Hi everyone! Today, I will talk about
the golden cage of financial regulation.
In the world we live in, finance hasn’t
been the same since the early 1970s.
In the United States, a law was passed called
the Bank Secrecy Act, signed by Richard Nixon.
Or Dick, as we call him in America. [Laughter]
That Dick signed this particular law.
It required that banks operate as
a surveillance mechanism for the government.
This was then expanded internationally to become
the framework of international finance we have today.
It requires every financial transaction to have
both the sender and the beneficiary identified.
Every participant in the transaction.
Your bank, their bank, everyone in between,
must know who is being paid, who is paying them, why
they are paying them, and what they’re paying them for.
This turned all banks into surveillance organizations.
They became deputized into law enforcement.
To fight the war on drugs, the war on pot, the war on
traffic violations, the war on drink, the war on something.
The war in Syra, the war in Yemen, whatever
the current war is. Gradually, banks became cops.
The problem is, banks can’t be banks and cops at
the same time. But they no longer have a choice.
They become cops.
In fact, the cops in most banks rule what happens.
Most banks today have what is
called a compliance department.
In some banks, it is actually called the
Bank Secrecy Act (BSA) department.
They can overrule everyone in the bank.
Remember the old Soviet movies with the
commander on deck of the nuclear submarine?
He is not actually in charge. Next to him is
that guy in a dark suit who says, “You can do it.”
He is the Politburo representative from the Communist
Party, actually in charge in the submarine.
The captain doesn’t run the submarine.
It is the political operative next to him…
who decides whether they can fire the weapons or not.
They are constantly talking to the Kremlin on one
phone, telling the captain what to do on other side.
Of course, that is not how we run American
submarines, because… freedom! [Laughter]
The captain is a strong man who decides everything
on his own, without political interference.
He is away from all the politics, making
the last-minute life-and-death decisions.
We know who the bad guys were, and who
the good guys were, by who exhibited “freedom.”
It is funny [when we look at] the way we run our banks.
The person you talk to in the bank isn’t in charge.
There is some person in a dark suit, talking
to the Department of Justice and Treasury.
Asking, “Can we send money to that person?”
“No, you can’t. Sorry.” “Okay, we will fix it.”
They are actually in charge in the bank.
In fact, if a wire transfer is sent to you and it gets “stuck,”
meaning it doesn’t get through to you for seven months,
as a random hypothetical example…
except that did happen to me.
But they don’t tell you why the wire is stuck.
When you call them up, asking where your transfer is,
they may say, “We haven’t received it.”
When you go to the other party and ask why they didn’t
send it, they say, “But I have a receipt that says I did.”
So you take the receipt into your bank and
they say, “I don’t know, I haven’t seen this.”
Eventually, they figure out that they haven’t seen it
because the bank’s compliance department…
is keeping them in the dark.
They haven’t told the customer service that there is
a wire transfer, but they’re not allowed to talk [about it]…
until the “security problem” has been resolved.
This is how we run banks in the free world.
I don’t need to tell you how they
run banks in the unfree world.
Actually, I can. It happens exactly the same way.
These regulations have become the basis
for international settlement of transactions.
If you don’t play by the American banking rules,
they cut you off from the American banking system.
They tried to do that to the Swiss, threatened them
into breaking the banking privacy laws they had.
To go after people who had
bank accounts in Switzerland.
Switzerland doesn’t have privacy in its banking anymore.
They are now operating by these international laws.
How did this happen? How did the banks allow
themselves to become captured by political operatives?
To effectively become police officers, or staff police
officers to tell them what they can and can’t do,
against their own commercial interests?
Let me give you an example.
Recently, we legalized recreational marijuana
in Colorado, Washington, Oregon, and California.
Smoke till you drop, anytime you want,
for anyone who is 21 years or older.
You can walk into a shop, buy
and smoke as much as you want.
But none of these [shops] have bank accounts, because
the federal government has not yet legalized it.
