The Auron MacIntyre Show - Bailouts, FedNow, and CBDC ｜ Guest： Black Horse ｜ 4⧸12⧸23

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00:00:15.220 Hey everybody, how's it going?

00:00:17.160 Thanks for joining me this afternoon.

00:00:19.100 I've got a great stream with a great guest that you're really going to enjoy.

00:00:23.980 So a lot of people here in the last few weeks, of course,

00:00:26.520 saw what happened with the bailout of Silicon Valley Bank.

00:00:30.760 A lot of people connected this to different things with crypto,

00:00:36.620 the advance of programs like FedNow with central banking.

00:00:40.660 A lot of people concerned about what this means for the financial system

00:00:44.400 and where our government could be taking the future of currency.

00:00:48.280 So I wanted to dig deeper into that with somebody who understands it.

00:00:51.700 My guest today is The Black Horse.

00:00:54.140 He joins other guest, Stephen Carson, Radical Liberation,

00:00:58.380 on his YouTube channel very frequently to talk about economic topics.

00:01:02.560 He's somebody who's very familiar with the industry.

00:01:05.140 And so I'm happy to have him on to delve into this subject.

00:01:08.260 Black Horse, thanks for joining me, man.

00:01:09.840 Thank you so much for having me.

00:01:10.960 It's a pleasure to be here.

00:01:12.760 Absolutely.

00:01:13.260 So we're going to get deep into, like I said, all the technical aspects.

00:01:16.780 We're also going to talk about what this means for different inter-elite factions

00:01:20.840 in kind of our government and kind of our financial world.

00:01:24.720 What are kind of the behind-the-scenes interests that are attached to a lot of these events.

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00:02:59.260 All right, guys.

00:03:00.120 Let's go ahead and just dive right into the subject.

00:03:03.560 So the first thing I think a lot of people might not be aware of, we have a lot of bank

00:03:10.120 bailouts, obviously, during kind of the Occupy Wall Street moment, the crash of 2008.

00:03:18.020 Bailing out banks are a really big deal.

00:03:19.980 There's a big protest movement.

00:03:21.840 The left at that point had to pretend like they cared about that kind of thing.

00:03:24.960 Now it feels like we get this major bank bailout and there isn't a lot of pushback.

00:03:31.000 There isn't a lot of consideration.

00:03:33.460 Obviously, the left, who's now cozied up to large finance at this point very comfortably,

00:03:38.740 has no real questions for what's going on.

00:03:42.280 How common are bank bailouts?

00:03:44.520 Is this something that only kind of enters the public consciousness when the media gets

00:03:48.500 enough attention to it and it's actually happening all the time?

00:03:50.640 Or was this pretty significant?

00:03:51.720 This was quite significant.

00:03:54.340 So what you're looking at here is the second and third largest bank failures in U.S. history.

00:04:00.880 So not as large as the 08 event.

00:04:03.780 And a lot of the banks that were bailed out in 08 didn't reach failure status.

00:04:09.260 So you might have had a few more large bank bailouts on that list, bank failures on that list,

00:04:15.380 if 08 had been allowed to play out a little farther.

00:04:18.520 But certainly this is a highly unusual event.

00:04:21.720 So I think most people have heard of SVB being the first bank bailed out.

00:04:27.740 But how many banks were bailed out total and what were their names?

00:04:31.340 Well, so calling it a bailout exactly is kind of a...

00:04:38.340 So SVB and Signature Bank were the two banks whose depositors were bailed out directly.

00:04:50.100 But there's a much longer list of banks that were under stress as a consequence of the broader

00:04:57.240 dynamics in the system.

00:04:58.340 And Credit Suisse, a major European bank, was kind of bailed out in an arranged merger with

00:05:08.600 UBS in the weeks following for reasons that are somewhat connected to the dynamics that

00:05:14.540 sank SVB but have an independent dimension to them.

00:05:18.500 So in order to kind of understand how that works, I think it's worth looking at the business profile

00:05:25.620 of these institutions and looking at the factors that created the stress that caused the bank

00:05:30.700 failures.

00:05:31.780 And then we can talk about how the bailout was affected.

00:05:34.780 And then it's true that the depositors of SVB and Signature were kind of directly bailed out.

00:05:41.860 But in point of fact, there were a lot of other banks that might have failed from the same factors

00:05:48.580 had the Fed not done what they did.

00:05:51.040 So from a certain point of view, you're looking at a preemptive bailout rather than for the

00:05:58.020 depositors of SVB and the depositors of Signature Bank, a post hoc bailout.

00:06:02.380 Yeah, when the government shows that it's willing to step in and when action is taken, it kind

00:06:12.300 of relieves the pressure of other banks, right?

00:06:16.000 The idea that the run of the bank or that something might topple over kind of gets relieved by the

00:06:21.880 fact that action was taken.

00:06:23.100 Well, so the dynamics here are interesting.

00:06:28.020 So deposit institutions, when they take your money, obviously don't just take that money

00:06:34.060 and put it in the Federal Reserve and sit on it as cash.

00:06:37.200 They've got a liquidity formula prescribed by the regulators as to how they can allocate

00:06:41.740 those funds.

00:06:42.660 And that liquidity formula highly encourages them to buy government, U.S. government bonds, bonds

00:06:49.400 of the local government and other jurisdictions.

00:06:51.180 When the Federal Reserve raised interest rates, they created very large unrealized losses on

00:07:00.760 those bonds held against deposits, which created the conditions that made classical bank runs

00:07:07.220 possible.

