WBD617 Audio Transcription

Responding to a Financial Crisis with Jason Brett

Release date: Friday 10th February

Note: the following is a transcription of my interview with Jason Brett. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

Jason Brett is a former FDIC regulator who worked through the 2008 Global Financial Crisis. In this interview, we discuss the events that led up to the 2008 GFC, the implosion of IndyMac & subsequent bank-run and what to expect from regulators following the crypto contagion of 2022.

“You may not care what the government’s doing and you may think what I’m doing is a total waste of time…but here’s the problem, they’re thinking about you…is Bitcoin going to work, are we going to see this revolution through and everything, I think any help we can get along the way is a positive help.”

— Jason Brett

Interview Transcription

Peter McCormack: Jason, nice to finally meet you.

Jason Brett: Nice meeting you, Peter.

Danny Knowles: Have you seen the phone sticker, Pete?

Peter McCormack: Hold on, what?  Oh, you're just trying to get favour with me, aren't you?  Hold on, where did you get that?

Jason Brett: From him.

Peter McCormack: Oh, today?

Jason Brett: Yeah!

Peter McCormack: Oh, if you'd have turned up with that, that would have been a different story.

Jason Brett: I know. 

Peter McCormack: Have you got any merch?

Jason Brett: No.

Peter McCormack: We'll have to sort that out at some point.

Jason Brett: Yes.

Peter McCormack: Regulatory Jason, welcome to the podcast, man.

Jason Brett: Thank you, good to be here.

Peter McCormack: Danny, as he often does these days, he's like, "We've got to get Jason on the podcast, Jason's the nuts.  We've got to get Jason on".  So, listen, welcome.  Not everyone in the Bitcoin community will know who you are or what you're up to, so I don't always do this, but it probably is good for you to give a bit of your background so people know who you are.

Jason Brett: Sure, thanks, Peter.  I'm a former FDIC regulator during the Financial Crisis in 2008, so I worked at the FDIC, I was in finance in capital markets.  I started there right when the IndyMac Bank crisis occurred, and I basically saw that and then in capital markets, went through the Lehman Brothers crisis, Merrill Lynch acquisition of Bank of America, dealing with all the AIG counterparties, figuring all this stuff out, kind of at ground zero during the Financial Crisis.  And that's like the beginning of my Bitcoin story, because I realised there was only the faith and trust of the US Government that everyone was trying to preserve, and there was a crack in that that I think Bitcoin got out during that time.

So, I went on to be a regulator for about seven or eight years, didn't really hear too much about Bitcoin, was involved in trying to help people save their homes with the Home Affordable Modification Program from Obama, making sure large banks were following the rules on that, so that people wouldn't get to foreclose or get an opportunity to refinance their mortgage.  And then, about 2016, I ran into Perianne Boring, who I've seen on your show.

Peter McCormack: Yeah, Perianne's great.

Jason Brett: Oh, wonderful.  And she hired me in as the Director of Operations for the Chamber of Digital Commerce and I knew nothing about it, but I was like, "This is really interesting because my thoughts are, is there something else that we could rely on for money?"  So I did that, I worked probably now the last five or six years, my whole career's been working with politicians, regulators and the regulation of Bitcoin and the space, and trying to help both people in Congress and also administrators and agencies understand what this space is all about.

My claim to fame is that I pitched the Department of State on offering education through a non-profit that I founded, called the Value Technology Foundation, and part of the pitch that I thought they would just reject me on was to teach them how Bitcoin mining worked.  But they actually accepted it, because they wanted to understand it, and I was explaining, "Other nations like North Korea might be doing this, so you need to understand how it works".  And so, doing a demo of that was really cool.

Peter McCormack: Oh my God, wow, so you worked at the FDIC during the 2008 Financial Crisis?

Jason Brett: Yes.

Peter McCormack: Just that in itself is incredible.  I've taken a lot of interest in the 2008 Financial Crisis, more trying to understand why it happened.  I used to have this other podcast, called Defiance, and we made a four-part series about Mnuchin and tried to understand his background, tried to understand what happened with, is it OneWest?

Jason Brett: OneWest, yes.

Peter McCormack: OneWest, yeah.  Usually I can't remember names, but OneWest.  And then in doing so, try and understand the establishment of the FDIC, and then prior to that, trying to understand, is it Glass-Steagall?

Jason Brett: The Glass-Steagall Act, yeah.