They will not let the banks bank the cannabis industry.
In Colorado alone, this is an industry that brought in…
$1 billion dollars in taxes up to now.
That is within two years. $1 billion.
Which means they are moving ten times that in revenue.
All of which could happen as commercial activity…
with a bank.
In any rational society,
that would be the smart thing to do.
The last thing you want is businesses
going around with duffel bags full of cash.
Because they can’t deposit it, they must try to find
ways to get rid of this cash, without being robbed.
Which makes the whole place very insecure and
dangerous, all in order to fight the war on drugs.
We have already lost,
because it was always going to be lost.
Even though [some] states have stopped fighting the
war on drugs, the federal government is still fighting it…
with the last cops [available to them] in every state:
the banks. It is insane, but that is how it works.
This happens all over the place. The same thing is
happening to sex workers, gambling organizations,
and gun merchants in the United States.
You may not like one or all of these categories,
but many of these activities are perfectly legal.
Banks are being prevented from participating in legal
activities by policies set by the Department of Justice.
Not by law.
They can say, “We don’t want you banking [these
people], even if they are engaging in legal activities.”
Basically, they are passing secret laws that are not
subject to the legislature, no vote in a democracy.
They are ruling by fiat.
How did the banks get into a situation where they must
deny customers, even good and secure customers?
Because they became cops. It all started simply
by demonizing certain segments of society,
in order to find an evil cartel, organization, or person.
“You can’t give banking to evil people.”
Forgetting the fact that for 20,000 years,
evil people could use [some form of] money.
Just by using cash, the original
anonymous peer-to-peer currency.
Civilization did not destroy itself, right?
Once that decision was made and followed through, the
category of “evil people” kept getting wider and wider.
Someone came up to me at a conference
in Berlin a couple of weeks ago, and said,
“I have been living in the West for 15 years
and I can’t get a bank account for 15 years.”
The moment I fill in my name and place
of birth in the application, I am denied.”
“I am Iranian. I was born in Iran. But I have nothing
to do with Iran. I have no contacts with Iran.”
“I have no relationship with the government.
I don’t like the politics of the government of Iran.”
“I cannot get a bank account. All I want to do
is deposit my paycheck and buy groceries.”
“No bank will allow me to bank with them.”
“I have done nothing wrong. I didn’t choose
where I was born.” [This story] gripped me.
This story is repeated millions of times in every
developed society, even worse in developing countries.
Banks agreed to these rules at first;
then the rules got wider and wider.
Now, it is accepted wisdom. ‘Of course you should be
able to [watch] everybody who makes a transaction.’
Really? Why? Because bad people might use money?
Are we going to base our entire society on a blanket law
just because some bad people might abuse systems?
Well, guess what?
Bad people will abuse systems either way.
But we are punishing millions, billions
of people who have done nothing wrong…
simply to preserve this bourgeois illusion of security.
And you know what? That is unethical. In fact, it is evil.
Condemming people to povery so you can feel safe,
with no basis in fact or evidence
that it actually makes you safe.
In fact, it does the opposite. People in poverty
resort to violence and have no access to justice.
In order to preserve that [feeling of safety],
we are doing evil on an institutional basis, worldwide.
The banks started with this gilded cage,
the cage they built around themselves.
It was a deal, quid pro quo, in return
for fulfilling these regulations.
The banks [earn] the ability to get away with criminal
activities, for which they are never punished.
When they get caught money
laundering, there is a minor fine.
They get caught again and again. All of them.
Every single bank has done money laundering in the
order of billions of dollars, not for [the benefit of]…
my Iranian friend who can’t get a bank account.
No. For the Sinaloa drug cartel. For Pablo Escobar.
Drug dealers, terrorists are funded by state
intelligence agencies through banks, in U.S. dollars.
We’ve created this crazy system
where mega-crimes can be committed…
as long as you have a banking license, as long as
you do surveillance on behalf of the government.
