The lost art of legislating
This age of political gridlock has people pining for the days when Lyndon Johnson could harangue, cajole, close-talk and charm his congressional colleagues into passing controversial legislation like the landmark civil rights bills he miraculously shepherded through a southern-dominated Congress.
Johnson was genuinely likable and undoubtedly a master persuader, but he had one decisive — and little-known — advantage over today's seemingly inept politicians: There were hardly any rules.
The hidden source of Johnson’s influence was the oil money he funneled from his Texas backers (in return for the federal contracts and tax breaks he secured for them) to individual congressmen (in return for voting how he told them to).
Because there were no disclosure laws at the time, this source of power remained unknown until Johnson’s biographer, Robert Caro, discovered it decades later.
Caro’s research unearthed evidence of Johnson buying influence by surreptitiously directing donations of as little as a few hundred dollars to cash-strapped politicians.
Compare that to the 2020 election when the third largest donor to the Biden campaign went completely unacknowledged — Sam Bankman-Fried’s $5 million donation didn’t even get him a thank-you note.
Believe it or not, it’s harder to buy politicians than it used to be — which, for better or worse, makes it harder to get things done.
Along with ever-increasing partisanship, this, I think, is why the legislative process is increasingly being bypassed — by executive orders, as the AI industry just learned, and by regulators, as crypto continues to learn.
Give me LBRTY…
Last week, Commission Hester Peirce issued a blistering statement of dissent in the case against LBRY, a crypto version of YouTube that the SEC hounded into bankruptcy.
Peirce noted in her statement that “the judge did not rule on whether the token itself was a security or on the status of secondary sales of LBRY tokens.”
This, she thinks, is further evidence that the SEC has drifted well out of its lane: Instead of enforcing rules made by Congress, the SEC is increasingly inventing the rules that Congress can’t agree on.
In this particular case, she says, “The Commission’s action forced a group of entrepreneurs to abandon what they built. Our disproportionate reaction in this case will dissuade people from experimenting with blockchain technology.”
This, I suspect, was the point.
The SEC probably never cared much whether or not the LBRY token was a security or whether investors had been misled — it was certainly no help to investors to force the project to shut down and pay a bankrupting fine to the SEC.
Instead, it seems as if the SEC is motivated by a belief that crypto is a threat to everyone and that because Congress is incapable of passing legislation to protect us from it, the SEC has to step into the breach — in this case by taking down a functioning crypto project.
PayPal may be next in the SEC’s sights.
Once more unto the breach
In its most recent 10-Q, PayPal disclosed that it had received a subpoena from the SEC in regard to its stablecoin, PYUSD.
The subpoena doesn’t state what exactly the SEC’s concern is, but given that PYUSD looks nothing like a security, it may again be a case of taking on the general threat of crypto rather than just protecting investors.
PYUSD dollars don’t seem much different from the pseudo-dollars you already hold in your PayPal account.
If anything, the stablecoin version is safer as it’s fully backed by risk-free assets and regularly audits, whereas PayPal dollars are backed by we don’t know exactly what and no direct audits.
Investors, therefore, don’t seem to be in any need of protection from PYUSD — so why would the SEC, whose mandate is to protect investors, need to get involved?
My guess is that the SEC is responding to political signals that reflect a general fear of crypto-issued, non-state money.
Some of that fear may be well founded: There are, for example, legitimate KYC concerns with stablecoins that don’t exist with PayPal dollars.
I suspect, however, that Commissioner Peirce would argue that anything unrelated to protecting investors is outside of the SEC’s jurisdiction.
She’s not the only one to think so.
In dismissing a class-action lawsuit that sought to make Uniswap Labs and its investors responsible for losses incurred in scam tokens traded on the Uniswap exchange, a federal judge recently concluded that the “Plaintiffs’ concerns are better addressed to Congress than to this Court.”
I don’t think that’s a controversial statement — even the anti-crypto faction of the SEC likely believes these things are better decided by lawmakers.
But because Congress has lost the art of legislating, regulators may also believe they have to make the law themselves.