Peter McCormack: Yeah, that was repealed, and just trying to understand the background, how did this crisis happen.  So, I've got a really interesting question for you, I don't know if you can answer this, but lots of people wanted to blame the Financial Crisis on different administrations, but it seemed to me the starting point of part of this Financial Crisis was under Clinton, where he tried to make homes more affordable.  And I can't remember if that is Glass-Steagall being repealed, or there was something else repealed at the time.  But in doing so, they lifted a number of the restrictions on banks to try to make them more affordable, so the deposits you had to have and things like that.  Is that correct?

Jason Brett: So, that's one start of making homes affordable, to make mortgages more accessible to people that maybe couldn't get into homes, which on its face I would argue isn't wrong; we agree we want to promote that.  But the problem with Glass-Steagall, as it was held -- Sandy Weill of Citigroup is the one that really brought Glass-Steagall down, because he had Citigroup Travelers Insurances mixing the investment bankers with personal money, and that was a lesson they learned from the Great Depression.

This whole idea of the Glass-Steagall Act was, when you have depositors' money in the bank and let's say they're buying a stock in GE, you don't have an investment bank that's shorting GE stock, or doing things against the interests of the depositors; or even worse, as unfortunately we've now seen with Sam Bankman-Fried in our industry, taking depositors' money and doing investments in other industries.  So, the Glass-Steagall Act kept that separate.

So, that wall coming down, which was to try to promote more mortgages, right, because if you bring the investment banking in, you're a larger institution, you do more mortgages, that's a good thing.  But the problem is, you're then going back to what caused the Great Depression, which is when you have an investment bank and then you have people's deposits, and there's not really a strong enough wall to defend that against them, which is a story as old as time because we're now seeing that in real life with Sam Bankman-Fried today.

Peter McCormack: And that separation, why was that important?  You say it's important to keep these things separate, but what is the knock-on effect of comingling these?

Jason Brett: So, believe it or not, in the Great Depression, you might be going in to make a deposit at your bank, Peter, and you might see your banker come out on the street holding up a bond for a company, trying to sell that bond in the street, "Hey, you should buy some bonds".  And what you realise is happening is, they're trying to keep the bank afloat, because they're trying to sell the bonds at one of its companies.  So, there's this notion, before the FDIC, of people always knew your deposits weren't safe if the bank collapsed, there's always that risk that you could lose the deposits.  Up until the Great Depression, there was never really enough of a public outcry of people wanting the government to somehow protect that for them.

So, by getting rid of that, by separating it out, it allowed for a time, which I know some people disagree because they consider it a moral hazard, but having an FDIC insurance plan where you know if your bank fails, you run to the bank, you're not lost, you don't have all your life savings up, that you can get that money back.

Peter McCormack: Okay, and the FDIC, that's Federal something Insurance something?

Jason Brett: Federal Deposit Insurance Corporation.

Peter McCormack: Okay.  Is it up to $250,000 a person?

Jason Brett: It's now $250,000, yes.

Peter McCormack: But it wasn't before?

Jason Brett: No, it was $100,000.  In fact, when we get to the OneWest, which is interesting that you mentioned it, that was IndyMac Bank, and I bought a couple of videos to show you the crisis in real-live action in 2008 that helps to explain a little bit of what was happening, and how much of a panic was really started in July 2008.

Peter McCormack: You've got those?  We'll come back to those; just a couple of things.  So, where does the money for the FDIC come from; do the banks pay into it?

Jason Brett: Now I might get in trouble!

Peter McCormack: Yes!

Jason Brett: The FDIC is an agency and they have what's called a Deposit Insurance Fund.  This is how much money they have because the banks will have to pay assessments into the fund.  So, they do have this money, it sits on account in the US Treasury.  So, technically the FDIC would have to call the US Treasury and say, "Hey, we need to use some of this money".  The Treasury would never say no, but technically the Treasury could say -- because the Treasury is a bank too, they could say, "Well no, we need the money, we're a different agency".  But that all sits in a Deposit Insurance Fund.

The Deposit Insurance Fund does not cover everyone's deposits nationwide, it covers maybe 1%.  It's supposed to be a certain percentage of the overall deposits.  And the theory of that is, if they can just have enough in case there's a couple of bank failures, they can cover it, but it does not cover 100%.  So, the FDIC, if they run out of money, would have to then go to Congress to get more money from the taxpayers to pay off those further accounts.

Peter McCormack: And we see that, we have individual banks get into tricky situations.  I'm trying to remember the one, we had one in the UK at one point.  Newcastle Bank, I seem to remember.

Danny Knowles: Was it Newcastle Building Society?