The ultimate goal is not to eliminate crime, right?
That is ridiculous. The ultimate goal is control.
What do you call a system of control
where the ultimate goal is to [watch]…
every transaction ever done in the world?
Total control. I believe we call that “totalitarianism.”
Rational societies don’t believe in totalitarianism,
but in our financial system, we have accepted it.
When Edward Snowden came out with a revelation that
phone calls and internet activity was being monitored…
by intelligence agencies, specifically the Five Eyes,
of which Germany is a participant,
we also found out that the CIA and NSA
were monitoring Angela Merkel’s calls.
People were outraged.
But the fact that every Visa, MasterCard,
and bank transaction you do is shared…
with all five intelligence agencies,
piggybacked by data streams to other intelligence
agencies who have managed to hack in –
“Eh, it’s okay. We should watch everybody,
just in come they do something wrong.”
Think about how much power
that gives to some people.
The power to control what you spend, when you
spend it; the power to deny you access to finance.
More importantly, the power to see all of your habits,
your location any time you use one of your cards,
your political associations, or just friends and family.
But don’t worry: Facebook is making
a digital currency. [Laughter]
This quid pro quo agreement allowed banks to
prevent competition. Compliance is expensive.
But it’s a very good cost of business because
you can pass it on directly to customers.
The people being hurt are little people.
The big people can afford lawyers, accountants,
and better banks in other places that are more flexible
like Panama, Malta, and Switzerland.
The little people who want to bank in downtown Munich,
London, or New York, they are just little people.
[They don’t] matter. My friend, he’s Iranian.
He should have known better.
He should have tele-transported from the womb of
his mother to a better country before he was born.
These little people pay the price. We all pay
the price in higher transaction costs and friction.
An international wire transfer takes forever.
We pay the price in a much bigger way, in terms
of reduced economic and commercial activity.
Friction results in higher costs for everything.
This introduces enormous friction into our financial
system, for unachievable political aims that give power…
to the wrong people.
We pay the price in money, we pay the price again in
freedom and the erosion of our democratic institutions.
The banks don’t. The banks have this wonderful tool.
“If it costs me $10 million in order to do compliance
each year, and I hire three hundred people to staff…
the compliance department, that means the smallest
competitor entering the banking business…
needs at least $10 million to start,
before they even get a banking license.”
We have set the barrier to entry so high that
competition in banking is reduced as a result.
The big banks are able to [appear]
more efficient than the smaller banks,
because $10 million in compliance cost is a smaller
percentage of their revenue than all of the small banks.
The small banks struggle and then
they get bought by the bigger banks.
Or they join forces, merge together, become medium
banks, and then they get bought by the bigger banks.
Or the big banks buy the bigger banks, and
the bigger banks buy the even bigger banks,
and then we end up with six banks. [Laughter]
The western world is dominated by about six banks.
All in just 45 years, we are down to six major banks.
They have different names, but they are
pretty much all owned by the same six banks.
There are few little ones still chugging along.
There are a few new ones with fancy names…
like N26 and Monzo.
They are fighting the hard fight.
They are trying to go online. But as soon
as they try to compete, the big banks say,
“Well, they should really follow
the regulations more closely.”
They must either [adopt] the exact same model the
big banks are following, which is unprofitable for them,
or stop competing by doing innovative things,
because those innovative things they want to do…
may make it easier for “bad people” to get banking.
As a result, they must reduce the
number of customers they take in.
Eventually, it happens, what has been happening
to me in banking for the past twenty-five years.
I open a bank account with this wonderful young,
online, hip, cool bank with a great website.
It doesn’t do any of that bullshit. It works great for
five years. Then they get bought by a bigger bank.
Within two months, it is all over. It turns to shit.
So I switch banks to another young, hip, cool bank.
For five years, it works. Then they get bought by
a bigger bank. In two months, it is all shit again.
This keeps happening and eventually it is all shit.
[Laughter] The cage is made of gold.
