What Happened at the Congressional Hearings on Facebook and Libra?
The Libra season is over. On October 23, Facebook founder and Turing test-taker Mark Zuckerberg testified in front of Congress for five hours about a cryptocurrency that Facebook wants to launch next year but may never launch at all. Here’s what went wrong.
What were these rumors about?
Zuckerberg appeared before the 62-member US House of Representatives Committee on Financial Services at a hearing called “Facebook Research and Its Impact on Financial Services and the Housing Sector.” Representatives focused primarily on Libra, data privacy, Facebook’s policy to allow disinformation in political ads, and the company’s violation of housing anti-discrimination laws .
Very fast, what’s the Libra again?
Libra is a potential Facebook cryptocurrency designed to make international online payments hassle-free, free, and accessible to people around the world without bank accounts. Facebook announced this in June and wants to launch in 2020.
In terms of cryptocurrency, Libra is a stablecoin as it will be pegged to existing local currencies (half the US dollar, plus various currencies and “low risk assets” are still under discussion ).
Technically, it’s not just Facebook. Facebook is one of several founding members of the Libra Association, which is based in the global financial center of Geneva, Switzerland. But everyone agrees that Facebook is the de facto controller of the operation and that the US government must please it.
Plus Facebook fully owns Calibra, a digital wallet for storing your Libra coins. What a confusing combination of names! Anyway, other people can create wallets as well, but Calibra will probably be the default and only cool nerds will use someone else’s wallet.
Facebook’s stated goal is to provide billions of unbanked people with access to digital payments for the first time in underdeveloped or unstable places like Venezuela and India, as well as their friends, family and business contacts in more developed countries.
What has happened so far?
Libra is in trouble. Since Facebook announced it in June, things haven’t gone so well. Seven of the 27 other partners dropped out earlier this month , including Visa, MasterCard, eBay, Stripe and PayPal, ahead of the Libra Association’s first meeting, but just after senators sent them emails, boasting the following: “You are entering the world pain. “Zuckerberg spent today in this world.
Earlier, the Financial Services Committee questioned David Marcus, CEO of Calibra. Zuckerberg has testified before other congressional committees before , but this is his first hearing since Facebook announced Libra.
Democrats of the Financial Services Committee, develop “The law to ban large-scale technologies in finance” , which expressly prohibits the major technology companies to act as financial institutions or issue currency, so Zuckerberg knew that talking to politicians, who want to prevent the implementation of Libra.
The Bank of England, the UK’s central bank, has announced the rules that Libra will have to follow, and the EU finance commissioner has announced that he will create new rules for Libra and other cryptocurrencies.
Facebook has repeatedly stated that it wants to play by the rules and that it will receive US regulatory approval before Libra launches. But that statement, as several representatives noted today, is more ambiguous than it sounds.
What’s the problem with the Libra government?
Is Libra money? Would Facebook make it a bank? The government – or at least the Democrats on the committee, plus some Republicans and Donald Trump – think so. They believe Facebook is trying to bypass the rules governing existing financial institutions.
What happened at the hearing?
The entire five-hour hearing led by committee chairman Maxine Waters (California) is shownhere on video. I’ll take it apart in a little less than five hours. Let’s talk about Libra first.
Is Facebook competing with the government?
Facebook says it wants to be regulated, but by whom? Zuckerberg told a spokesman for Chui Garcia, Illinois that Libra should not be regulated like a bank or the SEC. Congressman Ed Perlmutter (Democrat from Colorado) asked Zuckerberg if the Calibra wallet was like a bank account. “We are not a bank,” Tsuk replied. “We are not applying for a bank charter.” Perlmutter interrupted him: “That’s the problem!”
Zuckerberg calls Libra a “payment system.” Some representatives do not see this: why not just make a coin that fully corresponds to the dollar? (Chris Dixon, who heads the crypto fund at Libra partner Andreessen Horowitz, suggested pegging Libra to the dollar only .)
What does it matter to them? Because it threatens the dollar’s dominance. Rep. Madeleine Dean (Pennsylvania) called Libra “a shadow currency that will act more like a government.” Rep. Brad Sherman (California) pointed to the dollar’s role as the world’s primary reserve currency and said that this demand for dollars benefits the US Treasury and therefore taxpayers in America.
Crypto lawyer Felix Shipkevich , chief executive of Shipkevich PLLC , tells Lifehacker that financial institutions are so tightly regulated because otherwise they threaten to usurp the role of the state. When people buy Libra coins, they give them their local currency. What happens, for example, if Libra becomes a huge success in Venezuela and Facebook owns 10% of the bolivar? Facebook will invest heavily in Venezuela’s success, and vice versa. What happens, he says, if Facebook gets too big to fail?
Fears of Facebook’s exposure to international currency risk were not raised at the hearing, but company officials pressured Zuckerberg to choose – they believe – to found Libra in Switzerland. Why not in the good old USA A., where is Facebook, along with its largest (former) partners? (Facebook, like many US companies, including Google and Apple, “bases” its international operations in Ireland to avoid taxes in the US. Unlike Google and Apple, it does not operate in China.)
Facebook is in charge of Libra?
Zuckerberg went on to insist that Facebook is simply part of a larger group that controls the currency: “We are part of it, we do not control it.” The reps continued to insist that come on, we all know you are in charge .
Rep. Ayanna Pressley (Massachusetts) pointed out that Zuckerberg has a controlling vote on Facebook and that Facebook controls Libra: “Libra is Facebook and Facebook is you.”
Rep. Juan Vargas (Calif.) Said Zuckerberg could relocate the association to the US if he wants. When someone said that Zuck was “in control” of Calibra CEO Marcus, Zuck laughed and said that Marcus was his employee, but “control” was strong. Nice, but not quite a rebuttal.
