How the Crypto Craze Corrupted Politics
Plus, what Democrats can learn from the Wisconsin Dems, and how exactly how many people are pissed off by unwanted fundraising emails and texts.
On June 7th, US Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) went on CNBC to talk with New York Times business columnist Andrew Sorkin about their new bipartisan bill, the Responsible Financial Innovation Act. The bill would have treated cryptocurrencies as commodities to be regulated by the Commodities Futures Trading Commission, a branch of the Agriculture Department that is widely considered to be a weaker and more lenient sister to the Securities and Exchange Commission. Should people put their retirement funds in Bitcoin, Sorkin asked? Reminded that the Labor Department had recently said this was a terrible idea, Lummis disagreed, arguing that Bitcoin was real “store of value” and “some of the hardest money in the world.” Gillibrand agreed with her, insisting that her legislation would create “safety and soundness in the market and give people comfort that it is here to say and properly regulated.”
Thirteen days later, Sam Bankman-Fried gave $10,800 to the Gillibrand Victory Fund, the senator’s leadership PAC and maxed out to her campaign fund with two checks for $2,900, one for the primary and one for the general. (Gillibrand isn’t up for re-election until 2024.)
Until recently, Senator Lummis’ official web-page included a list of prominent crypto-industry advocates praising their bill, including Bankman-Fried, who applauded their effort to “balance innovation with consumer protections.” On November 11th, Bankman-Fried’s Bahamas-based FTX crypto exchange filed for bankruptcy after the CoinDesk newsite revealed that most of his sister company Alameda Research’s assets were held in a token issued by FTX, leading investors to correctly deduce that Alameda was effectively propping up FTX’s books and prompting the equivalent of a bank run. If none of that previous sentence makes sense, just trust me—the boy billionaire was running a giant scam, a kind of Ponzi scheme made of bits.
Senator Lummis has since removed that adulatory page from her website. Among the crypto companies then praising Lummis was one Multicoin Capital, whose general counsel gushed about her “tremendous efforts” crafting the bill. According to OpenSecrets.org, the top contributor to Lummis, who was first elected to the Senate in 2020, was Multicoin Capital, whose top executives gave $26,100 to her campaign. Tied for number two with $11,600 was Payward Inc., otherwise known as Kraken, a digital currency exchange (whose chief legal officer also sang her praises in that now-withdrawn document) and Andreesen Horowitz, a leading VC firm that has been a huge investor in crypto and blockchain-based companies.
For what it’s worth, Bankman-Fried now says that all his expressed interest in responsible regulation of crypto was “just PR,” telling Kelsey Piper of Vox, “Fuck regulators, they make everything worse, they don’t protect consumers at all.”
On March 17th, US Representative Ritchie Torres (D-NY), a member of the House Committee on Financial Services (which is a committee lots of members vie to get on because it attracts so much interest from the industries it regulates, generated oodles of campaign dough), published an op-ed in the NY Daily News titled “A Liberal Case for Cryptocurrency,” arguing for a comprehensive regulatory framework for crypto and claiming that New York had a “historic opportunity to become a national model for smart crypto regulation.” He attacked the state’s Department of Financial Services for how long it made vendors to get a license to sell cryptocurrencies in the state, claiming it was “inhibiting” job creation and innovation without actually protecting consumers or investors. “Crypto is here to stay,” he wrote. “It’s not going anywhere. New York City should and must embrace crypto if it is to remain the financial capital of the world.” He also claimed that it would save low-income New Yorkers millions a year in check-cashing fees.
Two weeks later, Bankman-Fried wrote Torres a $2,900 check for his re-election campaign. He did not have a primary opponent and cruised to an easy victory in his heavily Democratic district. In June, SBF also co-hosted a fundraiser for Torres along with Democratic data wonks and “popularists” Sean McElwee and David Shor. McElwee, cofounder of Data for Progress, was a recipient of $48,000 spending from Bankman-Fried’s Protect Our Future PAC and reportedly working him on unspecified political projects. The connections between Bankman-Fried, McElwee and Shor can perhaps be explained by their common zeal for, at least on the face of it, being driven by evidence and data and movements like Effective Altruism. Or maybe they all just like to party together. “We are drawn to people who are entrepreneurial and ambitious and very smart and prone to using evidence and research in a way that promotes good,” Rockwell Schwartz, the director of Effective Altruism NYC, said in this now-infamous New York Times Style Section portrait of an end-of-summer Burning Man-style bash Shor hosted in his Lower Manhattan loft. “Plus,” she added with a laugh, “David is a beautiful man.”
I digress. (But what Schwartz family names their kid “Rockwell”?)
