The Case Against Regulation

This blog will present ideas about the regulation of digital money, especially about why it is not sensible.

What Is It Good For?

Tyrone Sunday May 11, 2014

Some days bring me past a news stand which almost invariably has nothing of interest to me. Oh, sure, there are newspapers with war, rumours of war, celebrity gossip, rumours of persons who may become celebrities gossiping about whether D list is sufficiently distant from actual celebrity to be considered ignominy, and endless sports scores - the masses do love their bread and circuses. Today, though, today there was the Nation.

Seriously, just like that, a little tiny "the" a big capitalised Nation and a period, as if to say the Nation, period, the whole nation, and a final stop. Being anti-authoritarian, pro-decentralization, and individualist in my anarchism, I generally don't reach for the periodical of nationalism, imperialism, and state socialism, as I perceive the Nation to be. Today, though, the gigantic B with two vertical hashmarks and the headline "The Bitcoin Fantasy: Are digital currencies the future of money?" by Doug Henwood got my attention.

Henwood has done a credible job of looking into Bitcoin. He gets the current market value of all bitcoins in circulation at $5 billion. He has a few zany ideas about inflation not existing, possibly because he doesn't have a solid understanding of "the US dollar" which he admits he does not define "succinctly" in his essay. He has some healthy scepticism of the idea of market surveys defining the demographics of a user community of crypto enthusiasts who value their privacy, and he does a really good job of going over the major uses of money. In addition to Bitcoin, he notes that there are other "crypto currencies" and that digital money has been getting a lot of attention from investors and enthusiasts.

Then he asks a question. It is a really good question, so I'll quote it directly, and set it off just a bit so it is easy to see on the page:

"Apart from anonymity, though, it remains difficult to see what problem Bitcoin solves for people with left-wing politics."

There. That is a truly excellent question, from Doug Henwood, 19 May 2014 issue of The Nation. So I've made it noticeable.

One answer is: it could prevent some wars.

Now, to be really effective at anonymity, I think bitcoins should be used within a sensible interface, a layer of indirection, such as SilentVault. But, if you imagine a really state-less money, then you ought to immediately understand what it is good for.

You see, wars were not easy to wage back in the days from roughly the peace of Westphalia (say AD 1648) to the days of Napoleon. The American Revolutionary war of 1775 to 1781, which became a war involving the empires of France, Britain, Spain, the Republic of Holland, and a few provinces of India, was financed on the American side with inflationary fiat currency. The inflation was so high that, by 1787, several rebellions were brewing in the new country, the saying "not worth a continental" referring to the currency of the Continental Congress was widespread, and a counter-revolution by the ruling class of that day formed a new constitution.

The French Revolution was funded with paper assignats and mandats. Although Napoleon went back to gold and silver coins, and raised the money he needed to invade Russia by selling Louisiana territory to the USA for a few million in gold bullion, the British went to the paper pound. In order to put the army of Wellington on the field at Waterloo, the British had to have inflationary fiat money.

The American civil war was extremely deadly and destructive, in part because both sides used inflationary paper money - the Confederates pretending that they would redeem their paper for silver two years after a peace treaty that never came; the Union issuing Greenbacks that were tied to nothing but the "full faith and credit of the United States," a matter that was in some doubt after First Manassas (Bull Run) and before Antietam and Gettysburg. There almost certainly would not have been a million and thirty thousand dead and wounded American soldiers and an undocumented but certainly large number of dead civilians were it not for inflationary fiat paper money.

Both the First and Second World Wars were funded with inflationary fiat paper money by various combatants. You can look it up. You'll find that inflation was also persistent in Germany and Austria after the first war, in ways that led to the second. The Vietnam war, or at least that part of it fought by the United States, nearly bankrupted the country in the process of slaughtering right around 7 million people in Southeast Asia. So, Nixon took the country off the gold standard in 1971, something that Henwood mentions, but doesn't relate to events of the day. With the endless supply of fiat inflationary money that Nixon could now access, he was able to win re-election, pay off the Watergate burglars, start the cover-up, steal documents from the office of a prominent psychologist, continue the illegal bombing of Cambodia, sell out the Chinese generals who wanted to overthrow mass-murderer Mao Zedong, send the national guard to Kent State to slaughter some students, spy upon every major left-wing group in the country, and in his spare time, send a few more astronauts to the surface of the Moon. Nixon used so much inflationary money that he imposed wage and price controls to attempt to control the inflation that he caused.

