Last week, Bankman-Fried resigned as CEO, as FTX filed for bankruptcy, holding less than $1 billion in assets against $9 billion in liabilities. U.S. regulators are also investigating whether the crypto exchange mishandled customer funds. As the crypto market plummets, people who have put their money into cryptocurrencies are seeing their wealth vanish. A billionaire no longer, Bankman-Fried’s fortune has been wiped out. On top of this, Chicagoans who were supposed to benefit from the pilot program are now left in the lurch.
Time will tell how much money has vaporized due to the collapse of FTX—whose U.S. division was headquartered in Chicago until it moved to Miami earlier this year—and people may pass judgment on those who fell victim to the grift. However, it is worth considering that crypto’s appeal may be a symptom of something much larger: Americans’ desire for greater economic control and security.
While cryptocurrencies have been volatile and plagued by scams, fraud, and hacks, retail investors might have gravitated to them because of their promise of wealth at a time when there is tremendous wealth inequality worldwide. Those excluded from financial institutions — an acute problem in Chicago — face an especially dire situation in that they are both denied opportunities to build wealth and access basic banking services.
Consequently, the void was filled by predatory alternative financial services such as currency exchanges, check cashers, payday lenders, and auto title lenders. These financial service providers extract over $100 billion annually from underbanked and unbanked people, which means they often spend more on fees and usury interest annually than on food.
As it turns out, cryptocurrencies were a distraction from discussing policy proposals that could address root causes to critical problems. The crypto debacle should prompt us to refocus.
The federal government could provide direct checking accounts and simple transaction services to all communities through the post office. The Federal Reserve could also authorize “Fed Accounts,” which are accounts that are given directly from the central bank to individuals, businesses, and institutions. Financial institutions could also be required to provide free or low-cost bank accounts and services to their customers. Or, states and cities can launch banks as public options, as North Dakota did over a century ago.
Not everyone will agree with these proposals. However, they serve to rekindle discussions to explore potential solutions not revolving around simple fixes or otherwise unproven or risky products.
As Chicagoans prepare for the municipal elections in 2023, they should pay attention to candidates’ economic priorities. What are the candidates’ plans for enhancing financial inclusion? Chicagoans deserve and benefit from proposals that take on challenging problems head-on.