The Breakdown - The Weaponization of the Banking System

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, August 29th, and that means it's time for Long Reads Sunday. And look, I'm a simple guy. I've got simple tastes. When Nick Carter writes a new opinion piece, especially one that's about the history of the weaponization of the financial system, you better believe that's what we're reading for Long Read Sunday. I don't need a big intro on this one. You know all you need to know. This is OnlyFans, shows how the banking

Starting point is 00:00:48 system is politicized by Nick Carter, published by CoinDesk. Recently, the noted content subscription service OnlyFans announced to move away from sexual content. Specifically, the platform announced a ban on explicit and sexual content while still permitting some more innocuous nude content. The move raised eyebrows, only fan banning sexual content is like a lion, announcing its intent to become a vegan, or soccer star Lionel Messi banning his left foot. Sexual content is quite simply OnlyFans Raised on Detrum. According to the platform's founder Tim Stokely, blame lies with major banks, such as Bank of New York Mellon. Quote, The change in policy, we had no choice, Stokely revealed to the Financial Times. The short answer is banks.

Starting point is 00:01:31 The platform later reversed itself, stating that it had, quote, secured assurances necessary. to support our diverse creator community, suspending the plan policy change. But the complete pivot, though subsequently walked back, was startling. How could payment processors or banks cause a platform largely used for sexually explicit purposes to renounce its entire business model, even if temporarily? Anyone who is vaguely familiar with payment processing

Starting point is 00:01:56 will not be remotely shocked by the episode. Sex-related internet platforms have been targeted for financial exclusion for the better part of a decade, while the government cannot, under the First Amendment, ban perfectly legal industries like adult entertainment, it can encourage banks and by extension payment processors not to support those industries, that banks are effectively extensions of the state. They have sole access to Federal Reserve Master accounts, are highly regulated and own extremely scarce bank charters. That all means that the government can make policy through banks without

Starting point is 00:02:26 passing laws. Far from the narrative being spun by liberals about the OnlyFans episode being further evidence of a radical Puritan agenda being imposed by wannabe Christian Theocrats, the identification of pornography as a high-risk industry began with a shadowy Obama-era program known as Operation Choke Point. The approach was simple. The Department of Justice, in conjunction with the Federal Deposit Insurance Corporation, FDIC, realized around 2012 that it could exert pressure on politically disfavored industries under the guise of eliminating fraud. The operation involved threatening banks with expensive and reputation-damaging investigations and subpoenas. If they failed to coerce payment processors providing services to those industries

Starting point is 00:03:05 into cutting them off. Through chokepoint, the DOJ and FDIC deputized banks and turned them into an enforcement arm of the government. That approach was and remains legally questionable. Critics questioned the DOJ's standing to pressure banks to redline whole industries without establishing actual legal malfeasance. By vaguely threatening banks and by extension, payment processors relying on those banks, the DOJ did not need to rely on legislation to ban entire industries de facto. They could simply choke off their financial lifeblood and compromise their ability to operate, much like the government's extra-legal but still apparently persuasive in treaties to big tech oligopolis to de-platform disfavored content. The private sector isn't bound

Starting point is 00:03:43 by the First Amendment, after all. Choke Point relied on threats of financial enforcement and expensive subpoenas to obtain compliance. When the Constitution constrains the state, the government is apt to find end-arounds by mobilizing the private sector. Banks, of course, are not just private companies, as the pro-censorship refrain goes today. They are agents of the state, but just distant enough that persuading them to de-risk disfavored industries wasn't blatantly unconstitutional. Ostensibly focused on stopping legal but distasteful businesses like payday lending, chokepoint quickly ballooned out of control. By 2014, the FDIC's website listed 30 merchant categories associated with high-risk activity, many of them perfectly legal, at least in many

Starting point is 00:04:24 states. Those included ammunition and firearm sales, coin dealers, fireworks sales, as seen on TV sales, tobacco sales, travel clubs, credit repair services, and pornography. Regarding the latter, Chokepoint historian Ian Murray has speculated that porn was included not because of any puritanical sentiments in the Obama DOJ, but because its high chargeback rate caused it to be associated with other high-risk industries. Chokepoint found inspiration in the online poker ban from 2011 through the Southern District of New York's action against three major poker companies, which many bitcoiners will remember clearly. The poker companies were primarily indicted for circumventing a 2006 law, the Unlawful Internet Gambling Enforcement Act, which effectively made

Starting point is 00:05:05 processing gambling-related payments illegal. As a result, full tilt and poker stars began concealing the nature of payments in order to retain financial access to their customers. It was this deception that ultimately led to criminal charges. If that sounds reminiscent of the plate of certain stablecoins, whose problems stem from finding end-round's bank exclusion, it's no coincidence. Walling off an industry from financial services and scrutinizing its attempts to reconnect with customers is an effective means of criminalizing a politically unpopular industry. NIDIG sponsors this podcast, and they also put out a really good newsletter, focused purely on Bitcoin. If you want insights into what's driving market moves, regulatory changes, and the

Starting point is 00:05:50 metrics that deserve your attention, sign up at nidig.com slash NLW. That's NYDIG forward slash NLW. Chokepoint 1.0 eventually came to an end when a number of policymakers realized what the DOJ was doing and raised concerns. Missouri Representative Blaine Lutkimer, a Republican, led the charge to shame the DOJ into ending the practice in 2017, but the damage was done. Choke Point did not disappear. Rather, it was simply internalized by banks and payment processors. The message to payment processors, while implicit, remains clear. Support politically exposed businesses and face a loss of banking. One must merely observed today how wary financial services companies are of servicing politically exposed individuals or firms. Examples abound. In 2018, Bank of America and Citigroup abruptly de-platform firearms manufacturers.

