How Crypto Is Turning America Into a Kleptocracy

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And welcome to The David Frum Show. I'm David Frum, a staff writer at The Atlantic. My guest this week will be Will Thomas, professor at the Michigan School of Business, and we'll be discussing the intersection of cryptocurrency and American kleptocracy. and how we can have a more honest approach to the management of both. My book of this week will be Lord Jim by Joseph Conrad, a study of courage, what it means to have it, what it means to lack it.

But before the dialogue and before the book discussion, some opening thoughts on the terrible news this week from Australia. A massacre on Bondi Beach. Apparently two gunmen. armed with hunting rifles, who killed, as I speak, a tally of 15 people, injured many more, who had gathered on the beach to celebrate the Jewish holiday of Hanukkah, the first night of Hanukkah. Much has been written about this.

terrible crime. I've written something myself on The Atlantic, and you can see my immediate thoughts there. I want, in this dialogue, to discuss something, in this opening, to discuss something a little more practical, which is, what can be done? about outrages like this? Are governments truly helpless in the face of this kind of anti-Semitic, and it didn't have to be anti-Semitic, it could be some other kind of extremist hate, or is there more that could have been done that wasn't done?

Draw attention to this fact. The two alleged apparent gunmen are reportedly a father and son team. And the son in particular was known to the police. In fact, Australian police, the Australian Security Organization, which goes by the acronym ASIO, had put him under close scrutiny in 2019 because of his suspected ties to ISIS. They kept him under watch for about six months. and then decided that he wasn't an active threat to anybody and ceased to pay attention to him.

I'm not second guessing that decision because maybe they had a good reasons. People deactivate and activate the resources of a democratic country are large, but they're not infinite. You cannot watch anybody, everybody anywhere. So I'm not second guessing that decision. Maybe it was right. Maybe it was wrong. But the point is, he was a known quantity. And when you get these kinds of radical actions, it very often happens that the people involved are known quantities.

We are no longer in the Al Qaeda days where a foreign intelligence or a foreign terrorist group infiltrates sleeper agents into a country, tells them to avoid all contact with the police, drive the speed limit. Keep out of the public eye. Don't get in trouble. Don't get arrested until the day to strike. The extremist actions that are happening in the 2020s are much more local.

They are people, they import the technology, the know-how, the ideology, but the persons themselves are from the place where the crime is committed, usually, or they've been there for a while, at least. And they've had a chance to break other kinds of laws, as they often have done. So they're known to the authorities. Now, again, the authorities do not have infinite resources. They can't watch everybody. And in a free society, anyway, there are limits on what watching means. You can't just...

Send an agent to follow somebody around because you think he might at some point in the future do some heinous act. But what they can do is put pressure, put various kinds of legal pressure on the...

world from which these outrages come. In Australia, in my native Canada, in the United States too, the movement that has expressed itself in anti-Semitic murders, like this one in Sydney, like the murder of two... people, the murder of two and the wounding of three in Manchester, England, on Yom Kippur this year, like the assassination of two people here in Washington earlier in the year 2025, those people usually have associations.

with some kind of radicalized group. And that group is something the government can monitor. And what it can do is be aware that in these kinds of groups, there are kind of circles. There's a hardest core of people who might be... might be on their way to committing an act of violence. There is a slightly outer core of people who, without committing the act of violence themselves, will support and enable the act of violence and have a pretty good idea that the act of violence is coming.

And then beyond them, a group of activists who maybe don't know that an act of violence is coming. press the law and create permissions that enable the people who are more active, more militant to go forward. And then outside them is a larger group of well-wishers and fellow travelers who may share ideas and principles, but probably aren't in the movement for the long haul.

One of the things that's very important to do is to separate the soft groups from the hard groups and to make sure that the hard groups understand they're not going to have as much permission and protection as they think they do. And this begins by enforcing laws pretty strictly and pretty unanimously, pretty impartially. Let me give you an example of what I mean. In September of 2025.

a supporter of the anti-israel cause rode along bondi beach didn't disrupt galloped on horseback on bondi beach holding a palestinian flag now He didn't commit. No one was hurt. But this was a reckless action. People could have been hurt. The beach is crowded. We have no idea how good a rider he is. And anyways, it's illegal to ride a horse on the beach. He was let go with a warning. Now, if you walk your cocker spaniel on Bondi Beach.

you will face a fine of up to 330 Australian dollars. If a restaurant, a sidewalk cafe, doesn't place its chairs properly, there's a fine for them. But someone, because he came from a favored political group, was able to break the law. and do it with impunity or with a warning. And that sends a message about the attitude of the public authorities. Now, that doesn't affect the people, the hardcore person who's determined to commit violence. But it does affect those who are making a decision.

How far along the way do I go with this hardcore person who's willing to commit violence? A lot of anti-Israel violence since October 7th takes the form of a kind of play acting. Dressing up in terrorist outfits, occupying...

public spaces in illegal ways, like university campus, like putting up tents that are normally prohibited, but putting them up on university campuses and defying the authorities to do anything about it. The riding the horse on Bondi beach, that kind of thing is a kind of play acting. But the play acting is not just a form of expression. It's also a form of testing the attitude of the authorities. And if the authorities are more resilient and robust, the people who don't want to get in trouble.

which is most of us, will back away from the play acting and will retreat to more lawful forms of protest. No one is saying you don't have a right to express your views on any contentious issue. And you want to pick it, pick it. But for every picketer, there are rules that govern what is legal time, place, and manner, methods of picketing. And the anti-Israel movement systematically breaks those rules. At first, in quite modest ways.

But then in more and more threatening ways. Maybe it's not the biggest deal in the world that somebody puts up a tent and breaks the campus rules on camping on the quad overnight. It's a bigger deal when they are forming mobs in front of daycare centers or synagogues.

or old age homes or hospitals, all of which have happened in many cities. And blowing whistles in the middle of the night. And again, testing, is anyone watching? Will anyone do anything about us? And again, if you enforce the rules. You're not going to necessarily deter the most violent person, but you can successfully separate the most violent people from the support structures that they need. And it becomes especially dangerous when the reason.

that that separation does not happen, is if there is a government, as was the case with the Australian federal government at present, as has been the case with some Canadian governments, both federal and provincial, where the government in some ways looks to the soft part of the movement for some kind of political support.

