Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.
Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy.
You will now start receiving email updates
You are already subscribed
Something went wrong
By SAM SUTTON
Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
Only hours after former billionaire CEO Sam Bankman-Fried stepped down from the company as it filed for bankruptcy on Friday, a suspected hack drained hundreds of millions of dollars worth of crypto assets from customer accounts. The overnight attack, coupled with the bankruptcy, severely damages whatever chance the Bahamas-based exchange’s users have at recovering assets that have been frozen on the platform since Tuesday.
“We have been in contact with, and are coordinating with law enforcement and relevant regulators,” the company’s new CEO and chief restructuring officer John Ray III said in a statement.
So, what does this mean for Washington?
The chaos caused by FTX’s bankruptcy has completely upended crypto policy battles that have been going on for more than a year.
Most immediately, the plan by Senate Agriculture Chair Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.) to to give the Commodity Futures Trading Commission oversight of crypto exchanges is going to face stiff opposition from consumer groups and crypto industry lobbyists who have hammered the measure as an example of Bankman-Fried’s influence with Washington policymakers.
Bankman-Fried had been one of the bill’s biggest champions and as more digital asset startups fall under the weight of FTX’s collapse, lawmakers will face pressure to reassess their approach to crypto, according to multiple sources on the Hill.
“Efforts by billionaire crypto bros to deter meaningful legislation by flooding Washington with millions of dollars in campaign contributions and lobbying spending have been effective,” said Rep. Brad Sherman (D-Calif.) – a major crypto skeptic – said in a statement on Sunday.
And while Bankman-Fried’s political largess mostly benefited Democrats, Sherman noted that Ryan Salame, another top FTX expected, spent millions backing Republican candidates during the midterms.
Meanwhile, Washington insiders are starting to hammer U.S. regulators for failing to protect investors from FTX’s calamity. Better Markets CEO Dennis Kelleher on Sunday issued a statement blasting the CFTC – which until Friday had been weighing FTX’s controversial proposal to let retail investors use borrowed money to trade crypto — for acting as a “a crypto cheerleader in an attempt to expand its jurisdiction.”
“The events of the last week demonstrate the need for Congressional action,” CFTC spokesman Steven Adamske said in a statement.
Top Republicans, including the Senate Banking Committee’s ranking Republican Sen. Pat Toomey of Pennsylvania, are sharpening their knives for the Securities and Exchange Commission — pinning the disaster on the agency’s unwillingness to work with industry.
“These failures have driven crypto development to foreign jurisdictions that have little or insufficient regulation. We’re now seeing the consequences in the failure of [FTX],” Toomey said in a series of Twitter posts late Friday.
SEC Chair Gary Gensler has argued that the industry has been highly resistant to his agency’s guidance.
“This is a field that’s significantly non-compliant,” Gensler said in an appearance on CNBC last week.
Those were hardly the only FTX developments.
— Bankman-Fried was questioned by police and securities regulators in the Bahamas in connection to a criminal misconduct probe, according to Bloomberg’s Katanga Johnson.
— FTX on Sunday mysteriously released roughly $400 million in FTT — an FTX-native token that was at the heart of the trading scandal that destroyed Bankman-Fried’s investment empire — sparking more fears of illicit activity.
— Our Declan Harty: “California regulators on Friday said they suspended crypto startup BlockFi from operating in the state after it paused client withdrawals amid the digital asset crash triggered by the FTX meltdown”
— Bloomberg’s Yueqi Yang: “A breakdown of the balance sheet of Sam Bankman-Fried’s exchange shared with investors a day before its bankruptcy filing shows that it had nearly $9 billion in liabilities and $900 million in liquid assets, $5.5 billion in “less liquid” assets, and $3.2 billion in “illiquid” assets … Most of the biggest holdings, including lower-profile cryptocurrencies Serum, Solana and FTT, have since plunged in value.”
— Miami-Dade County and the Miami Heat announced they would terminate FTX’s $135 million NBA stadium naming rights deal.
IT’S MONDAY — And it’s a jam-packed week in Washington. Send us your tips, story ideas or feedback before you log off for the weekend: [email protected] and [email protected].
POLITICO APP USERS: UPGRADE YOUR APP BY DECEMBER 19! We recently upgraded the POLITICO app with a fresh look and improved features for easier access to POLITICO’s scoops and groundbreaking reporting. Starting December 19, users will no longer have access to the previous version of the app. Update your app today to stay on top of essential political news, insights, and analysis from the best journalists in the business. UPDATE iOS APP – UPDATE ANDROID APP.