Peter McCormack: No, I can't remember its name.  But anyway, that once happened and in those scenarios, you have that protection.

Danny Knowles: Northern Rock.

Peter McCormack: Northern Rock, yeah.  Do you remember that?

Danny Knowles: Used to sponsor Newcastle.

Peter McCormack: Yeah, so there were suspicions about them and then there was a run on the bank and they didn't have the liquidity and they ended up crashing.  Now, we have something similar in the UK, I think you're protected up to £85,000 in your deposit account, savings account, or current account as we call it.  But the systemic problems that were happening, like in 2008, that's when the government comes in and bails people out.  One thing I never understood, how do they pick who to save, because they saved Fannie Mae and Freddie Mac.

Jason Brett: They saved Fannie and Freddie.

Peter McCormack: Yes, but they didn't save Lehman. 

Jason Brett: Yeah, and they saved Bear Stearns.  They didn't save Lehman on Monday, and on Tuesday they saved AIG.

Peter McCormack: Yeah, how are those decisions made?

Jason Brett: They flip a coin.  No!  It depends on the case and the circumstance.  A lot of people will say Lehman was a huge, massive mistake, that if they had not let Lehman Brothers fail, that the crisis really wouldn't have gotten that bad.  That just to me is not true; there were problems.  And at that point, it wasn't just Lehman, it was all of them: Goldman Sachs, Morgan Stanley, they all could have gotten down, but they realised they needed to send a message to the people of Goldman Sachs, Morgan Stanley, all the investment bankers, that the government isn't always going to be a safety net for you.  So, because they had Bear Stearns in March, they didn't want to repeat that with Lehman. 

AIG was a totally different subject and I still have nightmares about AIG, because we literally learned about all the counterparty risk of AIG once we knew they were about to fail, and we realised they held the insurance for all the investment banks.  So my job was, I was actually on a whiteboard looking at all the different countries we were exposed to, the amount of notional derivatives that were out there, which we now know and is visible.  But we had money owed to different foreign countries, I don't want to go into which, but it was obvious to me just looking at this that, Peter, if we didn't save AIG, there'd be missiles launched at the US; people would be really upset with us.

Peter McCormack: That's a bold statement.

Jason Brett: Well, to the degree of the default of bonds from America or what would happen as a result, yes, it is a bold statement.  But when you look at the consequence that would cause to another nation.  I mean, the United States was founded with Alexander Hamilton saying the US has to be good about its debt.  So, I think that's where I'm saying that.  But needless to say, it was all around the world, it was definitely globally exposed. 

So ultimately they came in and they said, "We have to bail out AIG", which again I say is on Tuesday, the day after they said, "We don't do bailouts, we're not saving Lehman Brothers".  And in fact, George Bush was very upset because he had to speak at the National Economic Club and in his speech, he was going to say, "We don't do any more bailouts".  But then he had to change it because AIG had just been bailed out!

Peter McCormack: And when this all happened, was there a build-up of suspicion and rumours, or did you just come into work one day and it was a shit show?

Jason Brett: So, it was very quiet, but we did know about IndyMac Bank, which is why I'm excited to share with your listeners a little bit about what's, I think, a little bit underreported, but speaks a lot to people's lack of confidence in the banking system.  But there was definitely this large bank, but at the time the FDIC fund was very large, so we knew even if this bank failed, we'd be okay.  But we started getting murmurs of things like Washington Mutual, Wachovia, so it was all building up, but the crisis didn't really hit until July, and then it just felt like the walls were going to fall apart because things were getting so turned around, particularly with Lehman Brothers, like with breaking the buck on a US dollar.  I mean, you just felt like it could just collapse the entire financial system.  So, it was scary.

Peter McCormack: Yes, very scary.  Was there also a weird excitement to work on it, knowing you're part of potentially the solution?  And I don't mean that in a derogatory way about what actually happened, it was terrible.  But you're central to part of this, you're coming into work as somebody to help try and fix this; was there an excitement to it and also, were you working all God's hours on this?

Jason Brett: Yeah, I was working a ton of time on it and the shift really was that it was interesting, I had experiences I never thought I would have with it.  But I also realise that it called for regulators to have some curiosity and to come up with some clever ways to figure things out.  Not that this was an excuse, but I was a junior analyst, I was the people that they would come to to ask what the quotes were on a Bloomberg screen.  So, I kind of had the joy of analysing it all but not really having to make the hard decisions.

Peter McCormack: Are you the dude in Margin Call?!

