Former FDIC Regulator EXPOSES Banks Embracing Crypto & Operation Chokepoint 2.0 with Jason Brett

of people who've created wealth, intergenerational wealth for themselves. How can you say that's a financial crisis.

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in California, where the division I was in had to fly out to California to help with taking over that bank because it was it was the largest bank failure of its time under the FDAC, and then shifting back to that, I then was sent over to the Capital Markets Division to continue the work I was doing there in the fall, and as it turned out, then Lehman Brothers fell in September, and so there was a little bit of a joke of don't follow Jason around their

racetrack because that department was directly responsible everything with Lehman and then everything else aig. So I got to work on some incredible things. I had really within one year, something that I think for a lot of people, like you know, lucky to touch a few of those subjects in twenty years. So I was very fortunate to be where I was, although it was very you know, not fortunate for the country, but I saw all of these

things happening in real time. And then from there it really opened my eyes before experiencing bitcoin or crypto, to seeing in my mind the dangers of our current financial system. And now everybody talks about that regularly, like the Federal Reserve they're doing this, But at the time, no one was really talking about that in two thousand and eight, two thousand and nine the way we do today. So I felt kind of alone. You know, it was like, am I the only one looking at this? Like this

doesn't seem right? Like what are we really relying on to keep this financial system going? I mean, how much gum do I have to pull off the bottom of my shoe to put on the building to keep the you know, financial wheels turning. I mean, he had Ron Paul,

which was great. So I say all that to say is I continue doing regulating for five or six years, and then when I discovered bitcoin, actually went to work for the Chamber of Digital Commerce in twenty sixteen, where was their Director of Operations, helping with things like policy. And then I work for a consensus in the Ethereum community here in the States, helping them with developing their government policy strategy. And then since then I've been moving

on doing you know, advising the crypto companies. And really, i'd say feeling so fortunate, Tony, because I see all the younger people now I'm a little older, but like people in their twenties and thirties kind of where I was in the financial crisis, who are seeing what I saw when I was alone and talking about it publicly.

So it's almost like a treat. Just sitting at a conference or hearing people discuss the problems of our current financial system and how to fix it has really been for me a joy.

guys all stressed of the FDIC? Was there a lot of pressure and things like that?

It's understanding what that stress was like. So, like, just to give you one example, right, if you remember what Covia Bank and Washington Mutual both failed, I don't. I remember that they failed back to back in the two thousand and eight financial crisis, really big banks, and we

had before that happened. We had to do these analyzes and I was just the junior person, but the senior people were told, hey, spend the weekend analyzing can the deposit Insurance Fund for the FDIC that has billions of dollars support the fact that Washington Mutual and Wacovia might fail at the same time. Well, deposit Insurance Fund still remind us people every day, only covers one percent of the deposits in the whole banking system. So it's not

like it doesn't cover all the dollars. Covers one one hundredth of everything. And so the analysis was that the Deposit Insurance Fund would survive, but only if Wall Covia and Washington Mutual were bought by bigger banks, if the fund had to support it. And so that to me showed there was this incentivization of making the bigger banks bigger because there was these shotgun marriages. If you have this bank like Washington Mutual that's going to fail, we

can't just let it fail. You have to just find a buyer like Jamie Diamond or someone to come in and buy it. But I say that I explain that because not only was their stress or disbelief, but I still remember to this day the senior folks grumbling and just infuriated that they had to spend the weekend away from their family saying things like what, COBE is never going to fail, Like they'd say, it's like you, Tony, like, WELLKBE is not going to fail. I don't even know

what I'm doing here. This is so stupid, you know. And it was just like wow, you know, because when I took it back, I was I was like, yeah, I guess this is stupid. But then three weeks later, well, COVID failed and Washington mutual the exact thing that they were told to analyze. So there was a lot of frustration and then just complete disbelief. And then when something happens that you don't believe can happen, like you know, Bitcoin hitting on hundred thousand dollars or something, you're a

little off guard for a while. You're kind of on shaky territory. So then when stuff just keeps hitting you and hitting you, and it's like what we see these disasters like hurricanes and everything, it just gets worse and worse, to the point that literally people thought in September like they felt like the building was going to fall down pretty soon, you know, they got that close, I think to the financial markets seizing up.

