Bill Black: Facebook’s Libra Currency Monetizes Identity and Threatens Privacy

Lambert here: I can’t find the commenter who coined “D*uche Mark” (DM) as an alternative to “Libra,” or I’d give them a hat tip, but I think their contribution deserves wide circulation.

William K. “Bill” Black is author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas. Here he is interviewed by Marc Steiner. Cross-posted from The Real News Network.

Here’s the video:

And the transcript:

MARC STEINER Welcome to The Real News Network. I’m Marc Steiner. Great to have you all with us. When Facebook announced the launch of a new currency— some call it a cryptocurrency, some say it’s not, but it’s called Libra— the reaction was swift and negative from many quarters from left to right, libertarian to socialist, from progressive and conservative experts alike. But many differed on why Libra would be a bad idea. Maybe it’s not. A cryptocurrency controlled by Facebook may turn Facebook into an even more state-like institution, some say, with its own internal economy, the ability to impose economic policies on his customers as if they were citizens of a state. Most important for most analysts and people paying attention to any of this is that Libra seems to give Facebook even more power to control our private data with the ability to use the unprecedented alleged currency for a tool for surveillance. Will that happen?

In the white paper written by Facebook about Libra, the following short text was buried, which might shed light on what Libra is really all about and many have used this one piece to talk about it. The quote is, “An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite to financial inclusion and competition.” Well, to parse through all of this jargon and confusion, we once again turn to Bill Black. Bill Black is of course the author of The Best Way to Rob a Bank is to Own One. He teaches Economics and Law at the University of Missouri-Kansas City, was the Executive Director of the Institute for Fraud Prevention from 2005 to 2007, and a central figure in exposing the congressional corruption during the savings and loan crisis. Bill, good to have you back.

BILL BLACK Thank you.

MARC STEINER So let me—Where do I begin? There’s so many places to start this. Let me just start with, can we just take maybe a minute and a half for you once again, for our viewers, to define this notion of cryptocurrency and what Libra has to do with that?

BILL BLACK Okay, but the reason there’s what you refer to as confusion is because there’s confusion inherent in this design, and here’s what I mean by that. Libra can be changed at any time to do virtually anything by a two-thirds vote of an “association.” This association is made up of the usual for-profit actors in the world— the big credit card companies, etc. And more private for-profit entities can buy-in. So they can make Libra into most anything that is conceivable to make, and any promises that it won’t be used in certain ways are completely hollow because Facebook is not going to run Libra like we would trust. If Facebook did run Libra, but— [laughs] Even if Facebook gave us promises, which it’s done in the past and lied about, and somehow we believed that this would never occur again, and Facebook had turned over a new leaf—Facebook doesn’t control it! A bunch of other really nasty heads of these control it.

MARC STEINER Like who? Like what? What do you mean by that? Like what?

BILL BLACK Like the credit card companies and such own it and whoever wants to. Whoever finds that it would be sensible to take over this organization can take it over, get a two-thirds vote, and then Libra, they can make into almost anything.

MARC STEINER Well, let me just ask a quick question here because there’s a lot to parse through in the 10-15 minutes that we have together. So what do you—Who are these organizations? What do we mean by that? I mean, Libra was created by Facebook as allegedly some kind of account mechanism. People could buy things online and whatever else that we can do, which we’ll talk about, but who is this association? What do they have to do with Libra if it was founded by somebody else?

BILL BLACK Okay, so this is in large part— “watch my left hand, watch my left hand.” [laughs]

MARC STEINER I never did trust you, Bill. [laughs]

BILL BLACK I can understand, and I think no one trusts Facebook. As you said, this is the universally hated corporation. The right is like—The libertarians are writing saying, “God, the government has to protect us from these people.” [laughs]

MARC STEINER And we all use it.

BILL BLACK That type of thing. And so, is it a cryptocurrency? Well that’s in the never, never land of what the hell the definitions are. I would say, no. What it is, is a system that uses blockchain, but anybody can use blockchain. Blockchain is simply a technology that widely distributes information and keeps a registry so that certain information, not nearly most frauds, much less all frauds, are more difficult. All right. Now, it’s still vulnerable to all kinds of computer attacks that would create all kinds of spurious information and, you know, bitcoin, for example, would break down instantly if it were subject to an effective attack. That way they created tons and tons— by which I mean literally millions of pieces of false information— so anything that uses blockchain is subject to that kind of computer harassment.

