Opinion: Opinion: FTX was a warning. We must plug the other holes in the Swiss cheese.
FTX’s unraveling should not have come as any great surprise. When an unregulated market like crypto is opened to financial novices, mistakes are bound to be made and fraudsters are sure to take advantage.
But it’s one thing if a billionaire gets conned, and quite another if a struggling gig worker is gulled into investing their limited assets in a bogus product. That’s why, if crypto was going to be marketed to ordinary people, it should have been regulated first. Policy makers, who are currently letting unwitting consumers engage in unregulated markets even outside of crypto, should take that lesson to heart.
Beyond reconsidering if and how it oversees digital currency markets, Washington needs to rethink its Swiss-cheese approach to the financial regulation more universally.
John J. Ray III, the new chief executive of FTX, testified in front of a House committee Tuesday on the collapse of the crypto exchange. His testimony came less than a day after the company founder, Sam Bankman-Fried, was arrested in the Bahamas. Photo: Al Drago/Bloomberg News
Regulators are always a step behind
The FTX scandal follows the well-trodden arc of what might be called “regulatory lag.” The Lincoln administration established the Comptroller of the Currency only after “wildcat” bankers invested their customers’ deposits in failed speculative schemes. The Securities and Exchange Commission and the Federal Deposit Insurance Corp. were born only after a financial crisis. The Consumer Financial Protection Bureau was created only after the mortgage bubble popped in 2008.
On occasion, financial crises sometimes emerge because regulators miss a scandal—but more often they’re born from changes in the unregulated corners of the broader financial marketplace. The concern today is that those sorts of risks are growing.
Well beyond FTX, or crypto more…
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