The New York Fed will release inflation expectations survey data at 11 a.m. … Federal Reserve Board Vice Chair Lael Brainard speaks at 11:30 a.m. … Bank regulators will testify in front of the Senate Banking Committee on Tuesday and House Financial Services on Wednesday … Household debt data released Tuesday … The SEC is holding its securities enforcement forum on Tuesday … Federal Reserve Board Governor Lisa Cook speaks on Tuesday … Federal Reserve Governor Christopher Waller speaks Wednesday … Retail sales data released on Wednesday … Fed Governor Michelle Bowman speaks on Thursday … Fed Governor Philip Jefferson speaks on Thursday … SEC Commissioner Mark Uyeda speaks on Thursday … Housing starts released Thursday … Home sales Friday
GOP FEELS BLUE — Our Zach Montellaro: “With the Senate now in hand, Democrats are hoping for something that was almost unimaginable a week ago: keeping the House. Sen. Catherine Cortez Masto (D-Nev.) was declared the winner over Republican Adam Laxalt late Saturday night, securing Democrats at least a 50-50 split in the upper chamber … After her win, all eyes turn to the House. There are still 20 seats left uncalled, and Democrats have a legitimate — if narrow — chance of holding the lower chamber as well.”
— Steven Shepard has more on the state of play for the remaining House races.
YELLEN SAYS RAISE THE ROOF — NYT’s Alan Rappeport: “Treasury Secretary Janet L. Yellen called on Congress to raise the nation’s statutory debt limit high enough that it would not be reached until after the 2024 election, a move that would neutralize the ability of Republicans to block the United States from paying its bills in order to extract legislative concessions from Democrats.”
OVER THEIR SKIS — Bloomberg’s Matthew Burgess and Benjamin Purvis: “The dollar climbed against most major peers Monday after Federal Reserve Governor Christoper Waller pushed back on bets the US central bank was nearing the end of its hiking cycle … Waller also said the market got ‘way out in front” over the unexpected cooling in inflation.”
GO INSIDE THE MILKEN INSTITUTE FUTURE OF HEALTH SUMMIT: POLITICO is featuring a special edition of our “Future Pulse” newsletter at the 2022 Milken Institute Future of Health Summit from Dec. 6 to 8. The newsletter takes readers inside one of the most influential gatherings of health industry leaders and innovators solving the biggest global health issues to ensure a healthier, more resilient future for all. SUBSCRIBE TODAY TO RECEIVE EXCLUSIVE COVERAGE.
IT’S NOT OVER YET — Bloomberg’s Denitsa Tsekova: “Euphoria is sweeping every corner of Wall Street in the wake of the latest data that suggests inflation is peaking from a four-decade high. Yet big money managers are in no mood to celebrate – betting that the world will have to contend with elevated prices for years to come, in a game-changer for investing strategies of all stripes.”
HEARTLAND — NYT’s Linda Qiu: “A series of economic forces — high prices for commodity crops like corn, soybeans and wheat; a robust housing market; low interest rates until recently; and an abundance of government subsidies — have converged to create a ‘perfect storm’ for farmland values, said Jason Henderson, a dean at the College of Agriculture at Purdue University and a former official at the Federal Reserve Bank of Kansas City. As a result, small farmers … are now going up against deep-pocketed investors, including private equity firms and real estate developers, prompting some experts to warn of far-reaching consequences for the farming sector.”
BACK TO THE DRAWING BOARD — WSJ’s Akane Otani and Karen Langley: “For decades, Americans planning for retirement have been advised to invest in a mixture of stocks and bonds. The idea was simple. When stocks did well, their portfolios did, too. And when stocks had a bad year, bonds usually did better, which helped offset those losses. It was one of the most basic, dependable ways of investing, used by millions of Americans. This year it stopped working.”
DODGING A BULLET — WSJ’s Matt Wirz: “Sometimes in investment banking, it is the deals you don’t do. JPMorgan Chase & Co. has avoided most of 2022’s so-called hung deals that have cost competitors billions of dollars in paper losses. Whether by luck or by design, the biggest U.S. bank didn’t make loans backing takeovers of companies such as Twitter Inc., Citrix Systems Inc. and Nielsen Holdings PLC, which fell in value as markets turned choppy.”
MUNI BONDS — WSJ’s Heather Gillers: “U.S. voters said yes to tens of billions of dollars for road-paving, school-building and other local projects last Tuesday, promising a new wave of bonds for eager investors … State and local governments have pulled back on borrowing this year, issuing $257 billion in tax-exempt debt through October, down 7.5% from the same period last year. Higher interest rates and inflation are driving up construction costs, leaving some public officials wary of new projects.”
PROBLEMS EVERYWHERE — CoinDesk’s Elizabeth Napolitano: “Trading volume on Coinbase plunged roughly 75% in the hours following FTX’s bankruptcy announcement early Friday, according to data from Nomics, a sign the company is beginning to feel the pain from crypto investors shrinking from the increasingly volatile cryptocurrency market.”
— Hong Kong-based crypto exchange AAX announced it was suspending withdrawals amid broad market volatility.
— Crypto.com, another major digital asset exchange, faced a wave of customer withdrawals after Chief Executive Kris Marszalek disclosed the company had mistakenly sent $400 million to another crypto exchange.
Yellen on Saturday called for stabilizing the United States’ rocky relationship with China and reopening regular lines of communication between the world’s two largest economies ahead of a global gathering next week where their leaders are expected to meet. — NYT’s Alan Rappeport
Senior Indonesian politicians are calling on Western leaders to make concessions on how far to go in criticizing Russia over the war in Ukraine in a last-ditch effort to avoid leaving the G20 summit later this week without a joint declaration. — Our Stuart Lau
© 2022 POLITICO LLC