00:07:08.700 So in a typical circumstance where there are not large unrealized losses on instruments related

00:07:17.060 to deposits, it's very hard to create a bank run.

00:07:20.040 You have to have a very, very large percentage of deposits run off in order to make the institution

00:07:26.520 insolvent.

00:07:27.740 Because of these large unrealized losses, many banks across the system were vulnerable to

00:07:34.020 bank runs.

00:07:35.120 It happened that SVB and Signature were early targets of this, and that has to do with the

00:07:41.040 dynamics of their customer base.

00:07:42.600 But many of the regional banks were vulnerable in this regard.

00:07:49.440 What the Federal Reserve did by creating a liquidity facility to buy back government bonds held in the

00:07:55.920 deposit business at par is they eliminated the condition that made classical bank runs relatively

00:08:05.460 easy, at least to the limit of the size of their liquidity facility, whatever that limit actually

00:08:10.480 is.

00:08:12.420 And so they took away the critical condition that made all of this possible.

00:08:17.440 So like you said, the profiles of those banks made them kind of early targets.

00:08:22.960 What about the way that they do business or their client base made them an easier target for

00:08:29.660 this early on?

00:08:31.020 Well, so there's really two key dynamics.

00:08:34.040 First of all, SVB is in the...

00:08:39.820 They're in the...

00:08:40.760 They've got kind of two businesses that dominate what they do, or I suppose did now.

00:08:46.180 They've got the private client business, and they've got the startup financing business.

00:08:56.100 And both of these businesses involve very little capital markets activity and a large...

00:09:02.180 And the taking of very large deposits.

00:09:04.680 So their deposit business was very large compared to their investment banking business or any

00:09:09.900 of the other parts of their business that would ordinarily create requirements for capital

00:09:15.320 outside of the deposit business.

00:09:18.580 So that's kind of one element of it.

00:09:20.980 And then the other element is that a very large proportion of their depositors are all

00:09:25.720 connected together in a tight social network.

00:09:28.500 So once rumors began to circulate that they were vulnerable, FDIC estimates that something like 40%

00:09:41.980 of all deposits were withdrawn from the bank in a three-day period, which is a kind of...

00:09:48.000 You can only have that if the people that are large depositors are tightly networked together

00:09:54.160 and all talking to each other.

00:09:55.820 Whereas if you...

00:09:57.420 You know, if the comparable institution is something like Bank of America, you know, it's got a very

00:10:02.080 large number of depositors that are not tightly socially networked, it would be very difficult

00:10:06.840 to have a run of deposits go that quickly.

00:10:12.620 Signature Bank is similar in that it's got a collection of depositors that are very high net worth, so they can

00:10:21.200 kind of take their cash out relatively easily.

00:10:23.580 They probably have other places to send it to.

00:10:27.480 The other places to send it to is a big deal.

00:10:31.000 Normally, when people have, you know, 97% of deposits at SVB were over the $250,000 FDIC limit.

00:10:41.820 Typically, when you go to the bank and withdraw, you know, $2 million of deposit funds, you're

00:10:47.460 not asking for $100 bills at the front wicket.

00:10:51.700 So it's important that they had a place to send it to.

00:10:54.960 So the fact that these are high net worth individuals that likely have multiple banking

00:11:01.940 relationships, that all are talking to each other, make a bank run, make them extremely

00:11:07.800 vulnerable to a bank run in ways that I don't think the industry had kind of anticipated.

00:11:13.300 So those are some of the reasons why they were some of the first institutions to be targeted

00:11:19.720 for bank runs.

00:11:22.660 And so that's an element.

00:11:25.360 There's also an element of poor risk management at both institutions.

00:11:29.260 And finally, there's this element where both SVB and Signature Bank were serving as depositories

00:11:36.440 for what are called stable coins.

00:11:40.940 So these are cryptocurrencies tied to the US dollar.

00:11:44.260 There are stable coins tied to other underlying assets, but the stable coins that were using

00:11:49.320 these institutions were tied to the US dollar.

00:11:51.060 And these have very large, these involve deposits that are, you know, very, very unusually large

00:11:57.560 cash deposits.

00:11:59.620 In the case of SVB, I think it was on the order of 30 billion in US dollars deposited against,

00:12:07.080 sorry, 5 billion in US dollars deposited against the crypto business.

00:12:12.080 You know, it's very rare to have what was essentially structured as a retail cash account sitting

00:12:20.260 in US dollars with that, at that order of size.

00:12:27.980 I can't think of a comparable example almost anywhere else in the industry.

00:12:33.480 And that, that created kind of a unique profile for their deposit business that isn't kind of

00:12:40.080 well, well approximated in the regulatory framework for how retail deposits should work.

00:12:46.300 Um, from just from a liquidity point of view, the people who wrote the liquidity regulations

00:12:52.800 for retail deposits weren't considering that you might have 5 billion in a retail deposit.

00:12:56.800 Just, it's not, um, it wasn't contemplated by the, the architects of the regulatory framework.

00:13:02.800 So ironically, because this was kind of a high end community bank, like the, the, the, uh,

00:13:11.080 types of deposits weren't spread out over many different industries and many different

00:13:14.680 people that didn't have communication with each other.

00:13:16.780 The, the, the more close knit, uh, nature of the community that was depositing there.

00:13:23.600 And the fact that they're so high end made a bank run more possible than it would have

00:13:28.320 been at something like bank of America.

00:13:29.760 Yeah, no.

00:13:30.820 Typical retail clients have good reasons why they have their deposits there and they can't

00:13:36.620 easily take them out of the bank and they can't coordinate to quickly do so.