More fears of Libra
Congress is concerned about the prospect of end-to-end encryption allowing illegal transactions, especially money laundering, terrorist financing and the sex trade. Zuckerberg would not take any security measures that would hinder the seamless process of buying and selling Libra without IDs – and that’s the problem. Congressman Sherman rant about Zuckerberg and Libra in a West Wing rant:
You will create powerful burglary tools and allow your business partners to commit burglary. You are about to create a currency … I call it Zukbak … and I say, “Oh, these are our business partners!” … The poor and unbanked need pesos, they need dollars so they can buy something at the local store. You have made no effort to help out-of-banking people anywhere else, at any other time. You should, you should create a payment system with practically zero commission. But the real money is in tax evaders, to some extent, in drug dealers … For the richest man in the world to come here, hide behind the poorest people in the world and say that this is who you are trying to help? You are trying to help those for whom the dollar is a bad currency: drug dealers, terrorists and tax evaders.
Zuckerberg has said on several occasions that Libra isn’t primarily making money for Facebook. But it doesn’t matter if it’s true. Facebook’s Calibra plans to avoid commissions, but that’s because it’s a loss leader. It became apparent that a free, valuable digital service would have other, more insidious costs. Congress fears Libra will be worse for the world than transaction fees.
Why are all these questions from the Democrats?
The Republican representatives were much friendlier towards Zuckerberg. Their main narrative was that the world needs a US-friendly competitor to China’s planned government-backed cryptocurrency, which is exactly what Zuckerberg said in his prepared statement. (Rep. Anthony Gonzalez rejected the Libra vs. China frame.)
They also helped Zuckerberg reiterate his main thesis: the current financial system is stagnant, and even if Facebook is not the “perfect” actor to shake it up, someone has to do it. And they have the resources to kindly endow the world with this gift.
Of course there is truth here; existing financial institutions are greedy and corrupt, and regulations do not prevent them from constantly endangering the global economy. They don’t care enough for the poor, except to squeeze more money out of them. While the answer is not necessarily a new cryptocurrency controlled by one of the few institutions worth more than any bank, this does not mean that the status quo is in line with democratic values. This is why it was weird to see Republicans backing a guy who wants to fight the banks and Democrats telling him to stop.
When Zuckerberg went overboard, hinting (through mild denial) that Libra wanted to build an entirely new financial system to replace the old one, Rep. Trey Hollingsworth (Indiana) tried to cover him up. Even Republican support tried to make Libra seem like a big deal.
The Republicans did have some problems, but they often went beyond the Libra discussion.
What happened besides Libra?
Because Facebook is involved in all spheres of public and private life, Congress has a lot to say to it.
This is where the Republicans worried more. Several representatives complained about Facebook’s speech censoring, which led Zuckerberg to claim that Facebook does not censor legally permitted speech (other than sexual activity, which no one mentioned), but only downplays it with tricks like downgraded search results. shortcuts attached to known disinformation sites. , and algorithmic ranking.
Congressman Bill Posey (R-Florida) asked why Facebook is censoring vaccine-hazard messages. (It is not.) In other words, the Florida man is going against the vaccine.
Democrats are, of course, concerned that Facebook is allowing too much speech – in particular, misinformation from political ads, which Facebook recently said it would not be fact-checking . The committee was not happy.
Alexandria Ocasio-Cortez put it best when she asked what kind of lie she could tell in a political ad. Zuckerberg said no, she could not pay target black areas and tell them the wrong election date because Facebook would ban or vote him suppressive election ads.
Ocasio-Cortez then asked if she could oppose the Republicans in the primaries, claiming they voted for the Green New Deal. Zook muttered, “I guess, probably.”
The stated scope of the hearing included violations of housing discrimination and these were not ignored. Several reps have yelled at Facebook (again) for allowing home advertisers to illegally target ads by race and other protected class. They asked Zuckerberg about civil rights and the diversity of his own teams, and what sounded like passing questions ultimately proved that he was pitifully unwilling to talk about his own company’s biggest law violations and what it’s doing to get them to correct.
Rep. Katie Porter (Calif.) Described a bleak environment for Facebook’s content monitors, which view often disturbing, forbidden content on the site with just nine minutes a day dedicated to emotional struggles. She asked Zach to volunteer for an hour a day for a year as a content controller (like in his projects last year). He said it didn’t sound like a good use of his time.
The Cambridge Analytica data breach continues to generate strong resentment, and it has surfaced several times, especially as Facebook is questioning the ability to safely manage people’s money. (Fun fact: Cambridge Analytica dabbled in its own cryptocurrency , which was supposed to “help people store and sell their personal data on the Internet.”)
Zook also asked Maxine Waters for a toilet break.
What will happen now?
Rep. Sherman predicted the next step in his sharp speech: “[You say] you’re going to wait for the regulators to sign their decision. Regulators work with the old charter. Your lawyers will show that there is a loophole in the Investment Company Act of 1940 that will take you where you want and the regulators cannot stop you. You call this regulatory approval as if people in 1940 knew what you meant. “
But not if the Large Technology Funding Prevention Act is passed, specifically targeting Facebook (and any competitors like Amazon that are playing with their own competing coins).
Not if Libra compromises and governments are happy with the compromise, such as multiple cryptocurrencies, each pegged to an existing currency .
And not if Facebook and its remaining partners are so tired of fighting governments that they will give up and Facebook will look for another way to make itself a financial layer that you simply cannot afford not to use.
Because until governments take tough antitrust measures against tech giants, such as splitting Facebook as presidential candidate Elizabeth Warren is planning, and destroying Amazon and Google while we do, these heirs of Ma Bell and Standard Oil will continue absorb the World. Maybe it will be better for someone. You will?