You Had One Job
Regulators are so busy looking for things to do that they neglect what's right under their noses.
BitClout Wasn’t So Decentralized
There was outright fraud taking place in crypto, yet regulators did nothing for years. It wasn’t sexy enough, I guess.
In this case, a dude advertised a Ponzi scheme in plain sight.
Here’s Matt Levine from Bloomberg. Recall, Levine had the famous interview of FTX wunderkind and effective altruist Sam Bankman-Fried in which the perpetrator essentially described his scheme as a Ponzi, without apparently knowing a) what these were or b) that they were scummy and illegal.
‘Right? Here’s a thing. It costs $1. If you buy one, the next one will cost $2. If someone buys it, the next one will cost $4. Et cetera. The price of the thing always goes up, leaving every buyer (except the most recent one) with a large guaranteed profit. Of course they can’t sell the thing to realize the profit, but that too is a benefit: If they can’t sell, the price can’t go down.
‘Man, 2019 was just amazing. That was an economic model that you could advertise. “See, if we keep doubling the price of the thing, and don’t let anyone sell it, we’ll all get rich.” Obviously that block quote is from the complaint in an enforcement action that the US Securities and Exchange Commission filed last week against Nader Al-Naji, the founder of BitClout, a crypto thing that raised $257 million from investors to do, ehhh, crypto social media or something? (Here’s a 2021 article saying that “in taking blockchain social media to the next level, Al-Naji said he had raised $200 million with a view to building out the DeSo ecosystem.” DeSo is “decentralized social.”) He was also charged with criminal fraud by federal prosecutors.’
The moment theory meets practice in regulation is always going to be interesting. Assumptions made to arrive at tautological conclusions based on ideology are one thing. Practicality in the marketplace is another thing.
‘Is the US regulatory regime up to the job of breaking up Big Tech companies, though? Here is Tom Wheeler, former chair of the Federal Communications Commission and author of Techlash:
‘“Let’s break them up” is a bigger challenge with tech companies. When [AT&T] was broken up, there were physical assets and it was more streamlined. And even then we had to [depend on] the FCC for ongoing oversight. There are so many details and complications here, we will likely need some sort of regulatory agency to deal with Big Tech.’
Struggling AI Startups Look for a Bailout From Big Tech
@uncharles beat me to this punch with his post Regulatory Madness. But I’ll opine anyway.
One of the heralded reasons for the FTC/DOJ Antitrust to chill M&A activity is to make it easier for startups. It’s difficult to see how this can be the case when they have closed the door on strategic takeouts for these promising ventures. Yet, outsourcing R&D and risk-taking to smaller, more nimble outfits is still necessary.
So, the big players go around the authorities to do a back-door acquihire. They take on the key employees and then license the startup’s IP. They get what they want, but it’s not an acquisition, per se.
Your move, regulators.
‘At least three once-hot AI startups have been rescued via a new type of deal that many in the tech industry say are acquisitions in everything but name. These deals have the advantage of skirting the typical regulatory process at a time when big tech’s growing control over generative AI is being scrutinized by governments.
‘On Friday, Character.AI announced a deal for Google to use its technology and hire many of its researchers and executives, including its co-founders Noam Shazeer and Daniel De Freitas. Google negotiated a licensing fee worth $2 billion for the startup’s technology to help buy out early investors, people familiar with the matter said.
‘The two companies considered an outright acquisition, but concluded that was unlikely to get past regulators, according to a person familiar with the matter.’
Biden Does a Stealth Medicare Rewrite
The reform of the healthcare system in the past ten years is, to simplify, a movement to push as much of the cost burden on to insurers while limiting their ability to pass this higher tax onto beneficiaries, up until the point that insurers leave the market.
Consumers don’t like restricted choice. Timing is everything.
‘The political problem is that seniors would be notified of these premium spikes shortly before the election. Thus the Centers for Medicare and Medicaid did damage control last week. CMS usually announces preliminary Part D premiums in July. Not this year. Instead, CMS unveiled a “demonstration project” that would impose “a year-over-year increase limit of $35” for premiums while boosting payments to insurers.
‘CMS gave insurers until Monday to sign up. Medicare demonstration projects are supposed to test new payment approaches on a small scale before CMS implements them more broadly. That’s not what CMS is doing. Instead, the agency is revising Democrats’ handiwork to mitigate the political harm before the election.’
The Constitution and Your Cellphone Bill
Did Congress intend to delegate its taxation powers to private corporations?
Because that seems wrong, I think.
‘“In the Telecommunications Act of 1996,” Judge Andrew Oldham writes in Consumers’ Research v. FCC, “Congress delegated its taxing power to the Federal Communications Commission. FCC then subdelegated the taxing power to a private corporation. That private corporation, in turn, relied on for-profit telecommunications companies to determine how much American citizens would be forced to pay.” The majority says this subcontracting of Congressional power violates the Constitution.’
Google loses massive antitrust case over search, will appeal ruling
The payments Google made to the large browser companies like Apple seem to be compensation for keeping their mouths shut. Google was already a monopoly, natural or not. Even if Google paid nothing and people were given the choice of default search engine, Google would still be dominant, in all likelihood.
The payments were likely unnecessary.
Let’s say Google, for other reasons, was forced to split up. The tsunami of free cash flow that Google generates dilutes capital allocation discipline. So, forcing them to get out of those different businesses (perhaps with the exception of YouTube) would be good for the company.
Did Google really lose?
‘Mehta said that Google abused its monopoly power over the search business in part by paying companies like Apple to present its search engine as the default choice on their devices and web browsers. The Justice Department and states filed the antitrust suit against Google in 2020, which kicked off in court in September 2023.’