Chris Walker: Facebook’s Mark Zuckerberg gets fed to the lions

Watching Mark Zuckerberg testify before Congress was like watching a grisly spectacle at the Coliseum in ancient Rome.
The Facebook CEO had been hauled in to justify Libra, his troubled project to create a new global cryptocurrency. The scramble to slice pieces off him tells investors one thing: the project seems doomed. The scrutiny it attracts is already proving dangerous for members. Perhaps for all cryptocurrencies in general.
I never thought I’d feel sorry for Mark Zuckerberg. But seeing him endure repeated attacks over six hours was gruelling. He appeared before the Financial Services Committee supposedly to discuss his Libra project, but there seemed plenty of other things on politicians’ minds.
Chairwoman Maxine Waters led the charge, helpfully suggesting “perhaps you feel you are above the law” before itemizing Facebook’s crimes. A lack of corporate diversity, ‘allowing’ Russia to influence the 2016 election, the publishing of fake news, and even encouraging voter suppression.
Alexandria Ocasio Cortez joined in with a series of hostile questions along the lines of ‘just how many lies can someone tell on Facebook unhindered.’ While Rashida Tlaib rounded on Zuckerberg “as the mother raising two Muslim boys during what is a pretty dark time” accusing him of helping create a climate of hate.
California representative Katie Porter even mocked Zuckerberg’s haircut, sarcastically thanking him for modelling “a teenage short cut.”
The founder of one of America’s most successful companies crumpled before this onslaught.
Some of the committee actually discussed Libra. Zuckerberg’s messaging on the new project was audacious – perhaps too audacious.
It was twin pronged. The new currency is to be called Libra because it is a bold, democratizing, project to giving the most underprivileged access to the financial system. This includes 14 million without a bank account in the US itself. Secondly, he asserted that “if America does not innovate (in digital payments) our financial leadership is not guaranteed.” Warning that “China is moving quickly to launch similar ideas in the coming months.”
Zuckerberg does have a point here. When Libra was launched in June, China dusted off an old plan to launch a cryptocurrency and went into overdrive. The central bank deputy director Mr. Mu promises anonymity “as long as you aren’t committing any crimes. “ But then in China criticising the government is a crime. A state-issued digital currency in China will look very different from Facebook’s ‘tool of emancipation.’
Zuckerberg’s patriotic claims are somewhat undermined by the fact that Libra is incorporated in Switzerland. The Committee were equally stony faced on the idea of him as the great liberator. Democrat Brad Sherman of California said it was ludicrous for “the richest man in the world to come here and hide behind the poorest.”
Adding: “You’ve done no effort to help the unbanked anywhere else and any other time.” Zuckerberg is indeed rather fuzzy on exactly how he’d do this and meet ‘know your customer’ rules.
Critics suggest darker forces behind Facebook’s sudden interest in expanding financial inclusion. They point to WhatsApp Pay’s trial in India which did bring in a million new users to the financial system but allegedly so Facebook could use purchase history to target ads. A leaked internal memo suggested something similar in plans for Mexico.Responsible investors may not want personal payment history in the hands of the Chinese Government. But should they prefer it to be in the hands of an enormous multinational?

In this context the stock market reaction to the testimony was interesting. Despite the mauling, shares in Facebook actually rose two per cent on the day. This can’t be because investors now have a clearer picture of how Libra would work. They don’t. Nor because politicians now seem ‘on board.’ They aren’t. Maybe in reality it’s because investors now believe Zuckerberg will abandon his impossible dream.
But is it too late for Facebook, and its Libra partners, to escape the politicians and their regulators? Zuckerberg’s supposedly big concession that he would await US regulatory approval was a forced reaction to their growing disquiet over the last week. One of the Governors of the Federal Reserve, Lael Brainard, set out for the first time the “core set of legal and regulatory challenges.” The US Treasury, went further: “It is unclear whether US and Foreign regulators will have the ability to monitor Libra… (and) this concern must be addressed before Libra is launched.”
Increased scrutiny is also why so many of Facebook’s partners in Libra have been dumping the project. It started with PayPal, then Stripe, eBay, MasterCard and Visa.
Investor pressure was said to have increased following a strongly worded letter from two Senators (Brian Schatz and Sherrod Brown) warning CEOs that participation would lead to a higher degree of scrutiny “not only in Libra-related activities, but all payment activities.”
Increased scrutiny is also happening for cryptocurrencies’ criminal uses.
Consider another recent development – the dramatic raids in South Korea where a global child pornography ring was taken down by tracing Bitcoin payments. The issue of payments for child pornography, indeed child trafficking, came up at Wednesday’s hearing.
Sherman said to Zuckerberg that it not the poor you’re trying to help, it’s “those for whom the dollar is not a good currency – drug dealers and tax evaders.” There was one dramatic move on financial markets on Wednesday. The near ten percent drop in the Bitcoin price.
All this is happening just as institutional investors are flirting with cryptocurrencies. Apparently one sixth of US investment advisors already have involvement with Crypto funds, now ‘BlockFi Institutional Services’ has been established to serve the nascent institutional trend.

I noted with interest institutional involvement in Morgan Creek’s venture fund launched this week. This included two pension funds from Virginia (the Police Officers Retirement System and the Employees Retirement System), an insurance company and a university endowment. Morgan Creek’s Anthony Pompiano observed “the conversations we’re having with tens of other institutions, shows there is no lack of interest.”
Zuckerberg sees himself as the great disruptor. He has achieved one thing. He has woken up the sleeping political giant. The last word belongs to Maxine Waters: “We have serious concerns about your plans…(your) challenge to the US dollar…we have also opened up a serious discussion about whether Facebook should be broken up.”