Every war since 1971 has been financed by every side with fiat inflationary money. Now, I'm not sure if people with left-wing politics are still against war. There was a time when they were, but with Clinton rampaging in Somalia, Kosovo, and Obama rampaging (even surging) in Afghanistan and keeping a very large embassy and a huge number of "contractors" at war in Iraq, while finding time to prosecute drone strikes in Yemen, and send military "advisers" into Libya and other places, I don't actually know whether "left-wing" means "anti-war."

But I am reminded of a song. "War. What is it good for? Absolutely nothin' ...."

If you understand that every major war in the last two hundred years, and every single war in the last 43, has been financed by national governments with inflationary fiat money, you understand why, as Henwood notes in his article, governments are so determined to have monopoly control over the issue power of money. And you'll understand that alternative money may reduce the ability of the state to tax people, to create new money without taxes, or to borrow money. A weaker state may be forced to focus on what people with left-wing politics claim to care about: keeping people safe, providing for their general welfare, and funding hospitals, schools, food banks, and courts capable of enforcing laws against discrimination.

In a future era where there are no states strong enough to do even those things for people, people may have to take care of one another on their own, which has always been a part of the anarchist tradition of mutual aid. Now, a person with left-wing politics is sure to lament a weakened state that cannot engage in charitable works on behalf of everyone. But would you be willing to trade, eventually, the entire state and all its powers to do things for people if you could end forever its tendency to do things to people, like kill them in their homes, mosques, and churches, slaughter their children with napalm, and deform and deface the planet with nuclear bombs, chemical, and biological weapons?

Despite endless propaganda to the contrary, the wars among nation states are started by nation states, not by anarchists, not even by anarchists who chose assassination as their way of going out in style. The wars among nation states killed, in the 20th Century alone, some 100 million persons. Another 150 million persons were killed by states engaged in genocide and mass murder. The future importance of crypto-currencies in reducing or preventing wars should not be underestimated.

In a book popular among crypto-anarchists about twenty years ago, a very elderly survivor of a Japanese labour camp asks a young American what he plans to do with a new digital currency. The American, a descendant of survivors of the Holocaust replies, "Make sure that another Holocaust is impossible." You might not like libertarians, Doug Henwood, but you might enjoy Neal Stephenson's book The Cryptonomicon.

Whether bitcoins are money, as some believe, or not, as Henwood seems to think, they are a part of the near future. If they lead to robust systems of exchange and value storage, cryptographically secure currency systems are going to change the relationship of people to the state. Given the racism, sexism, and extreme violence of the state in the 20th Century, worldwide, there ought to be something in a future with crypto-currencies for everyone.

The Black Chamber

Tyrone Friday May 9, 2014

James Bamford, writing in The New York Review in his article "They Know Much More Than You Think," 15 August 2013, informs us:

"On July 1, 1920, a slim balding man in his early thirties moved into a four-story townhouse at 141 East 37th Street in Manhattan. This was the birth of the Black Chamber, the NSA's earliest predecessor, and it would be hidden in the nondescript brownstone. But its chief, Herbert O. Yardley, had a problem. To gather intelligence for Woodrow Wilson's government, he needed access to the telegrams entering, leaving, and passing through the country, but because of an early version of the Radio Communications Act, such access was illegal. With the shake of a hand, however, Yardley convinced Newcomb Carlton, the president of Western Union, to grant the Black Chamber secret access on a daily basis to the private messages passing over his wires - the Internet of the day."

In 1917, against the will of the vast majority of the American people, the virulent racist and militarist Woodrow Wilson pushed and pulled a reluctant Congress to declare war on Germany, the Austro-Hungarian empire, and the Ottoman empire. He did wanted this war, despite his election campaign assurances in 1916 that he would continue to keep the country out of war, because he wanted the USA to play a greater role on the world stage, to have its Philippines and other overseas possessions extended, and to gain alliances with the British empire, the French empire, and the Russian empire. Votes in Congress were pulled with graft and corruption, pushed with threats, and ultimately were enough.

