The FTX Debacle Presents a Clear Opportunity to Cut Financial Regulation
The meltdown of Sam Bankman-Fried’s FTX was enabled by too much regulation, not too little
With the 1978 Supreme Court ruling, Marquette National Bank of Minneapolis vs. First of Omaha Service Corp, the United States Supreme Court said that if a company is physically based in a certain state, it is that state’s usury laws that apply, even with customers based in another state.
Banks were struggling to make money in the credit card business because the cost of capital was very high at the time. But with this landmark decision, banks could export the high interest rate that one state allowed to all the other states where they do business.
This is why your credit card statement almost always has a return address in South Dakota or Delaware, where the maximum allowable interest rates were very high at the time, if there were limits at all. Hence why Sioux Falls has one of the largest post offices in the world.
With that precedent in mind, if I were in charge of a state facing fiscal challenges, I would immediately pass sweeping financial deregulation.
Call it the “Louisiana Financial Services Reform and Transparency Act of 2023.” And promote the bill under the banner of “consumer protection” to capitalize on the recent collapse of FTX and build support from the public.
Then I would very tactfully attempt to create case law that enables the local securities laws of that state to be exported to every other state, in the same same way that usury laws are.
In doing so, that state would of course need to make sure that their new financial reform bill is still reasonably consistent with the overarching federal law governing securities. This part would be quite involved, but not impossible. If worse comes to worse, the state could simply refuse to enforce or cooperate with the enforcement of those federal laws which contradict their state’s law, in the same way that certain states currently do with many drug laws.
This is a very straightforward plan and would make any state who managed to pull it off a massive hub for America’s financial services sector.
If the residents of your state are going to fall victim of operations like FTX, it makes sense for your state to profit from the operation being headquartered locally prior to going bust, rather than handing over all the profits and jobs to places like The Bahamas or Dubai.
Plus, if they’re headquartered locally, attracted by your state’s lack of regulation, it’s much easier to oversee them and step in to stop abuses when they do take place.
Chasing these outfits to The Bahamas by having overly burdensome regulation on the books helps no one except for the Bahamians.
About The Author: Jacob Wohl is a registered lobbyist in Washington DC and Host of The Jacob Wohl Show.