00:13:41.220 So they're reached large, widely distributed retail deposit networks are just, they're just

00:13:47.560 much less vulnerable to classical bank runs than either of these two institutions.

00:13:53.180 So there's a reason that the pressure that made bank runs possible first showed up at these

00:13:58.100 two, these two institutions.

00:14:00.820 Yeah, that makes sense.

00:14:02.220 And I want to get, uh, deeper into the crypto aspect here in a moment because I want people

00:14:07.820 to kind of understand, uh, the differences in the different cryptos and why this one matters

00:14:12.920 and how this is connected to, to possible other, uh, uh, uh, currency issues.

00:14:17.620 But before we do that, I just want to walk through a little, in a little more detail, the way that

00:14:24.220 these were quote unquote bailed out because you, you touched on it some, but I think for

00:14:29.340 many people, uh, the details of this might be a little more opaque.

00:14:33.660 Uh, so obviously we have an FDIC that's $250,000, right? That's, that's normally what you're insured

00:14:42.060 for a deposit. Um, obviously, like you said, the vast, vast, vast majority of these deposits are well

00:14:49.260 over. Um, I understand, you know, you know what you were saying with the bonds there and the fact that

00:14:55.260 inflation had kind of created this situation, but how, how did this, was this bailout affected?

00:15:01.420 Cause you said the kind of bailout may not be the right way to use it. So, uh, how, how would this

00:15:06.580 be properly described?

00:15:07.940 Yeah. So let's contrast this to the kind of bailouts you saw in 08. So in 2008, there were

00:15:17.520 many bailouts that involved essentially, uh, the U S government issuing loans, uh,

00:15:25.260 directly to a financial institution or agreeing to, uh, well, there, there were two bailout structures,

00:15:32.320 but the, the one that people typically think of as bailouts, direct loans, direct asset,

00:15:36.720 or direct purchases of equities in, in banking of equity in banking institutions in order to give

00:15:42.940 them enough capital to un, unwind their business or, or in the case of 08, to continue their business

00:15:48.640 operations. So that's not what happened here. Uh, the U S government, none of,

00:15:55.260 its agencies directly gave money to any of the, these banking institutions. Uh, what went on with

00:16:01.680 Credit Suisse is kind of a little bit different, but, uh, you know, it's a different pattern out

00:16:05.920 there. Instead, what they did is they said, well, the regulatory, the framework around deposits

00:16:14.500 compelled you to buy these U S government bonds. They depreciated in value. Now you have to sell them

00:16:21.620 in order to fill your depositors requests. And if you do so, you're going to create losses that make

00:16:28.840 the institution non-viable. What we're going to do in order to avoid actually exercising the FDIC,

00:16:35.040 the FDIC provision, and in order to save all of your other depositors, we're going to create a facility

00:16:40.800 at the federal reserve where we agree to buy back these government bonds far above their market value.

00:16:48.340 So instead of, uh, giving you cash directly, we're going to create a liquidity facility

00:16:54.380 that's available to some, but not all institutions where they can sell government bonds within certain

00:17:02.600 restrictions at far above market value. We're going to take the government bonds that the,

00:17:08.260 that these two institutions that we've seized control of have against these deposits. We're

00:17:12.820 going to pass them through this facility. The FED is going to pay, is going to overpay for these bonds.

00:17:17.700 And then the money is going to go out to the depositors. So if you were an equity holder,

00:17:22.080 or if you were a bond holder for either signature bank or, uh, SVB, you didn't get any of your money

00:17:29.540 back. You didn't participate in the district, in the distribution of funds from the federal government.

00:17:34.840 If you were an uninsured depositor from SVB or from signature, you participated directly in the

00:17:43.460 bailout. And if you were a regional bank that had not yet gone under, you benefited enormously by the,

00:17:52.460 um, either by directly participating in the liquidity facility or by the impression that it gave your

00:18:00.360 depositors that in the event of a bank failure, they would have access to the liquidity facility

00:18:06.420 in order to get their deposits back. So it radically stayed the, the early bank runs that were on the go

00:18:17.100 at many of the other regional banking institutions. So effectively what they did, if I'm understanding

00:18:22.540 this correctly is removed most of the risk for the bond. Yeah. So they, they, they agreed to buy back

00:18:31.100 as many of these government bonds that they compelled these deposit institutions to buy

00:18:36.560 at far above market value in order to, to eliminate their risk that they would, they would lose money when

00:18:43.780 the, in the deposit business. So it's important to realize that this liquidity facility is restricted

00:18:50.380 to bonds related to the deposit business. It's not universal. Um, but it's, but that's what they did.

00:18:58.320 Interesting. So you're able to kind of shore this up and then other depositors that other banks that

00:19:04.040 might consider making the same moves, see that this option will be available. And then they're less

00:19:10.380 likely to go rush and try to remove their money, which kind of, uh, even, even though no runs on

00:19:16.780 those banks have begun kind of preemptively shores up any, any, uh, possibility that people will probably

00:19:22.640 go take that action. Yeah. The intent was to restore confidence in the regional banking system.

00:19:28.020 And to that end, the fact that every, that all the depositors at SVB and signature were able to get

00:19:34.840 their cash, um, you know, certainly did, certainly did good things for confidence in, in retail

00:19:42.220 deposits. Now, what do you think is the motivation behind these particular banks? Is it just that there

00:19:50.240 would have been this cascade of bank runs on other possible banks? Is there a particular function that

00:19:57.200 these banks serve that political actors or power actors would have wanted to see preserved in this

00:20:03.120 situation? Is there any scenario where they could have let these banks go? Had they not been

00:20:08.400 politically important to them? What do you think was kind of the motivating factor here?