So it's worried the reason we're not going to enforce the law on riding horses on Bondi Beach, the reason we're not going to enforce the rules about blowing whistles under the windows of hospitals, emergency units, the reason we're not going to stop you from mobbing in front of synagogues or daycare centers.

in ways that are clearly meant to be intimidating, is because some of the people in this mob may vote for us, or anyway, are connected in ways to people who vote for us, because that tells the mob that the government is afraid of them.

And that is a very different, dangerous feeling for a government to communicate. Managing the problem of how do we protect lawful protests, lawful dissent, whatever one thinks of the particular dissent, and separating it from the past, taking the steps on the pathway to violence.

begins by understanding that people who are really good liberals in their heart think that free speech becomes most important and precious when it's at the very outermost edge, that when the speech is at its most extreme. And when it is tempting us most to do something to suppress it, that's when it most needs to be protected. And so when somebody is chanting some hideous slogan or protesting under the windows of an old age home.

Those are people, that's exactly where the free speech instincts need to be most robust. That's the way many strongly principled liberals think. But not everyone in that crowd is a strongly principled liberal. They're thinking in a different way. They're thinking, I am testing. and probing as to what is possible. And if this is possible, then the next thing will be possible. And I'm not walking up to a bright boundary.

I am changing the nature of the boundary and I'm pushing and pushing and pushing to test and expose the weakness of the authorities and building a network of community that includes people who will take up a gun and mow people down on a beach. in Australia. And now, my dialogue with Will Thomas. But first, a quick break.

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Will Thomas is assistant professor of business law at the Michigan Ross School of Business. He is the co-author with Jeffrey Zhang of an article called Cryptocleptocracy. which was published in the November 2025 online edition of the Michigan Law Review. And it's that article that sparked the conversation.

I've written a little bit about crypto for The Atlantic. I focused especially on the problem with stablecoins. But Will Thomas and his co-author Jeffrey Zhang point us to another direction, which is the power of cryptocurrency to enable government corruption.

Their article begins by pointing us to two converging lines of threat to American political integrity. The first is the change in the law of public integrity that has been advanced by the dozen years and especially in a 2016 case which involved the corruption trial of a former governor of virginia bob mcdonald in the case mcdonald versus the united states the supreme court said

It dealt with these facts. The governor of Virginia and his wife had taken $175,000 in cash and gifts from someone with an interest before state government. The governor had enabled meetings for this donor. set them up with people on their state bodies that oversaw the interest that the donor had an interest in. And the governor facilitated those meetings and gave a kind of indication of the answer that he would like to see. But there wasn't an explicit.

Here's the bag of swag. Here's the favor in return. And the Supreme Court said you can't convict a governor of a state of bribery on those charges. Merely setting up meetings does not count as an official act under public corruption statutes.

Now, this makes it extremely difficult to convict anybody of anything, because the corruption that the Supreme Court wants it, you have to enter into the mind of the person. You have to say, the official receives this benefit from the donor, and in return, they do that favor.

That can be hard to prove. The things that are easy to prove is that the meeting happened and the favorable result ensued, but we don't know exactly what was inside everybody's brain. But the Supreme Court has made it very difficult to prove. Meanwhile.

The cryptocurrency industry has created this extraordinary method of flowing cash or the equivalent of cash to all kinds of people, including public officials, in ways that are very hard to trace. And it is the convergence of these two things that inspired the article, Cryptocleptocracy. This is especially relevant because of what is happening at the federal level with President Trump. President Trump has made...

Since becoming president, since being elected to the presidency last November and since becoming president in January, an enormous fortune, hundreds of millions, maybe even in excess of a billion dollars from cryptocurrency. One of the. cryptocurrency schemes that the president floated was the launching of a meme coin called dollar symbol trump that

Came on the market at the beginning of 2025. It was sold for $75 per coin, more than $75. I looked it up this morning. I'm speaking to you on the 15th of December, and the coin is trading for about $5.5. So it's lost 90% of its value. And one of the questions we're invited to ask is, did the people who lost all that money buying crypto coins, are they dupes? Or did they not care? Did they think this is a great way of advancing money to the president?

So I thought in that context, very important to reach out to Will Thomas to talk about crypto kleptocracy. Will, thank you so much for joining me today. Hey, David. Thank you for having me on today. So let's start with this question. You're a law professor. You think about upholding the law.

I want to invite you to think like a lawbreaker. So you and I, we are no-goodniks. We are out there in no-goodnik land, and we are planning to get a favor from a public official, let's say a state governor, to make it less inflammatory. You're the expert. And I turn to you and say, I want to deliver this governor a big pile of cash in ways that make it difficult for me to be punished. And I have some favors to ask. What's my way? How should I do that?

How should I structure this deal to get my favor from my governor with minimal legal risk? So, you know, unfortunately, what I would tell you is. It's gotten a lot easier, and it's gotten a lot easier both for decisions like McDonald that you mentioned, but also just a variety of Supreme Court decisions that have really narrowed what we think of as sort of legally enforceable corruption.

What the courts are really looking for these days is a pretty explicit sort of quid pro quo relationship. And the things that have been ruled out are the more casual gift with no explicit request for something of value, even though... That's well understood in sort of social practice. They have ruled out recently gratuities. So my giving something of value to an elected official after they took the actions that I wanted them to take.

And they've ruled out giving money in exchange for maybe even explicit promises to somebody who is temporarily out of office. So we saw most recently Trump's border czar, Tom Homan, was caught in an FBI sting.

receiving a bag of $50,000 in cash with explicit promises to steer government contracts once he came into office. The current administration dropped that case, and there's many reasons for that. But one of them is, I think they... could point to some supreme court cases saying that's actually that is not illegal behavior so the advice i'd be giving a client is look there's about two or three things that you can't do to influence a politician but short of that like

Be as transactional as you want to be, and chances are the law is going to protect you. And even if the law doesn't protect you, the enforcement rates are so low that you don't have to worry about it. So I hear from you, I hear three opportunities, three fantastic opportunities to advance my case with my governor. The first is if I get him the money or the benefit before he wins the election. The second is if I get him the benefit or the money after he does the favor.