They like it because it is shiny and
keeps out the competitors. It is a comfy cage.
The bottom line is, this golden cage has been built up
around the banks so they can prevent competitors…
from entering the space.
Every time a new competitor comes in.
PayPal, for example, started off idealistic.
PayPal started with the idea of
building the internet of money.
They wanted to use the internet to bypass regulations.
Then they got sued and investigated.
The banks pay for the politicians to
make sure that the cartel stays in place.
It is funny that we use the term
“cartel” to talk about drugs and oil,
but here is a $114 trillion industry that is
dominated by six regionally controlling players.
We don’t call that a cartel. I wonder why.
It is almost as if they are the most powerful cartel of all.
So powerful that they can ensure no
newspaper will ever call them a cartel;
because then they would lose all
of their funding from advertising.
No politician will call them a cartel
because they would lose their jobs.
None of the regulators will call them
a cartel or dare to break them up.
In fact, they don’t even dare
to fine them or put them in jail.
When they take away the homes of a million
people with straight-up fraud caught on tape,
where they say they know that these mortgages
are fraudulent, but they are so profitable…
Nobody goes to jail. That is a cartel. That is the behavior
of a cartel. Let’s say it again: banking is a cartel.
Well, guess what? A cartel buster
came in the door on January 3rd 2009.
With the invention of an open public blockchain
called Bitcoin, that cartel is now over.
They had a golden cage to keep out
competitors. It was shiny and nice.
But now there’s something outside the cage.
“That shouldn’t be there. Why is that out there?”
“You can’t let them do whatever they want. They will
fund criminals! No, not the criminals like our friends.”
“The other kind of criminals. Poor criminals,
not rich criminals. We [need] that market.”
“They can fine poor criminals and poor terrorists,
not nation-state terrorists. We [need] that market too.”
“They can fine poor immigrants, not rich immigrants like
the wife of our president. No, just the poor immigrants.”
“Like the people who are in concentration camps in
America. Why would we give them bank accounts?”
I was once at a banking conference.
At the end, during the Q&A, a lady asked me,
“Why should we give illegals bank accounts?”
The question shocked me.
First of all, due to the use of the word
“illegals” to refer to human beings.
Secondly, because of the audacity of that question.
Are you not a commercial entity that facilitates banking?
Since when did you become the police?
So I answered in the best way I could:
“You shouldn’t give illegals bank accounts. We will.”
We will give them banks on their smartphone where
they are the CEO. They can compete with you.
Bitcoin is an anomaly. It brought about four thousand
other anomalies to date, over the last ten years.
All of these anomalies refuse to play by the rules,
because most of them don’t have identifiable leaders.
Here is the playbook of the banks. They go through
these steps every time they face competition.
1. Can we buy it? If we buy it and then shut it down,
it is not a risk. Or we buy it and hold it very close.
Very, very close… until it stops breathing and we’ve
killed it. Then it doesn’t compete with us anymore, right?
The old bank will buy this really innovative bank;
you watch it asphyxiate over two monts…
until there is no innovation left,
and all of the creative people quit within a week.
They can see what will happen next. On the first day
they come in, [their new bosses] say, “This is very good.”
“We really appreciate your creativity. Now cut
your hair, put on a suit and some better shoes.”
“Come into the office at 9:00 in the morning. Okay?
Good. Thank you.” The creative people will say,
“Oh, fuck this. I quit.” [Laughter] And there goes your
innovative group, out the door. That banks is over.
So the first rule is: buy it. The second rule is: compete
viciously, even in illegal ways, to shut them down.
Classic cartel interference.
If that doesn’t work, the third rule is: sue.
The fourth rule, and best one, is:
convince the government to regulate them.
Regulate them harder; regulate them mercilessly.
Pass a few new laws to make sure that…
what they are doing that’s different is not allowed.
If that doesn’t work, just shut them down by
using the government as your cartel enforcer.