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00:20:42.540 Yeah. So, um, there's a bunch of questions underneath there. Uh, first the, let's talk about what was

00:20:53.880 bailed out and what wasn't bailed out. So SVB and Signature Bank had an important client base of high

00:21:01.240 net worth individuals who have, you know, a lot of power and were able to make sure that, uh, their

00:21:08.080 deposits were bailed out. So that, that's important to note on the way through here, the management

00:21:14.440 and investors in Signature and SVB were not bailed out. They've all lost their jobs. They've all,

00:21:22.160 you know, lost whatever equity value that they had. Um, and it's important to note that Signature

00:21:29.960 Bank and especially SVB were banks, but they were not part of the sort of, um, they were not part of

00:21:39.820 the East coast power network that kind of dominates U S banking. So the best way to kind of think about

00:21:47.120 banking, uh, from, uh, you know, organizational dynamics point of view is as, as a series of

00:21:54.720 overlapping networks. Um, there's a very tightly knit network, uh, among the sort of top tier U S banks

00:22:03.720 centered in New York. They all hire each other. You know, if you look at who becomes fed governor

00:22:09.800 who runs all the regulatory agencies, you can trace them all to a fairly small set of institutions.

00:22:16.720 They go in and they go from, from industry to regulator back to industry, from industry to fed

00:22:23.360 back to industry, from industry to treasury back to industry. This happens all the time. If you look at

00:22:29.700 the careers of any of these people, you can kind of, you could network diagram them if the information

00:22:36.880 was public. Silicon Valley bank was not connected to that East coast network. They were connected to

00:22:44.120 the West coast network of sort of venture capitalists. So they, so it's, it's interesting

00:22:52.500 that the people who were not connected to the network, which controls the, the regulatory infrastructure

00:22:59.800 infrastructure and the federal reserve infrastructure, you know, magically find themselves all out

00:23:04.100 of a job. So that that's kind of piece one. And then piece two is like, why did they do this?

00:23:10.700 Well, if they didn't do this, uh, you would have seen, I mean, there were already several other

00:23:17.300 regional banks that were in distress. Uh, the FDIC estimated that there's something like, uh, 400

00:23:28.300 billion in unrealized losses in government bonds associated with the deposit business, which meant

00:23:34.400 that there's a very large number of institutions that were vulnerable because of the speed at which

00:23:38.800 interest rates were rising. So, uh, if they didn't do this, uh, or something like it, they probably would

00:23:47.800 have had a systemic crisis on their hands. What's interesting is that they did it right after SVB and

00:23:54.380 signature went on, went down, not well, when it was obvious that signature that SVB was going to go down.

00:24:01.320 And so saving signature, uh, or saving SVB. So they chose to do it after these two institutions

00:24:07.700 were failed, not before. So if they'd introduced the liquidity facility two days earlier, you know,

00:24:12.780 all these people at SVB would still have jobs. Um, turns out not, uh, and if they'd done it,

00:24:19.640 you know, three days later, then there would have been several other banking institutions that would

00:24:23.780 have been down and all the, those other people would, you know, have been severed from the network.

00:24:28.860 So the politics of it are really in the timing who was saved, who was not saved. Um, and it should

00:24:37.120 be, in my opinion, it should be viewed as inter elite combat. Um, so if you look at the thread that

00:24:45.040 I wrote for you, uh, the results of this are the depositors were bailed out. Other banks were

00:24:51.560 protected. Silicon Valley banks kind of high net worth clients are all headed to the wall street banks

00:24:57.740 because they have nowhere else to go. Uh, and that's kind of element one to this element two to

00:25:05.840 this is the involvement of the two institutions that failed with cryptocurrency. And maybe we want

00:25:10.580 to get into that next. Yeah, absolutely. We'll, we'll definitely dive into that, but just to clarify

00:25:15.540 for people who are following that line, uh, obviously there's a, there's a certain level of

00:25:20.660 speculation that has to happen here because no one's going to openly declare any of this,

00:25:24.680 but it's your contention that the way that this was bailed out and the way this was handled was

00:25:29.860 intentionally to remove alternative or competing banking structures to force a lot of these high

00:25:37.800 value clients over to the, uh, the banking network that is more in control of regulation and bailouts.

00:25:45.540 Yeah. It's, it's just a crime of opportunity. You saw a similar thing in 08 when, uh, earlier on in

00:25:52.280 the summer of 08, when Bear Stearns went under, there was no bailout money for Bear Stearns, but a

00:25:58.280 couple of months later when it looked like Citigroup or Bank of America was going to go down, Merrill Lynch

00:26:04.700 was going to go down. There was all kinds of bailout money available for those institutions.