And the third is, if I can just blur the connection between the money and the favor and say, look, this isn't exactly, nowhere is it going to be written down that here's the bag of swag in return for the favor. It's just. I'm giving you gifts and you're doing me favors and it's kind of blurry, especially the favors are not exactly something, not exactly like a...

order written in your handwriting, but you've set up a meeting, you've told the zoning board, you've told the state educational foundation that this is the result that would be good for the state. It happens to align with my interests and you get the present. In all of these cases, I'm probably safe.

I think that's right. I think you've got three pretty solid pathways these days to avoid getting in trouble. Okay. Well, that's great news for me as the corrupt donor. But I'm worried about my reputation. It's not just enough for me to escape the law. I'm trying to become a, so I don't want it to be, even though I can probably get away with it if indicted.

I'd rather not be indicted. And I'd rather just not have people know about it. Is there a way to make this more anonymous? Right. Absolutely. So this is, I think, where crypto really enters the scene. Obviously, if there are ways to do these things without being detected.

That's going to do two things. That's what I'm looking for. Right. So, you know, crypto is this cheap sort of anonymous piece of financial technology. It's embedded in this industry that is increasingly falling between regulatory cracks, so there's not a lot of oversight. And it's hit and seen right as we're having this sort of steady retreat away from fraud and anti-corruption law.

you sort of put these things together, crypto creates space, whether it is through something like meme coins, whether it's through something like stable coins, to funnel, frankly, huge amounts of cash or cash equivalents to a willing politician. without a lot of ability to even track what's going on. So as long as your corrupt governor is putting themselves up for business by, say, creating their own stablecoin or issuing their own meme coins.

uh you're going to be able to funnel them quite a bit of money and it will be virtually impossible for anybody else to track okay now this is we're putting on something so my corrupt governor has issued a meme coin it's going to start worth 75 it's going to rapidly fall to nothing but i don't care what i want

I want him to know that the money came from me, but I don't want anyone else to know. Can I structure things that way? Right. So the nice, you know, the sort of deep irony of crypto is it's built to drop the system that's supposed to be giving us like radical transparency. We know.

all the money that moves across wallets, we can see all of that information. And yet, the sector is notorious for being secretive and providing anonymity. So you need to find some way to connect to the governor themselves by, say, informing them directly. But nobody, well, it will be extraordinarily difficult for anyone to be able to take payments made by one wallet into the meme coin.

and identify that with you and specifically identify you in relation to some kind of agreement or quid pro quo. You basically have these entirely disconnected events with very little correspondence between the real world and the sort of...

crypto ledger let's go slower there because we spend a lot of time thinking about this many honest people don't so and they shouldn't so what is a crypt what is cryptocurrency what's a coin what's a meme coin explain these terms a little bit so we're going to focus on just meme coins and stable coins because cryptocurrency is a broad sector so it's a little bit of a misnomer it covers lots of things so what a meme coin is a meme coin is essentially a loyalty token

Somebody is going to issue a variety of tokens around a theme, around an idea, a name, whatever. And they're going to try to convince people to purchase them. In essence, to purchase them to express their... loyalty to the underlying idea to express their interest. It's almost like a trading card, right? It's not necessarily purchase for its value. It's purchased because you're interested in it. I say that if you actually look at the practice of meme coins.

They look a lot like penny stocks, right? Lots of people who buy these meme coins aren't necessarily buying them because they want to say, I own a meme coin with Donald Trump's name on it. They're buying them as a get rich. quick scheme. The thought is, this thing will be valuable for a short period of time if I can buy a lot now and sell it before it drops from $75 to $5. You know, I can make a quick buck. Frankly, if you talk to people in the meme coin world...

There's the marketing description, which is these kind of like trading card style loyalty tokens. And then there's the actual day-to-day practice in which it just looks like a boiler room kind of pump and dump scheme. Okay. I think we still haven't explained to people. So cryptocurrency is a bunch of computer code that has a unique location and that you persuade people that this computer code has some value.

And the most famous of them is Bitcoin. There are others. And there's a value that is attached to this piece of code. There's a promise that there will only be so many units of this piece of code. And although it doesn't have any actual commercial uses, nonetheless, it has value. And simply because it's traded back and forth, the value tends to increase. But it's essentially computer code that exists on computer systems and is traded back and forth.

That's correct. That's exactly right. It is a fiat currency in the truest sense, right? We just have a purely digital or sort of computer representation of this thing. But it's not a currency. I mean, you can't buy anything with it. In practice, it is not like the US dollar or the euro. And is that still a highly specialized set of folks trading it amongst themselves? It's super inconvenient. And only I look this up according to the Federal Reserve of the people who own.

cryptocurrency, only 2% of those people ever use it to buy anything. The 3%, and they may be the same, they may overlap with the 2%, ever use it even to transfer money back and forth. It's a speculative asset. that is trade that's for trading for holding and for trading not for buying and for selling and i think actually that description is important because while lots of people who talk about crypto and particularly advocates of crypto

Talk about it in the future. It will be a currency. It will replace the dollar. It will be a seamless method of transaction. The actual practice today, which you're looking at is exactly right. The actual practice today is people seem to be treating this as...

a riskier speculative investment right i've got my normal stocks and bonds and i'm going to put a little money in this wild thing that might sort of arbitrarily make me a huge amount of money i actually have a colleague who studies crypto investors What do they like? What do they know? One of the things that surprises me is even people who choose to buy any kind of crypto asset, whether it's Bitcoin, whether it's a meme coin, know almost nothing about what crypto is.

