Warren Chisum & Bitcoin

A couple of things about money.

First, an amazing story from What Money Can’t Buy:

One viatical investor was Warren Chisum, a conservative Texas state legislator and “well-known crusader against homosexuality.” He led a successful effort to reinstate criminal penalties for sodomy in Texas, opposed sex education, and voted against programs to help AIDS victims. In 1994, Chisum proudly proclaimed that he had invested $200,000 to buy the life insurance policies of six AIDS victims. “My gamble is that it’ll make not less than 17 percent and sometimes considerably better,” he told The Houston Post. “If they die in one month, you know, they [the investments] do really good.”

Some accused the Texas lawmaker of voting for policies from which he stood to profit personally. But this charge was misdirected; his money was following his convictions, not the other way around. This was no classic conflict of interest. It was actually something worse — a morally twisted version of socially conscious investing.

I didn’t know this about him. It’s really just awful. The last line of the quote is exactly how I feel. I’m so happy he included it.

Now, I also want to discuss Bitcoin to some small degree. I’m not going to claim full knowledge of the “currency” or how it all works, but I’m giving my naïve opinion nonetheless.

Here’s what I think I know about Bitcoin: It’s a cryptocurrency (which is just a buzzword, really), allowing you to remain anonymous in all transactions, created by the “mining,” or the solving of complex math problems.  This introduces our first problem: inequality at the foundation. (You can buy Bitcoins on exchanges, but those come with a transaction fee.) Those who can afford faster processors and more computers will gain more Bitcoins in the front-end than already lower-income people. Further, as the algorithms, and thus Bitcoins, are finite, we end up on the same playing field as using a metal currency, that is, backing our money with gold or silver or whatever is fashionable at the time.

That’s another problem. Bitcoins are really just an old idea dressed up in technolibertarian-speak. There’s a reason we stopped using gold (for one, it’s finite commodity). For the same reason(s), Bitcoin will fail. And, as more Bitcoins are created, their value, in general, falls and the cost to mine increases, there will likely be wild fluctuations in value.

For example, in March the (Texas State Securities Board) issued a cease-and-desist order against Balanced Energy, a Southlake oil and gas company that allowed investors to buy a stake in the company using Bitcoins. If the company were to use Bitcoins for its cash reserves, then the value of those reserves, and the company itself, could fluctuate wildly, a risk that the board claims wasn’t properly disclosed to investors.

Investors? Heck, I think everyone should be informed of that fact. And, once again, it puts some groups of people at an automatic disadvantage.

We should also ask whether we really want a completely anonymous currency — and do anonymous markets work? If almost all lenders, depositors and debtors are anonymous, who do we trust? No real trust can be built, except an economic one. You could be trading Bitcoins with a priest in Rome or a terrorist in Mogadishu. Our current system may not be the most transparent — and definitely not user-friendly in its transparency — but it’s better than they’re offering, which is none at all.

I read one of Bitcoin’s biggest proponents (I’m still looking for the article in which he is named) say that his aim was to get government out of regulating money. I think as we’ve seen over the last few years that government regulation isn’t the problem. An out-of-control financial system run by the very people technolibertarians want to become — that is lacking government (that is, public) oversight to ensure the public isn’t harmed — is the problem. Markets don’t exist without governments. Governments need to step in at times.  As it has been, it will be.

Ultimately, it’s striking to me that how much of our current currency you have generally dictates how much you will have in Bitcoins if it takes off. (Which it won’t.)

Please, feel free to correct me on the Bitcoin stuff. I like to learn.



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