Jason Brett: Yeah, basically!  I mean, it's like Scrubs.  I was the guy who, they'd come over with the TED Spread bulletin verdict, I never saw that happen, but yes, there was definitely an excitement.  When I left after a year and I was looking at maybe getting a couple of other jobs before I left the FDIC, I was telling people about it and they were saying, "Well, you've had 20 years of experience in that 8 months of things that people would love to have just been part of one of those projects".  So, yeah, it was totally uncharted territory.

Peter McCormack: Yeah, and do you know what, I see the kind of similarities with what's happening with these crypto markets, where essentially over-leveraged people lending money to each other, everybody interlinked, and you get the first one, the second one, then boom, everything collapsed in pretty quick time.  Do you see that as, excuse the word "crypto", but cryptos because it did involve other crypto currencies; was this like crypto 2008?

Jason Brett: It absolutely was because the same things were being discussed that's being discussed now, the fight between Gemini and DCG; I mean, you had Morgan Stanley, Goldman Sachs, there were all interconnections, they all lent money to each other.  The difference was that they were backed by the government, the government needed them as a utility to exist.  In this case, the government's like, "Good luck, guys, go figure it out amongst yourselves!" and maybe people think that's the way the free market works, but I do really worry about that.

My big thing is about, there has to be consumer protection and I don't think for crypto there's been enough consumer protection.  I was saying before, I worked for the Home Affordable Modification Program, so I believe everyone really deserves a fair shake.  And what has me really upset right now is a lot of the things with Celsius, because with Mashinsky winning the right over the customer accounts --

Peter McCormack: Insane.

Jason Brett: -- that's just not the way it's ever, ever supposed to work; those people should be paid first and that should be the priority, including those at Celsius.

Peter McCormack: Yeah, this will be an interesting conversation, because I don't fit in well with the more anarchist bitcoiners.  There's certain aspects of consumer protection or regulation I agree with, not everything, I think we've had massive scope creek.  But there are certain areas I do agree with, so we will get into that.  Shall we watch your videos?

Jason Brett: Yeah, and if I could set the stage for it?  So, this is the first big explosion when things got interesting and exciting.  Essentially, the IndyMac Bank, which became OneWest Bank later, but at the time, it was early July and the bank was closed, it was closed a few hours early on 11 July and it was reopened on Monday, 14 July.  And what you're about to see are news reports of what was a bank run that really is to me a little bit underreported, but really sparked the Financial Crisis, and broke what a lot of people's faith was in banking.

What's interesting about what you're going to see is how the people are upset, they're actually getting wrong information from the FDIC, it's incorrect, because the FDIC was telling them to go home, "You have access to all your funds", and you have people saying, "That's not true, we can't actually get out money and we need to pay bills".  But then when you really talked to people they said, "Well, what's behind the dollar; what about your faith in the banking system?" they basically said, "Well, as long as the FDIC's there".  That's when I kind of had this introspective look like, "Whoa, we're not gold, we're not some -- this is an agency and that's how much people rely on the FDIC and it's just been that way since the Great Depression.

News anchor 1: So you know that IndyMac Bank shut down Friday and has been taken over by federal regulators and they've reopened the bank.  What is happening at this hour, Eric?

News reporter: Well, this particular branch, and all of them actually, opened at 8.00am and there's a little bit of tension here.  We've got people in line here behind this yellow tape.  These are people who were put on a list yesterday; they waited all day yesterday and their names were put on a list and they were told to come back this morning.  And then, these people showed up over here and they were not on the list, and they feel they should be allowed in the bank first to go in and withdraw their money, and of course the people whose names are on the list, they believe they should be allowed in first.  So, there's an argument taking place here, and it's gotten kind of loud and the police have been called in.  You see there's a couple of officers over there, there's security here as well. 

At this point, what the bank is telling people is, "If your name is on the list, you can get in.  If it isn't, you need to go home", and you come over here to this manager; he is telling these people whose names were not on the list that they ought to go home.

Bank Manager: One of the things I want to do is get you guys a handout with all the questions and answers from the FDIC.  If you have questions on your account, we'll have the FDIC come back through the line and answer questions.  Maybe you don't have to be here today, maybe you can come back on another day, the bank will stay open and you won't have to wait in this line.

News Reporter: These people are not happy.

Jason Brett: So, this is a federal bank, so in other words, this is now owned by the FDIC, so it's no longer a private bank.

Peter McCormack: At that point?

Jason Brett: At this point, yeah.