Meanwhile, in a move consistent with fascist dictatorships elsewhere, Wilson expanded dramatically various domestic espionage and police agencies, including the federal Bureau of Investigation, and created the Black Chamber. He recruited hundreds of thousands of Americans to spy on their neighbours, promote war bonds - financing an overseas war from the savings of ordinary civilians, and sought control over every aspect of American life. Wilson created the first propaganda agency, the Committee on Public Information, started a government operated newspaper, and insisted that propagandists called "four minute men" speak in every cinema during the interval between reel changes in order to foment support for war. Wilson was certainly aware of and almost certainly personally in favour of the riots by his American Protective League of roughly 250,000 war enthusiasts against "immigrants," and hyphenated Americans from Germany, Italy, Ireland, and elsewhere. Black Americans, even black troops, were not safe from the aggressive racism of Wilson's era. When a group of black troops came to the defence of a black woman in Houston being abused by a police officer, rioting ensued, deaths occurred, and over a dozen black soldiers were executed by hanging.

Wilson, a racist, nationalist, militarist ideologue had the government attack labour unions, anarchists, and anyone he or his minions could accuse of anything. He was particularly violent against free speech, a free press, and the other freedoms Americans held dear. He wanted dictatorial control. He wanted war, presumably because he would benefit financially through his relationships with the war contractors, or military "procurement" companies, which these days we call "defense contractor companies" or "aerospace companies" in laughable euphemisms about their role in profiting from the suffering their weapons and munitions inflict.

Wilson had no constitutional authority to spy on Americans, and there were laws, as well as constitutional restrictions, against the things he wanted to do. So he ignored the laws and the constitution and did what he wanted, anyway.

The United States government has never apologised for its actions since at least 1896 in tracking, spying upon, and targeting individuals for their political and philosophical beliefs. It has, however, during the years since, formed a number of police agencies which have long operated as secret police. Instead of openly and transparently enforcing laws and providing every American with the presumption of innocence, access to due process, access to counsel of their choice, and the other rights identified in the constitution's Bill of Rights, including all non-enumerated rights, the government has acted as a fascist dictatorship protecting the interests of oligarchs.

Among his other great crimes against the American people, Wilson was directly responsible for the Palmer Raids of 1919 and 1920, which used information illegally obtained by the secretive Black Chamber to identify, target, and attack Americans and foreign nationals living in America. Both naturalised and native-born Americans were deported, along with various foreign nationals, during the "Red Scare" attacks of that era.

Wilson not only has to take responsibility for his role in the slaughter of American combat troops, both in warfare and by disease, during the First World War, but also is responsible for the failed peace treaty of Versailles. So he had a role in the continual war of the 20th Century, including the Second World War. His racist chief of staff, Mandell House, refused to allow Ho Chi Minh to meet with Wilson in 1919 in Versailles. So Ho went to the Russian delegation, adopted communist slogans, and started his war for independence. The Vietnamese fought for their independence against French, Japanese, American, and Chinese military forces from 1919 to 1979.

Don't believe me? Consider the following citations on the matter.


What do these facts have to do with regulation of digital currencies? They are facts which clearly point to a desire to control, spy upon, and manipulate the American people. As part of that effort, they represent black marks in the long history of excesses by the USA government in its operations that benefit an oligarchy of financial and military contractor companies. So when you ask for government regulation, and I say that you are a racist war monger, perhaps you'll understand. You might choose to read more in a future blog post that I'm still composing regarding the deeper revelations of Edward Snowden, Chelsea/Bradley Manning, and others which have exposed a long and turgid history of corruption and abuse of power.

Or you might do what other Americans seem to prefer doing: ignore history, watch mainstream television, and pretend nothing is wrong. After all, if you trust the government to regulate financial services, if you trust the government to regulate out of existence all individual privacy, then what should we expect from you? Nothing good.

It Isn't Only Us

Tyrone Tuesday May 6, 2014

Now, you may think you've found a particularly rich and deep thread of anti-government, anti-regulation sentiment here on this site. As a result, you may believe that our opinions are extremist views and perhaps ought not to be taken seriously. If that's the case, you might do well to look at some other resources.

We'd like to suggest After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, by Alan S. Blinder. We're also mildly enthusiastic about Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself by Sheila Bair. You might really like, as we did, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street by Neil Barofsky. These came out in January 2013, 2012, and 2012 respectively. So they fairly current.