In fact, if you ask them, what is the blockchain? They say, I've never heard of that. Even though blockchain is the sort of underlying technology, it is the heart of all crypto assets. It is that sort of digital ledger that you were describing a moment ago. So people clearly are doing this as some kind of investment scheme, even if the crypto industry would like to characterize it as something bigger and grander.

us dollars euros yen whatever they're taking in the country in which you live if you want to hold wealth safe from the ravages of inflation you want to buy gold or real estate or if if you have good taste art there are all kinds of hard assets that retain value in times of monetary inflation. But what it's really great for, really great for, is if you're an international terrorist group and you want to move money back and forth, or if you are a drug dealer and you want to convert your...

piles of cash into something that you can put in a bank. It's really useful. And that's how the people at Binance got into trouble because their platform was used that way. And the allegation against Binance was they knew it and organized their platform to help terrorists and drug dealers. And for that, the head of Binance was convicted and sent to prison because a jury accepted that he knowingly helped terrorists and drug smugglers. That's exactly right. In addition to...

being this sort of purely digital representation of a thing of value the crypto industry is very good at bouncing transactions through what we think what people usually describe is like shell companies right it's very good at masking transactions and yeah you don't even have to say

allegations. Binance founder and Binance were convicted of federal crimes, including money laundering, and that money laundering was related to helping terrorist organizations cover up their activities so that they would avoid U.S. regulatory scrutiny. Deeply harmful to national security interests. This is a profoundly worrisome use of the technology. So if I'm involved in the business of terrorist money laundering.

I think I could use a little political muscle behind me and legit of the regular state. So here's where this all becomes tremendously back to our scheme of bribing the corrupt governor. So we can take some of this crypto money and funnel it to them. Now, my governor has got a problem, which is he's actually quite a shrewd person. And he understands that cryptocurrency moves around a lot in value.

What is a million dollars today might be half a million tomorrow. It might be two million tomorrow, but it might be half a million tomorrow. He likes US dollars. So he wants to know that he can count on this for his old age. He wants $200,000, not... Ether or dog coin or cat coin, $200,000. How can I get them $200,000? So I think this is actually where stable coins become the much bigger sort of public corruption concern and threat.

The basic idea of a stablecoin is, you know, if I described a mutant coin as sort of a pump and dump scheme, something whose value fluctuates a lot, stablecoins are invented, they're designed, proposed to try to solve that volatility problem.

And the way we're going to solve it is I'm going to issue coins and I'm going to say for each coin I issue, you know, you give me one dollar. I'm going to take that one dollar. I'm going to put it in the safest investment I know. I'm going to put it in short term U.S. treasuries and I'm going to keep it there. And that way, if you ever want to cash your coin back in, you will get it for exactly $1, and you know that asset is protected. That's great. If I hold to my word...

That solves that stability problem, which means you've got a straightforward way to cash out these investments. That's the sort of first move we might make to make your governor feel a little bit more comfortable. So let me see. So if the governor wants to be a more active person in the corruption scheme, he issues a meme coin. Because then it's corruptgovernor.com or whatever the dollar sign corrupt governor. And he says, look, buy my meme coin.

pay me $75 per coin. The Supreme court has said, that's fine. No problem. And no one understands it. So there's no reputational risk and it'll fall to $5. But what you don't care about the money, what you care about is knowing that I got $75 from you. or $75 times however many units you wish to buy. But if the government is more passive,

The stable coins are the way to go. And that he says, I don't have to be a participant here. I just receive the stable coins and I know I've got $200,000 in swag and I will look favorably upon whatever it is you want me to do. Correct. Receiving the stable coins are going to, they'll hold their value over time. So that's sort of an easy passive receipt. And frankly, if the governor wants to go in the sort of more active direction, I think stable coins are also actually both.

less risky, less sort of problematic looking. The governor could issue his own stable coin, but then he has to buy, but then you're just making the money on the float because the meme coin you can make out of nothing. whereas at least theoretically with the stable coins, you have to buy some US treasury bills. That's correct. You're making money just on the float. On the other hand, you are making money on third-party transactions that don't necessarily involve you. This adds another level of...

removal anonymity for your governor, right? So if you have a stable coin that is out there that you've helped generate, two parties can engage in a transaction that never explicitly involves you at all. It's just two private parties in the market. As long as they make that transaction using your stablecoin, you will then be getting...

afloat off that. And of course, those parties can engage in open market transactions. They never have to say your name or involve you in any capacity, but you know what they're doing. And that is that informal sort of not quite quick pro quo relationship.

In fact, we have not just a governor, but a president of the United States and his family engaging in these operations. Do you have any doubt that what President Trump has been doing this year is legal? I would say I can imagine facts coming out that would change my mind.

But at least based on what we know so far, I think that virtually all of the activity President Trump has engaged in around the crypto industry is legal. And I would go further and say some of those things are legal because of changes in the second Trump administration. Okay, so he's made a billion dollars. Part of that money has been selling for $75, things that are today worth $5, and that's legal.

And part of that money has been made from issuing these stable coins, which purport to be worth a constant value. Although, as readers of my Atlantic article on the subject will know, they are guaranteed to fail sooner or later. I'm almost certainly guaranteed to fail, but they fail more slowly than the...

meme coins, which go from 75 to five in a few months. And he's been doing both of these things. And you're saying it's complete. And he's made apparently a billion dollars as president because of the presidency and it's legal. Yes, I believe that all of this is legal. Unless we were able to find out the exact narrow exacting kind of quid pro quo facts. Unless he got some bad lawyering and made some really unnecessary, because he could make the billion dollars in ways that.

most people would regard as pretty unconscionable. So you'd have to have some pretty bad advice. You'd be very, very greedy and stupid to break a law when you don't need to. You can make the same dubious billion dollars without breaking any laws.