Peter McCormack: What's the trigger for that?

Jason Brett: So, the trigger on the 11th was they went bankrupt.  The FDIC closed them down saying they were no longer a solvent bank on Friday.  So, this is now Monday or Tuesday and they're trying to reopen the bank.  But over the weekend, and you'll see the people's reactions, they're trying to get at their money and the FDIC's saying, "Go home, your money's fine, it's okay in the bank", but people couldn't access their debit cards, they couldn't pay bills and they were just trying to understand what was happening.

Peter McCormack: A couple of questions on that.  You said they were given wrong information.  Could they be given wrong information on purpose?

Jason Brett: Well that's why, when we replay this video, you'll see that the news anchor gets involved, because he's hearing what the FDIC's saying and he interrupts the broadcast saying, "Wait a minute, I'm a customer of IndyMac Bank, I know what the FDIC is saying is not true, I didn't have access at the weekend", and that's where it got really messy.

News Reporter: Some of these people are not happy with that explanation, they're here.  Some of these people have been here since 1.45am.  Let's come on down the line, maybe talk to a few of them.  You've been waiting here for hours, now they're telling you you have to go home because your name's not on the list.

Customer 1: What?

News Reporter: That's what they're saying.

Customer 1: Well, let me get on another list then.  I mean, that's nonsense.  This morning, the FDIC announced through the news they weren't honouring anybody on this list, it was first come, first served, they know nothing about this list, it wasn't from them on their official letterhead.  Now the same guy who said, "I'm not doing a list", is now saying, "I'm honouring the list".  He's a hypocrite and he's a bold-faced liar, and this is who's representing us and in charge of our money today?  That's nonsense.  There are people here who need money to pay their bills.  This is nonsense, they should alternate one, one, one, one, they should not take the list people first, it should be an alternated thing.

I mean, there's one guy that's been here since 11.30pm last night; I've been here since 5.30am this morning.  I mean, they should have at least had the decency to have a representative out here early, and not wait until 7.45am to start doing this.  This is badly managed and apparently, according to the new CEO of this lovely IndyMac Bank, he was going to make everything run smoother and do what was whatever necessary.  Well, he ought to get off his ass and come out here.

Peter McCormack: Go on, girl!

News Reporter: Thank you for talking to us.  I know you're angry too, you're very upset.  Are you going to stay here?  They told you to go home, what are you going to do?

Customer 2: I didn't hear somebody telling me to go home, but I guess this guy is not telling the truth, because we were standing here yesterday for five hours and he said, "Go home.  You have another week, you don't have to panic, you're not going to get in".  I was five hours and I was almost right here on the line.  He said, "We're not going to make a list, we're not going to have tickets, we're not going to have numbers", and I came this morning and now he tells me they made a list after I left.  I don't know how fair it is.

News Reporter: Yeah, there's a lot of people upset.  Yeah, go ahead, Frank.

News Anchor 2: I wonder if you could get some of these folks, or ask one of them to react to what the President is saying.  The President's just talking, trying to reassure everyone about the banking system in America.  He says it's basically sound.  He's asking people, Americans, to take a deep breath in terms of their assessment of the banking system.  What do those folks there in the line feel about that?

News Reporter: Well, we can try that.  I think most of these folks just want to get their money out of this institution as quickly as they can, but let me come over here and talk to you.  The President just gave a news conference just a few seconds ago in which he's telling people to calm down, he's reassuring people about our banking system.  How do you respond to that?

Customer 3: I'm pretty pissed off right now because I got here at 4.00am, now they're telling me I can't go in.  I'm just aggravated, they should have things more organised than they do.

News Reporter: What about your faith in our system of banking; has that been lost?

Customer 3: Well, as long as we have the FD -- as long as the FDIC doesn't go broke, we're fine.  But what do they do when that happens, you know?  Two or three more bank runs, I don't think anyone's going to have very much confidence.

News Reporter: What if you get your money out of the bank and you're able to withdraw it today, where will you put it?

Customer 3: Anywhere as long as it's FDIC.  They should have someone out here from the FDIC actually.

News Reporter: You see what's going on here, Frank.  Go ahead.

News Anchor 2: If I could also jump in, because my wife and I are customers of IndyMac, so we're caught up in the middle of this.  And it just is disinformation, because the bank people have told you that the banking machines were working all weekend; that is not true.

News Reporter: Oh, really?

