At a party this Spring on the 30th floor of an apartment that overlooks Lake Ontario, an accountant said something fascinating.
A majority of the recent growth in the North American economy, she claimed, had occurred mainly at the level of stock speculation.
The reason that the stock market had not corrected lately was because a majority of the growth-focus for boards and CEOs had been about keeping stock prices up for investors.
The tricks are numerous: stock splits, buybacks, strategic news, strategic acquisitions, derivatives- to name but a few.
The focus had not particularly been on integrity, on value-creation or on building a company’s genuine assets, she said. It had been about looking good on paper and sending hot air to the numbers.
The former Canadian press baron Conrad Black was fond of alliterative barbs and was good for a laugh for a while. That is until it was revealed he’d been sequentially gutting all the newspapers he’d bought (eviscerating layoffs; moveable asset liquidations- everything short of actually shutting the outlets down), and then using these secretly gutted assets as collateral to buy even more businesses so he could repeat the same procedures.
Not surprisingly, the badly cut businesses experienced declining revenues, but boards stocked with personal friends impressed by Black put signatures on all of it, having barely read a word- and banks kept lending on fudged numbers.
It was a perfect plan: with few journalists left to criticize him, few could impede his thirsty quest for a lordship nor staunch the tide of acutely-expensive clothes flowing into Lady Black’s apartment-sized walk in closet.
Activist shareholders finally put an end to the cynical spree when they ousted Black and contacted the authorities.
This, to me, is the nature of fraud: what is claimed is not there. Greed dwarfs the heart, and the appetite for truth is totally gone.
The accountant and I were both at the party because we were familiar with Bitcoin and hoped that the blockchain-technology upon which it is based would help spur a new economy where integrity is technologically encouraged by a type of ledger that cannot be forged.
Several months later, it is becoming clear that blockchain will not singlehandedly absolve us of the work of assuring fairness and integrity in the markets we all rely on.
If there is anything utopian about ICOs (initial coin offerings) and blockchain, it is that they are forcing a crisis of conscience in this regard.
But what will be the real life pain? Will it be genuinely good for the economy?
After thirteen months of serious, almost obsessive study, well over a thousand hours, I have found that, under the gloss, the “blockchain” world is as speculative as they come, maybe worse.
This was supposed to be my generation’s chance. But chance at what? Chance to repeat the same mistakes? Repeat the sins of our fathers?
I have seen it again and again: “conferences” awash in commercial speech, teeming with slick, attractive spokespeople pitching in dazzling techno-babble.
The numbers last years spoke for themselves: tales of the instantly crypto-rich. At crypto Meet Ups last year, we all met at least a few individuals who had no money before Bitcoin and ICOs and now have money- coveted, coveted money.
I have no problem with people wanting to get rich. They just want to be free.
So what’s the problem, you ask?
The problem is: how?.
My mother taught me that the means are the ends.
The problem is that the technology sold in ICOs, if it exists at all, very often doesn’t work.
The problem is that, despite the millions being thrown at the problem by banks, blockchain very often does not and will not solve their problems.
3) This all comes right as the scaling debate has risen to prominence and most devs have understood that crypto, as it is today, is unusable for mainstream applications.
Granted there are off-chain options for scaling, but that means a considerable sacrifice in decentralisation.
— Teemu π (@teemupai) June 13, 2018
The problem is that ICOs raise millions, even billions, before they even have a working prototype.
After the ICO, a lot of the money raised goes into marketing the tokens that the founders hold a large share of and got for almost nothing. Every investor is a shill on social media. “Reporting” in the (often biased) crypto press encourages run ups on exchanges where traders savvy about this whole game scalp money from naive retail investors.
Even the most trusted name in crypto, Andreas Antonopoulos, has admitted, “99.99% percent (of ICOs) are either outright scams or are indistinguishable from outright scams and will fail miserably and return nothing…”
Still he regards them as innovative. But how much value will .01% of all our money create? Is that the true cost of innovation?
Over $8 billion dollars has been invested in ICOs this year alone. If Antonopoulos is correct, that would means $7 999 200 000 with nothing to show for it.
It’s hard to believe that those kinds of losses were necessary in the creation of Bitcoin.
I would argue that Bitcoin, regarded by many as the only viable innovation in blockchain thus far, was a product of Satoshi Nakamoto’s and several other people’s integrity- their dedication to cypherpunk ethics.
Neo-liberal and / or neo-conservative politicians use real examples of bureaucratic waste to justify the gutting of regulatory bodies, because that is a nice, clean and simple idea.
Proponents of ICOs say the same thing: “Don’t regulate us. Let it play out.”
But when the Trump-appointed chief of the American Consumer Financial Protection Branch recently axed the Consumer Advisory Board designed to have something other than just industrial lobbyists on the Hill, the head of that board, Ann Baddour cautioned the public.
The board was created after 2008, she said, “because of a huge financial crisis where American families lost one-third of their wealth.”
“Where did the wealth go?” I wondered after reading that.
The best answer I can come up with is: the wealth went to speculators, derivatives-makers- to the ones who knew better. From Main Street to the highest lofts of Wall Street.
How is gutting the lower middle class in any way good for an economy? How slowly will we recover?
Are we learning a lesson? Will the money come back down in any sector other than the service economy?
What about the threat to national security posed by internal poverty?
We can and must do better than a hot air economy.