Blinder is an economist at Princeton University. He has formerly worked as the vice chair of the Federal Reserve System from 1994 to 1996. More on his background is available here: http://en.wikipedia.org/wiki/Alan_Blinder

Bair is a government functionary who has worked at FDIC, Treasury, and the Commodity Futures Trading Commission under Clinton, Bush, and Obama, since 1993. More on her background here: http://en.wikipedia.org/wiki/Sheila_Bair

Barofsky is also a government functionary, having worked as a lawyer for the United States Attorney for the Southern District of New York, and as special inspector general for the Treasury's troubled asset relief program (SIGTARP). More on his background here: http://en.wikipedia.org/wiki/Neil_Barofsky

The point of mentioning their books and their backgrounds is to indicate that there is clearly a lot wrong with the financial system, including especially the government agencies that are supposedly regulating and overseeing it. The Meltdown, as we are calling it, which began with the "sub-prime mortgage" market in 2006, has resulted in enormous difficulties: foreclosures reached previously unheard levels, unemployment spiked, banks and financial enterprises were at risk of failure, and huge amounts of money were pledged to bail them out. As with the Great Depression and many other panics and recessions, government regulation has apparently failed, badly, to protect the public from problems.

All three books were reviewed in The New York Review in March 2013 by Jeff Madrick. I've highlighted a few of the best paragraphs from his essay, "Too Little, Too Late: Why?" and quote them below.

"The Treasury now reports that losses will finally be close to $50 billion when all is said and done."

"The public's angry reaction to the bailout of bankers seemed to extend to government intrusiveness of any kind, even the financial reregulation act known as Dodd-Frank...".

"Sheila Bair, head of the Federal Deposit Insurance Corporation...began to warn about mortgage fraud in the early 2000s. She couldn't get either the Federal Reserve or Congress to take action...Alan Greenspan and others paid no heed."

"In retrospect, the financial world started coming apart in late 2007, even though foreclosure rates on mortgages had begun rising rapidly by 2006, while home prices had begun falling. We can see now that far too many 'subprime' and other innovative but risky mortgages were issued to people who would not be able to keep to their repayment schedules. The Federal Reserve started to cut interest rates rapidly in late 2007 and through 2008, but this wasn't sufficient to generate more rapid growth in the Gross Domestic Product. Indeed, the recent publication of the 2007 minutes of the Open Market Committee, which makes policy decisions at the Fed, showed embarrassingly that the members had no idea the subprime crisis could spread and thought it would have minor consequences at worst."

Let's take a moment on that one, please. The most powerful government regulatory agency, the Federal Reserve System, including some of the brightest minds in the world on financial matters, had no idea that the subprime mortgage crisis could spread and thought it would have minor consequences. And you want how much government regulation of Bitcoin?

"The giant insurance company AIG had sold guarantees on hundreds of billions of dollars of mortgage securities. Now it had to be bailed out, or it would also collapse. Bernanke writes, "In our judgement, the failure of AIG would have been basically the end."

"More important, the complex and widely sold mortgage securities known as collateralized debt obligations were more vulnerable to the failures of subprime mortgages than economists or federal officials had known.... The collapse was not just a matter of a burst housing bubble leading to reduced consumer spending. It was a collapsing house of cards, the failure of one risky security leading to the failure of another."

"Barofsky was especially disturbed...that there were no requirements for the banks to report how they spent the money provided by the taxpayers. ... Geithner bent over backwards to protexct the banks. The New York Times published an article in early 2009 about Barofsky's concerns, in which it reported that lending to business was not the highest priority of the rescued banks. they were using the money to pay down debt, make acquisitions, or build up their savings."

"AIG's creditors, including Goldman Sachs, were paid 100 cents on the dollar - a source of much public indignation."

"It was Paulson who at first opposed any serious restrictions on compensation to the very executives who were responsible for the collapse. Wall Street professionals were paid enormous sums when all was going well, but they bore little loss when markets turned against them. The incentives to overspeculate were thus out of control."

"But Barofsky writes that Treasury insiders still believed the bonuses were necessary to keep the best-qualified people at work — 'No matter that the financial crisis had demonstrated just how unremarkable the work of those executives had turned out to be.'"

"Larry Summers, then Obama's chief economic aide, went on TV to argue that he was outraged by the bonuses but he still insisted that contracts with the bankers must be honored. This was a farce, according to Barofsky. Contracts with mortgage holders and with employees were being broken all the time, he points out. Private and public pensions were being renegotiated across the country. Surely the federal government, which owned 80 percent of AIG, could have negotiated the bonuses down with the AIG employees."