Correct. Why don't all the presidents do this? I mean, crypto was invented all the way back in 2012, 13. Why didn't President Obama make a billion dollars this way? So I think that there's a couple things going on here. One is going to be personality driven. We've seen Donald Trump, the president in his first term, has a very different sort of attitude about these sorts of presidential self-enrichment practices. He had a hotel that was...

you know, right next to the White House, sold the hotel. He's now bought a publicly traded company in Truth Social that, again, presented all these conflict of interest concerns. So psychologically, he's disposed of these kinds of behaviors. I would say that the crypto industry has...

evolved in some ways, has become a more stable, reliable platform. The development of stablecoins in particular opens up a, frankly, a much safer way for politicians to exploit these things for value. And the last really important thing is that

In addition to changes in corruption law, the federal government has struggled to figure out how it wants to regulate crypto coins. It has not yet had a sort of consistent answer. It bounces from... scandal to scandal, the second Trump administration has pulled back from virtually all crypto enforcement and regulation.

So there are some things going on right now that I would be worried about. Let me stop you. I wouldn't describe that as the government can't figure it out. The Biden administration figured out these things are poison. They have no legitimate use. Let's try to discourage people from buying them.

And the Trump administration, second Trump administration figured out, I personally can make a billion dollars if I say, let them rip. So let them rip. It's not, that's not like they're baffled by the problem. They both are. Both Biden and Trump were incredibly unbaffled. Biden said they're poison. They have no legitimate use. Try to stop them. Trump said they can make me rich. Let's go for it. That is not, neither president had any kind of intellectual uncertainty.

about crypto and what it is they just they've had a big disagreement that's fair yeah so there are some crypto assets like bitcoin and ethereum where seems to be some bipartisan consensus of like we see a use for it, maybe we'll allow it to go. But you're absolutely right. With respect to the meme coins themselves in particular, the Biden administration took a pretty aggressive view against these. They also took an aggressive stance towards a lot of the exchanges.

That we're letting things float in, we're maybe sort of the source of a lot of the problems. And those actions have been unwound by the Trump administration. Those investigations have stopped. And Trump has been using his pardon power, again, pretty aggressively to pardon. folks convicted of fraud, but especially crypto-related fraud? I think if I said to a lot of people, look, there's this industry, maybe it's crypto, maybe it's cigarettes, maybe it's...

baseball trading cards, maybe it's asbestos. And it's got a product that a lot of people think is harmful. Not everybody. Some people think it's good, but a lot of people think it's harmful. And one president tried to control it, and another president has said, let it go. And the president who said, let it go, has made a billion dollars out of the industry.

in nine months. I think most people would say, I have a pretty clear picture of what happened here. And even if I am inclined to think that the cigarettes or the asbestos is not as harmful as other people do.

I don't think the president who said let it rip should make a billion dollars in nine months out of the asbestos or the cigarette, what some people regard as asbestos or cigarettes. I think you're putting your finger on why we wrote this piece, right? There's this, to us at least, and I think.

I think most people agree, there is a big disconnect between what the law allows right now and what it prohibits and what I think anybody on the street would think of as sort of clearly corrupt behavior. Now... You know, look, that's always true. Criminal law does never perfectly map onto our moral intuitions, but here there seems like a really glaring gap. And if anything, the gap has been sort of both steadily and then acutely growing a lot bigger.

And our worry is not just this administration, although this is a profound worry. Our worry is, you know, is Trump playing the role of entrepreneur where he is showing future politicians exactly the playbook to run if they want to sort of follow in his footsteps? Yes, I would be the answer. I think absolutely. Yeah. Yes. I mean, the next president may not literally do it because of publicity, but why shouldn't a governor? Why shouldn't a president of Brazil or a prime minister of Japan?

some other world leader. Now, maybe other countries have stricter public corruption laws. Maybe in Japan, if you take the money after doing the favor, they still say, sorry, we're not such idiots. that taking the money after the favor means that we don't see what happened here. That's only in America. Is that going to be a defense? Right. Everybody's going to have their own ways of working out these details. Although Europe is a great example of a jurisdiction that is...

very concerned about the crypto industry that has been doing more than the United States to try to figure out how to, you know, regulate it, bring it under control. And there too, there's very little attention to this specific problem of how crypto enables public corruption. Even an area that is really focused on dealing with crypto has just not started to pay attention to the ways that there's this huge problem.

Well, look, there's so many ways that crypto is dangerous. And I referred to an article I wrote in The Atlantic about stable coins. So stable coins replicate. If you saw, it's a wonderful life. And who hasn't? You know the problem of you think the money's in the bank. It's not really in the bank. It's in all the different houses sponsored by the savings and loan. If everybody shows up at the same time to get their money out, even...

Mr. Bailey, as wonderful as he is, as honest as he is, can't pay the money back. And now imagine if Mr. Bailey was kind of a crook. So the solution that was found after the events depicted in that movie was to say, okay, first we're going to have quite strict regulation. about how the money is paid. We're going to have quite strict attention to the books of the Bailey Savings and Loan. And oh, by the way, we're going to have a federal stopgap.

So that if everyone, even if it's Bailey and he's honest and the money really is in people's houses, and of course he can't give all the money, turn all the money into cash all in an hour, we've got a federal guarantee back of him that. The federal government will provide the cash and Mr. Bailey will pay us back out of the insurance premiums he's been paying for years of honest behavior. So stable coins are like Bailey's savings and loan without the federal deposit insurance and without the...

proper system of auditing. It's a promise. The money's there. You all show up at the same time. We have no way to make sure that you all get your money at once. And maybe it's not as honest as Bailey's savings and loan. Well, I love that you bring up this example in part because my co-author, Jeff Zang and I, we started this project in part because we were polishing off another essay that we'd written all about the return of bank runs.

Silicon Valley, all these sorts of companies, which themselves are being driven largely by speculative crypto assets that cause these problems. And as we were talking, Jeff, who's more of a crypto expert than I am, was describing...

We were talking about the Trump meme coin, and then he mentioned USD1 to me. This is the Trump family's stable coin. And in reading about it, I had exactly the same reaction you had a few moments ago, which is, this seems plainly corrupt. How is this allowed to happen?