Remember, a core tenet of Effective Altruism is the idea that it’s not just ok, it’s actively positive to try to make as much money as you can as fast as you can, because presumably then you have more money to give away “effectively.”
In late April, Maxwell Alejandro Frost, a 25-year-old gun control activist and self-identified Gen-Z progressive running an upstart campaign for Florida’s 10th congressional seat (which was being vacated by Rep. Val Demings for her Senate run), announced that he was setting up a national Crypto and Blockchain Advisory Council to advise him on cryptocurrency issues. This made news in the crypto world and nowhere else. Among the members of this council: Rep. Ritchie Torres, who Frost called a “main proponent for sensible cryptocurrency and blockchain regulation.” It also included Sean McElwee and, curiously, Leah Hunt-Hendrix of the progressive group Way to Win.
Hunt-Hendrix tells me that “Many progressive democrats were threatened by two SBF funded super PACs that could spend millions against them (GMI and GAP).” GMI was the main crypto lobby group and GAP stands for “Guarding Against Pandemics,” a group founded by Gabe Bankman-Fried, Sam’s older brother, to research and endorse candidates, who often then got help from Protect our Future. She says that her group’s PAC, “Way to Lead, as a PAC supporting these progressives, aimed to neutralize the effect in our races. The more they spent against us, the more we had to raise and spend. For example they endorsed Gil Villegas against Delia Ramirez but we were able to get them to back out of that one. We also faced AIPAC, in addition to the establishment. In Frost’s case, his opponent Randall Bracy was pro-crypto but Gabe was open to Frost, so there was a chance. Either a million would be spent for him or against him.” So in her telling Frost’s crypto advisory committee was a defensive move to protect him: “We created a crypto advisory committee to give him time to consider his views on crypto regulation.”
Well, it remains to be seen where this ends up. Two weeks after that advisory group was formed, Frost appeared on a podcast with Penn State Professor Tonya Evans, a Black woman who is a big crypto booster (she sells expert in-person coaching and lifetime access to her online course in crypto and personal finance for just $5,000 a person) and a member of his new council. Frost told her he started out as a crypto skeptic, but got more interested as he walked the streets of Orlando and discovered more community based organizations in Orlando using crypto as “an avenue not just to build wealth but also give people something to be excited about.” It was from there, he said, that he decided that needed to learn more about it. “I truly believe that crypto and blockchain can be used for good,” he told Evans.
At the end of May, Frost’s campaign website listed just four issues that he was focusing on: gun violence, Medicare for all, the climate crisis and reimagining justice. By June 10th, the next time the Internet Archive visited his site, it had added pandemic preparedness, the ostensible issue motivating GAP and Bankman-Fried’s Protect Our Future PAC. On June 10th, Bankman-Fried cut a $2,900 check to Frost. More importantly, in mid-July, Protect Our Future started spending heavily to support Frost in his primary, ultimately putting nearly a million dollars behind him. Frost won the primary on August 23rd. Clearly he used crypto for his good.
I cite these examples not just to call out some of the ways that the craze for crypto has been corrupting politics, and specifically Democratic politics. As the second biggest donor to the Democratic Party in the most recent cycle, Bankman-Fried attracted politicians and political consultants the way that shit attracts flies. I dug up these examples in just a few hours; I’m sure that one could probably write a whole book about all the ways his money perverted the process. The good folks at OpenSecrets just posted a spreadsheet tallying all the specific politicians and organizations SBF and his Republican counterpart and co-CEO at FTX, Ryan Salame, sprayed cash on; it is 128 rows deep. You will be astonished at the names on the list and absolutely, the people who took his money should be donating it to something more useful than their own self-sustenance. Not all of them have been open about their views about crypto (Beto O’Rourke, who got a million from SBF, appears to have no stated position) and some have been somewhat anti-crypto (like my friend NY state senator Alessandra Biaggi, who got $2,900 from him for her Congressional campaign but who has backed a moratorium on crypto mining in NY). This particular shameful story is far from over.
If Democrats have seemed particularly open to crypto money, especially the huge sums that SBF deployed, it could be because they thought he was their next George Soros, a mega-billionaire who was ready to pour huge sums into the party ecosystem on an ongoing basis. Or, it could be that with anti-trust sentiment finally on the rise across a wide swath of Democratic policy-makers and office-holders, crypto advocates realized they needed to spend more heavily on the left side of the political aisle. That’s what Jeff Hauser of the Revolving Door Project, a leading critic of corporate influence in Washington, told Ryan Grim of the Intercept. “They need to dig deeper into the ostensible left flank of the Democratic Party to weaken the financial regulatory ruling, because the financial regulatory movement is stronger now in the Democratic Party than it was 15 to 25 years ago,” he told Grim in August.