Essentially, the government becomes the Sicario
for the banks. It is a very weird relationship.
That is the playbook. Then Bitcoin comes
on the stage and the banks think, ‘Buy them.’
“Umm, we can’t. They are not a company. If we start
buying up bitcoin, it will just become more valuable.”
“Then we won’t be able to buy it all.
We will just make the [early adopters] richer.”
“And they will be able to fight us.” “Oh, okay.
Well, we can compete with them using dirty tricks!”
“We already call them drug dealers, terrorists, and
pedophiles, but people still keep buying this shit.”
[Laughter] “I don’t know what else we could do. Some
of them even get up on stage and call us criminals now.”
“They’re becoming really audacious.”
“Then let’s get the government to regulate them!”
“We tried that. They regulated the exchanges;
gradually, the exchanges have turned into banks.”
“It kind of felt like we were winning.
But the more we closed the on-and off-ramps,
the more some of these weirdos just stay inside
the crypto economy and stop trading for fiat.”
“Then we really can’t control them. They are selling
their labor, products, and services directly for crypto.”
“They are paying their employees directly in crypto,
and they never exchange it for euros or dollars.”
“In fact, they even turned this into a slogan: HODL.”
“What does that mean?” the banker asks.
“I think it means ‘hold on for dear life.'”
It doesn’t! [Laughter] It is just ‘hold’ misspelled.”
“So they HODL? And make funny memes with Shiba Inu
dogs, smiling and saying ‘Wow, how crypto. Awesome’?”
“I don’t understand any of it.”
“We could try to sell the currency suddenly, to crash it.”
“It did crash, but some of them just held and
it went up again by eight times. That didn’t work.”
“Make the government sue them.”
“We already put a bunch of them in jail,
the ones who tell us what their name is.”
“But other than that, there are other people
who have it and we don’t know who they are.”
“They don’t touch the banking system.
We [haven’t been able to] put them in jail.”
“Just shut the whole thing down!” “Well, we can’t.”
Here’s the thing: this is really frustrating and
fundamentally unfair. I feel for the bankers.
It was so nice inside that golden cage. They wanted
to “invite” everybody into this nice regulator cartel.
This has been a very profitable [model] and
a rogue dis-organization is ruining the game.
That is fundamentally unfair…
Look at the psychology of fairness.
As human beings, we feel it very strongly. It is
fundamental party of what keeps society together.
One of the fascinating things I’ve read is, this is
not just a phenomenon among human beings,
but also our closest animal relatives: primates.
Our closest relatives are bonobos and chimpanzees.
They exhibit a very strong sense of fairness.
So do gorillas, other apes, and monkeys.
You can perform a simple experiment with two chimps
next to each other. Put one grape in front of each one.
They both eat their grapes and are very happy.
The next day, put one grape in front of one chimp
and two grapes in front of the other chimp.
The chimp with one grape will look over at
the other chimp with two grapes, and start screaming,
as if it is the other chimp’s fault.
It may even take the one grape it received,
which is still better than zero grapes,
the same amount of grapes it received
yesterday, and throw it at the researcher.
And continue screaming in their cage.
Why? Because it is unfair.
That sense of justice is really important in a social
animal, that fairness is part of our surroundings.
Without the feeling of fairness, without the feeling
of justice, we become unmoored from society.
We come isolated and depressed.
It can have a serious toll on your psyche…
if you don’t believe that justice
exists in some fundamental way.
If not in this universe (which it doesn’t, of course),
at least in the society of people around you.
Fairness is important. When faced with a system
that has two sets of rules, how do we respond?
If I must follow one set of rules, but then I notice
that another person in the same situation as me…
must follow another set of rules,
maybe an easier set of rules…
Even though I have been following these rules
for a very long time, I feel a sense of injustice.
‘Why do they get an easy ride?
I have to follow the hard rules.’
In a situation where you must follow rules,
and someone else has more freedom,
there are two rational responses.