And that sort of kicked off this project. So there is absolutely, there's a deep tie between a traditional finance system that has seen the problems over time, has learned to address them and mostly ameliorate them, and then this... this new thing called crypto that takes itself to be a technological innovation and so sort of not subject to history even though we know we know what happens when you create these kinds of

investments, whether you call them cash or crypto, it leads to predictable problems. And right now, the predictable solutions to the predictable problems are not in place. Okay. So let's say we want the next president of the United States not to make a billion dollars in nine months.

from an industry that is maybe dangerous and that he's regulating. How would we stop this? So there's a variety of different things you might think about doing in this space. Some are going to apply more specifically to a president versus, say, other politicians. So the first easy thing is just we need to reverse what the SEC has done under the second Trump administration. Go back to the Biden approach and you can tweak it however you'd like, but start with the general instinct that these are...

Securities, they're being traded and treated like securities. We have a whole enforcement toolkit. We need to take advantage of that. Let me put a pause here. Please. Just to explain something. So all over DC, there are people at BMWs.

and Lexuses that they've acquired by lobbying for the question, is a cryptocurrency, is it a security or not? Because the rules on security since the Great Depression, the United States government has put in place some very strict rules. You can really go to prison. for lying about a security. But if it's not a security, then the penalties for lying are a lot more lax. And so one of the reasons cryptocurrency is called cryptocurrency, even though it's useless as currency.

is because it's mostly crypto, not a security, so I don't go to prison if I lie about it, whatever fill in word here. So I need to call it something other than a security, even though it really is a security. It's a derivative. um it is a security but if again if you lie about a security you can the securities and exchange commission will put you in jail whereas if you lie about a currency the rules are much slacker that's exactly right so securities are

We have lots of law, lots of clear understanding of how to enforce them. The SEC, the Securities Exchange Commission, is sort of the first among equals of financial regulators. They're very professional. They know how to... bring a lot of resources to these kinds of challenges. And frankly, we've had a definition of what counts as a security going back to the 50s. And when I teach business students, when I teach undergraduates, I give them the test.

And then I asked them to apply them to what they know about crypto assets. And they almost to a person agree, oh, well, if that's the test, these are securities. So I think we have a straightforward story about why we need to undo what. The second Trump administration has done that. One sec we can take is a password that says, cryptocurrency shall henceforth be known as crypto securities.

They are securities. They're regulated by the Securities and Exchange Commission. And if you lie about them, you do go to prison. Great. Easy first step. I think that's where we should start. The second step would be with Congress.

It is true, right, that this technology looks a little different than other kinds of frauds we've seen in the past. But look, the federal government has... lots of fraud statutes we have a securities fraud statute we have mail fraud wire fraud bank fraud there is no reason why we shouldn't have a crypto fraud statute that directly grapples with how this currency is sorry how this uh

Technology is different, how it moves, how it enables fraud. The Supreme Court has been pulling back on corruption laws, but in the Supreme Court's defense, the reason that they have been pulling back is because the... The statutes that exist are often written in fairly broad language. They are subject to wide interpretation. And so Congress should take the lesson, right? If the Supreme Court is concerned about these generic, vague criminal statutes, we need a crypto fraud statute that is...

Pointed and sharp naturally addresses the problem. What are the things that we most would want to fix in public corruption? I mean, the idea that, like the Tom Homan, I'm actually a little bit more sympathetic to the Tom Homan case or say, look, you bribe somebody.

You gave somebody money thinking maybe someday they'll be important. And that looks pretty bad in the case of Tom Hulman, where he became important some months later. But what if you give somebody money and they become important 20 years later? And what if, you know, these things do get a little hard. But the idea that giving them the money after the official act or broadening the definition of political act, so all the wink and nod ways that.

political corruption is typically done, those seem like things we need to fix faster. I think that's right. Look, I agree with you that we have strong intuitions of what counts as corruption, and it is... easy to point to obvious cases of bad behavior and it's also easy to point to cases where you say like look yes that was you know my congressman did a favor for my my child to let them you know get it passed to go to the

visit the White House. And next month, I sent them a card, or when I sent in my contribution to the candidate, I wrote, thanks for all the help. Is that really corruption? I mean, I think like, no, that's probably not. And so finding laws that... parse those lines carefully is genuinely hard. I don't want to like be dismissive of that, but I do think that there's low. You included a golden watch with a thank you note, however. Right.

I think that's exactly right. I think there's a difference between... I don't know. No, no, no. You're totally right. Just because there's dusk and dawn doesn't mean there's not night and day. We can knock out some low-hanging fruit here by...

looking at things like dollar amounts by looking at connections behavior instead of trying to make it this deeply formal logical connection uh you know we can just be like constant context sensitive human beings you can look at some situations and say that seems problematic to me Right. You can just generally do a kind of rule of thumb is do we have a big problem in the United States of people who look like they're

mildly careless politicians ending up in prison for mildly careless actions. Do we have a lot of those? I can't think of many examples of that. And do we have a lot of examples of of things that look really shocking that turn out to be not only do they get away with it, but there's nothing to get away with because actually it was legal the whole time. And Obama was just a fool not to do it. Right.

The problem is always what is legal or not. What is illegal here? The outlier cases are interesting, but they seem like slam dunks. It's the first Menendez prosecution that gets dismissed. It's the McDowell case. These are the situations where I think...

Any lay person who looked at it and said, oh, yeah, that's obviously a corrupt politician who's probably going to prison. And it turns out, oh, you're so mistaken. That was absolutely legal behavior. Yeah. There aren't a lot of good explanations for a politician having an apartment full of gold bars.

That's correct. Or a freezer full of money, I think, was William Jefferson's strategy back in my day. So those are some of the things we want to do on the public integrity side. Let's talk a little bit more about the crypto regulations.

regulate it as a security, put the Securities and Exchange Commission in charge. And what should we do about meme coins? Would they be considered just so obviously fraudulent that the SEC would crush them? You know, when we first saw these definitions of securities coming around in the 50s, what we were concerned about were penny stocks.

