It is gratifying just how quickly Facebook’s latest unicorn foal, an enhanced surveillance and data collection tool disguised as a remittance service / cryptocurrency, has gone lame. It’s testament to Facebook’s hubris that Libra was launched under its own name rather than being fronted by another company or white-labelled. From Washington to just about every European capital (plus a fair few in Asia and Australia, too), not only has the reaction been critical from the usual anti-Libertarian hold-outs, but politicians, regulators and central banks have poured deserved scorn on Libra.
As for political reaction, even Congress — in the form of the House Financial Services Committee’s hearing on Facebook’s “New” and “Improved” currency and money transmission lash-up — got in front of the mob and made out they were leading the protest march.
Alexandria Ocasio-Cortez sparkled and triumphed in the theatricals (for readers who’ve not seen the skirmish — Alexandria was nice and sceptically snarky with her “they call it scrip” (!) punchline — it’s worth watching just for entertainment value) although in concentrating on the governance of Libra (being private rather than public) Ocasio-Cortez allowed David Marcus, the co-creator of Libra who heads the social media and networking service’s Cryptocurrency Group, to channel CEO Zuckerberg with a “they can trust us!” riposte which isn’t a winning argument but moving the grounds to a matter of trust means it’s a subjective judgement rather than an objective measure.
Sorry Lambert, you’ll hate me, but Ocasio-Cortez needs to learn that you can’t play as though you’re in a K12 football championship when dealing with Joe Namath-like professional credentialed explainers in the form of David Marcus. But Ocasio-Cortez turned into politics’ most unlikely tag-team with her follow-on interrogator, stay tuned for more of that after we break for some wonkery.
One of the reasons why Facebook’s Marcus was able to wriggle out of so many attempts by congressmen to land a punch is that most users of financial services — even those in congress — are completely oblivious to the complexity of the underlying product. They write a check, get cash from an ATM, get married or divorced and need to tell their bank to redesignate their accounts, lose a card, move away and want to close their account — on and on and on, there’s dozens of use cases which no one ever thinks about. But these have to be catered for and delivered.
On the institution side, internationally enforced banking regulations require account quality checking (did what the customer told the institution when they opened their facility match how they then went on to use the facility, for example? someone claiming to be a high net worth individual but has only nickel and dime credits to the account — or a stated occupation of, say, high school teacher but they’re getting monthly credits of $25,000+ …), suspicious activity reporting (lots of high value or low value transactions, erratic incoming and outgoing funds…) and anti money laundering monitoring. Then there’s sanctioned countries, politically exposed persons (“PEPs”) — the latter being a huge catch-all category.
The US (of all people!) is giving serious, serious aggravation internationally — especially to its pet countries, sorry, “close allies” like the U.K. — to crack down big time on PEPs and rough up individuals, financially-speaking, who have earned Uncle Sam’s displeasure. This may be one explanation for the sudden interest by congress in Libra.
Then you’ve got non-standard situations which might not be commonplace but do still happen. Bereavement and beneficiaries (or legal representatives of an estate) who need access to funds. Blocks and liens (such as might be demanded by law enforcement or the IRS) which must be applied. Fraud and disputes. Customers who get into difficulties such as being unable to sign their name or produce a consistent signature (or no longer able to use a smart device). Vulnerable customers such as those with mental health issues whose families might want power of attorney to be applied. Court production orders (where a court issues instructions for the institution to provide information about a customer or their account activity). The list is seemingly endless.
No-one, certainly not Libra fanbois, stop to ever consider any of this. It is not optional. You can’t hide behind jurisdictional flags of convenience. So how are all the supporting systems going to be built out and how are they to be paid for? Who is going to do the servicing and to what standards? With what redress if things go wrong? You and I as ordinary Joe-Schmo customers can be railroaded, as even Yves found to her chagrin recently. But law enforcement, the courts, the security/surveillance services, international regulatory bodies and the like aren’t going to accept just any old crap from Libra when they come a’ calling, as they inevitably will have cause to. Even if Libra hopes to off-load this stuff to partners, this rarely works in practice. Financial institutions who have attempted to outsource their servicing problems away end up with a patchwork of multiple suppliers they still need to manage. And the buck, or zuckerbuck, stops with the institution, not the supplier or partner.
It’s a forlorn hope, but I’m holding onto it anyway, that when Facebook is subject to critical questioning by lawmakers, regulators or even just you and I, the interlocuters try to grasp a few of the above technical points and present the inevitable difficulties they create for Libra right back at them.
As promised earlier, returning to the congressional hearing, while Ocasio-Cortez might have chosen a more targeted line of enquiry to Facebook’s Marcus, Alexandria sufficiently ruffled Marcus’ feathers with her ribaldry and (fully justified) sneering. Her mic-drop at the end of her questioning about his supposed willingness to accept his salary in the form of Libra rattled him sufficiently that the next in line to question Marcus had the advantage that he’d had his demeanour unsettled.
And it was probably a better line of enquiry in terms of skewering Facebook which came from the following committee member, in the perhaps unlikely form of Rep. Kustoff (R, Tennessee) who asked directly why Facebook sought to base Libra in the Swiss legal jurisdiction and pointedly queried whether this was really in US citizens’ best interests. This forced Facebook’s David Marcus, in his testifying, to say with a straight face, or at least try to (he failed) “Switzerland has nothing to do with evading our responsibilities and oversight”.
Which, of course, is precisely why Facebook are doing it. Marcus ended up with an almost Freudian Slip — blurting out exactly what he didn’t want to say and what he knows to be the truth but can’t admit to.
We know, with the US dollar, precisely who is responsible for managing it, as a currency. We also know, if we bank with a US-domiciled financial services provider who regulates them (however woeful that regulation might be). None of the agencies are perfect, far from it. But at least there is — as the House Financial Services Committee’s hearing demonstrated — some vague semblance of democratic accountability. And there’s always the vague notion that lawmakers will give regulatory bodies some real teeth, someday. At least it’s theoretically possible.
You have to ask, with Libra’s private-sector governance and offshore jurisdiction-shopping, why would they go to such lengths to avoid even these tame beatings with wet noodles? Who is going to benefit, in what way?