and so that's why things got worse and worse. So his goal, or his modus operandi, was to make sure that this credit markets didn't seize up during that timetable. Now that's a positive thing. Again, I give him credit

for that. But the unintended consequence of that is I think what we're living with today because you saw the Federal Reserve come out with so many programs and beloaded their balance sheet to make sure that credit markets didn't seize that it's like we're left with like a bruise in our arm that's still bleeding, you know, and it's now transformed into that was the solution that we came

at this crisis from. We'll never know if there was another way to go about solving the crisis, and we're still living with what our very potential dire consequences to our economy because the size of the FED now has gotten so large and still today, I don't think that's changed among government officials. Like we had a financial crisis tomorrow, I think we still try to handle it the same way. I don't think we do something different.

piled up and people are doing things they shouldn't. Until we get to that point, this is the Fiat SYSM and they have to build it out because if they don't, it collapses, and it could potentially collapse society because everybody's retirement is wrapped up in these assets. So if you let the collateral the assets go to zero, it's game over.

And I'm probably gonna get a lot of hate on x nown for saying this, to come up with what the credit system looks like in that world, right, because there's a fundamental concept that does work in the US, which has to do with as dollars come into a bank, that's at least how we today come up with mortgages and the ability people borrowing and credit. So is it the fiscal responsibility of credit? How do we manage that?

The truth is we've had a financial crisis every seven or eight years, you know, we haven't had one in a while. But also after the Great Depression there wasn't one. There were some aftershocks, like to me, I think Silicon Valley Bank, and those were sort of an aftershock of two thousand and eight. So han't yet really seen what the next financial crisis might look like. So they're not abnormal.

It's what happens in the FIAT world. And that's at least why fundamentally they thought to put things like the Federal Reserve and others in place. What's happened, though, I think is that you've now seen, and this is a challenge for the FEDS, is people who are openly criticizing the system on a regular basis, right, and also coming up with and it's not just you know, the bitcoin maximalist right coinbase is throwing daggers at the FDIC. Right,

they're suing the fdi C, they're pulling Foyer requests. I cannot tell you how unheard of that is that a non bank is pressing one of the prudential federal regulators. And I see that as a good thing because I think there needs to be a shake up in how they're doing business, particularly with the reputation risk. That's something that camels that has evolved into something that's really bad.

But anyway, to your point, though, I really agree fundamentally that not only is there not you know, not only would this be the way we would handle another crisis today as we did in two thousand and eight, but there really there aren't many other options on the table.

like up front, that might help determining things. But then you need the regulators, the people who are hopefully not going to take the C notes to actually be responsible, or the ratings agencies to you know, really enforce that or highlight that, right, because what if you have a quote unquote captured blockchain, like a permission blockchain that is regulated and it's from like, you know, let's call it Moody's blockchain or whatever, sorry Moody is, you know, like

and and they're doing things in a way, but it's coded in a way where it doesn't quite really show you everything. So how do you get to the underlying assets? So I think the connection between when you you know, tokenize something right like or whatever, you need some kind of verification system and you need to have that verified maybe on chain is maybe something that we can start to do, have independent reviewers you know, of that process.

And I think, look, there's always always going to be abuse.

People always find cracks in the system, but that is going to take just the fact that we can see it better will reduce that possibility of having this huge buildup of as you say, all this B and C stuff under the A stuff and we think it's fine, and then you know, leading at least to another issue in the financial crisis in two thousand and eight was you know, the credit to fault swaps, right, because then people were taking on insurance on the fact that the

bonds were going to fail, and then there were short selling companies like City and if you remember, then SEC had to come in and stop the short selling for companies, which I still find to this day very interesting because the SEC chairman at the time said that was if that was, he regrets that decision and he will for the rest of his life stually interceded in the financial markets and stop people from allowing to short specific stocks because they were in the category of banks. Hmm.