00:26:08.420 So the question of who gets bailed out when, and for what is an inherently political one and should

00:26:14.520 be thought of that way. It's obviously significant that the institutions that didn't get bailed out

00:26:21.740 are not part of the same social network as the institutions that will now, you know, compete to

00:26:29.300 inherit their clients. Yeah. I think it's really important for people to remember that as much as

00:26:34.240 we talk about the ruling class and the elite and the things that might unify them, there are constantly

00:26:40.660 warring factions going on, even in sectors like finance that might feel more united than say, you know,

00:26:48.640 established liberals versus woke, you know, activists. And so the, that inter-elite combat is always occurring

00:26:55.140 in the background and we got to keep it in mind when we're looking at world events. It's not just one big

00:27:01.880 monolithic kind of oligarchy. Yeah. That's not how oligarchy works, but anyway, it's not one big

00:27:08.100 monolithic action handed down from on high. There are still winners and losers being manufactured even

00:27:14.940 inside our elites. Yeah. Well, and just because these people have more in common with each other than

00:27:20.060 they have in you with you doesn't mean they don't also fight and doesn't mean they all don't have

00:27:25.460 their, you know, their access to grind and their, their desires to eliminate competing networks. That's just

00:27:31.880 how people work. Absolutely. Well, let's go ahead and get into the crypto. Then you've already

00:27:37.620 pointed out or kind of hinted that this is going to be a significant part of this before we get into

00:27:43.940 the technicals of who had interest in what type of crypto and kind of where that leads us might be

00:27:49.020 useful to just explain kind of the basics. A lot of people just hear crypto and they think that's one

00:27:53.920 thing, but obviously that's a blanket term for things that are very different. Bitcoin versus

00:27:59.580 something like a stable coin, you know, what, why does the stable coin exist? How is it different

00:28:04.940 from Bitcoin? If it's pegged to a dollar, why would people hold it instead of a dollar? Maybe kind of

00:28:09.260 explain a little bit of that. Yeah. So there's a bunch of issues at play here. Cryptocurrencies,

00:28:18.320 they broadly speaking, they sit in two categories from a financial point of view. There's cryptocurrencies

00:28:24.440 that are not pegged to anything. So Bitcoin, Ethereum, these are examples of cryptocurrencies

00:28:29.640 that are, they have an internal logic. They don't have an external reference point. And then there are

00:28:35.840 cryptocurrencies that are pegged to some, that are, that are electronic tokens that entitle you to

00:28:41.180 something real. So stable coins are an example of this kind of cryptocurrency. They're pegged to,

00:28:49.320 in most cases, you know, government currencies of one kind or another. The largest stable coins have

00:28:56.400 been pegged to the, to US dollars. There's kind of a troubled history of, of stable coins. Several of

00:29:03.080 them have failed spectacularly and clients of stable coins have lost money. So you should really know

00:29:08.460 what you're, you're buying before you get kind of into it. But the reason for, for stable coins,

00:29:15.000 hypothetically, is that they allow the transmission of the underlying asset, in most cases, US dollars,

00:29:24.280 across international borders, very quickly, without the costs associated with traditional mechanisms for

00:29:31.300 sending money. So if you've ever, you know, tried to send money to a relative in like Vietnam or

00:29:37.100 something, you'll know that it takes time. And usually there are significant fees associated with it.

00:29:43.520 Whereas if you try to send, whereas if you owned a stable coin and sent it to your buddy in Vietnam,

00:29:49.940 he would be able to receive it much more quickly. And because there'd be no intermediating,

00:29:55.760 intermediating institution, there would be, you know, depending on how you did it, there might be

00:30:03.620 small fees, but it'd be very inexpensive to do. So that's the reason why people use stable coins

00:30:08.800 in place of, in place, well, that's one of the reasons why people use stable coins in place of

00:30:15.860 actual US dollars. The other issue is the tax implications of buying and selling crypto,

00:30:21.040 which are complicated and different in different jurisdictions.

00:30:26.220 So what does this interaction then with the banks, with what happened here,

00:30:32.720 how does that impact crypto going forward? Well, there, there were two major institutions in,

00:30:39.180 in the US that tied crypt that would exchange cryptocurrency for US dollars and Signature Bank

00:30:46.920 and SVB were those two institutions. Uh, if you were a crypto exchange, if you were, um,

00:30:54.820 if you were a crypto business, it's also overwhelmingly likely that your financing came through one of these

00:31:02.460 two institutions. Um, so by eliminating these two institutions, uh, the, the, the ability to get

00:31:13.420 financing to do business in crypto and the ability to take crypto and convert it into US dollars

00:31:19.380 directly through a financial institution, uh, has been severely damaged.

00:31:28.120 So one of the claims that you made in the thread that you wrote was that, uh, this paves the way

00:31:34.860 for central bank digital currency. Uh, maybe you could explain what that is first for people who

00:31:41.320 might not be aware why it's significant and why you think this could prepare a path for that.

00:31:46.520 Yeah. Uh, so we're going to be careful in the claims we make here, but it's worth noting that

00:31:52.100 within 48 hours of the failure of SVB, the federal reserve announced that it's fed now payment system

00:31:59.700 was ready to launch in July. So immediately after competing networks to, uh, pass us dollars

00:32:09.320 in crypto were destroyed. The federal reserve announced that it, the federal reserve,

00:32:16.020 the entity that selectively bailed out institutions and ensured that these institutions would fail

00:32:21.280 announced that it would have its, its competing crypto currency available shortly. So I, I'm not,

00:32:29.260 I'm not claiming inside knowledge. I'm simply observing the course of events, uh, in the,

00:32:35.920 in this regard. So let's talk a little bit about what fed now is, what it would compete with in the

00:32:41.420 crypto world. Um, and why fed now is structured the way it is. So fed now is an equivalent in some ways

00:32:52.100 to a stable coin in that it's a token that can be exchanged, uh, using the kind of protocols that are

00:32:59.660 used to exchange crypto, but it's tied to, um, it's tied to, to the U S dollar. So if you hold a fed now

00:33:09.080 token, your, you've got a guarantee from the federal reserve that you can exchange it for U S dollars.

