QUIET PART OUT LOUD: they're rightly worried abt Hong Kong via USD stablecoins becoming a hub for USD clearing that's outside US's reach, while the US dithers. But it's not just HK. Obvious fast path for Milei to dollarize Argentina is via USD stablecoins.
ft.com/content/39f101… 2/ 👇But the US (under Sen Warren's control of the Biden Admin's financial svcs policy) is blocking everyone working on regulatory-compliant USD stablecoins, while letting big banks continue to build their own versions.😡 But the world already blew past the walled-garden versions

1/ OH BOY...#PrimeTrust's failure just took a BIG turn--its receiver today filed to put it into voluntary Chapter 11 (federal bankruptcy). I was afraid for Prime Trust customers of this very outcome & discussed why in the debate w/ @mikebelshe on @zGuz's podcast last month. 2/ In that debate, I laid out why banks as legal entities better protect customers than state-chartered trust companies in the event of failure--bc the federal bankruptcy process is designed to bring assets into the estate, while bank receivership is designed to protect customers

1/ 🚨ON THE DAY #FedNow is scheduled to launch, I noticed something...interesting, shall we say. 🤔Among the list of banks & credit unions in the Fed-authorized 1st group of participants is a #fintech--& it's a European fintech, not even an American one. So I went digging... 2/ But wait, you're thinking, how does a #fintech even have a Fed master account so it can qualify to clear US$ payments at the Fed--isn't the Fed keeping #fintechs out???

Yes, yes it is--except for certain fintechs. Europe lets its fintechs qualify for special bank charters.

1/ BIG NEWS for #fintech! A sixth US state--Idaho--is willing to charter uninsured, non-lending, 100% reserve banks that are eligible for Fed master accounts (the other states are CT, ME, NE, VT & WY). This trend could turn the "bank-as-a-service" (#BaaS) model on its head!!!!! 2/ The revelation was buried deep in the Fed's master account database (which Congress had to force the Fed to release--which it did late on a Friday afternoon before the Juneteenth 3-day weekend. Hoping no one would see it???) It's a #GiftThatKeepsGiving.
federalreserve.gov/paymentsystems…

TWEET 🧵on state-chartered trust companies, #PrimeTrust & whether customer funds are really theirs amid a failure. I responded to the below tweet from @mikebelshe but the thread was cut up, so I'm re-posting here in whole. First, Mike's tweet & then my 11-tweet response in whole: Mike's tweet here, asserting "it's the client's money" and "will you stop pushing the bullshit that WY is somehow special?"--@mikebelshe

https://twitter.com/mikebelshe/status/1674256330377551872?s=20

1/ WOW--PRIME TRUST RECEIVERSHIP WILL BE A MESS & it's *EXACTLY* what the State of #Wyoming enacted its laws to avoid. Big ?s:
*who will pay the legal bills--NV taxpayers or #PrimeTrust customers??
*some PrimeTrust customers are IRAs/ERISA plans--can these even be bailed in??

https://twitter.com/tier10k/status/1673743351785439251

2/ Avoiding this situation is *EXACTLY* why #Wyoming set up special-purpose banks to service digital assets. Things Wyoming did but Nevada didn't:
*require SPDI banks to pre-fund receivership costs w/ regulatory capital
*clarified its UCC
*uses banks, not non-banks. Why? 👇

1/ THIS IS WHY Biden Admin's anti-#crypto strategy to push crypto into the shadows makes no sense: They want compliance w/ AML/CFT laws, but crypto is just code--so compliance can only be assured at the very connection points that they're actively choking.
home.treasury.gov/news/press-rel… 2/ It's *already* the case that the world's 8bn people can create & transact in US dollars w/ any permission or compliance screening--simply by downloading & running code on their smartphone. Given that reality, what's the optimal policy to maximize compliance w/ AML/CFT laws??🤔

5M views for @RobertKennedyJr’s anti-#CBDC tweet👇. #FedNow isn’t a CBDC but all the criticism from different corners is interesting.