And I was kind of like, you doesn't like me that much because I wasn't I see, But I was like, point taken, and now I could see, Yeah, you really didn't like the FD I see that much with what you you know, you know shown. But the truth is, though Operation Showpoint, the first one was very much covert, right, It was not known what was happening. This was really out in the open. I mean, you had the Biden administration saying that there were dangers of crypto in the

financial banking processes. So I think a lot of people, a lot of regulators took the message from up high and said we need to do things to keep this stuff out of the system, like we're just not comfortable with it and we feel like it could lead to a financial crisis. The one criticism I give to a lot of the regulators at the time who are now leaving, like Michael Sue from the occ who live through the financial crisis, is comparing crypto to the financial crisis, which

to me is like the crime of the century. How can you say at technology that's showing new ways of conducting banking, of having possibilities. As you know, there are people who lose money on meme coins, but there are a lot of people who've created wealth, intergenerational wealth for themselves. How can you say that's a financial crisis? Like I understand that it's new and technology does disrupt it. And that was my thought about it is it's not like

a financial crisis, right, But there's these new technologies. How are the banks going to adapt to it? So the fact that you had people who use their authority to simply shut out a certain technology and therefore shut out certain people trying to build in this country, is abhorrent.

I think the people that did that, not necessarily the people on the ground, but certainly the supervisors of each of these offices if they were had a condoning a practice, whether it was written or not, telling to like not bank people or d bank people particularly. You know, you put in two two million dollars in the bank, excuse me for your company, whether you're like Anchorage Digital, you're a bank, and then you pull it the next day, so and you realize very quickly how much power the

banks have over you in that regard. So look, I'm human. People the fd I, c N Federal Reserver are human too. And I like to tell people, you know, don't hate the players hate the game. The game is really set up in a way where, because of the ratings, if I go into your bank, let's say you're the CEO of a bank, it's camels, right, So I have to analyze what your capitalism of your bank, what your assets are, your liquidity, your sensitivity, interest rate, risk, earnings a M.

You know the management part. Now, how do I evaluate you as a management part? Right? That's very subjective. That's where the reputational risk creeps in because I could say Oh yeah, he's got enough earnings, you know, liquidity's good, got enough capital, So the bank should survive, because that's all it is is test of how you're going to move forward. But you know, from a management perspective, this guy's banking, you're banking crypto companies. He's insane. That's it.

We're gonna we're going to revoke your banking charter. And I come and tell you that, and you's like, WHOA. I like my bank. I don't want to lose my bank. It's my living you know. Uh, And I have the board of directors. Maybe it's a family run bank. And then you're basically faced with a choice that I've given to you, which is get rid of a few customers or I pull your charter, and that's there of ours.

That's that's the game. I'm saying that where we should hate the way this game has set this up for that kind of subjective judgment that comes into how banks get run in this country, and it's terrible.

so forth. And money's going to bitcoin, in different crypto assets, into stable coins. That's pulling powerway and control away from you, and you could.

that figured out that Lehman had to go bankrupt. That that was, you know, the end, and so they picked It's in the movie too, It's in the Too Big to Fail movie. They pick up the phone and they tell the SEC chair what to do because the SEC is this really just this backwater agency. They don't really have anything to do with banking and the financial markets. They have to do with if you're going to fundraise

for your company, all that kind of thing. But so there was a lot of scope creep that I saw, you know, under Gary Gensler, and I think that was to your point probably that conversation of you know, slow it down, and he slowed it down for some of the banking regulators with SAB one twenty one, even though that was so out of range. I mean, I think Powell was very diplomatic when he said it surprised us to see the SEC way in this way because they

were thinking about it a different way. What I think is important with looking at the way how the bank's operated now and what their decision matrix is is there's a great essay and it's about like what is a bank? And it's from the Federal Reserve, Like how do you define a bank? Right? And the few principles of what you define as a bank? And this is so important is one of the definitions they give it to it

is it's the transmission. It's the transmission for the engine of the US economy, for monetary pol so in other words, if rates go up or rates go down, it's like they have a car and they're tuning it up as to how fast or slow they want the economy to run. So banks are like a public utility, right, They're critical to the way we operate. So they have to be able to provide that transmission or that you know, runway. So we can see how consumers are spending. We can

push consumers to spend more. We can get businesses to borrow more, which sounds very manipulative right when you talk about it, but that's the control mechanism they have. And with stable coins in crypto, I think they're looking at is we don't know that we're going to have this kind of control because there isn't that bank there isn't