00:33:14.920 So it's not a true central bank digital currency in the way that, you know, some people have

00:33:21.260 discussed the concept. It's a token that is designed to be accessible to financial institutions

00:33:30.160 that already have accounts at the federal reserve. So it's, it's like a stable coin. It's not targeted

00:33:36.900 at regular people. It is targeted at the financial system. And it, if you read through their marketing,

00:33:44.120 their material, but why you should use fed now as a financial institution, it's all focused on ease and

00:33:49.380 speed, ease, speed, and low cost of settlement for transactions between the high profile financial

00:33:56.160 institutions. So it's a way of introducing digital currency into the financial system without disrupting

00:34:03.660 the existing oligarchy that operates, uh, the financial system for kind of the American world. 0.90

00:34:11.100 So I think the question that comes to mind, uh, for some people might be, well, I already know that

00:34:16.640 like a large amount of my dollars are digital at this point. Like they're not physically printed out

00:34:22.620 somewhere and no one is handing them to someone else. So if the bank is already just exchanging ones

00:34:28.620 and zeros on an Excel spreadsheet somewhere, anyway, why would you need to generate a separate system

00:34:36.300 to create a token to stand in for dollars?

00:34:39.300 Yeah. So at present when financial institutions exchange us dollars, for whatever reason,

00:34:46.240 they have a, a settlements process for, for this, that goes back, you know, more than 50 years.

00:34:53.500 It's a very old process. It was designed for it. It was designed for, you know, a different world

00:35:00.940 and it costs, it costs quite a bit of money to settle financial, to settle us dollar trades.

00:35:06.160 I mean, each trade doesn't cost a lot of money, but there's a lot of money spent in the area of,

00:35:11.700 of settlement clearing. Um, and the protocol for sending crypto, uh, you know, is significantly

00:35:22.840 more sophisticated and efficient than the protocols for settlements for interbank settlements that exist

00:35:28.880 today. Not only that it's, it's virtually instant. Whereas the protocols for, for interbank settlements

00:35:34.740 today are tied to the business day. So they're, they don't go around the clock. It can, depending

00:35:41.460 on the asset type, it takes some time to settle. So fed now is the first step of this, but there are

00:35:50.460 a number of centrally cleared assets, uh, that operate through institutions that are not dissimilar

00:35:58.240 to the federal reserve. So these are the things cleared by DTC OCC that if you were able to tokenize

00:36:06.620 the settlement process, you could probably cut down on costs in settlement and clearing across

00:36:11.700 the financial industry. So there's quite a bit of, of sort of cost of efficiency potentially to be

00:36:17.960 gained by tokenizing the system. Uh, in order to, to explain in more detail, you, you really have to

00:36:23.900 do a lecture on, on how financial settlements work. Sure. Yeah. So, so maybe just to, to, to kind of

00:36:29.880 sum that up as much as possible, uh, a lot of this is just avoiding preexisting regulation. This allows

00:36:37.020 you to use a different system where you don't have to comply with all these other settlement costs and

00:36:42.120 operations and procedures. And so it's just their way of kind of sidestepping their own regulation in

00:36:47.620 many of these areas. Yeah. It's just, it's going around process. So when, when, uh, so the existing

00:36:56.220 pro pro process, uh, for sending cash between financial institutions operates through a protocol

00:37:03.400 called swift, that protocol goes back a very long time. People might be familiar with it because,

00:37:09.180 you know, quite famously, the Russians were cut off of the swift network as part of the sanction

00:37:13.600 package. So, uh, this fed now is a selective replacement for swift, uh, among institutions.

00:37:23.520 And, you know, the intent is that this, that fed now will be a more efficient profile, uh, process.

00:37:32.000 Um, and, uh, both from a cost point of view and from a speed of execution point of view.

00:37:37.920 So a lot of people have been warning that fed now is kind of the end of everything. This is the,

00:37:45.520 this is the complete centralization and control of all financial interactions through, uh, you know,

00:37:52.480 the banking system. This, this is, this is how the regime kind of locks down all interactions,

00:37:58.160 all financial, uh, uh, you know, uh, transactions are, are now going to be recorded and controlled

00:38:04.400 completely. Uh, what, what do you think about that? Uh, is, is F is, uh, fed now a C change or is it a

00:38:12.320 step off and a down inevitable path? What do you think? Well, so the first thing that I would say

00:38:17.600 to this person is what do you think the world of finance looks like right now? Yeah. So, uh, every

00:38:23.920 significant financial interaction that occurs between any two Americans is monitored right now,

00:38:31.040 especially if you're, you know, a target for whatever reason. So this idea that at present,

00:38:37.520 we have a free and open financial system with, uh, you know, if you've ever watched like, uh,

00:38:46.320 how the police target drug, drug crime, or, you know, how counter-terrorism works,

00:38:53.040 you'll know that there are an enormous suite of tools in the financial system as it exists right now

00:38:59.280 to target people who have been identified as doing things that are inappropriate with their money,

00:39:05.200 you know, legitimately or otherwise. So that apparatus mostly already exists.

00:39:10.880 It is true that, uh, fed now, um, especially if you look at what the federal reserve is encouraging

00:39:22.080 its clients to do, it's encouraging the clients of fed now to extend fed now down to their clients.