The problem with penny stocks, these are these thinly traded, highly volatile, very cheap, quote unquote stocks. And the question was, are some of them legitimate investments and are some of them just scams? And I think that broadly describes where we are with meme coins. I'm open to the possibility that some of these are in fact legitimate investments. I also think that just overwhelmingly, most of them are, you're sort of...

pump-and-dub scheme where you're engaged in behavior that if securities law applied, you and I would say, oh, that's insider trading, that's illegal. But because securities law doesn't apply, that sort of deceptive promotion... flag that thing and run practice is legal. So I think if securities law applied, if the SEC stepped in, what we would see is the category of meme coin would largely disappear.

Or at least the quantity of meme coins would be dropped as just not worth the risk. And for the stable coins, my solution for them, and tell me if you disagree with any of this, is I think we need to see a stable coin. is a deposit-taking institution. If I give you $100 and you say, I'm putting the $100 in a vault somewhere, I'm going to make a little bit of money on the interest arbitrage between the zero amount I'm paying you and the...

Few basis points I can earn. If I have enough money, if I have enough depositors, then 50 basis points here, 50 basis points there, it adds up to real money. But it's a deposit-taking institution, and that means it needs to be audited all the time. They need to have federal deposit insurance, and they have to pay for it the way other deposit insurance companies do. Oh, and one more thing. It needs to be domiciled in the United States.

deposit-taking institution that's called a bank has to be in the United States. And almost none of the deposit-taking institutions that are called meme coins, they're all somewhere in some jurisdiction, like El Salvador, where they're already... Very far beyond the reach of U.S. law. Well, and I will say in very, very limited defense of Congress, because Congress passed a stable coin specific statute this year. It does not. The genius. So-called genius. Yes. You made me say it.

What genius thought of this, we'll say, after the big crash? Right. There is way more that statue should be doing. It does not do nearly enough. It does at least start to... conceive of stablecoins as something that somebody like the Federal Reserve should be regulating. It's a mild step towards the general idea you have, which is, look, this is just a version of banking by another name, right? This is, in fact, like this is a...

This should be regulated the same way we regulate other deposit institutions. Now, the other thing that I would say in this space is stablecoins are often presented as a solution to existing financial problems. The biggest one people point to is the difficulty of engaging in sort of cross-border money transfers. I think we lose track of the fact that that is almost entirely an American problem.

don't have that problem. They don't need stablecoins because they've just solved them internally to their own banking system. So in some respects, what I think is we should address the technology, but we should also address the arguments for its demand. by improving some of our financial transaction systems in the United States, that will take away the reason to want to invest in stablecoins. Yeah, I think I completely agree with you on that. I think it's a bit of a, again, ruse.

When you say, why are we making it easier for Hezbollah to move money across continents? They say, well, look at the problem that if you're a day laborer in the United States trying to sell money, send money, $200 back to Guatemala, Western Union charges you $19. And I think. I never heard you care about the day laborer before. And there are a lot of things we can do for that. I agree with you. It shouldn't cost $19 to send $200 to Guatemala.

He has got many, that's one important problem, but that's not why you're making it easier for Hezbollah to move money around the planet. I fully agree with you. I think that thinking of crypto in that way is it's a trillion dollar solution to a million dollar problem. Well, thank you so much for making time and walking us through all these difficult issues. I'm sorry I interrupted you so much, but you operate on such a high mental level, and I have such a cynical mind.

And so I'm conscious that I lowered the tone of a lot of the discussion, but maybe I'm even right. No, I appreciate the interventions in part because you're right. It's a technology, it's a space that I think gets a lot of freedom from the fact that it's complicated.

People are willing to move past and overlook it. And I think at the end of the day, if the technology is complicated, what it is being used for is very simple. And what it is being used for is very troubling. And so reigning it in you is helpful. This was a technology invented by science fiction fans and used by fans of The Godfather.

And so we just need to bring a little bit more of the Red the Godfather mindset into Red the Isaac Asimov Foundation Trilogy mindset that created the coins in the first place. I love it. Fantastic. Thank you so much. Thank you, sir. It's a pleasure to talk to you. Bye-bye.

Thanks so much to Will Thomas for joining me today to talk about cryptocurrency and public corruption and the challenges to public integrity in the United States. As I mentioned at the top of the program, my book this week is Lord Jim by Joseph Conrad.

Now, what brought Lord Jim back to the top of my reading list was a report, and this is not yet a verified report, so I don't want to overtax this, but a report from the horrific anti-Semitic massacre on Bondi Beach that Australian police officers... were in the vicinity, were armed, and yet for 20 minutes seemed to have done nothing as the gunmen killed and killed, paused and reloaded. They were using hunting rifles, not automatic or semi-automatic.

So there was a lot of opportunities to stop them. And indeed, one heroic onlooker did rush one of the gunmen and bring him to earth. And this led me to think about courage.

What it means, what it is, why people do and don't take risks to protect others. And Lord Jim, which is a novel of the sea published in the year 1900, is a great meditation on this question. Lord Jim is the story of a... young Englishman named Jim, who grows up in a country parsonage and dreams of adventure. And he especially dreams of being a hero, of rescuing people. He has images of himself.

prevailing in a storm, saving people, washing people to shore. And he chooses a career at sea as a way to achieve his dreams. And when I say at sea, he's not in the Navy, he's in the merchant marine, but ferrying goods around the planet. And he is successful. He makes a good name for himself. He rises in the service. And then he has this terrible moment of testing. He is on board a ship, the Patna.

with a kind of crew, a very miscellaneous international crew. And they're carrying 800 passengers, pilgrims, from some port in India on pilgrimage to Mecca. The exact details of this are quite blurry in the book. It doesn't tell you where they're going or where they're coming from or even what is the nature of the so-called exacting faith, as he describes it in the novel. But that's obviously what is going on. In the middle of the night, the Patna...

Bumps into something at sea. Maybe a sandbar or maybe some piece of underwater junk. It's not clear. But the boat lurches and begins to take on water. It only has a single bulkhead. to restrain the water. And if that bulkhead cracks and it looks like it's about to crack, the whole ship is going to sink in minutes and they will all be doomed. The officers, seeing the ship doomed, panic.