The currency isn’t really a currency, right? It says, what you get is a right to something that is created in a reserve. Who controls this reserve fund? Well, that would be this association of for-profit folks of which all the worst actors in the world [laughs] are going to be members, right? And already are such members. So what can they do? They can buy currency, but if they do that—You don’t pay interest on currency, you may have noted, and these clowns are going to want to make lots of interest. So they’re also allowed to do bonds and other such things. And as I noted, with a two-thirds vote, they can invest in anything like toxic mortgages.

MARC STEINER So let me ask my next question here with that, so I was going to wait until later in the conversation to do this but let me do it now. So as a person who was a regulator, should regulators take an interest in this? I mean, when we have a financial crisis, they always seem to start with an unregulated sector somewhere, right? And Libra will in effect, some people have written that Libra in effect will be like a giant shadow bank. And if regulators are concerned about that effect, Libra’s effect on anything— financial stability— you know, they’ll have to come up with a solution. So does that mean that Facebook has to become a regulated bank subject to capital liquidity requirements? You know, like what happened to Goldman-Sachs or anybody else? I mean, does that fall into this category? How do you—There are two aspects of what I think we have to talk about in terms of control. Let’s start with this one.

BILL BLACK Okay. So it isn’t like a shadow bank, it is a shadow bank.

MARC STEINER It is a shadow bank.

BILL BLACK And if it wants to, it can become extraordinarily shadow, right? It, with a two-thirds vote, could invest in anything. It could take your money and buy Macao, you know, gambling joints type of thing. If the People’s Republic of China decides to buy a majority share, it could turn all of its investments into the PRC and such. So lots of things could happen. We don’t know what will happen and it could happen incredibly rapidly with no notice precisely because this thing will be regulated by no one. And because these institutions that control it will have conflicts of interests and incentives to do lots of wild and crazy things to increase their yield.

MARC STEINER So. Okay. So that’s frightening aspect number of what the future could hold.

BILL BLACK Yeah. That’s just one. [laughs].

MARC STEINER Right. So Frances Coppola in Forbes wrote a really interesting piece about this, and she wrote for her that the real concern for Libra was that their business model is to “harvest monetized data,” as she wrote. And she says that’s not changing. That’s who they are. And so, what she found is the sentence we started with, the sentence that’s buried in the white paper, that implied they’re really in this creating Libra to get us to, kind of, store these global digital identities that they’ll control, and that should be really scary. I mean, people like Dave Birch from Consult Hyperion is really, kind of, pushing this idea that “there are no throwaway remarks” in Facebook. He wrote that this is the real danger here, and that’s also uncharted and unregulated territory in many ways. So to me, that’s danger number two and as big as danger number one.

BILL BLACK Yeah, I agree. That’s number two. And, here again, stop me when this sounds familiar. All we have is Facebook saying we don’t intend do it this way, but there’s nothing binding on us and we can change tomorrow. And again, that’s if you believe Facebook, which I think is a group of about twelve people all of whom work for Facebook. The other folks who work for Facebook also doesn’t trust Facebook. [laughs]

MARC STEINER [laughs] So, you know, Facebook came out with— if I remember correctly— this thing, Zynga. You know, this game where people play this Farmville-kind of game, and it had its own currency, and they would spread money around, and they spent millions of dollars, billions of dollars, making money for Facebook. That was a game, but this is something different. They intend to make the same amount of money or more.

BILL BLACK Yeah and it is incredibly dangerous. It will provide them with all kinds of information that they will profit from. Remember, almost all the really biggies, what they’re really doing is not whatever the surface thing is that they tell us. It is, they’re getting data, which they then sell to other folks or sometimes they buy the companies that monetize the value of that information. And so they know all kinds of things about people, and a lot of that information is valuable to others; for example, lenders. So lenders are already trying to figure out, for example, are you a much riskier borrower if at 2 a.m. you’re buying porn, as opposed to buying sundries at Amazon type of thing? All right. So that’s not so great directly, but it also means that there’s information that’s embarrassing. And that means that there is a market for blackmail, as well. And also, of course, intelligence agencies go into these kinds of services and go “ha, ha, ha, what kind of dirt do they have on Fred, because we would like to get Fred to be an agent?” And embarrassing stuff is one of the ways to recruit intelligence assets. So yeah, you’re going to get all kinds of things like that. Now I know the cliché is that younger people don’t care as much about privacy as old fogies and such, but, you know, as soon as they have kids— [laughs]

MARC STEINER No. I think there are a lot of young people who are worried about this, but yeah.

