The Crypto Crash: All Ponzi Schemes Will End Up Falling | Robert Reich

Oa week ago, as cryptocurrency prices plummeted, Celsius Network – an experimental cryptocurrency bank with more than a million customers that has emerged as a leader in the murky world of decentralized finance, or DeFi – announced a freeze” due to extreme market conditions”.

Earlier this week, Bitcoin fell 15% in 24 hours to its lowest value since December 2020. Last month, TerraUSD, a stablecoin – a system that would look much like a conventional bank account, but was only backed by a cryptocurrency called Luna – collapsed. and apparently lost 97% of its value in just 24 hours destroy savings of some investors.

Eighty-nine years ago Franklin D. Roosevelt signed into law the Banking Act of 1933 – also known as the Glass-Steagall Act. It separated commercial banking from investment banking – Main Street from Wall Street – to protect people who entrusted their savings to commercial banks so that their money wouldn’t be gambled away.

Glass-Steagall’s greater goal was to end the mammoth Ponzi scheme that had overtaken the US economy in the 1920s and led to the Great Crash of 1929.

Americans had gotten rich by speculating on stocks and different kinds of exotica (roughly analogous to crypto). The value of these risky assets rose only because a growing number of investors put money into them.

But at some point, Ponzi schemes fall on their own weight. When the overthrow happened in 1929, it plunged the nation and the world into a Great Depression. The Glass-Steagall Act was a means of restoring stability.

But in the 1980s, America forgot the financial trauma of 1929. When the stock market soared, speculators found they could make a lot more money if they gamble with other people’s money—as speculators did in the 1920s. They urged Congress to deregulate Wall Street, arguing that otherwise the United States financial sector would lose its competitive edge against other financial centers around the world.

Finally, in 1999, Bill Clinton and Congress agreed to dump what was left of Glass-Steagall.

As a result, the US economy once again became a gambling den. It was inevitable that Wall Street would have another near-death experience from excessive gambling. The Ponzi schemes began to be overthrown in 2008, just as they were in 1929.

The difference was that this time the US government bailed out the biggest banks and financial institutions. The wreckage was collected. Yet millions of Americans lost their jobs, their savings, and their homes (and not a single bank manager went to jail).

Which brings us to the crypto crash.

Current Securities and Exchange Commission (SEC) chairman Gary Gensler has described cryptocurrency investments as “full of fraud, scams and abuse”. In the murky world of crypto DeFi, it is difficult to know who is providing money for loans, where the money is flowing, or how easy it is to cause a currency collapse.

There are no standards for risk management or capital reserves. There are no transparency requirements. Investors often do not know how their money is being handled. Deposits are not insured. We’re back to the wild west finances of the 1920s.

Before the crypto crash, the value of cryptocurrencies had continued to rise due to an ever-growing number of investors and some large Wall Street money, along with celebrity endorsements. But again, all Ponzi schemes eventually collapse. And it looks like crypto is now collapsing.

Why is this market not regulated? Mainly through intensive lobbying by the crypto industrywhose kingpins want the Ponzi scheme to continue.

The industry puts a huge amount of money into political campaigns.

And it has hired dozens of former government officials and regulators to lobby on its behalf — including three former Chairmen of the Securities and Exchange Commission, three former Chairmen of the Commodity Futures Trading Commission, three former US Senators, a former White House Chief of Staff, and the former chairman of the Federal Deposit Insurance Corporation.

Former Treasury Secretary Lawrence Summers advises crypto investment firm Digital Currency Group Inc and sit’s on the board from Inc. to blocka financial technology company that invests in cryptocurrency payment systems.

If we should have learned anything from the crashes of 1929 and 2008, it is that regulation of the financial markets is essential. Otherwise, they turn into Ponzi schemes that ultimately bring small investors nothing and destabilize the entire economy.

It’s time for the Biden administration and Congress to regulate crypto.

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