You're Only as Good as Your Last Trade
They love you until they don't.
The government debanked lots of people over the past several years.
Well, technically, they didn’t do it. They called the banks and asked some leading questions.
The banks aren’t stupid. Those buildings don’t pay for themselves. They went straight to work shutting customer accounts. Customers from the crypto industry. Customers with ties to the personal weapons industry. Customers from the pornography industry. Customers from the marijuana industry. A college student named Trump.
Just don’t say that the government did this.
‘This is the next layer of the debanking scandal. Financial services companies that don't WANT to debank customers are FORCED to by other, stronger companies in the chain, under threat of being put out of business themselves.’
‘The root cause of debanking is regulators have essentially outsourced the policing of money laundering to financial firms, with penalty for being too lax being 9- or 10-figure fines. Banks are highly disincentived from banking anyone questionable, ensnaring even legit accounts.’
‘"Jawboning" is DC-speak for unconstitutional direct administrative pressure applied by unelected bureaucrats and freelancing politicians with no due process, no transparency, and no way to appeal.’
Debanking is the first step towards a social credit system.
‘Nowhere in the Constitution is there a right to banking, although for the vast majority of Americans, it is a staple of everyday life. But as the financial sector, like most every facet of contemporary society, has moved online—and as every major American institution, including banks, have been politicized—banks have felt compelled to monitor their customers’ political and personal lives. They need to be sure that the brands of the people who bank with them jibe with their own, so that they do not upset too many other customers or potential customers.
‘“Debanking for political or ideological reasons should concern everyone, whatever their politics,” Samuel Gregg, an economist at the libertarian American Institute for Economic Research, told me. “In the first place, if one side does it, the odds are that the other side will play that game. More generally, it reflects a broader problem that characterizes America as a whole: the relentless politicization of everything.”’
Debanking isn’t just the federal government leaning on banks to punish their political targets by disenfranchising them in a money-driven world.
The petty frictions of regulation also drag down the quality of everyone’s experience.
‘I will only report the following. On this last Friday, both Alex and I (coincidentally) each wanted to send money through the U.S. banking system. For each of us it was a major pain, and for no good substantive reason. I do understand why the relevant constraints are there, but at some point “justification” is no longer enough. People have to actually want to use the system. And the U.S. banking system — referring to that notion narrowly — is increasingly unattractive. It is also failing various market tests, if you look at its relative import over time.
‘How innovative is it? How good is it with software? How international is it in scope and potential usage? How necessary is it for lending? Can it integrate with crypto? Why does service quality at my local bank continue to decline? Relative performance is sliding, there is no other way to put it.’
Kaminska on Government Support
Izabella Kaminska tweets about her awakening to the role of government in picking winners in Silicon Valley. This comes in the form of outright backing or protection from the state/bureaucracy/other players.
If it sounds like Jack Ma in China, then you’re starting to get the idea.
Why Is the New Fafsa So Obsessed With Race?
My mother is from Fiji. She is of East Indian descent. My father is from Trinidad. He is of East Indian descent. I grew up in Canada. I am a West Indian, Pacific Islander, South Asian, Canadian-American.
It’s a wonder I can get out of bed in the morning with all those letters.
The new Fafsa, in addition to being broken, is like something from a South African apartheid fever dream in terms of the required reporting of race.
‘Before the act was passed, Fafsa didn’t ask about race or ethnicity at all. The law now says that “in order to be eligible for Federal financial aid,” the applicant “shall provide” information about “Race or ethnicity.”
‘Congress delegated the responsibility for writing these questions to the federal bureaucracy. The education secretary was ordered to work “in consultation with the Bureau of the Census and the Director of the Institute of Education Sciences” to create questions that captured the racial groups specified in the Census Bureau’s American Community Survey.
‘The new form offers students the ability to sign up not only as “Native Hawaiian or Other Pacific Islander,” but also as “Samoan,” “Chamorro,” “Tongan,” “Fijian,” or “Marshallese.” In addition to “White” there are options of “German,” “Irish,” “English,” “Italian,” “Polish” or “French.” Beyond “Black or African American” there are choices that include “Jamaican,” “Haitian,” “Nigerian,” “Ethiopian,” or “Somali.”’
The Moral Challenge of Trumpism
David Brooks likes to generalize.
People in the establishment are good, publicly-minded, selfless stewards of the greatest institutions mankind has ever know who rise to leadership and power based solely on merit. People on the outside who criticize them have a distorted view of corruption and perversion.