1. I want to be that free too.
2. Fuck that guy. They should be miserable like me.
Guess which one the banks are going for.
They are faced with this situation of unfairness.
This Bitcoin thing isn’t playing by the rules.
It can’t be made to play by the rules.
If you kind of force it to play by the rules,
we will just invent another one that doesn’t.
We will probably still call it “Bitcoin” for [simplicity’s sake].
Then Bitcoin once again won’t be playing by the rules.
It may be a slightly different Bitcoin,
more stealthy, anonymous, and evasive.
Maybe, in the end, the people who use cryptocurrency
will be the only people with freedom.
The poor criminals, of course.
The rich criminals have always had freedom.
They don’t need cryptocurrency to achieve that.
They have Swiss bankers and lawyers.
They can buy freedom.
Freedom is something you can buy.
For poor people, they will use cryptocurrency
even if you ban the entire middle class from using it.
More and more of them are
falling out of the middle class.
Right into the clutches of these freedom-making
technologies, which is really frustrating for bankers.
[When faced with] “they don’t have to play by the rules,”
instead of saying, “We should play by the rules either,”
or at least, “You should try to relax these rules,”
or “We should test whether these rules are working…
the way we expect them to,”
they are saying, “Make them stop.”
They will keep saying, “Make them stop,”
even though they have seen for a decade now…
we are not stopping and we will continue on.
There are billions of people who need this.
There are billions of people who don’t have access…
to the nice gold cage, because they are on
the outside and will never be on the inside.
They will never have enough documentation, provable
wealth, light skin, recognition as a human being,
or enough of a penis, to ever have access to banking.
They fell outside of the golden cage
and they will continue to be outside.
It is astonishing that in 40 years into development
of the internet, 25 years of the commercial internet,
banking has refused to change [much]. If anything,
it is becoming more exclusive and unequal.
They are kicking more and more
people outside of the golden cage.
They are beginning to realize
how the cage is getting smaller.
Do you know those horror movies where [the
characters are] running around, they go into a room,
press one of the tiles, and suddenly the
walls start closing in? They say, “Oh shit!”
They run around some more to find the door.
Those kinds of movies. I’m sure you’ve seen one.
Indiana Jones was one, but there have been others.
It is great. It explains the human psyche so well.
It triggers that claustrophobic sense.
Well, right now, bankers are feeling that.
The golden cage keeps getting smaller and smaller.
If they keep banking fewer and fewer people,
playing with less and less of the world’s wealth,
concentrated in fewer hands, they become fragile.
The economic system they are presiding over,
the pyramid they are standing on top of,
has cracks [forming] in the foundation.
Every now and then, it starts shaking like
[those rooms] in the Indiana Jones movies.
‘I feel like I’m king of the world, but not for much longer.
Those peasants down there seem very damn angry.’
‘Is that a guillotine they’re building? I don’t like that at all.’
‘I will go to a nice gated community somewhere in
the Alps, with a vault where I can hide my wealth.’
That is the world we now live in. We are transitioning to
the stage where people will move behind higher walls,
in smaller and smaller compounds, to escape
the fate of everybody outside the golden cage.
Well, I have news for you. It is actually nice out here.
You should try it, outside the golden cage.
We have freedom. We have sovereignty.
We have monetary independence.
We control our own money.
We choose our monetary policies. They can be
for deflationary money that retains its value;
others choose inflationary systems.
We are building new, cool things.
Toys, smart contracts, and games.
We are tokenizing everything, just for the sake of it.
There are scams, weird and criminal people out here,
but at least none of them are criminal bankers,
who are all inside that golden cage.
They can’t come and play with us.
They built this cage they’re now locked in.
And it’s getting smaller. All I have to say is,
it’s lovely out here. Come and join me outside the cage.
Let them regret the decision to become the law
enforcement arm of corrupt governments and militaries.
They built the cage to increase their profits.
Now the are trapped. We’re outside, and we are free.
Thank you! [Applause]