A big issue w/ FedNow=banks don’t have enuf cash to handle the higher liquidity demands of 24/7/365 pymts. Banks need to hold *a lot* more cash!

https://twitter.com/robertkennedyjr/status/1643658603885101073

2/ Yest, while on a podcast w/ @CathieDWood, I said out loud for the first time: #FedNow may not actually launch in July. Banks will need *a lot* more liquidity to handle 24/7/365 pymts, & to raise that cash they’d need to sell assets at loss—which wld reveal the solvency problem

1/ A 🧵ON THE @federalreserve's precedent-setting 86-page @custodiabank order, released on Friday. Custodia just published a blog post highlighting the newly-articulated Fed policies + the procedural abnormalities it reveals.
custodiabank.com/press/custodia… 2/ First, the policy items. Here are the first two:

1/ ANOTHER 🧵 ON A KEY QUESTION: astute thinkers are asking why community banks matter & how widespread this panic cld become. Dunno--but it *cld* spill over to big banks. One scenario: if FDIC depletes its insur fund, it borrows from US Treasury--which relies on primary dealers. 2/ Many people are saying big banks are safe bc they hedged the interest rate "gap risk" that is now plaguing community banks + they've had fewer deposit withdrawals. Yes, short-term. But here's the scenario:

https://twitter.com/CaitlinLong_/status/1634249490902179840?s=20

1/ SVB—WHAT WENT WRONG
* mgmt: debauched its balance sheet
* depositors >$250k: thought their deposit at a fractional-reserve bank wasn’t an unsecured loan to a leveraged borrower (it is)
* Fed as regulator: that morning, the top cop said Fed-supervised banks don’t have bank runs 2/ * Fed FOMC: created the “gap risk” now kneecapping community banks (which met their bank capital rqmts by buying long-term bonds)
* bank risk managers: didn’t realize such gap risk (unhedged risk of a spike in interest rates) would morph into big liquidity risk amid a bank run

1/ I'VE BEEN THINKING abt #crypto & banking, which is in the news these days (& I'm living it too). I've spent yrs thinking abt the issues. Yes it *IS* possible for trad banks to safely bank #crytpo industry: simply back demand deposits 100% w/ cash held in a Fed master acct.💡 2/ But that's NOT what the US banks banking #crypto generally are doing. Pls see for yourselves by reviewing their financial statements--you'll see, eg, >10yr securities backing demand deposits that customers cld withdraw in minutes🤦‍♀️. That's a prob but isn't inherent to #crypto!

1/ IT'S TIME FOR ME TO REVEAL A FEW THINGS. I've just published a post "Shame On Washington, DC For Shooting A Messenger Who Warned Of #Crypto Debacle." Link to post is here:
caitlin-long.com/shame-on-washi… 2/ First, the revelations. Today, I’m publicly disclosing for the first time that (a) I handed over evidence to law enforcement of probable crimes committed by a big crypto fraud, starting months before that company imploded and stuck its millions of customers with losses, and...

1/ MY SUMMARY🧵re: today's SEC #Custody Rule proposal, which is here: sec.gov/rules/proposed…

*NONE OF THIS IS LEGAL ADVICE*

tl;dr--it doesn't kill #crypto custody; it's a move against state-chartered trust companies; there's one big issue, tho, which will trigger huge pushback 2/ THE BIG ISSUE (& I haven't seen anyone point this out yet)=the rqmt for custodians to indemnify for "negligence, recklessness or willful misconduct." All the banking, #WallSt, commodities & #crypto industries will push back together on this bc it could kill custody biz broadly

A KEY from proposed changes to SEC Custody Rule: account must protect customer assets in event of custodian insolvency. This prob means qualified custodians must be under statutory receivership regime to protect segregation in insolvency & state-chartered trust cos in crosshairs Yep, here's more. Gensler was clear abt this in his prepared remarks & here it is in writing: Assets passing OUTSIDE OF THE BANK'S INSOLVENCY is key. Translation: SEC wants all qualified custodians to be subject to special receivership regime, ie not subject to US Bankruptcy Code

1/ THINKING ABOUT all things bond mkt after catching up on morning reading☕️. 15yrs of my #WallSt career was helping pension plans/life insurers fix their past mistakes (most of which made them inherently short vol). Fundamental probs w/ bond mkt structure exacerbated this prob. 2/ The underlying issue pertains to how fin mkts deal with duration. Pensions & life insurers have the longest-duration liabilities in the fin system & yet they scramble to find duration-matched assets to buy bc there’s either a structural shortage of them, or they’re in banks.

