WTF I love SBF now

The government is a stationary bandit. It robs via taxation, but protects us from other would-be bandits so that it can maximize stealable assets. We don’t have much say in the matter; most of us don’t chose what citizenship we’re born with. 25 years ago, The Sovereign Individual predicted that people would learn to see themselves as customers rather than taxable citizens, and pay protection money to those who deliver the best service.

It’s not as obvious as paying tribute to a Mafioso. We’ve learned to be more subtle. Protection money takes the form of political donations, like FTX’s hundreds of millions in campaign contributions and lobbying (here’s a good rundown). As SBF sagely points out, regulators can’t protect consumers. Regulators have no idea what’s good for consumers; they rely on corporate-sponsored “research”, adopt corporate recommendations, and pass regulations written by lobbyists. Really!

Then you need the media to help propagandize the masses. SBF’s family foundation bankrolled crypto blogs like CoinDesk and TheBlock, and also donated millions to normie newsrooms like ProPublica and Vox. And, I suspect, the NYTimes. Here’s SBF, still listed as a headline speaker at next week’s NYTimes DealBook Summit:

The summit is hosted by Andrew Ross Sorkin, a NYT columnist and WEF Young Global Leader famous for his flattering portrayal of Wall Street bank execs in the aftermath of the 2008 financial crisis. I’m sure Sorkin will be happy to write an elaborate defense of FTX’s business operations: The empty balance sheet was in fact a typo. What happened was deeply troubling, but evidence indicates that SBF did not commit fraud. Indeed, it’s about how you define ‘invest’ and ‘funds’.

Zuckerberg will be at the Dealbook Summit. Facebook/Meta is in on the grift too. Here’s David Marcus, former head of the Facebook/Meta crypto project, whining that he was called to testify in front of the Senate and the House immediately after his whitepaper dropped. Waaah. Does he think SBF has never testified in Congress before? SBF was there just last year; in fact here’s a clip of Congresswoman Maxine Waters blowing him a kiss. Being called for a hearing is a privilege for wealthy execs, not a punishment. David Marcus was called in because the Libra Association literally said “The Libra Association intends to work with policymakers as regulations adapt to address innovation” and “Founding Members are committed to working with authorities to shape a regulatory environment.” Congresscritters want to be told what regulations to prescribe so that they can help build a moat. Libra ultimately failed not because of regulatory burden, but because the idea was stupid. David Marcus has since left Meta and is now working on a Bitcoin-focused project.

Remember 2008? Bank execs called up ex-Goldman CEO and Treasury Secretary Hank Paulson, requested a bailout, and got one. That could be SBF! It might be too late for FTX now that they’ve filed for bankruptcy, but anything could happen. Maxine Waters has just been announced as chair of the committee that will investigate the collapse of FTX.

Bitcoin people have complained about SBF’s lobbying efforts, but SBF was just a sovereign individual playing the game as designed. If you don’t want to pay the protection money, build something that can’t be regulated. Fortunately, Bitcoin interprets regulation as damage and routes around it.

I Fear the Current Thing

I’m suspicious of the corporate embargo on Russia. What does this accomplish, really? If Netflix and OnlyFans block all Russian users, then worker productivity will surely go up. I mean actual productivity; not the bogus ad-driven makework that counts as US GDP these days. Essentially, we are doing Russia a favor.

But. What if we’re not doing this to manipulate Russians? What if the purpose of the embargo is to manipulate Americans?

—

Fifty years ago, there were no money laundering laws, no concept of clean or “dirty” money. “Currency” meant that cash was considered in its current state, source of funds notwithstanding1.

In the 1970s and 80s, the government manufactured a drug crisis and declared a War on Drugs. At the peak of the Drug war, an odd scandal transpired where the Bank of Boston was criminally prosecuted for failing to adequately report cash transactions to the IRS. This was not a big crime; transaction reporting requirements had been around since the Prohibition Era. Banks regularly ignored them, and regulatory agencies only sporadically prosecuted them.

The Bank of Boston was one such sporadic case. The punishment reflected the unseriousness of the crime – a $500,000 fine, probably less than a banker’s annual meal allowance.

Still, the media jumped on the story. The New York Times revealed that members of the Angiulo mobster family were customers of the bank. Angiulo transactions had nothing to do with the bank’s felony charge, but the papers were in muckraking mode and every bad thing the Angiulos did became the fault of Boston Bank. Murder? Gambling? According to the transitive property, the Bank of Boston was responsible for those things.

Newspapers went from publishing a few dozen money laundering stories per year, to running 228 stories in 1985. The tone changed too. Instead of a minor housekeeping error, the failure to report cash transactions became the equivalent of murdering babies…with drugs.

Other banks wanted to avoid the same hit job and responded accordingly: In 1985, an average of 68,000 currency transaction reports were filed each month. A year later, the number increased to 270,000 reports per month.