And they race without regard for their passengers. They race to the lifeboats to save themselves. Jim urges them to. hesitate, to try to do something to save the passengers. But the rest of the crew decides it's doomed, including the captain. They race for the lifeboats and they call on Jim to follow them to jump into the lifeboat after them and save himself. He hesitates just for a moment.

And then motivated by some impulse, he doesn't even really understand the nature in the course of the novel. He jumps and jumps into the lifeboat and abandons 800 people to be drowned. Except they don't drown.

Turns out the bulkhead holds. The ship is the next day rescued by a French vessel and pulled into a port. And a board of inquiry is convened to examine the dereliction of duty of the crew of the Patna who abandoned 800 passengers to apparent death. Most of the crew then vanish while the getting is good. But Jim stays to face justice. And that's the beginning of the drama of the story.

Because the narrators, and there are a series of different narrators in the story, have to make sense of who Jim was, this apparently decent, honorable person who wants to be a hero, and the neglect of duty that he committed. One of the... people who narrate the book, a captain called Charles Marlowe, describes his first encounter with Jim. I liked his appearance, says Charles Marlowe. I liked his appearance. I knew his appearance. He came from the right place.

He was one of us. He stood there for all the parentage of his kind, for men and women by no means clever or amusing, but whose very existence is based upon honest faith and upon the instinct of courage. I don't mean military courage or civil courage or any special kind of courage. I mean just that inborn ability to look temptations straight in the face, a readiness unintellectual enough, goodness knows, but without pose.

A power of resistance, don't you see? Ungracious, if you like, but priceless. An unthinking and blessed stiffness before the outward and inward terrors, before the might of nature and the seductive corruption of man. He goes on to say, this has nothing to do with Jim directly, only he was outwardly so typical of that good, stupid kind we like to feel marching right and left of us, of the kind that is not disturbed by the vagaries of intelligence and the perversions of...

of nerves, let us say. He was the kind of fellow you would sit on the strength of his looks, leave in charge of the deck, figuratively and professionally speaking. Only none of that turned out to be true. In the crisis, Jim broke.

He didn't do his duty. He abandoned people to their death, and he was then made to look a fool because his cowardice turned out to be utterly unnecessary. And Jim is tormented not just by his cowardice, but by the lost chance. to shine as a hero when he was, in fact, had he only known it, safe the whole time. And if he had stayed aboard, the one man who did his duty, he would have been an enormous hero. And he misses that appearance of heroism as much as he misses, as feels genuine guilt.

the wrong, he did. And as another narrator comment of Jim, he looked as genuine as a new sovereign, sovereign being the solid gold coin that was the most prestigious unit of currency in the British Empire. He looked as genuine as a new sovereign. but there's some infernal alloy in his metal. How much? The least thing, the least drop of something rare and accursed, the least drop. But he made you standing there with his don't care hang air.

He made you wonder whether perchance you were nothing more rare than brass. Jim will spend the rest of his life trying to get back that moment of failed courage. And one of the interests of the novel is that in the end he does. He has a chance to do something where he has to really think in advance. He doesn't have to rely on his instincts, but he has to make a very deliberate premeditated decision to risk death, accept death, and he does to save others. And so he redeems himself.

But along the way, he raises the question of whether courage is one thing, two things, many different things, whether there's a difference between courage in the moment and courage that has to be premeditated. And whether it detracts from our courage, if the courage is done because you're conscious of other people watching. Because when Jim goes to his heroic death, he goes viewed by all the people of a village he's come to care about.

and an unnamed part of the East Indies. He goes under the view of all the people he cares about, whereas when he failed to show courage, he was failing to show alone and almost undetected, seen only by a handful of crewmates who were behaving as he did.

It makes you think about those police officers. If indeed the eyewitness is correct and they flinch from their duty, what do they think of themselves in the aftermath? I'm thinking today of another. sad thing. Rob Reiner, the great director, and his wife, Michelle Reiner, were friends of my wife and myself. We were not close to them. They had 500 close friends and we were 498 out of 500 maybe. But we received so many acts of kindness and goodness from them. And they seem to have met a very grim

untimely end at the hands of apparently, reportedly, possibly a loved one. If true, it's hard to think of anything more fearsome and terrible. They are much in my mind today. And to all who Admire his movies. To all who knew and loved Rob and Michelle, we need to express our solidarity to each other. We have been deprived of two gracious, generous, and gentle human beings.

I'll tell you one story about Rob Reiner before I go. One of the last times I saw him was, I think, in 2021. We were dropping our youngest daughter off at college. And then after we dropped her off at college, she was in Los Angeles. I had arranged a dinner party with Rob Reiner and some other people in the political world whom he was interested to meet. And I made the reservation in my name.

But we had been driving across the country. We dropped our daughter, so we were a little late. So the Reiners, embarrassingly for me, got there first. And I arrived just as they were being seated. And the look on the maitre d's face at me, you didn't indicate. that it was Rob Reiner who was, because we gave you the David from table. And if only we had known that Mr. and Mrs. Reiner.

going to be here. They would be seated at the table where we have hastily moved them. And you should have warned us because you are nobody and he is everything. And indeed, everything he was.

Thanks so much for listening and watching to The David Frum Show today. I hope you will listen and watch next week. You can follow me on social media, at David Frum on Twitter or X, at David Frum on Instagram. Of course, the best way to support the work of this podcast is by subscribing to The Atlantic. I hope you will consider doing that. And if you subscribe to The Atlantic, you can sign up for alerts when an article of mine posts.

I'm writing a little bit more frequently these days than I have earlier in the fall. So you may want to be aware of those. But in any case, thank you for watching and see you next week here on The David Fromm Show. This episode of The David Frum Show was produced by Nathaniel Frum and edited by Andrea Valdez. It was engineered by Dave Grine. Our theme is by Andrew M. Edwards.

Claudine Abeed is the executive producer of Atlantic Audio, and Andrea Valdez is our managing editor. I'm David Frum. Thank you for listening.