that intermediary? They're these computer programs. I think were they able to understand how they could do the things they can do with a bank today, like control with rates, you know, the transmission of the US economy. FDIC insurance, which is also a definition for a bank, and it's something that Katel Long really struggled with Custodia and that was very unfairly treated on the idea of not being having the insurance from fdi C to be considered a bank. Is it comes down to to me, is at least

amongst the regulators and how we have discussions. I think we need to have more of these discussions and forums with the regulators now on definitions what do you define as a bank? Out of the two thousand and eight financial crisis, the biggest definition that everybody argued about was what's the securitization? Like what does that mean? What does it mean when you take a mortgage backed security and you put it in Like, what's the definition of that term?

Should it be on the bank's balance set? Should it be off? What's in it? What's not in it? How do we define how do we rate it? You know? All these things and I think now we're at the point with all the dbanking and the things on. Regulators think we're on a point where it's not The new word of the twenty twenty five is what is a bank? Yeah?

Here's how much we're issuing, here's how much treasury bonds and all these things we have. And then exchanges are going to come into compliance with KYCAML. That's already happening, some of it globally. So it seems like the infrastructure is being built for the control. So after the four years of massive lawsuits and battles, all of a sudden with tradfy here, it seems things are opening up again.

I don't want to get conspiratle but it's just I sit back and I look at this, and I'm like, of course, of.

of witnessing that with the mean coin mania. It's kind of like that this this space has always been the wild West. By the way, aren't really their rules anyway? Are ready to find what we can do with crypto. So if you don't realize you're already in the wild West, if you're buying a specific coin, or you don't know why you don't have protections, like sorry, but wake up, you know you're at this is the wild West right now.

And it got even wilder because you had a new sheriff in town who basically said, Hey, it's my rules and guess what I'm an issue my own meme token.

You should buy what I'm doing. So it changes the whole game, right, and so you know, you kind of have this new atmosphere, and I think what you're probably going to see, in my mind is you're going to see the meme coin stuff die down as the legislation starts to come into place that addresses you know, XRP and all these tokens and how they're fit into commodities with CFTC or if it is a security, how it fits in an SEC and how you could move it.

So I think you're going to start to see that all lay out when sort of the fun and games are over and we're going to kind of have the barbed wire that kind of can change the Wild West forever with these regulations. And I think ultimately that's what a lot of the institutional folks want to see too. That's why they like the etf rappers because they like things. They like to take out the uncertainty that's any regulatory uncertainty.

And so when you look at where we're going now we get stable coin and market structure legislation, I think a lot of this stuff will calm down. And I think, you know, not from the conspiracy standpoint, but the traditional financial institutions kind of always figure out a way to win you know thing, I think truth like Biden Trump, who cares like, look, the banks won Okay, they found a way to slow down the system for four years so they could get a handle at it. They could

be prepared build. You know. That's why you see like I'm a digital assets person from this company, you know, because they've built all the stuff and they're ready to go and when and they won't and they won't want to see that trigger pulled until later this year when Trump is saying, okay, now we'll have the regulations and then the banks will come out so they can compete on equal footing with all the crypto startups, which isn't exactly fair, But I always say, you know, it's like

with Bill Gates one of his life lessons, His life isn't fair, you know, but you have we have to you have to hustle. If in the crypto industry, you have to understand how you can take advantage of the wild West. And I don't mean to launch a mean coin,

but I mean build in a way. Find it to be productive, right, Find something that's of utility that's going to last out, because that's where the unicorns are going to succeed and that's where you're gonna see things like like coin Base already went public, will probably see Circle go public. One to the stable coin legislation falls in the place I think you can count guarantee a circle IPO like weeks after stable coin gets passed. So we're gonna start to see some of this level out, is

my point. And I think that's all part of the conspiracy.