Publish enough scary stories about an imaginary stupid thing, and the plebes will freak out and fall in line. Money Laundering is destroying society! People demanded that the government Do Something, so politicians campaigned on promises to solve this imaginary problem.

—-

And that brings us to today. The Money Laundering Control Act of 1986 didn’t end money laundering, and certainly did nothing for the War on Drugs. It was a bait and switch. The media redirected a reasonable fear of violent crime into a fear of unreported currency transactions, and convinced people that financial privacy is a Bad Thing.

Right now we are all freaked out about Putin, who is going to invade the US by way of Alaska as soon as he’s done with Ukraine. Conveniently, this fear can be redirected towards Russians, Russia sympathizers, and businesses that are failing to keep track of which customers fall into those categories.

Hear that? If you buy from a company that serves Russian customers, you are funding Putin’s war. The Washington Post columnist then likens Ukrainian President Volodymyr Zelensky to Che Guevara, the most noble freedom fighter who ever lived.

It’s a lot of work to summon the outrage mob anytime the government wants control. Much easier to convince the masses that they need more oversight. Social media platforms should be required to submit activity reports to the government any time a user fails to denounce Russia. And internet companies act like they can flip a switch and geofence certain regions. What if Russians circumvent the geofence with a VPN, or Tor? Tech companies might be unknowingly funding Putin’s war! That would be the equivalent of money laundering. Extremism laundering, we’ll call it. Ban VPNs!

1. From Henry Dunning Macleod’s The Theory of Credit:
In Miller v. Race (1 Burr., 452), confirming Anonymous (1 Lord Raymond, 738), the Court of King’s Bench decided that Bank Notes have the Credit and Currency of Money to all intents and purposes. “An action would lie against the finder; that no one disputes, but not after the Note had been paid away in Currency. An action would not lie against the defendant, because he took it in the course of Currency: and, therefore, it could not be followed into his hands. It never shall be followed into the hands of a person who bona fide took it in the course of Currency. A Bank Note is constantly and universally both at home and abroad, treated as Money, as cash: and it is necessary for the purposes of commerce, that their Currency should be established and maintained.”

References:
Lawrence T. Nichols. Social Problems as Landmark Narratives: Bank of Boston, Mass Media and “Money Laundering”, Social Problems, Vol. 44, No. 3 (Aug., 1997), pp. 324-341

The Second Amendment is just in case the First doesn’t work

Last week, Remington paid $73 million to settle a lawsuit with the families of Sandy Hook victims. Remington is a now-bankrupt gun manufacturer that sold the Bushmaster AR-15-style rifle used in a school shooting in 2012.

It’s amazing that anything can ever get done in a country with tort laws as screwy as ours. Can San Francisco crime victims sue District Attorney Chesa Boudin for releasing violent offenders back on the street? Could Yemeni civilians sue Lockheed Martin for making all those bombs we dropped on schoolchildren? Might as well sue the Wright Brothers for their role in 9/11, while we’re at it.

The purpose of the lawsuit was not to buy reparations for the families of Sandy Hook, nor even to punish Remington — the $73 million will be paid out by the company’s insurers. The point was to send a message to banks and insurance companies that, should they choose to do business with gun manufacturers, there will be consequences.

See, that’s the difference between soft power and hard power. Canadians tend to be a bit slow, and the country is now in a pickle because the Trudeau regime was too direct with its power. You’re not supposed to just declare martial law! That gets people freaked out and running to Bitcoin. You’re supposed to do it covertly, like Operation Chokepoint, then hold it up as the epitome of free enterprise. Private companies doing private business on private property!

We’ve talked about this before, but I think the argument that the Second Amendment is a defense against government tyranny is dumb. Remington literally makes military-grade firearms. Why didn’t they stand up for themselves and defend their rights? Why did they so readily bend over and take liability even though they were operating a totally legal line of business?

Because modern warfare is lawfare. In any society, the most desirable traits are elevated to positions of power. Look at the people ruling the world today; they’re not intimidating thugs who have a monopoly on violence. They’re noodle-armed pencil-necks who know how to manipulate and game the system. The Second Amendment is powerless against monopolization of the First.

ARTifacts of Wealth

NFTs, amirite?

*thunderous applause*

Alright alright, settle down.

I’ve never been an art aficionado. My default assumption is that whenever a piece of art trades for a substantial sum, there’s money laundering at play. There’s a Youtube series that explains why historically Great Art is so Great. Michelangelo’s David was carved out of six tons of marble — okay that took some effort. Leonardo Da Vinci dissected a bunch of corpses to figure out face muscles, so the Mona Lisa is either smiling or frowning depending on where you focus. Okay, that’s kind of neat.

These were two-minute explainers, tops. Back in the olden days, a piece of art could convince someone of its value by actually being good. Artwork was purchased for personal consumption, the same way one might buy a houseplant or decorative gourd.