Starting point is 00:06:44 Twelve Democratic senators promptly followed that move by demanding that 11 other major banks follow suit. Not satisfied with merely de-platforming firearms companies, Bank of America has begun voluntarily informing the federal government about its customer's gun-related activity, all without getting subpoenas. Firebrand progressive Alexandria Ocasio Cortez. has indicated her willingness to employ her seat on the House Financial Services Committee to prosecute social issues, including private prisons. In response to a pressure campaign, numerous banks withdrew their support for the Dakota Access Pipeline, and this tone extends to the very top. While the Brian Brooks-led office of the comptroller of the currency under then-President

Starting point is 00:07:19 Donald Trump passed a fair access rule, designed to prohibit chokepoint-style selective platforming by banks, the Biden-OCC promptly rolled back the rule. This belief that financial services should be weaponized for policy outcomes explains enthusiasm for central bank digital currencies among progressives, who worryingly extolled the virtues of a Chinese social credit scheme with American characteristics. Choke Point was just an appetizer. This dismal future portends a world where it's not just

Starting point is 00:07:45 Alex Jones and Nick Fuentes, who are kicked off the financial internet, but any conservative expressing subversive thoughts online. Naturally, the would-be architects of these schemes did not devote much to the risk of a wholly politicized payment system falling into the hands of their political opponents. Trump was not particularly interested in deputizing financial infrastructure for political adventurism, but his successor, Biden, certainly is. Liberals decrying the only fans' ban should consider it a mere taste of what a wholly politicized financial sector might look like. Had Trump been more

Starting point is 00:08:12 competent, he might have sought to use such underhanded tactics to de-platform abortion clinics, progressive nonprofits, educational institutions pedaling critical race theory, teachers' unions, or other causes he politically objected to. It just so happens that the instruments of state power in this context have largely been wielded against conservative so far, but that may not last forever. If there's a silver lining in the OnlyFans episode, it's a reminder that it can happen to you, too. The only plan to de-platforming is an exception in that, for once, it was a liberal cause that was threatened with bank exclusion. The current anti-sex worker agenda, despite a solidly blue administration, is simply a reminder that censorship, once normalized, always strays from its

Starting point is 00:08:49 initial confines. If choke point acknowledges its unacknowledged revival under Biden, the progressives who, by and large, support selective financial exclusion, just witness the jubilation when right-as platforms like Gavin Parlor have their payment relationships stripped, should consider what a similar program might look like under a president, Cotton, DeSantis, or Holly. The bottom line is that platforms like OnlyFans shouldn't be marginalized via an opaque process involving extra legal guidance emanating from unaccountable bureaucrats and regulators. We are still nominally a nation of laws and constitutional constraints. Instead of petitioning the state to ban one's ideological enemies from financial,

Starting point is 00:09:24 infrastructure, and being taken by surprise when the political pendulum swings back, we ought to embrace neutral apolitical financial infrastructure. OnlyFans is a potent reminder. You simply never know when you'll be on the receiving end of the stick. All right, back to NLW. I've now talked about the only fans dust up enough at this point that you probably have a pretty good sense of my feelings about it. And instead, what I want to hone in on about Nick's piece, which is the thing that I find

Starting point is 00:09:50 myself so fiercely agreeing with, is the sort of ends just... justify the means thinking that people always, always, always throughout history fall into when it comes to politics. The point of laws, of democratic process, of all of these things that have allowed America to become what it is and to last for so long, are that they apply equally when your people are in power or when the other folks are in power. When we allow these sort of extra political means of making policy by default to become the norm, We risk normalizing the very thing that might undermine the system as a whole. I believe that progressives, even those who wish to fight as hard as they can, the Second Amendment, I think Nick puts it perfectly.

Starting point is 00:10:34 Under Obama, it was guns. Under someone else, it's going to be something else, and something else that might really matter to progressives. This comes back to why the entire affair around the infrastructure bill has been so frustrating to me. By passing that law unamended, they've effectively ceded the authority that was given to them by their electorates to a group of people who weren't elected but instead were appointed. There will inevitably be some of that in the way that things are actually run in the American

Starting point is 00:11:03 democratic process, but that's not something we should strive for. We want laws to be written by those who can be held accountable for the laws that they write, not those who can just give anonymous quotes to papers and tell us that everything's going to be fine and just trust us. But for now, I hope this was an interesting look. into a part of the weaponization of financial history that we don't talk about too much, and I hope you're having a great weekend. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - The Weaponization of the Banking System

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