Why is This So Familiar?
But there’s a larger point. Since the 1980s, the increasing financialization of the US economy has led, again and again, to economic disasters greased by fatcats buying off politicians and regulators. First it was the savings and loan crisis, which was enabled by Democratic legislators like the notorious Fernand St. Germain of Rhode Island, chair of the House Banking Committee, who pushed through bills deregulating thrift banks by getting rid of any limits on their geographic base, vastly expanding federal deposit insurance and even allowing them to lend money to themselves. Lax state regulation led to “thrift board meetings attend hookers whose services were paid for by the thrift, gala excursions to Europe, luxurious yachts, ocean-front mansions, and Roll-Royces—princely life-styles bult on mountains of bad loans and bad investments,” as Stephen Pizzo et al put it in the book Inside Job. (Any of this sound familiar?)
Then it was the elimination—led by Democrats like Bill Clinton and Robert Rubin--of Glass-Steagal and other New Deal era rules preventing big banks from combining with finance and insurance companies, leading to mega-banks that became “too big to fail” and requiring the mega-bailouts of the late 2000s when the sub-prime housing market melted down. And now we’re seeing a fresh turn of the gyre with the rise and fall of cryptocurrency.
Each time, financial engineers fueled by reckless capital have managed to dream up new kinds of instruments promising gullible investors deals that are too good to be true. And each time, the magical sums of money that some people seemed to be making inevitable drew in millions of less savvy people hoping to also cash in, or fooled by the mania of crowds, or just happy, as the oh-so-young Maxwell Frost put it, to have something new “to be excited about.” It was perhaps inevitable that with the rise of supercomputing and the fall of the price of digital memory (aka Moore’s Law) that the latest round of looting would be built in the cloud.
Perhaps every new generation has to learn this lesson the hard way, but it’s time we stop taking crypto so seriously and see it for what it is: a giant scam, or as critic Stephen Diehl puts it, “a vehicle for pure, naked speculation detached from anything in the economy.”
—Bonus link: If you want to read one thing about the history of the savings and loan scandals, make it this review essay by the legendary Robert Sherrill in The Nation. Getting to work with him as his editor on that special issue of the magazine remains a high point of my career.
Now That 2022 is Over, Can We Talk?
I finally got around to reading Jonathan Mahler’s New York Times Magazine 8000-word opus (gift link) from November 1st on the state of the Democratic Party in the swing state of Wisconsin, and highly recommend it for everyone now catching their breath from another bruising election cycle. Mahler’s main subject is ostensibly Ben Wikler, the former Washington DC director of MoveOn.org who moved with his young family back to his home state in 2018 in order to run, successfully, for leadership of the embattled state party. But alongside his profile of Wikler and a promising young state assembly candidate named Leah Spicer, Mahler also delivers an up-to-date history lesson on what ails Democrats nationwide.
Parts of the story are already well-known—how in the 1980s Democrats started tilting toward prioritizing national politics and corporate-friendly policy-mongering and fundraising over local party building, and then how Republicans prioritized and coordinated efforts to win state legislatures while Democrats dithered, culminating in a wave of pro-GOP gerrymandering after the 2010 elections. Barack Obama’s failure to invest from 2009-2016 in party-building is an old story by now, but I wasn’t aware of how his Chief of Staff Rahm Emanuel stomped on one-time DNC chair Howard Dean’s personal career as well as his erstwhile 50-state strategy for Democratic resurgence. Nor had I realized that in 2016, as Mahler notes, Hillary Clinton’s Hillary Victory Fund raised a whopping $142 million for her campaign in part by promising to share much of it with the DNC and 32 state party committees, only to return less than $800,000 of that sum back to state parties. National Democrats gonna national, after all.
Mahler’s article could be a useful guide for grassroots Democrats looking to benchmark their own state parties’ practices, as he uses his access to Wikler to demonstrate what a robust year-round party operation might look like. Leah Spicer, one of 19 women who decided to run for the Wisconsin State Assembly after the anti-abortion Dobbs decision leaked, was a local talent that several higher-ups in the state party had been recruiting to run. As Mahler writes, once she committed herself, “The state’s Democratic Party immediately went to work, helping Spicer quickly gather the 300 signatures she needed to get on the ballot, and giving her $2,000 in seed money to build a website and produce yard signs and campaign literature. Because her district had been identified as a battleground, the Democratic caucus inside the State Assembly also gave her the money to bring on a full-time campaign manager at an annualized salary of $48,000.” Her campaign manager, a 28-year-old line cook at her restaurant who had a tad of digital organizing experience, got training from the state party on how to run a campaign and canvass in rural areas.