00:39:29.280 So the idea is to pass digital currency out through the, the same network by which the fed currently

00:39:36.960 introduces fiat currency to the system. So the idea here is that, uh, fed now will kind of flow out in

00:39:47.040 the same way. Um, and it's true that if you create greater efficiencies in the process of financial

00:39:55.840 transactions, it becomes easier. It's an increment. It is an incremental step to making those transactions

00:40:02.160 easier to track. It's an incremental step towards making the federal reserve involved in all of

00:40:09.120 these transactions. Whereas many, there are many cash transactions in which the federal reserve is now

00:40:16.080 kind of only very indirect indirectly involved. So there's, there's definitely an incremental step

00:40:21.840 there, but fed now is not a central bank digital currency in the way that people kind of sci-fi

00:40:27.360 imagine it where, uh, because in order to do that, you would sweep away in order to do like a, a central

00:40:34.800 bank digital currency in the way that people imagine it, you would sweep away the existing oligarchy

00:40:38.880 that kind of operates the financial system. That makes sense. Yeah. So I think we've covered most

00:40:45.280 of this, but I want to ask you one more question, uh, that will now get you in trouble with all the

00:40:50.320 crypto people. So I hope you're, you're prepared. Uh, cause someone is always angry in the comments

00:40:55.280 after this, but, uh, but I'm always interested because I'm not a financial guy, uh, that this is not

00:41:00.240 my wheelhouse. Uh, I get wildly different opinions from people who are very knowledgeable on this. And so I'm

00:41:06.640 always interested to pick, to pick people's brains on this issue, but with crypto, um, some people

00:41:14.640 are like, Bitcoin is the salvation. It's what allows people to be freed from the state. It's the, uh,

00:41:20.720 you know, it's the answer that unlocks, you know, kind of, uh, the exit, uh, aspect of political action.

00:41:27.600 Um, and you're no longer beholden to this thing. Other people tell me that's dumb. The state is the 0.97

00:41:34.240 only reason that like money holds value. Uh, and they, they're always going to be able to

00:41:40.960 force you to use whatever medium of the exchange is kind of, uh, uh, required under their system.

00:41:48.080 And so Bitcoin is always meaningless because it has no state force to back it up, uh, and can be

00:41:54.480 stamped out by whatever, uh, government decides that it's not allowing exchange in that medium.

00:42:00.080 Uh, it's not a simple question, but where do you land on this? Do you think that this is a solution

00:42:07.120 that a lot of people think it is, or do you think that those people are not understanding the state

00:42:11.520 aspect of, of currency? Uh, I think this is my views on this are kind of nuanced. Um, so the first

00:42:19.680 thing to remember here is that crypto is fundamentally a technology first and a, and a, a currency second.

00:42:27.760 So, you know, as, as people who've discussed central bank, digital currencies, you know,

00:42:32.320 will make you well aware. You can certainly have a, you can certainly make use of the technology

00:42:38.400 behind cryptocurrency in order to have a new set of currencies that are centralized and backed

00:42:44.800 fundamentally by the power of the state. Um, so that's kind of point number one, it's a technology.

00:42:51.520 Crypto is a technology. It's not a currency. Now there are currencies that are presently independent

00:43:00.400 that use crypto that use the crypto technology. There's Bitcoin, there's Ethereum, and there's a

00:43:06.880 number of other smaller ones. We'll deal with Bitcoin as an example first, and then we can kind of

00:43:14.080 generalize from there. So Bitcoin is attempting to be an independent currency backed by the confidence

00:43:20.800 that exists in Bitcoin. Um, so there's no, you can't exchange Bitcoin for gold or for goods and

00:43:26.880 services unless other people believe that Bitcoin is valuable. It's decentralized. So there's no state

00:43:33.840 actor behind it. And the real question of how to value Bitcoin.

00:43:36.800 value Bitcoin is a question of supply and demand and a question of confidence. So Bitcoin will succeed

00:43:45.840 to the extent that there are people who are, you know, happy to accept Bitcoin.

00:43:52.000 Um, will there be people who are happy to accept Bitcoin? Well, in order to answer that question,

00:44:00.240 it's worth reviewing the history of non non-state fiat currencies. And it turns out there's a very long

00:44:07.120 and broad history of that. Basically up until the 20th century, everybody had

00:44:15.680 non-state bad currencies. So if you look at even the United States in the 19th century, banks were

00:44:22.000 issuing bank notes rather than us dollars. And those bank notes were sometimes exchangeable for gold.

00:44:30.160 Sometimes they, they were just letters of credit. It's kind of, it was a very diverse set of practices

00:44:36.800 in banking at the time. And the U S government culminating in FDR, confiscating everybody's gold

00:44:44.400 was able to put the boot on that, uh, very rapidly, uh, to the point where the FDR regime unilaterally at

00:44:54.160 he abrogated every contract in the United States, because virtually every contract in the United

00:45:00.720 States said that you could make payment either in us dollars or in equivalent gold. Um, so not only did

00:45:08.720 he seize the gold from the banks, not only did he make it illegal to privately hold gold, not only,

00:45:14.800 but he also abrogated all of these provisions and contracts that allowed you to transact in gold.

00:45:21.520 So there's a, you know, a very recent example of, uh, of the U S government making an alternate currency

00:45:31.120 illegal when it suited it to do so. And backing that, uh, backing that up with an enormous show of force.

00:45:39.680 So if you're a Bitcoin advocate and you're totally convinced that no state actor can ban Bitcoin.

00:45:47.920 Well, I don't, uh, I, I think that history shows that, uh, states have been pretty successful at

00:45:55.040 stamping out alternate currencies though, not completely successful. So even in FDRs America,

00:46:00.720 there were still transactions going on in gold. There were still people accepting it. There were still

00:46:05.200 people transacting in foreign currencies, even though that, even though they're not supposed to.