We've seen it, but I think sometimes people don't realize what's happening behind the scenes, and it's just look if you have if you were in Jamie Nineman set, you would do the same thing too.

a payments mechanism than a banking mechanism. I think the banks are going to want to own the iss and stable coins mainly as a way of getting customers right, because it's a great way to onboard new customers into your into your bank. The other thing that's going to be interesting is people talk about how we might be going back to sort of the wildcat banking era in the late nineteenth century, where I think you're going to see state stable coins, you might see the Wyoming stable coin,

you know. So I'm like, you know, meeting you somewhere out in Missouri and I'm like, hey, I got some New York stable coins from JP Morgan. You're like, oh, I got some Wyoming stable coins from Cadon Long, Like who has what? Like how do we are they dollars? Do we have to go back and test? Like is Wyoming better than New York? You know? So I think you're gonna I don't know people will be quite ready

for if there's like different stable coins. But I'd say though that the at least the federal legislation makes it all back by a dollar, and you know there'll be federal ones and state ones. And the reasonab'll have that system is the same reason we did market structure legislation, which is right to avoid like the terror Luna collapse for stable coins or the FTX collapse for market structure.

That's what we're really trying to avoid having these companies have to go offshore to build, right, and then we can't trust what it is. And you know, the big tension point I think we're going to see is Tether, Right, how does Tether fit into this? But look, they'll be able to comply, you know, with whatever the regulations are. They'll have to figure it out. The challenge for them is going to be in the stable coin legislation is what are the different ways that you can back a

stable coin treasuries ninety days? So Tether's like a huge money making company, right, billions of dollars. If they have to change their asset mix and that's going to affect their income, that's a gonna be a real pain point for them. So they're gonna have to kind of do the cost benefit of do we stay in the US. We kind of have to because we're a US stable coin, but then we have to change our balance sheet, We're

going to lose profitability. So I'm sure you know they're very active probably with what this legislation is going to look like. At the end.

crypto markets to be here in the US. You know, when you talk about the cryptos are the big thing that's happening at the White House, the executive level is

it's a presidential working group. Now, Biden had his own executive Order that focused on crypto as well, and one could call that maybe much more conservative, if not sort of throttling or doing a choke point type mechanism, because their main considerations the Biden administration for their working group was that the FED gets to set the monetary policy. It shouldn't be from some white paper by somebody we

don't know, like Satoshi. You know, we need to protect the financial markets, protect the consumer from those financial markets number two and number three, you know, protect from elicted finance. I think you're gonna want to see the same things, but you're gonna want to see it in a way where it allows crypto to scale. And so that's where the White House is really going to lean in whether they issue the reserve that I think that very much could happen. I can tell you I don't ever see

it being just a Bitcoin reserve. I think it will have to be a mix because then you're allowing the government to pick a winner, right, and that's not necessarily what we ever want. This came up in twenty twenty one, by the way, during the Infrastructure Bill, when initially the White House was saying we should just endorse proof of work mechanisms, and even coin Center in other places cried foul. So so we don't want to pick a winner or

a loser. So you're gonna have to adjust yourselves. Bitcoin maxis you're going to see a mix in that strategic reserve. I think you're probably gonna see that, right, because it makes sense because it's their way of endorsing and signaling this is a new asset class and it's something that belongs. Maybe it's not going to replace the financial system, but we say it on the equity of like gold or oil.

It's something valuable and we should be stockpiling some of it, and that can be done really through the executive On the legislative side, obviously, they've created a Byicountal working group with Chairman Tim Scott and French Hill on the banking side, and gt from Pennsylvania as well as Bozeman sorry, from the Senate on the agriculture side. And that's really important because those are the two committees, the Agriculture that oversees the CFTC and then you have the financial or banking

committees that oversee the SEC. So all four of them had that press conference with David Sachs, and so that means that there's these four corners of the Congress working together and coordinating with the White House on what that legislation is going to be. And when you have that kind of a legislator that's authorized, meaning they're authorized by the White House in a sense of that what they do, the White House will support it, they won't veto it.

