No Trust for Libra: Facebook Haunted by Its Past
Vernon H. Budinger, CFA, CAIA
I had the opportunity to listen to almost all of David Marcus’ Libra testimony before the House Financial Services Committee on Wednesday, July 17, and have read all the Libra Association White Papers. Marcus, the Libra Association, and the employees of Calibra/Facebook (Calibra will provide the wallet service for Libra) have put a lot of thought into this endeavor. However, it does not matter because the entire process comes down to one word: Trust. Congress doesn’t trust Zuckerberg and it doesn’t matter that he will not be ultimately involved with Libra.
It is not about competence. Marcus was in command of the facts and anticipated all the objections. How will Libra handle “Know Your Customer” to prevent money laundering? Marcus responded that that function would be handled through Calibra. When the committee members asked about the need for Federal Reserve supervision, Marcus responded that Calibra will not be a bank but rather a service such as PayPal or Alibaba.
However, the committee members could not be swayed. Libra will have a reserve system (sounds like the financial setup that the Federal Reserve oversees) and it is unclear how Calibra will interact with financial institutions. Moreover, the Mission Statement states that the overarching goal is to provide financial services such as cheaper transactions and financial access that will counter the usurious rates charged by the likes of payday loan operators. This sounds a lot like a bank or a financial institution.
In the world of cryptocurrency, Zuckerberg and his crew are the equivalent of good guys. You would think that the government would be happy to have someone other than a group of dubious, unprofessional, financial militants involved in cryptocurrency. However, Congress has lost patience with confronting Zuckerberg about his company’s misdeeds.
On November 29, 2011, Facebook and Zuckerberg settled with the Federal Trade Commission for deceiving consumers “by telling them that Facebook would keep their information on Facebook private, and then repeatedly allowing it to be shared and made public.” Now, in 2019, Facebook has set aside $3 billion for the fine that it expects to pay to the FTC for violating that 2011 consent decree, in part from the revelation that Facebook shared accountholder information with Cambridge Analytica and other firms during the 2016 presidential campaigns.
Now, who will believe Facebook or its executives when they state:
“Calibra will use Facebook, Inc. data to comply with the law, secure customers’ accounts, mitigate risk and prevent criminal activity. Beyond these cases, if a Calibra product feature can be personalized or improved with data from Facebook, we will first obtain customer’s consent to share the relevant data with Calibra.”
As Yogi Berra said, “It’s like déjà vu all over again.” Facebook and Zuckerberg will learn that you can fool some of the people some of the time, but you can’t fool all the people all the time.
Vernon H. Budinger is the owner of Neural Profit Engines and has 30 years of experience in the financial markets, from main street to Wall Street. In addition to earning a MBA from New York University, he is a CFA and a CAIA charter holder.