Maybe both views can be true, to some extent. Or maybe, some people exploit the former view to advance their personal interests transforming these institutions into the latter view. They monetize the reputational capital of the institutions built up under the watch of Brooks’ superpeople and they spend it in the bazaar of personal advancement.
I think that self-interest explains more than the utopian assumption all day, every day. But, hey, that’s just me.
‘The crucial distinction is that some of us have an institutional mind-set while the MAGA mind-set is anti-institutional.
‘In the former view, we are born into a world of institutions — families, schools, professions, the structures of our government. We are formed by these institutions. People develop good character as they live up to the standards of excellence passed down in their institutions — by displaying the civic virtues required by our Constitution, by living up to what it means to be a good teacher or nurse or, if they are Christians, by imitating the self-emptying love of Christ. Over the course of our lives, we inherit institutions, steward them and try to pass them along in better shape to the next generation. We know our institutions have flaws and need reform, but we regard them as fundamentally legitimate.
‘MAGA morality is likely to regard people like me as lemmings. We climbed our way up through the meritocracy by shape shifting ourselves into whatever teachers, bosses and the system wanted us to be. Worse, we serve and preserve systems that are fundamentally corrupt and illegitimate — the financial institutions that created the financial crisis, the health authorities who closed schools during Covid, the mainstream media and federal bureaucracy that has led the nation to ruin.’
America Has Much to Be Thankful For
Peggy Noonan wonders if Musk and Ramaswamy have what it takes to be effective reformers?
‘I suspect most people are enthused about the idea of the Department of Government Efficiency to be headed up by Elon Musk and Vivek Ramaswamy. It’s the kind of thing that catches the imagination. Mr. Musk is a genius and visionary, Mr. Ramaswamey appears to be an activist with energy, and a mind full of certainties. But Mr. Musk is also an unusual fellow, unique, and Mr. Ramaswamy has zero experience in the federal government.
‘I’m glad they think outside the box, but the box still exists, and for reasons. If your eyes have been at all open the past quarter-century, you know the administrative state is huge, largely unaccountable, and consists at least in part of levels of waste and sloth built on previous levels of redundancy and nonsense. Federal workers the past four years have, amazingly, made themselves look unnecessary by not bothering to show up at the office, and working at home. But some federal workers are the best we have—brilliant, unheralded, doing life-and-death work, making the wheels turn.
‘Real reformers have to be sophisticated, orderly, unshowy. They need internal allies.
‘Messrs. Musk and Ramaswamy are daring and theatrical. I’d worry that early on they’ll start running around with axes, making big pronouncements, chopping holes through doors, and putting their heads through the holes and saying, “Heeeere’s . . . Johnny!’’
The grim ghost of crypto future
Will crypto present a systemic risk now that it’s to be regulated (lightly)? That is, will the existence of regulation encourage integration with the financial system in a way that permits contagion should anything blow up in crypto land?
People see regulation and equate that with safe. What happens if the regulators don’t know what they’re doing?
‘None of this should lead us to believe in Trump’s fierce commitment to keeping his promises. But it should worry us. I have steered clear of talking about crypto as a “systemic risk” in the past because it has been so relatively small, and so disconnected from the rest of the financial system. But that is changing. Following the SEC approval of bitcoin exchange traded funds earlier this year, crypto has become far more closely connected to the rest of the financial system. And the numbers are enormous: BlackRock’s recently launched bitcoin ETF has already drawn in an astonishing $48bn.
‘Martin Walker, honorary research fellow at Warwick Business School, is worried that regulators are not able to keep up. “One thing history teaches us about financial crises is that risk always builds up and then explodes in areas the regulators never seem to expect,” he tells me. “Faultlines in the financial system are not always obvious . . . Crypto finance is so large now there are sure to be macro risks . . . that are both dangerous and little understood.”
‘Ironically, those who are pushing for the deregulation of crypto are the most likely to bring about its next collapse. But next time, it might not just be crypto that gets burnt.’
Recipe for a Regulatory Spring Cleaning
As the philosopher Carl Gustav Jacob Jacobi said, “Invert, always invert.” This is a way of problem solving in which we look at it from the reverse perspective.
The conventional wisdom is that the hardest thing to kill is a bureaucratic program.
What if we made it so that the hardest thing to do would be to justify keeping a bureaucratic program after a fixed period of time?
‘Don’t ask agencies to identify every regulation they’d eliminate—a process that would take years and would get bogged down in bureaucratic procedures and legal challenges. Instead require them to justify the rules they’d keep. As things stand now, regulations will stay on the books unless someone acts to remove them, but a sunset rule would have them expire automatically unless agencies choose to keep them.’