"At one point, according to Barofsky, the federal government overall had promised some $23 trillion to rescue financial institutions, a sum that created momentary alarm when Barofsky made it public."

"Thus, to use later financial returns in order to claim that TARP was one of the most effective government programs of all time as former Treasury secretary Michael Geithner has said is misleading and disturbing."

"One other decision by Geithner and his team is especially hard to understand. No member of top management was ever asked to leave his or her post in return for the bailout funds, even at Citigroup, the bank arguably in the worst condition."

"The most egregious failure of TARP, however, was that both the Bush and Obama administrations never adequately used the funds to reduce mortgage debt for Americans, even though help for homeowners was a principal part of the TARP legislation. Nearly four million foreclosures were occuring each year. Only in 2012 did that number fall to less than three million."

Notice, please, that 4 million in 2009, 4 million in 2010, 4 million in 2011, and 3 million in 2012 adds up to 15 million foreclosures in those four years, plus an unknown number in 2006, 2007, 2008, 2013, and 2014. It is hard to see how TARP, or any other government regulation of the financial system, can be called a success in light of these figures.

Now, if you are one of those people who think that regulation of the financial services industry is a good thing, maybe that's because you imagine that you'd be given $23 trillion in guarantees and bail-out funds of various kinds, and that your compensation would be protected by the people you imagine would be charged with regulating your industry. You might be right in thinking that the enormous power that a cartel of a small number of companies can exert in limiting the scope of government regulations, promoting the bail-outs of industry participants (especially in the cartel itself), and limiting the downside cost to you of making boneheaded investments would protect your interests. But you might also consider how close the country came to having crowds of angry depositors chasing bankers through the streets of upscale neighbourhoods with pitchforks, torches, and implements of destruction. If you don't have nightmares about streets lined with bankers hanging by their necks from every tree and lamp post, you might not have been in the financial services industry in February 2009.

Whatever else you may wish to say about the Meltdown, it is clear that regulations of the financial services industry failed. They continue to fail to this day.

One final thought. Many of the mortgages that were re-financed in 2009 and 2010 had adjustable rates that would re-adjust in 2014 and 2015. Although many people feel that doom was averted, it may have simply been postponed.

Lanchester's Capital and the Recent Crisis

Tyrone Tuesday May 6, 2014

Two comments from Michael Lewis in his review of Capital by John Lanchester caught my attention. Writing in the New York Review on 7 March 2013, Lewis says:

"Wherever it traveled, American high finance required an irony-free zone, in which otherwise intelligent people might take seriously inherently absurd events: young people with no experience in finance being paid fortunes to give financial advice, bankers who had never run a business orchestrating takeovers of entire industries, and so on."

Anyone who has had the experience of meeting with a recent business school graduate at an investment services company, or in an estate planning service capacity, or in any other activity involving investing, insurance, banking, capital management, or finance, has probably had a moment of irony in dealing with an extremely young person who does not have any relevant experience, but who is confidently asserting an ability to manage large sums of money, give out serious advice, and plan your future. If you haven't had that experience, you may have dealt with very professional-seeming individuals, or maybe you haven't looked far enough for input from financial service enterprises.

An example of the difficulties involved in having bankers running businesses they don't understand arose in the recent global financial meltdown (of 2006-2012 vintage) when a gentleman named Vikram Pandit was running Citigroup, one of the world's largest financial services enterprises. At the time, Pandit had no commercial banking experience, yet he was running one of the world's largest commercial banks, according to Sheila Bair in her book Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself, from Free Press, 2012. (Bair's opinion seems relevant since she was chair of the Federal Deposit Insurance Corporation from 2006 to 2011.)

The other comment from Lewis that caught my attention was:

"In neither place were the windfall gains to the people in finance widely understood for what they were: the upside to big risk-taking, the costs of which would be socialized, if they ever went wrong. For a long time they looked simply like fair compensation for being clever and working hard. But that's not what they really were; and the net effect of Wall Street's arrival in London, combined with the other things that were going on, was to get rid of the dole for the poor and replace it with a far more generous, and far more subtle, dole for the rich. The magic of the scheme was that various forms of financial manipulation appeared to the manipulators, and even to the wider public, as a form of achievement."

