Commentary: Crypto as Kryptonite: The Great Meltdown of 2022*​​​

by Thomas J. Salerno
Stinson LLP (Phoenix)

It wouldn’t be the holidays without talking about a classic holiday movie: Frank Capra’s 1946 classic It’s a Wonderful Life. It’s the story of George Bailey, who inherits the Bailey Building & Loan Association founded by his father in the 1940s, and who forgoes his dreams of traveling the world to instead help the multicultural residents of fictional Bedford Falls, N.Y., realize the dream of home ownership. What does any of this have to do with the recent, dizzying crash of many crypto exchanges and the resulting staggering loss of value of this phantom currency? If there’s any maxim that stands the test of time for me in 40 years of law practice, it is that history will repeat itself; the vignettes that flash across the economic landscape will just take different forms. Read the full commentary.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Attending WLC? Don't miss the "Dealing with Digital Assets" session on Saturday morning!

SEC Faces Calls to Boost Crypto-Exchange Enforcement After FTX Collapse​​​

Pressure is mounting on the Securities and Exchange Commission to step up enforcement of key hubs of the crypto industry after the collapse of FTX last month, the Wall Street Journal reported. FTX’s bankruptcy put the focus on crypto exchanges, the primary hubs for individual investors that offer such services as digital-coin sales, lending and the safekeeping of assets. Despite investigating parts of the industry for over six years, the SEC has yet to sue a major crypto exchange. The SEC has investigations underway focusing on exchanges including Coinbase Global Inc. and the U.S. businesses of Binance and FTX, according to people familiar with the matter and regulatory disclosures, and it has fined or sued dozens of token developers over the past six years. The SEC has said that many cryptocurrencies qualify as securities that should have been sold under rules for stocks and bonds. SEC Chair Gary Gensler has said that exchanges are breaking the law by selling those unregistered securities and not following rules that the Nasdaq Stock Market and the New York Stock Exchange observe. Read more. (Subscription required.)

U.S. Consumer Borrowing Continues to Grow at Solid Rate in October​​​

Total consumer credit rose $27.1 billion in October, up from a revised $25.8 billion gain in the prior month, the Federal Reserve said Wednesday. That translates into a 6.9% annual rate, up from a revised 6.6% gain in the prior month, MarketWatch.com reported. Revolving credit, mainly credit cards, rose 10.4% in October after an 8.2% gain in the prior month. Nonrevolving credit, typically auto and student loans, rose 5.8%, down from a 6.1% growth rate in the prior month. The Fed’s data does not include mortgage loans, which is the largest category of household debt. Credit card balances increased 15% over the past year ended in September, according to separate New York Fed data. This is the largest increase in more than 20 years. Read more.

U.S. Labor Market Still Tight Despite Continuing Claims Hitting 10-Month High​​​

The number of Americans filing new claims for jobless benefits increased moderately last week, pointing to a still-tight and strong labor market despite growing fears of a recession as the Federal Reserve fights to dampen demand, Reuters reported. Although the weekly jobless claims report from the Labor Department on Thursday showed unemployment rolls, or the so-called continuing claims, rising to a 10-month high in late November, economists cautioned against reading too much into the move, as the data are volatile around this time of the year. Initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 230,000 for the week ended Dec. 3. Last week's increase was in line with economists' expectations. Claims are well below the 270,000 threshold, which economists said would raise a red flag for the labor market. Claims tend to be volatile at the start of the holiday season, as companies temporarily close or slow hiring, which can make it hard to get a clear read of the labor market. They shot up to a three-month high a week before the Thanksgiving holiday, only to almost unwind the surge in the following week. Nevertheless, there has been a rise in layoffs in the technology sector, with Twitter, Amazon and Meta, the parent of Facebook, announcing thousands of job cuts in November. Unadjusted claims jumped 87,113 to 286,436 last week, driven by large increases in California, New York, Georgia and Texas. There were also notable rises in Illinois, Pennsylvania, Indiana, Ohio, New Jersey and Washington state. Read more.

As Supply Chains Unclog, Consumers Enjoy (Tentative) Relief​​​

Back in January, 109 container ships waited off the California coast to unload cargo in Los Angeles and Long Beach, the nation’s two largest ports. Consumers, stuck at home amid the pandemic, had unleashed an avalanche of orders for goods that overwhelmed factories and ports, the Associated Press reported. Importers were paying $20,000 to send a single container from China to the U.S. — sometimes more than the goods inside were worth. Businesses had to backorder everything from bedroom furniture to kitchen fryers, if they could get them at all. Now freighters are no longer lingering off the Southern California coast. Containers from China go for just $2,000. Restaurants can order fryers and have them delivered in a couple of weeks. The supply backlogs of the past two years — and the delays, shortages and outrageous prices that came with them — have improved dramatically since the summer. The web of factories, railroads, ports, warehouses and freight yards that link goods to customers have nearly regained their pre-pandemic levels. The easing of supply bottlenecks has begun to provide some relief from the inflation that this year reached a four-decade peak, pummeling consumers and businesses. The progress has been modest and so far short-lived, yet it has still provided a glimmer of good news in the holiday shopping season: Gift items are much likelier to be in stock, perhaps at lower prices. The government’s latest inflation report showed that prices of toys, jewelry and girls’ apparel all fell in October. Read more.

A session tomorrow at ABI's Winter Leadership Conference will be looking at the current status of supply chains and what may lie ahead!
 

Biden Releasing Nearly $36B to Aid Pensions of Union Workers​​​

President Joe Biden today is announcing the infusion of nearly $36 billion to shore up a financially troubled union pension plan, preventing severe cuts to the retirement incomes of more than 350,000 Teamster workers and retirees across the U.S., the Associated Press reported. The money for the Central States Pension Fund is the largest amount of federal aid provided for a pension plan, the Biden administration said, and comes from the American Rescue Plan, a $1.9 trillion coronavirus relief package that he signed into law in 2021. Many union retirement plans have been under financial pressure because of underfunding and other issues. Without federal assistance, Teamster members could have seen their benefits reduced by an average of 60% starting within a couple of years. Multiemployer pension funds are created by agreements between unions and companies and are partially insured by the federal government’s Pension Benefit Guaranty Corporation. The insurance program was on track to become insolvent in 2026, but the pandemic relief money is expected to keep it on firm footing through 2051.Read more.

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