1/ WOW--pageviews on this kinda viral. Thanks all!🙏 2 reactions to comments:
A) ppl seem surprised that I'm talking abt #bitcoin as pymt tech, not as an asset. Not new. I've always said price is the LEAST interesting aspect of #BTC + been critical of its leveraged financializers

https://twitter.com/CaitlinLong_/status/1573443770536067072

2/ Leverage-based financializers & esp criminals & fraudsters set the industry back + manipulated secondary market price (#bitcoin became #WallSt's latest plaything🤮). "Play stupid games win stupid prizes" as saying goes. Hope everyone learns. Innocents: sorry for your losses.

@GeorgeSelgin @DanAwrey @KleeBeard @dandolfa @amacker @Aarondklein @DavidBeckworth @vtg2 @EconSteveM @jasonfurman @RebelEconProf @ProfJulieHill @jameswester @jp_koning @ProfKateJudge @dgwbirch @JosephPolitano @TheStalwart 1/ George--may I throw another critical topic into this great discussion? An even bigger factor in payment systems is integration cost. The issue of volume pricing discounts won't matter if any system is too expensive for users to integrate with upfront. @GeorgeSelgin @DanAwrey @KleeBeard @dandolfa @amacker @Aarondklein @DavidBeckworth @vtg2 @EconSteveM @jasonfurman @RebelEconProf @ProfJulieHill @jameswester @jp_koning @ProfKateJudge @dgwbirch @JosephPolitano @TheStalwart 2/ The US banking industry has a long history of building walled gardens--proprietary systems that require big upfront integration costs. #fintech generally has the opposite approach--they build systems as open & interoperable as possible, based on ease of tech integration

1/ OK, so since my rural/urban life history seemed to fascinate y’all, here’s a bit more. This weekend I learned abt my great, great, great grandfather, who was a pioneer settlor of Johnson County, Iowa. Wolfgang Rohret immigrated from Bavaria w/ his family via Baltimore in 1840.

https://twitter.com/caitlinlong_/status/1544132129021259777

2/ Wolfgang Rohret was drafted to fight for Napoleon at age 15 & was one of the *FEW* survivors of Napoleon’s ill-fated invasion of Russia in 1812, known as “one of the most lethal military operations in world history” (>90% died). He immigrated to the US in 1840 w/ his family.

1/ I'VE BEEN THINKING MORE abt the #bitcoin ETF. For yrs, I've said ETFs are a double-edged sword for bitcoin (bc ETF mkt makers are permitted by law to create more claims to the underlying asset than the quantity of the underlying, which distorts the price of the underlying). 2/ But, as I wrote in @Newsweek this week, the SEC's decisions to reject spot #bitcoin ETFs don't exist in a vacuum. They must be viewed in context of the SEC's decisions in 2015 to approve 1 (& only 1) fund structure for bitcoin--& not another until 2021.
newsweek.com/crypto-crash-w…

1/ I’VE BEEN THINKING, while doing yard work, abt the #crypto crash & Fathers’ Day. They both relate to one of the biggest lessons my late dad taught me, which came from my grandpa (an 8th grade educated Iowa farmer who had a PhD in common sense). He scoffed at “paper wealth.” 2/ For context, my dad—his oldest child—was born just days after the 1929 stock mkt crash. Grandpa watched as some neighbors, who had leveraged their farms to play the roaring ‘20s stock mkt, lost them in the crash. Grandpa died before I was born but Dad passed his wisdom to me.