In a recent post, I commented on the FDIC's listing of Ponzi schemes and Get Rich Quick business opportunities as suitable for government intervention (along with dozens of other business enterprises) to push banks to deny service to these companies or criminal enterprises. Isn't it ironic that the very largest Ponzi scheme in the history of the world seems to be the Social Security system, which taxes current job holders and the companies that employ them in an attempt to continue paying former job holders the "pensions" they were promised by the government? Isn't it ironic that the largest and most deeply regulated financial services companies are, to all intents and purposes, judging by the results of their behaviour and not only by their stated intentions, seemingly nothing more than get rich quick schemes?

If you think that financial services companies ought to be regulated, perhaps you can explain what it is in the history of the last one hundred years of regulation of banks and financial services companies that you think is desirable. Do you think the state chartered banks in the United States during the late 19th Century were disorderly in a way that was excessive compared to the disorder of the Great Depression and the recent Financial Meltdown? Do you think that there is some sort of stability brought about by government regulations that isn't denied by the extremes of the boom and bust cycle during the entire history of the Federal Reserve System? Do you think that inflation and deflation are less extreme, that unemployment is more stable, or that price fluctuations are less of an issue under government regulation?

If you think any of those things, you are entirely mistaken. I would be happy to detail at length the reasons why each of these arguments is wrong. Meanwhile, I should simply like to point you at a few links.

Here is a chart illustrating the relationship between the price of gold and the Dow Jones Industrial Average. As you can see, there is considerably greater volatility, a more extreme boom-bust cycle, after the creation of the Federal Reserve.


An overview of the difficulties inherent in the power of the Federal Reserve System being concentrated in those hands is given here: http://theeconomiccollapseblog.com/archives/11-reasons-why-the-federal-reserve-is-bad

Please pay close attention to this graphic: http://theeconomiccollapseblog.com/wp-content/uploads/2010/07/Inflation.png

Finally, consider this data:

Notice that in 1994, the government "defined out of official existence" those long-term discouraged workers who live and breathe, but have concluded that they have very little chance of getting a job, in order to claim that the unemployment rate is now 6.3% instead of somewhere upward of 23%.

So if you consider that among the purposes given for creating the Federal Reserve System were to reduce the extremes of the boom-bust cycle, to limit the effects of inflation, and to provide for closer-to-full employment of the people of job age capable of working, you should get the idea that the system has failed. Regulating financial services doesn't work. It does none of the things it was designed to do.

Being of an ironical outlook, you might ask, "Why does regulation of financial services persist?" And to answer that question, you only need to look at who benefits.

The simple answer is: the big banks. In its 2011 Annual Report, the Dallas branch of the Federal Reserve reported that since the creation of the Federal Reserve, big banks have consolidated their control over financial assets. The addition of other regulatory agencies has not slowed that consolidation, at all.

Here is that report: http://www.dallasfed.org/assets/documents/fed/annual/2011/ar11.pdf

According to the New York Times, writing here:
'They have "increased oligopoly power" and "remain difficult to control because they have the lawyers and the money to resist the pressures of federal regulation," Harvey Rosenblum, the head of the Dallas Fed’s research department, wrote in the essay. Having seen the biggest banks make risky bets, crush the economy and get rewarded leaves "a residue of distrust for the government, the banking system, the Fed and capitalism itself," Mr. Rosenblum wrote. It's one thing for the Occupy movement to point out how bailing out the biggest banks — with little cost to their executives or shareholders and creditors — has demolished credibility. It’s quite another for top officials in the Federal Reserve system to put it in an annual report.'

Just from 1970 to 2010, the top five banks increased their share of total financial assets from 17% to 52%. In that same time period, the next 95 largest banks and financial services companies decreased their share slightly from 37% to 32%. What happened to the rest of the industry is more impressive: There were 12,500 smaller banks, according to the Dallas Federal Reserve annual report cited above, in 1970, and they had 46% of all financial assets in the country. By 2010, there were only 5,700 smaller banks, and they controlled only 16% of the financial assets. More than half, or 6,800 total, banking enterprises known to the Federal Reserve in 1970 were gone by 2010.

If financial services regulations only benefit the big banks, what can be done about it? Obviously, we're not about to tell you to start writing to your representatives in Congress or Parliament. Nor are we optimistic about calls for deregulation or re-regulation or other musical chairs. The big banks have enormous financial power, as illustrated above, enormous arrogance and contempt for everyone else, and the capacity to hire lobbyists to corrupt regulatory agencies, representatives in office, and anyone who stands in their way, judging by their actions, in my opinion.