On top of that, the Wisconsin Democratic Party, or WisDems for short, has built a small donor base of 8,000 regular monthly contributors, which it cultivates with regular social media campaigns. Its state committee helps local chapters in all 72 counties rent out office space, advertise in their local papers and build their volunteer networks, Mayler reports. Does the New York State Democratic Party do anything of this kind of local candidate support or party-building? Does yours? Is the Pope Jewish?
Mahler notes that it’s become even harder to get Democratic donors, be they small ones or moguls, to prioritize party-building in the age of hyper-targetable digital fundraising, which enables parties and candidates alike “to raise huge sums of money with hair-on-fire, 11th-hour appeals to donors.” And that the really big Democratic megadonors are “are generally disinclined to support infrastructure-building efforts whose success can’t be measured in the short term.” Unfortunately, a new national poll of 1260 self-identified Democrats and independents who voted Democratic in 2016 or 2020 done by Civiqs on behalf of Civic Shout and Daily Kos offers a big warning about the viability of continuing along that path.
Here are its key findings. First, people are truly drowning in emails and texts from Democratic campaigns. Fifty-seven percent said they have gotten “a lot” of emails in recent months and 36% said they had gotten “a lot” of texts. Second, 46% don’t remember signing up for any emails and a bigger percentage, 54%, says they didn’t sign up for texts. One-third say these missives are “mostly annoying” and one-sixth say they are “mostly helpful” with the rest in the middle. Young people ages 18-34 say they find unwanted messages “mostly annoying” at substantially higher rates than their elders, another warning sign.
If you are a Democratic fundraiser, you might say the fact that 16% of these folks donated more than once in response to these appeals, and another 11% gave once, is a sign that they work. And indeed, the money pours in. But just over two-thirds said they didn’t donate at all, and a bare 7% said they volunteered as a result of receiving such messages. That’s a pretty high failure rate.
A full one-quarter said they have decided to NOT give or volunteer to a volunteer campaign because “it just means I’ll get more emails and text messages.” Fifty percent disagreed with that sentiment. Again, a Democratic professional might say, “you see, our deluge doesn’t bother most recipients.” That’s whistling past the graveyard. If you poked a friend or co-worker so often that one out of four of them said they didn’t want to see you any more, soon you’d be a pretty lonely person.
One final rejoinder to those who think they should keep sending unwanted emails and texts because they bring in money and volunteers: According to this survey, 60% of the people who voted for Democrats in 2016 or 2020 don’t think campaigns should send such messages and almost that same number would sign on if there was a way to stop receiving all political campaign emails and texts.
There are good folks working on addressing the problems I’m highlighting here. Martha Laning (chair of the WisDems before Wikler) and her State Party Advancement Network are raising millions to strengthen state parties so they can do more continuous voter and volunteer engagement. And its affiliate Stac Labs is working closely with data directors in more than 30 states to help them modernize and maintain their core tech infrastructure, under the guidance of Nicole Aro, who was previously with Action Network and AFL-CIO digital director. And EthicalEmail.org, led by Josh Nelson of Civic Shout, is steadily raising the heat on the email spam issue. These people don’t suck. They also don’t fall for bitcoin bullshit.
Odds and Ends
—Consumer Reports analyzed more than 22,000 monthly internet bills sent in by readers and it found that prices vary widely, bills are often incredibly confusing, similar services are often priced very differently by community, and in general, costs are lower when real competition between providers exists.
—Civic tech’s second chance? Jennah Haque reports for Bloomberg’s CityLab that with billions of dollars flowing the America’s cities from Biden’s infrastructure bills, cities are taking a fresh look at modernizing their services using tech.
—Data from the Crowd Counting Consortium’s monthly news monitoring shows that there’s been a huge and alarming rise in protests against LGBTQ+ groups and activities in the last few months. Stochastic terrorism like Saturday’s attack on Club Q in Colorado Springs have to be seen in that context.
—Here’s a very useful guide to using Mastodon, pulled together by Daniel Schuman. Not only does it include the basics of diving in, it also has a list of lists of people you might be interested in following, like political scientists or journalists or Members of Congress who have joined the fediverse.
End Times
“I will be one of the very last people to leave Twitter,” says this esteemed progressive political scientist. Guess who?
Have a wonderful Thanksgiving holiday break. You, my readers, and your ongoing donations and responses, are one of the things I am constantly grateful for!
A great read Micah if somewhat unsettling. Yes, I suspect everybody has a price. Hope mine is more than $2900. :)