It’s not every day the CEO of a publicly-traded currency comes out against Wall Street and the US dollar, but it is today. This is absolutely the best and most interesting corporate blog post you’ll read this year, and that comes from someone who WRITES them. Thanks to Patrick Byrne, CEO of my beloved Overstock.com, here is an earful about the weakness of allowing the Big Banks and most particularly the Investment Banks collectively known as “Wall Street” to leverage your money and play with it as they wish.
Dear Valued Customer,
Enclosed, please find the Wired Magazine article, “Meet Patrick Byrne: Bitcoin Messiah, CEO of Overstock, Scourge of Wall Street”. It concerns the decade-long battle Overstock has waged to expose Wall Street mischief.
The backstory is as follows: Overstock went public in 2002. Between 2002 and 2005 I found myself mingling with various Wall Street bankers, hedge funds, and journalists, and began to form an impression (and hear) of unsavory activity. I made it my hobby to study it, and in 2005 I went public about what I had learned. For several years thereafter, the New York financial press derided and distorted my claims, often to the point of appearing to engage in a cover-up. When in 2008 what I had been saying became indisputable, Wall Street went silent about this episode. The enclosed Wired article recounts that history, and explains how it is related to Overstock’s recent decision to accept Bitcoin.
I understand that you may not be interested in tales of corruption in Wall Street and Washington, DC, and if so, please simply enjoy the coupon above. However, if you read this piece from Wired, which effectively ends a cover-up regarding the Battle of Overstock versus Wall Street, I think you will understand why I chose to share this article with 41.7 million of my closest friends.
Your humble servant,
Patrick M. Byrne, CEO
“Scourge of Wall Street”
He followed that up with a link to this profile in Wired. (Incidentally, the kind of thing I would kill to write. Just sayin’)
The problem with the modern economy, Byrne says, is that it rests on the whims of our government and our big banks, that each has the power to create money that’s backed by nothing but themselves. Thanks to what’s called fractional reserve banking, a bank can take in $10 in deposits, but then loan out $100. The government can make more dollars at any time, instantly reducing the currency’s value. Eventually, he says, laying down a classic libertarian metaphor, this “magic money tree” will come crashing down.
But bitcoin is different. It’s like online gold: The supply of the digital currency is controlled by software running across a worldwide network of computers, and its value is decided not by the feds or the big banks, but by the people. “It can make our country more robust,” says Byrne, a disciple of the Austrian school of economics, which holds that our economy should rest on the judgments of individuals, not a central authority. “We want a money that some government mandarin can’t just whisk into existence with a pen stroke.”
Essentially, he’s calling the banks out on leveraging your money 10:1 to make bets on the market. The banks keep what they make. As we saw in 2008, when the banks lose money, the government rescues them. This, ultimately, comes out of the pockets of the people: yes, their deposits are federally guaranteed, but who guarantees them? Through the tax system, the very people whose money is guaranteed are guaranteeing it, with the additional costs of supporting the infrastructure of the banks and the government. They could do this cheaper themselves.
Which is exactly what they are doing with Bitcoin.
Will money be lost on Bitcoin? Of course. And gained, too. And will money be lost on bank deposits? Yes: the fees involved in having the account (remember when banks PAID you interest to use your money? and the inflation and devaluation of the dollar which results from things like propping up banks, while your money is just sitting there, shrinking in value.