During the 1920s, A.W. Mellon was the US Treasury Secretary and third richest person in the country. When the Soviets needed foreign capital to finance their Five Year Plan, Mellon secretly negotiated a purchase of twenty-three masterpieces from the Hermitage Museum in Leningrad. By selling to the US Secretary of the Treasury, the Soviets secured extra cash as well as favorable trade policy where they had previously faced embargo [1].

Mellon then took the opportunity to establish the A.W. Mellon Educational and Charitable Trust. Later on, whenever he needed an income tax deduction, he “donated” a piece of art to the charitable trust. The paintings never left the walls of his homes, but that didn’t matter: Possession had been decoupled from ownership.

We’ve talked about the decoupling of monetary function here [2]. In early cultures, resource-constrained societies required objects to serve multiple roles. Shell beads were a display of wealth AND a store of value AND a medium of exchange AND a unit of account. As civilization advanced, people and objects gained a higher degree of specialization. Today, the objects that we use to store value (stocks and bonds) are different from the objects that we use as a medium of exchange (credit). And no one uses physical money as a display of wealth except maybe rap musicians.

Over the last century, art ownership has become specialized as a tool for wealth preservation. Nowadays, billionaires don’t even need to donate an entire painting to secure a lump sum deduction; they can donate a fraction of their ownership — just enough to maximize the IRS limit of 60% of adjusted gross income.

Why is modern art so shitty? Because the visual piece is irrelevant to the primary purpose of money laundering. Anything more than splattered paint on canvas is simply wasted effort.

And maybe the shittiness is the point. If art ownership has become specialized as a financial instrument, the physical medium has become specialized as an ideological test to expose wrongthinkers. It’s like an emperors-new-clothes type of ritual. If you don’t bid up the price of a Pollock, maybe you don’t deserve to come to Davos. The test is only effective if the painting is utterly stupid.

Here is a video of an NGO teaching post-Taliban women in Afghanistan about conceptual art. (Your tax dollars paid for this!) It’s important. Once you embrace the belief that a urinal is the epitome of fine art, only then can you be trusted to participate in a liberal democracy.

NFTs are not all that innovative; they’re just more explicit about decoupling the visual display from financial function. It’s no surprise that Christie’s and the Museum of Modern Art have embraced crypto art. Look, you can even set your Twitter avatar to an NFT as a sign of allegiance. You’re not gonna get a term sheet from a16z without one.

References:
1. Noah Feldman. Scorpions, 2010.
2. Bitcoin as a Display of Wealth

Amazon’s Proof of Work

I write a lot of reviews on Amazon. Partly because Amazon reviews is one of the last bastions of unpopular opinion on the internet, but mostly because I get free stuff out of it. I am a huge sucker for free stuff.

If you’ve had an Amazon account for any amount of time, it’s inevitable that you’ve been solicited for reviews by a third party seller. Usually the seller offers to Paypal a purchase refund in exchange for a five-star review. Sometimes the target product is in the $100-$200 range, like a security camera. Sometimes the product is a $10 phone holder, in which case the seller might pay you to search for some keywords, click around, and buy the product without need for a review.

Third-party sellers use tools like JungleScout to find product niches with high demand and low competition. Once a niche is identified, the seller orders a batch of merchandise from China, slaps a custom label on the box, and has the manufacturer drop-ship the lot to an Amazon fulfillment center. Manufacturers don’t form exclusive relationships, so dozens of sellers might hone in on the same product, resulting in page after page of identical listings sold under different brand names.

Amazon ranks the products based on a combination of sales numbers, reviews, and clickthrough:sales ratio; sellers buy reviews and sales in hopes of securing a coveted spot on the first page. No one is really harmed in the process – customers end up with the same product from the same manufacturer either way. In some ways it’s like Proof-of-Work – dumb and wasteful, but fair.

Here’s where I get confused. These are clearly the same product. Why don’t sellers consolidate to increase their margins? One theory is that sellers prefer to stay small, to reduce the downside risk of Amazon canceling their account and seizing the inventory. Another is that Amazon prefers the plausible deniability of using multiple third-party sellers. When issues arise (like a hoverboard spontaneously combusting), Amazon can claim to be a neutral platform and deflect the blame.

And maybe this is ultimately good for consumerism. If I were to search Amazon for a USB cable and get a single result at the best price, I would stop to think about whether I really needed a USB cable at all. Instead, Amazon returns fifty pages of results and my focus is on choosing whether I want the white one or the blue one; three feet or six feet.

We’ve become accustomed to having eighty bajillion options shoved in front of our eyes anytime we want something, because variety is the epitome of free-market capitalism. As long as we get to choose between five million brands of breakfast cereal, no one will ever stop to ask why we need to start the day with oats rolled in high fructose corn syrup.

And that’s my conspiracy theory of the day.

In 1989, Boris Yeltsin visited a Houston supermarket and was blown away by the available options. “31 different flavors of ice cream, зAEбцA!” It was enough to make the Soviets abandon communism.