Keep your fears to yourself but share your courage with others.
― Robert Louis Stevenson
All Quiet on the Western Front Spy Talk. An odd article. “[Hayden] also took for granted that secret services were the only real measure of a nations political health, the only real expression of its subconscious.”
–John LeCarré, Tinker, Tailor, Soldier, Spy
The Spy Inside Your Smartphone
In 2014, Billabong founder Gordon Merchant wanted to sell his bioplastics business. He also wanted to make sure he didn’t pay much tax. Now the advice he took from EY has led to a $50m tax bill. NDIS participants manipulated by organised crime as agency calls for greater protections
‘Too late to prosecute’: Fraud rife among NDIS managers
The National Disability Insurance Scheme integrity chief says nine out of 10 plan managers surveyed showed signs of fraud and the justice system would be overwhelmed if all the scams carried out on the $44 billion program were prosecuted.
In fiery testimony, John Dardo told a Senate committee that internal analysis showed 90 per cent of plan managers that wrangle funding for up to 100 participants (about 900 of 1540 managers in total) portrayed “significant indicators of fraud”.
Two From the Tabarrok Brothersby
Maxwell Tabarrok offers an excellent review of an important paper.
Taxation and Innovation in the 20th Century is a 2018 paper by Ufuk Akcigit, John Grigsby, Tom Nicholas, and Stefanie Stantcheva that provides some answers. They collect and clean new datasets on patenting, corporate and individual incomes, and state-level tax rates that extend back to the early 20th century. The headline result: taxes are a huge drag on innovation. A one percent increase in the marginal tax rate for 90th percentile income earners decreases the number of patents and inventors by 2%. The corporate tax rate is even more important, with a one percent increase causing 2.8% fewer patents and 2.3% fewer inventors.
Especially useful is Max’s back of the envelope calculation putting this result in the context of other methods to increases innovation.
Read the whole thing.
For something completely different, Connor Tabarrok offers an update on Charlotte the Stingray:
A “miracle pregnancy” picked up by national news brought huge business to a small-town aquarium, but months after the famous stingray was due, there are still no pups. Are we being scammed by a fish?
I particularly liked this line:
Taking all of this into account, my stance is that even if they got it on, it’s unlikely that this shark will have to dish out any child support to Charlotte’s pups.
Read the whole thing.
Are MD readers more interested in tax policy or virgin birth stingrays? We shall see.
Google Researchers Say AI Now Leading Disinformation Vector
404 Media – and Are Severely Undercounting the Problem – “As an endless stream of entirely wrong and sometimes dangerous AI-generatedanswers from Google are going viral on social media, new research from Google researchers and several fact checking organizations have found that most image-based disinformation is now AI-generated, but the way researchers collected their data suggests that the problem is even worse than they claim. The paper, first spotted by the Faked Up newsletter, measures the rise of AI-generated image-based disinformation by looking at what fact checkers at Snopes, Politifact, and other sites have claimed were image-based disinformation.
Overall, the study looks at a total of 135,838 fact checks which date back to 1995, but the majority of the claims were created after 2016 and the introduction of ClaimReview, a tagging system that allows fact checkers and publishers to flag disinformation for platforms like Google, Facebook, Bing, and others.
The most telling chart in the study shows the “prevalence of content manipulation types as a function of overall content manipulations.” In other words, it shows the different types of image-based disinformation and how common they are over time…”
The Sea Change on Crypto-Regulation
In the last few weeks there has been a sea change in crypto regulation:
1. Bitcoin spot ETFs were approved–reluctantly, after a 3-judge Federal Appeals court ruled unanimously that the SEC had acted arbitrarily and capriciously–but nevertheless opening Bitcoin holdings to institutional investors. Case in point, The State of Wisconsin bought Bitcoin ETFs for its pension fund.
2. In a very unusual move, SAB 121, was overturned by the House and then, even more surprisingly, overturned by the Senate including the votes of many Democrats. < href=”https://www.sec.gov/oca/staff-accounting-bulletin-121″>SAB 121 is an SEC staff accounting bulletin (not law but guidance) that said to banks if you hold crypto for your customers, i.e. a custody service, you must account for it on your balance sheet. This guidance does not apply to custody of any other asset. Essentially, SAB 121 made it prohibitive for banks to offer custody services for crypto because that service would then impact all kinds of risk and asset regulations on the bank. Aside from singling out crypto, the SEC is not a regulator of banks so this seemed like a regulatory overreach.
President Biden said he will veto but that is no longer certain. It wasn’t just crypto lobbying against SAB 121 but traditional banks. The banks point to the approval of Bitcoin ETFs saying, quite logically, why can’t we custody these ETFs the way we do every other ETF? Senate Majority leader Chuck Schumer, D-N.Y., sometimes called Wall Street’s man in Washington, voted in favor of nullifying SAB 121. Schumer can read the room.
3. The House voted to ban the Fed from establishing a Central Bank Digital Currency (CBDC).
4. The House approved a wide-ranging bill to (finally!) establish regulations for digital assets markets. The vote was 279-136 in favor with many Democrats crossing party lines to support it.
5. After saying nothing for months, usually a bad sign, the SEC approved Ethereum spot ETFs. On the surface, this might have seemed logically inevitable given the approval of Bitcoin spot ETFs but many people thought the SEC would do everything it could to find daylight between Bitcoin and ETH. Instead, it tacitly acknowledged that ETH is a commodity and not a security.
Why is this happening? I see three main factors at play. First, crypto is becoming integrated with traditional finance. As the big banks get involved, the politics around crypto are shifting. Second, crypto is becoming normalized. Ironically, the prosecution of Sam Bankman-Fried, Changpeng Zhao and manipulators like Avraham Eisenberg may have convinced some U.S. regulators that crypto doesn’t have to be destroyed, it can be tamed. Nakamoto might not be pleased but realistically this was the only option to move forward. Eventually, everyone wants to pay their mortgage. Third, Trump’s strong endorsement of crypto has alarmed the Biden administration. Most political issues are firmly divided along party lines, but crypto remains an open issue. With millions of crypto owners in the United States, a significant number are highly motivated to vote their wallets. Biden doesn’t want to give the crypto issue to Trump.
None of this means we are entering crypto Nirvana but as far as regulation is concerned a lot has changed in just a matter of weeks.
Full Disclosure: I am an advisor to several firms in the crypto space including MultiversX, Bluechip and 0L.
