November 14, 2022

The financial press is having a field day with the disaster that is the FTX trading platform. It turns out that just before it declared bankruptcy the platform was lying about $8B that it did not have to cover their liabilities. FTX only had $900M in liquid assets to its name.

Then, just as it was going bankrupt and some other exchanges tried to step-in to save it, $477M were stolen from it.

The focus has been on nation-state actors in the theft of this money, but I think that the focus should be on the amount of money these exchanges are dealing with. This is not pocket change, it is more like small country GDP money.

The international cold (and hot) wars are also part of the mix. Everyone from North Korea, China, Iran, Russia, and other "rogue" nations are being targeted as the main abusers "taking advantage" of the crypto industry's lack of regulation.

The reality is that this is mainly a bunch of crooks and cheats being allowed to steam money from people (and each other) having their money taken from them by states under sanctions. The money is real and the losses are real. It amounts to a massive wealth transfer from working Americans who are caught-up in the glitz and investment houses whose more risk-on traders are out for a piece of that profit through theft.

It would be easy to think that we should not be that concerned about investment houses losing money, but it is still money and in some cases money they are supposed to protect.

Calling for "regulation" in such a situation is tantamount to calling for carbon capture and storage as a response to climate change: it misses the point. Crypto serves no purposes other than as a casino where the house rules change in the middle of the game while your chips are stolen right in front of you.

Simply regulating the industry is not going to fix this, it needed to be shutdown long ago. What we are seeing this morning is clients who are able to—armed with inside information—are extracting their coins from exchanges. The result in under-capitalized exchanges will be that folks without that information being left holding an empty wallet fighting over bankruptcy bits.

Is anyone else starting to feel sorry for central bankers? They are appointed to be the arbiters of political and economic policy for the capital class. The counter-balance to the "excesses of democracy", also known as spending money on poor people and non-profit production. Central bankers do this with an ideological rigidity usually only seen in far-left sectarian adherents. Irrespective of reality, history, basic math, and analysis they stay firm to their models.

So, why feel sorry for them? They are appointed to be and do exactly this. They are not really where the blame lies, it is with their political masters who refuse to "interfere" with the central banks after they appoint these folks to lead them. Then, these political leadership refuse to do the counter-balancing act of dealing with the true causes of inflation.

Here in Canada, we have had successive budget updates that have not moved the needle or engaged in any "innovative" policy announcements. Basically, no change from the same policy programs that have either driven inflation (profit subsidies) or have done nothing to address it ("innovation" program funding).

The solutions become more obvious as we move into a recession with continued high inflation and high price growth of goods in low supply.

Production takes time to ramp-up after investment is made. Needed investment is rather easy to identify right now: food production and logistics, personal transport, basic goods, housing, health service, and eldercare.

The parts of these systems in the private sector are failing to have investment, no matter the subsidy on profit "guaranteed" by the state. The only other action that governments can take is to invest directly.

This, by the way, can happen irrespective of the actions of the central bankers. It would make things easier if direction to the central bankers was that their actions to "save the economy from inflation" are no longer desired.

This isn't rocket science. But, it does take a break from the conventional neoliberal thinking of the previous 35 years.