I have not commented on the case against FTX founder Sam Bankman-Fried because it was open and shut. But a related post on the SEC Chairman Gary Gensler caught my eye. Sam Bankman-Fried and the SECThe Wall Street Journal comments on Sam Bankman-Fried and the SEC

Sam Bankman-Fried charmed investors and politicians, but he wasn’t so fortunate with a federal jury. On Thursday the former FTX crypto-exchange kingpin was convicted of seven counts of fraud and money-laundering.

Mr. Gensler has since spun Mr. Bankman-Fried’s fraud as a cautionary tale of the crypto “wild West.” But regulators and prosecutors don’t need new powers to charge fraud under existing U.S. laws. And while Mr. Gensler charged crypto companies for marketing unregistered securities and operating unregistered trading platforms, that didn’t stop Mr. Bankman-Fried’s crimes.

Mr. Bankman-Fried scoffed last November to a reporter at Vox that regulators “don’t protect customers” and “can’t actually distinguish between good and bad.” He may have demonstrated his point. One question for Congress to investigate is whether Mr. Gensler’s preoccupation with expanding his regulatory and enforcement power caused the agency to overlook the FTX fraud in plain sight.

Gensler is so busy with demands for oversight of Bitcoin, delaying a Bitcoin ETF for no good reason. He struck out on that in court as he should have.But where was Gensler when obvious fraud after fraud happened on his watch?One of the few things SBF ever said that hit the mark was regulators “don’t protect customers” and “can’t actually distinguish between good and bad.” So, why do we even have them? What About the Fed?On a similar note, what good has the Fed ever done?The Fed creates crisis after crisis then wants more power to fix the messes it makes. Would a free market possibly do any worse? Fed Uncertainty PrincipleDoing what it wants regardless of data is the essence of my 2008 post on The Fed Uncertainty Principle.

The Observer Affects The Observed

The Fed, in conjunction with all the players watching the Fed, distorts the economic picture. I liken this to Heisenberg’s Uncertainty Principle where observation of a subatomic particle changes the ability to measure it accurately.

The Fed, by its very existence, alters the economic horizon. Compounding the problem are all the eyes on the Fed attempting to game the system.

Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self-reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication, there would not be observer/participant feedback loops either.

Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

The Fed has blown several major asset bubbles and wanted to make up for lack of prior inflation when it does not even know what inflation is.Now the Fed gives forward guidance on their thinking and all the banks and hedge funds front run the guidance which explains the collapse of Silicon Valley Bank.For discussion, please see The Fed Admits a Mistake in Collapse of SVB, Seeks More Power AnywayThe Fed and Gensler are alike. Both want more power. Giving it to them will create more damage, not prevent it.More By This Author:Under What Conditions Would China Dump US Treasuries Or Dollar Holdings?
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