The only rational path forward seems to be to resist regulation that benefits the big banks by using financial tools and cryptographic operations that continue to exist, and to be developed, outside of the mainstream financial cartel. Bitcoin is certainly an excellent example of a possible alternative approach to exchanging value. We think it can be improved, which is why we've developed SilentVault.

You are, of course, free to disagree. But we're not going to stop pointing at the evidence that regulations are not working.

Choking Legal Industries

Tyrone Friday May 2, 2014

In his excellent review of the United States department of (in)Justice's "Operation Chokepoint," Crypto Coin News writer "Caleb Chen" describes thirty industries being targeted by the Eric Holder administration of "Justice." The first thing to notice about the list is that these are activities that are lawful to operate in the United States.

Here is that very good article: http://www.cryptocoinsnews.com/news/dojs-operation-choke-point-driven-30-industries-bitcoin/2014/05/01

Here is a link from Caleb's article to a 2011 report from the United States federal deposit insurance corporation indicating their concerns for "high risk activities" in a slew of industries. http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum11/managing.html

Now, if you like regulation, you can simply go to the FDIC site and pleasure yourself to the view of an all-powerful state running roughshod over undesirable business enterprises. You can imagine that of the roughly eight million business enterprises in the United States, only the very "bad" people who do unpleasant and harmful things (to your way of thinking, or, at least, to attorney general Holder's way of thinking) will be hassled and forced to stop accepting credit cards. But you might want to get the perspective of the presumed-state-enthusiast author Jason Oxman at "The Hill" who wrote on the same topic, recently, "If you’re thinking this is harmful to the flow of commerce, you’re right. Our nation’s payments infrastructure allows more than eight million U.S. merchants to accept credit and debit card payments." http://thehill.com/blogs/congress-blog/economy-budget/204174-operation-choke-point-harmful-to-flow-of-commerce

It is not merely harmful to the flow of commerce, it is harmful to everyone. The constitution for the United States which Americans like to pretend limits their government in various ways has much to say about what the government is and is not allowed to do. It says that the sanctity of contracts is to be upheld, that civil matters having more than $20 of value are to be adjudicated before a jury if the defendant prefers, that defendants are presumed innocent until proven guilty, and that everyone is entitled to due process of law, among a great many other protections that are evidently being ignored by the FDIC, the Department of (in)Justice, and the government. If the government can attack merchants in lawful industries such as ammunition sales, cable box equipment vendors, coin and stamp vendors, credit card services, credit repair services, dating services, debt consolidation services, pharmaceutical equipment vendors, escort services, firearms vendors, wealth development services, government grant services, home-based charities, lifetime guarantees, lifetime memberships, lottery sales, mailing lists, money transfer networks, online gambling, pay-day lending, pharmaceutical sales, adult film production and distribution, multi-level or network marketing sales systems (such as Amway, perhaps?), free press of unwholesome ideas such as racist rants, surveillance equipment vendors, telemarketing, tobacco vendors, and travel clubs, they can, will, and apparently do attack other merchants, individuals, and anyone they please.

Of the thirty types of business activity listed by the FDIC, only "Ponzi schemes" are evidently fraudulent by their nature. It is, of course, possible to operate a pharmaceutical sales company in the United States, with vendor representatives targeting your local doctor. You may even have seen these people in ill-fitting business attire waiting in the same waiting area when you or a family member have a doctor appointment. Whatever free samples, kickbacks, or incentives are allowed to the doctor by the pharmaceutical companies by the "regulated" healthcare industry in the several states is no doubt a matter of law. Maybe you'd even approve of those incentives, if your doctor bothered to ask you before writing a prescription on a pad generously provided by one of the Rx companies.

What does Operation Choke Point represent? It represents the egregore, the tendency of an organisation to take on a life of its own. While the term is also present in certain occult systems of thought (see https://en.wikipedia.org/wiki/Egregore for examples) my use of it here is in reference to the idea of a $3.5 trillion USA government completely run amok. Power mad regulators are prepared to use their oversight over the banking and payment processing industries to attack and intimidate merchants who have not been accused of any crime, who have not been convicted of any wrong-doing, and who are simply attempting to go about their lives.

You can say what you please about whether racist rants are suitable for reading, and you might be interested to know that I think racism is stupid, immoral, and bizarre. But you can't argue that the First Amendment to the constitution is supposed to protect freedom of the press, in that "congress shall make no law" abridging it. If you aren't willing to defend the freedom of people who write and think things you disagree with, who is going to defend your freedom? Evidently not the government under Obama and Holder, judging by their actual behaviour.

