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The Republican Bankruptcy
As with FTX, the culture of duplicity defines today’s GOP.
KEVIN MCCARTHY LOST HIS SPEAKERSHIP the same week Sam Bankman-Fried, the founder of the FTX exchange, began the trial where he is widely expected to lose his freedom. The crypto crash king and the former speaker of the House of Representatives have one thing in common—they each presided over an empire built on fraud, whose lies couldn’t last forever. Now it seems that Jim Jordan—whose own bid for the speakership seems uncertain after he was defeated by a wide margin in a first ballot on Tuesday—will be no more successful at spinning dross into gold.
Both the FTX and GOP cases involve a pervasive culture of duplicity. For SBF, it was partly a question of inflated values of crypto coins. For congressional Republicans, it’s a mismatch between representatives’ real values and those of their base. Some of the members of the House Republican Conference rejecting Jordan say their opposition is because they can’t trust him to tell the truth—not just about his pressure campaign on holdouts, but even regarding the very simple truth that Joe Biden won the 2020 presidential election. For FTX, bankruptcy has already come; the GOP’s bankruptcy can’t be put off indefinitely. Republicans’ electoral power is in hock to a base that their leadership has contempt for, and they’re running out of ways to indulge them safely. And with a month to go until a government shutdown, the bill is coming due for us all.
For crypto, a little fraud was part of the ordinary business of doing business. Selling tokens has been ambiguously legal at best, with even by-the-book operations like Coinbase coming under SEC scrutiny. The crypto industry, it seems, simply has to do a little bit of lying in order to interact with the official financial system. Much the same dynamic (with fewer buzzwords) happens in the booming marijuana industry, which is still illegal at the federal level. Some banks may welcome the obfuscation, as long as they aren’t technically aware of it.
Patrick McKenzie, formerly of the payment-processing firm Stripe and the author of the Bits About Money newsletter, charmingly explains the mindset in terms of how much “hinkiness” is tolerated:
Once it’s clear the bit they broke on purpose could cause cascading failures, the people who intended only a little light fraud face a new choice, McKenzie says: “This could possibly still be contained but containment will require disclosing the hinkiness. Or, double-or-nothing?”
In Kevin McCarthy’s case, the hinkiness was the increasingly fictional platform of the Republican party. Politicians and pundits who know better flirt with QAnon conspiracies and dodge questions about who really won in 2020; they are willing to admit the truth only so long as it’s not in public or in print. It can be rewarding to have your base invested in unreal goals—instead of passing a substantive bill, it’s enough to drop the right codewords, to reassure them you’re playing the same game. “Where we go one, we go all” is a cheap-seeming promise when you’re sure the storm is never coming.
It’s easier to buy off the conspiracy theorists than deliver for the voters with actual policy agendas. The GOP liked the pro-life movement better when the composition of the Supreme Court meant it was impossible to deliver on the promise of abortion bans. Now that it’s possible to enact the abortion policy Republican politicians long said they wanted, many don’t want to risk their seats. And the abortion issue is hardly the only fault line between the donor/politician class and the base. In a recent survey of Republican voters run by YouGov for American Compass, majorities said they prefer tariffs to free trade, and view Wall Street executives as exploitative rather than responsible for contributing to the overall health of the economy. That leaves the GOP exposed to the fringiest parts of its base, since it’s cheaper for politicians to align themselves with Trump on conspiratorial paranoia than on populist policy.
THE COURT WILL DECIDE whether Sam Bankman-Fried engaged in active fraud, but it’s a matter of record that FTX engaged in delusional bookkeeping. FTX overexposed itself to risk by holding a significant share of its reserves in what people termed “Samcoins.” The coins were rarely used or traded, and a huge share of the total supply were held by FTX. That made it easier for the company to give the coins an inflated value—FTX did most of the trading, and when the firm bought them at a high price, its wealth on paper increased. But FTX never could have sold off those holdings at the ostensible market price—if the firm needed liquidity, selling them would have pushed the price down sharply. But as long as FTX didn’t need its Samcoins to stay afloat, it didn’t have to realistically mark to market.
The GOP is similarly holding an ostensibly vast reserve of political power it can’t actually call on in a crisis. There’s no incentive for Republicans to publicly mark to market and admit they’ve lost a big wing of their constituency to Trump, Matt Gaetz, and others who don’t meaningfully share their aims. The long weeks of fighting over the House speakership won’t be the last glimpse of the institutional GOP’s empty accounts.
In the end, Sam Bankman-Fried had an advantage over the GOP—he could allegedly move customer’s money without their knowledge, using it to cover his and Alameda’s losses. The GOP has no such backdoor to leverage its voters. As McKenzie put it, engaging in fraud, even light fraud, means deliberately suppressing “capitalism’s immune system”—the fail-safes and norms upon which the economy depends. Or, to switch metaphors: When the fall comes, you’ve already removed the net that was meant to protect you as well as your marks. For the GOP, the confidence game can’t go on forever. Just ask Jim Jordan, who increasingly looks like he has been caught swimming naked as the tide goes out.