BILL BLACK Yeah. I think that’ll change right quick.

MARC STEINER So while we have this time together, I mean, you were a regulator and I’m wondering why it’s so difficult to regulate currency like Libra, than to regulate the dollar or the euro? Talk a bit about the difficulties are here and what has to happen to change that— if in fact, that can be changed?

BILL BLACK Well, I mean, the easy answer is it shouldn’t exist, so the regulation should—

MARC STEINER Libra should not exist?

BILL BLACK Should consist of the word, no. Or, if you feel emphatic, no, hell no, type of thing, right? Again, this is what [Fed Chairman Paul] Volcker has been trying to emphasize. He said, just once, I’d like some proof that a financial innovation actually made the world better. And he says, in the last 50 years, the only one that he can think of that made the world better was the creation of the ATM, which again, I don’t think millennials use ATMs very much.

MARC STEINER So and, kind of, finally there’s another question about identity and this battle over that quote we had in the very beginning and the battle over who controls our identity and what identity is. There’s the whole notion of sovereign identity that’s been battling against this idea that’s another theoretical framework, so talk a bit about that. I mean, to me, also one of the major things is who controls this identity in the digital age and how we define that?

BILL BLACK So if you want to really have anonymity, if you want to disappear, go off the grid, you have to go off of the entire web. You go onto the web and already, they can find you. Most people who aren’t incredibly sophisticated and disciplined in avoiding any bread crumbs, so that’s going to exist. Also, again back to blackmail, they’re going to have the real identity and the real location of all kinds of folks. So, you know, just very recently it’s broken that the border control agents have had this off-book network—

MARC STEINER Oh. It’s been horrible. We’re going to cover that. Yes. Right.

BILL BLACK of 9,000 folks who, you know, engage in some of the worst stuff. Okay so all that can see the benefit of having that made public, but—That’s the point. You know, whatever you do that’s embarrassing, Facebook can sell or threaten to sell your identity. Or if Facebook doesn’t want to be in that business, and it probably won’t, it’ll just sell it to other people who were in that business and say, us? Not us. [laughs] We had nothing to do with it, you know, type of thing and this can be used for good purposes, so we can’t possibly regulate it. And that will be true at that point, you know, the genie will be out of the box in that session. So yes, those are concerns. As well, you won’t be able to do much of anything where you have a private view, or if a number of like-minded folks want to trade their private views. And again, that’s not unambiguously good stuff as we’ve seen with the border agents, but you can also see why people would value that, right?

MARC STEINER Well, Bill Black, this has really been illuminating and there’s a whole lot more to this. I really do want to explore just how you control things in the 21st century in the digital age, which gives a new definition to monopoly that we never had before as well, given what’s going on. And that’s something for us to explore.

BILL BLACK Nancy Reagan, just say no.

MARC STEINER [laughs] Yes. Nancy, thank you. And, Bill, thank you. It’s always good to talk to you, Bill Black. Thank you so much for being with us.

BILL BLACK Take care.

MARC STEINER And we will cover this more because I think it’s really critically important for us to look at where this digital world is taking us, and how we control it. We’ve been talking to Bill Black and I’m Marc Steiner here for The Real News Network. Thank you for joining us. Take care.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

15 comments

  1. shinola

    “Facebook could use this technology to standardize identity and create a world of ultimate surveillance, and then profit from it.”

    Take the ‘could’ out of that sentence & replace it with ‘will’. After all, that’s whole point of this Libra thing, isn’t it?

    One should always keep in mind Zuck’s opinion of FB users (dumb f*cks).

    Reply
    1. Dan

      They now have their own appeals court for people who are banned. Money, courts, huge political power, pays no taxes, well on their way to becoming a state, except that
      Facebook is for low class people and that word is spreading–“A nation apart.”

      Reply
      1. shinola

        Dan,

        I can’t dispute most of what you posted but I must take exception with the “…low class people…” bit. Perhaps naive, overly trusting or gullible would be more appropriately descriptive. I know quite a few FB users that I would never consider as low class – they just accept FB’s public propaganda at face value.