00:46:10.720 Uh, so the amount of force required to enforce a ban is quite high. And it's also worth saying that,

00:46:16.960 you know, the FDR regime held a lot more power than most modern governments do.

00:46:20.960 So would a modern government be able to stamp out Bitcoin? Uh, I don't know. Uh, the other real

00:46:29.040 advantage Bitcoin has, it crosses a lot of international borders. So, and not just the kind

00:46:36.720 of formal international borders that exist between American dominated, uh, countries,

00:46:41.760 but it crosses like real international borders into places like China and Russia.

00:46:46.080 So it would be quite difficult in the present moment to stamp out Bitcoin completely. Um,

00:46:55.040 however, it, I think it's yet to be determined what the impact of an effort to ban Bitcoin

00:47:07.440 by either the, by the U S government would be in terms of like how much value you could destroy.

00:47:15.680 So a bit of a long winded answer to what is, I think a very complicated question. Um,

00:47:24.000 and a question that I don't think, you know, I think if you look at the history of governments

00:47:28.320 trying to stamp out alternate currencies, it's kind of a mixed bag. Sometimes they're able to,

00:47:32.640 sometimes not, you know, North Korea has a thriving black market in the most totalitarian state in the

00:47:38.640 world and they either can't or, or haven't stamped it out. So. Yeah, no, I think that's good though. I

00:47:45.680 think, uh, like I said, no, normally the, the answers to that question are just, uh, people yelling,

00:47:51.440 uh, how dumb it is for anyone to hold the other, the other opinion. Uh, so it's good to have

00:47:56.960 somebody to kind of break down the nuance though. I'm sure you've just made everyone angry, but in

00:48:00.480 the best way possible. Uh, so I think that's, that's good. I mean, at the, the, the bottom of

00:48:06.240 it, it's a question of how much power you think the U S government has to effectuate a ban if they

00:48:12.800 attempt it and you know, uh, there are very mixed opinions about how successful the total state,

00:48:19.840 if I borrow a phase, a phrase, um, you know, is. Nope. Absolutely. All right. Well, we're going to

00:48:27.840 move to the questions of the people here in a second, but before we do, uh, I know like, uh, you're,

00:48:33.520 you're usually a guest on radical liberation's channel, but I know you also have other projects

00:48:38.720 that you're working on. Could you share with people what you're working on and where they can

00:48:42.240 find your work? Yeah, I've got a bunch of things going on. Um, I've got a sub stack that I, I work

00:48:48.880 on with a number of other Canadians called the red ensign, uh, that you can find. I'm, I'm a member of

00:48:54.160 the Veowulf foundation, which is responsible for the skilledings event that I believe you're speaking at

00:48:58.640 shortly. Uh, so if you go and if you go and check out my Twitter, you can find your way through to that.

00:49:04.560 Um, but certainly it, uh, the upcoming conference in Tennessee is well worth your time. Um, and, uh,

00:49:13.520 you can follow my Twitter. You can follow my work either on Brad libs channel or on, uh, or on Lambda

00:49:19.840 Bible studies. Absolutely. Yeah. And I'm looking forward to, uh, seeing a lot of, uh, a lot of

00:49:24.880 people in our sphere at that, you know, in real life over at the skilledings events. So that's going

00:49:29.040 to be exciting. A lot of people are going to be attending there. All right, let's check out some

00:49:34.080 of our questions. Uh, Arthur T for $10 a question. Does the ongoing de-dollarization have an effect

00:49:41.360 on the, uh, increasing bank failures? So, uh, let's talk. So what he's talking about by de-dollarization

00:49:50.480 is he's looking at the trend, uh, of foreign governments, uh, toward using us dollars less

00:49:58.720 frequently as their currency of reserve or as their currency of exchange for commodities.

00:50:03.920 Um, to contextualize that, that trend, uh, I, we did a recent econ minis episode on radlibs channel

00:50:11.280 about this, where you can talk about it for an hour, but broadly speaking, this is a trend that is

00:50:17.920 ongoing, but it's, or in early stages. I don't believe that the bank failures that you see in the

00:50:26.400 United States are substantially connected to it at this point. Uh, the trend towards de-dollarization

00:50:32.480 will damage the U S government if it continues, but we're, we're very early days yet.

00:50:39.760 Makes sense. All right. And then we have, uh, Atraxia here for $2. Thank you very much.

00:50:45.200 Uh, just get chipped and get in the pod and eat the bugs. Yeah. Uh, that is the plan. You will

00:50:51.280 own nothing and you will be happy. Let's see. All right. I think we got everybody there. All right,

00:50:58.480 guys. Well, thanks for coming by. Of course, make sure you check out all of black horses content.

00:51:04.720 And, uh, if this is your first time coming on, uh, on the channel, please make sure that you go ahead

00:51:10.400 and subscribe. If you want to get these broadcasts as podcasts, make sure that you're subscribing to the

00:51:15.520 Oren McIntyre show on your favorite podcast platform. And when you do, if you could leave

00:51:19.840 that rating or review, it really helps other people find the show. Of course you can check out

00:51:25.200 everything on a rumble and odyssey. You can follow me on Twitter and gab. And of course,

00:51:30.560 all of this goes up on blaze TV. In fact, I believe my new column should be out on the blaze

00:51:36.480 here shortly. So make sure that you're checking that as well. Thanks for coming by guys. And as always,

00:51:42.960 I will talk to you next time.

The Auron MacIntyre Show - April 12, 2023

Bailouts, FedNow, and CBDC ｜ Guest： Black Horse ｜ 4⧸12⧸23

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