By presuming everyone guilty who sells ammunition or guns, the government is also, rather obviously, attacking the Second Amendment freedom to keep and bear arms. It is entirely understandable that state actors do not like ordinary people to have access to firearms. After all, the importance of being armed is widely document in political theory. Machiavelli, for example, wrote that "Among the other harm that it brings you, being unarmed causes you to be despised."

From Operation Choke Point, you can see what is really wrong with regulation of digital currencies, and, indeed, all government regulation. Government regulation at its heart says, "We in the government know better than you what is good for you. We would like to pretend to be able to monitor every business transaction and make sure that only good things are sold to you. Lamentably, we can't afford to actually investigate wrongdoing and prosecute General Motors, say, for putting millions of automobiles on the roads with deadly defects in them. Or, maybe we could do our job in this area, but it might cut into the amount of money we expect to be paid in salaries and pensions for pretending to do our job. Anyway, if you have money and power and influence, hire some lobbyists, set up an office in Washington DC, and sell your souls to us - we already have your bank accounts."

If you don't agree that government regulation is a bad thing, you are probably in the wrong place.

Haunted by the Past

Tyrone Friday May 2, 2014

In a New York Review of Books essay entitled, "How Politics Are Haunted by the Past," author Jeremy Waldron reviews two books on politics and liberalism by Alan Ryan. In his essay, Waldron notes:

"We think we know what it is for a people to be ruled by religious law and we look with dismay on the prospect of an Islamic state. ... The early part of Ryan's book helps us re-imagine the hundred different forms in which such united rule was rationalized in Christian polities from 325 to 1648."

Did you know that an established religion was not merely possible, but regarded as essential for over a thousand years? So when you consider that the government regulation of industries, including the financial services industry, is very typical today, and has been regarded as essential by many people for the last several decades, please consider whether it is the only way of doing things.

No one with SilentVault is seeking to establish religion in any country. For my own part, I far prefer the concept of a separation of church and state. Indeed, since the middle of the 17th Century, the idea of an established church receiving direct support from tax funds collected by the state has become anathema in Europe, North and South America, and some parts of Asia. Many people are so used to the idea that they now regard it as absurd to suggest that one might prefer to have an established religion.

Five hundred years go, though, nearly nobody would have thought it possible to have a properly ordered government without having an established religion. Only after a long series of wars, including a Hundred Years war, a vicious and extremely violent Thirty Years war, and extensive philosophical effort did it become possible for republics to spring up without any established religion. The Amsterdam of the early 18th Century and the United States of America of the late 18th Century represent a very different way of doing things, something that would not have been understood nor accepted only two hundred years earlier by the most educated and sophisticated Europeans of the day.

So when you talk about "the need for regulation," when you say that "most people want Bitcoin to be regulated," and when you say that you think the only way forward is to embrace regulation, you might want to consider the possibility that you are haunted by a past that you barely understand. You are saying that for a few decades, the financial services industry has been regulated in many Western economies, and that you cannot imagine any other way of doing things.

The truth, however, is that things change. Everything changes, including the rate at which things change. Arguments from tradition are unlikely to have much impact here. People who say that "we've always done it this way" are going to be presented with a long list of places and times when "we" humans have done things very differently, and with considerable success.

You might not be comfortable with these ideas. You might not like the idea, for example, that I am saying that the use of government regulation to benefit a few players in the financial services industry is immoral, egregious, and disgusting in the same way and to the same extent that the establishment of religion was in Fifteenth Century Spain. You might not like being on the wrong side of an issue, both philosophically and ethically. You might not enjoy learning that economics and praxeology have moved on from the prevailing views in North America in the 1880s when government regulations first began to limit competition in major industries.

So my purpose in this blog is to persuade, argue, and present information that may help you change your mind if you are in favour of government regulation. And if you are against it, as I am, then my discussion and arguments may be useful in your efforts to persuade others, or simply to feel better about your choices.

The best part of this blog is that it is available for users to add their own posts. Please feel free to present your own arguments against regulation. The management of SilentVault reserves the right to remove content if it is intended to direct users toward mal-ware sites, or for other reasons. However, we do prefer to discuss ideas, even when the ideas presented are in contrast to our own views. Let's see how it goes.