You have all of the frame work right for success. And I think that the SEC crypto task for us that Hester Pearce is doing is going to address things on the micro level, like kind of in the meantime. This is what's going to smooth out until we maybe

get the legislation later this year. So I'm very optimistic that we'll see something, but there are going to have to be some concessions made to the Democrats because remember in the Senate isn't just fifty votes in majority, you need sixty votes to get it to be a vote. So right now, that's seven Democrats, seven senators who are Democrats. Now we know Christian Joebrand's a friend, but we have to find six other Democrats who are going to be willing to adjust to this and say it for this

legislation actually pass. So it becomes a numbers game, which she often does with these things, you know in Congress. We're going to see how that plays out in the next few months.

say we build this digital stockpile. Do you foresee I don't know if in our lifetime, but the United States going back to a hard money standard where we go back to not necessarily a gold standard, but using digital acids, gold oil maybe and these things back the dollar instead of being fiat. It's back to that hard money standard. If that makes sense, Yeah, I absolutely do. You know,

if you look at the history of our country. We've had these ebbs and flows and Civil War, Lincoln issued, you know, the greenback or the US dollar created the occ and he did that without backing it by gold, right, so that was that was We weren't backed by gold for a period of time until later when the Federal Reserve formed, and then we finally went back on a gold standard. So there's a myth I think that's in seventy seventy six, we've been on a gold standard.

please have faith in this. And then it even got to the point where the Secretary of Treasury wanted Lincoln to put in God we trust on the first dollar bills, and if you look at it, the first greenbacks don't say that because Lincoln said, I don't want to say something like in God we trust because it's really just a piece of paper, you know, it's just back. So we've gone in ebbs and flows, so it's actually a

very easy question to answer. We've been off, you know, of a standard where we just have fiat the point that we have now, and so I could see a cycling to where definitely probably something like bitcoin or gold or other things that we say this is going to be the new way we standardize our money. And as everyone says, why we need a whole new sort of breton Wood two point zero just side what that future might look like. So I think that that'll be over

our lifetime. That won't be tomorrow, but I think maybe over the next ten or twenty years we might see something like that come to fruition.

want to consider stable coins like bank deposits. And if you think about that, that's a very slippery slope, right, because if you just have stable coins, that means we have cash like in our wallet, and that's kind of like what PayPal in other words, saying this is just for payments. That's why PayPal's like just for payments, it's

not banking, no banking. But if you think about it, if you're the banks and you can offer these stable coins, at some point, you can offer these stable coins in a way and then say, well, it's like a deposit on the bank. In other words, it's backed by a dollar. But we want to say that it's also a deposit that you're kind of with us when you have this stable coin, like if it's our own stable coin, and

if you get that to me. And I just thought of this actually on your show as you've been talking in such a fascinating conversation, is because then you actually get to the point of then the banks and the and the federal regulators can sort of use the stable coins the way that we use deposits now to kind

of regulate the economy. So I think one thing you might see come up that won't be apparent at first though, is this fight over how stable coins are really considered, as as the banks and the traditional institutions try to pull stable coins into the way you know they work today. Right,

So what is a stable coin? Right? Is it going to be this these dollars we have in our crypto wallets are now in our bank wallets that isn't really used to rehopothacate or will at some point the bank's lobby and try to change the bill to say, yeah, we want to do rehypothication, we want to you know, spread out the wealth and you know, lower the one to one standard. So I think that's going to be something to keep on the radar. Two mm.

technological development that has these breakthrough capabilities. It's fast, it's quick, it allows us to go through you know, very very you know, it makes things easier from a payment's perspective, could be a way of storing cash for some people in a digital realm. So it's a real game changer, right, It's going to do things, and I think it's going to take the private markets to do that. Right. It's why we're not going to have like a CBDC or whatever we want to call it today, because then it's

not something that's necessarily owned by the government. It's something that's run in a way where it's representing what money is. So it's really the first stage, I think in what we're going to see is a change the way the world looks at money. So I think that you're going to see the US I don't want to say weaponized, but certainly utilize stable coins to make sure we stay on top. And I think that's why you see such

support from Democrats as well as Republicans. Remember Maxine Waters introduced her on stable coin, much more restrictive, but they all see the writing on the wall. And this all goes back to twenty nineteen when you know, liber came out and they're like, well, we don't want market zucker to be the the face the gist dollar. We need something to do it. And now we're kind of here today.

I think this will be the final result of what a stable coin quote unquote regulated harnessed stable cooin will look like in a way that it can be our you know, fast horse and keep us competitive in the global landscape of the monetary order.