s number immediately — they knew this species of dumbassery, and they knew that these Bitcoin-VC bros were absolutely stupid and arrogant enough to do another 2008 all by themselves:
- Nobody trusted Facebook as far as they could throw it — the company had just been fined by the FTC again, for violating the consent decree attached to their 2011 FTC fine. Brian Schatz (D-HI): “You’re making an argument for cryptocurrency generally … The question is: why Facebook? And before you’ve fixed your other stuff.”
- The Libra Investment Token was present in the June 2019 white papers, but was quietly removed from the late July versions — after some pointed questions on just how Facebook was going to make its money back from Libra.
- How are consumers protected if an international transaction goes bad? David Marcus: “The Libra Association to ensure that there is proper education so that consumers can make informed choices.” Oh, okay.
- Political censorship of transactions — if I’ve been kicked off Facebook, am I allowed to use money?
- Lots of pointed questions on money laundering laws, and how AML at just the resellers wasn’t enough. The politicians care a lot about AML and compliance. Yes, including a pile of the Republicans.
- Several members asking detailed and informed technical questions — worrying about the prospect of a hack on a systemic currency. Marcus demurred.
And so much more.
My favourite part so far is from Gregory Meeks (D-NY05):
I can say with confidence that the entire subprime mortgage ecosystem did not set out to bring the global finance system to its knees, I can say with confidence that it did not set out to trigger the Asian financial crisis, but it nearly broke the global markets. And I can also say with confidence that the deregulation of the early 1980s and bankers did not set out to trigger the savings and loan crisis, but it did. Not only that, they all typically founded their logic on innovation, expanding access to financial services and arguments of inclusion. And yet they all broke the system. And the people at the bottom of the socioeconomic ladder systemically paid the heaviest price. So you may be speaking earnestly when you tell us the lofty goals, but I was here in Congress when Secretary Paulson came to us and told us we were within days of a complete shutdown of the global financial system. I don’t expect you to understand what that was like, but I assure you it was absolutely terrifying and one of my worst moments in Congress.
(that’s the closed captions — I haven’t yet checked it closely against the video.)
I also did three out of the five external witness statements this evening. These are similarly brutal. I particularly recommend the statements of Chris Brummer and Katharina Pistor. [US House Committee on Financial Services]
tl;dr: as soon as a blockchain scheme gets in front of the adults — it’s dead.
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‘Politicians are mostly not stupid. You get the occasional omni-incompetent dunderhead, or someone promoted above their abilities — but for the most part, you have to be reasonably bright, or you’ll get eaten alive.’
I believe this is more or less the opposite of the truth.
A rare DG bad take 😉
I actually agree with that, most politicians are smart. The problem is that high tech is not within politicians’ expertise. They have people to help them understand, but that is not always enough.
“I was here in Congress when Secretary Paulson came to us and told us we were within days of a complete shutdown of the global financial system. I don’t expect you to understand what that was like, but I assure you it was absolutely terrifying and one of my worst moments in Congress.”
This is a really interesting quote. Of course it’s an exaggeration to assume Libra would immediately be depended on for the entire financial system, but comments like these are a reminder that blockchain may not yet be capable of problems of this scale.
Politicians are mostly not stupid.
Marking on what grade?
Actually, among the things that we should all have learned over the last few decades is that they are on average and overall just as stupid as humans are on average and overall. Somebody, after all, must have done the deregulation that allowed all those crises cited in the last section of this post to happen, and if I remember correctly it wasn’t dentists or cooks. Just about the only argument that can be made to the contrary is that they were clever to deregulate because it got them elected, bribed or donated to, but the kind of short-sighted selfishness that leads to a long-term degradation of the system one is part of is just another subtype of stupidity.
Yes, that’s what I meant – Libra wasn’t a partisan issue, so they got to go in hard on the actual issues. Some of it wasn’t so bright, but a lot of the questions were surprisingly perceptive.
Thanks for the reply.
I am not sure how I should understand your reference to partisanship. Do you argue that people are less likely to make bad decisions if an issue is non-partisan / not turned into a culture war issue, because that allows them to think? If so, a cynic might say that it is precisely bipartisan issues that invite intellectual laziness because nobody is raising an argument to think about in the first place. Perhaps in the present case it may have helped that 2008 is still fresh on people’s minds, but more generally I would assume that a robust controversy is helpful for good decision making.
The Libra hearings were a wakeup call of sorts to the nations of the world, accelerating the development of Central Bank Digital Currencies. I suspect we’ll be using digital dollars, pounds, yuan, etc this decade, thanks in some part to these hearings.
so that’s also a book chapter! CBDCs are likely to be the actual legacy of Libra – assuming they ever show an actual compelling use case, which is a different question.