        How many grandparents out there feel compelled to use FB to keep tabs on their grand-kids and/or great grand-kids? Several that I know personally – such as my own mother;)

        Reply
  2. Susan the other`

    Black gets to the point with the fact that Libra is not a currency. It is a form of credit but a confusing one. And it is designed by a group of credit-privateers who claim to stabilize the “value” of Libra with a basket of national currencies and bonds. But, catch 22, Libra is not regulated by any sovereign authority. Therefore there’s a huge disconnect. If it cannot be regulated it cannot be stable. That makes it a form of “credit” that has a free-floating value and there is a window for manipulation a mile wide. A basis point here, a basis point there can add up to real money when the credit is being delivered to the “unbanked” of the world. It is an enormous market; so large it could be the bedrock of stability for a much larger population. And one question arises: what happens to that huge market when it is co-opted from serving local communities of people to achieve daily needs (say food). Does this destroy their survival? Does it weaken civilization as a result? Just one of many questions.

    Reply
    1. Susan the other`

      And also too this question: Could Libra be a tool to monopolize an automated carry trade. Now that would be very lucrative. Even Larry would like that.

      Reply
    1. Briny

      You become an unperson with unmoney. I’ve become an unperson twice now as I lack a cellphone and refuse to fax an ID. I don’t have one they’d accept (despite it meeting RealID standard)!

      Reply
  3. milesc

    Lots of healthy and entirely warranted scepticism and even suspicion. I do wonder if Facebook can achieve “good enough” decentralisation for the association from the outset (i.e. a sufficiently diverse set of members, with a binding constitution, such that 2/3 votes is an extremely high barrier for any remotely controversial changes). I guess time will tell.

    I’m not sure about BB’s blockchain attack vector:

    “bitcoin, for example, would break down instantly if it were subject to an effective attack”

    A lot of people would be very interested to learn more about that.

    Reply
  4. JimTan

    I think Facebook’s primary push to create a digital currency is so they can get unregulated access to consumer financial data.

    Currently Facebook captures your biographical data, demographic data, browsing histories, and real-time GPS locations with the hope this will help them to estimate which people are the most likely to buy different types of consumer products. I think the jury’s still out on how effectively this allows advertisers to reach their intended audiences, and to meaningfully enhance existing product sales. If they had a comprehensive ledger of everyones financial transactions, however, then that would tell them precisely which people buy every type of product. A comprehensive record of everyones financial transactions is probably the holy grail for social media and consumer data companies. What’s hindering their collection of this data is interestingly a resistance from banks to share any customer data, and more importantly existing laws to ensure the privacy of consumer financial records.

    Facebook’s way around these obstacles might be the completely unregulated world of cryptocurrencies. While there are many ambiguities regarding the value of a cryptocurrency, and what its practical functions are, the one thing that is clear about every cryptocurrency is they are always stored collections of financial transactions. Since these transactions are all in units of Facebook’s cryptocurrency, which for convenience they peg to the value of other currencies, this means you have to use their platform or their ‘bank account’ to make every financial transaction. So ultimately what this works out to is a payment system platform, which is completely exempt from financial privacy laws, and only Facebook can process your transactions because everything is in their ‘units’ of ‘crypto’ currency.

    If this is their plan then my concern is these transaction databases, and the transaction data they supply to partners, might create a uniquely tempting target for identity theft hackers. There’s also the creepy factor of someone deliberately trolling through all your daily financial transactions for who knows what purpose.

    Reply
    1. Yves Smith

      I think FB just wanted to bump the stock for a while. This has been done it way too unserious a manner to look like a real initiative. Those commitments from the 27 other companies are a handwave. They’ll stump up a trivial amount of $ each ($10 million) only if the project gets off the launch pad.

      Reply
  5. Norb

    re: “D*uche Mark”

    Lyman alpha blob commented on June 29th post, “Are Cryptocurrencies the First Crack in the Wall to Regulate Facebook?

    Very memorable indeed! Don’t know if that was the first usage, but appropriate all the same.

    Reply
  6. Briny

    I’m quite sure Jeff Bezos is keeping a close eye on this, especially the mistakes and regulator objections.

    Reply

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