News Anchor 2: Yeah.  We went there on Friday, we managed to pull out $200, but the main thing is, we wanted to know what our balance was and it won't tell you your balance.  Then we went back on Saturday and Sunday, the machine wouldn't allow us to pull out any money, it won't even tell you your balance.  You go on the internet and you can't find your balance.  If you go on the FDIC website, they just have that standard, "Don't worry", and that.  So, I can't even, without having to walk into that bank.  So, the machines weren't operating, so it's that disinformation that they're creating even more of a problem, because my wife and I have to work, we can't line up, and we're hoping.  And, Eric, the person there was just saying that there isn't a representative from the FDIC there?

Peter McCormack: I mean, I've got notes from that.

Jason Brett: Yeah, what do you think?

Peter McCormack: Well firstly, I mean, look, it's palpable how upset that lady is, you could see the fear, because there's two parts to this.  If your only way to access money is the bank -- and there's two aspects of that, there's the automatic payment of bills that doesn't happen, so you risk defaulting on loans, mortgages, potentially lose your house, so there's that.  Also, if you need to do your shopping and feed your kids and you cannot withdraw money and you're in a position -- there's plenty of times where I don't have cash and I entirely rely on my bank card, so I cannot pay for anything.  The third thing is the fear that you lose all your money.  Now, one of those guys is educated, FDIC-insured, so he thinks he'll get his money.  That's cool up to, was it $100,000 then?

Jason Brett: It was $100,000 then, yeah.  They moved it to $250,000 after this because of that.

Peter McCormack: But you could be somebody who has $1 million with them and great, you deserve that because you earned that $1 million or somebody earned that $1 million and gave it to you; I don't care how he got that, that's still your fucking money.  You'd be panicking because you know you're only getting $100,000 back, you've lost 90% of your savings there.  So, yeah, I mean that's bad.

Secondly, it's obviously chaotic.  It's almost like the FDIC knew the protection they were going to give to people, but they didn't know how they were going to actually run with that scenario.

Jason Brett: Exactly, and I think that's the one thing that no one expected.  The wildcard in this is the YouTube videos.  So, you saw that was a broadcast, but what was happening was, and I did this because I was the one that actually helped set up this spreadsheet for the Board of Directors at the FDIC IndyMac Bank, so I was back in DC as an analyst just putting it together to show who was taking out the money.  So early on, the people that were lining up and taking out the money were mainly people who had lived through the Great Depression, so that made sense.

Peter McCormack: They knew.

Jason Brett: Yeah, they realised what's happening, even though the FDIC is there, they remember maybe their grandparents lived through suddenly having no money.  But what's happening was, there were these kids, 18-, 20-year-olds, going around YouTubing it.  So, this was a social media crisis because then people who just had normal jobs, working in their 20s, 30s and 40s, saw the YouTube videos and started running to the bank because they thought, "Well, if those people are standing in line, maybe I should be doing the same thing". 

So, this is really the first social-media-inspired bank run.  And really your only access was in those doors where they could maybe tell you a little bit about your account; otherwise, you're just totally shut off.  And thank you for saying that, and that's what I care about with the consumer protection side, because one day you have money and you're relying on that and then just like that, snap of a finger, it's gone, it's scary.

Peter McCormack: Yeah, but I can also recognise the alternative argument for this, in that you as an individual can be responsible for your own money, you are a customer of the bank.  So with a bank, you're the customer, you leave your money with them, maybe it's up to you to -- I mean, we had it during when FTX collapsed.  They are funds who kept the majority of their money in FTX and they hadn't implemented proper counterparty risk and they're fucked.  Here, maybe consumer protection makes us a little bit relaxed to our own counterparty risk. 

Sadly in doing this job, it's important to try and see both sides of the argument, so I do.  So, I sometimes struggle to take a direct position.  But actually, what it's making me more think is that, I think a lot of people -- so, my son right now has a bank account.  I imagine that he wouldn't even consider a scenario like this, because in 2008 he was 4.  I can tell him about this, but he was 4.  And there'll be people there who were 20, 25, 30, 40, who like you mentioned, hadn't lived through the Great Depression, and you think your money in a bank is safe, you think it's always there.  What you don't realise, in the background, they're doing jiggery-pokery, do you know that term?

Jason Brett: No!

Peter McCormack: It's a British term, fuckery, with your money, financial engineering, trying to make a lot more money and in doing so, they wipe out their own liquidity, wipe out their own bank and then wipe out your funds.  They're gambling your money.  They're taking your money and gambling and ruining your life.  I don't think enough people know the risks that come from these banks.  I don't know the answers.  I'm sure you've got ideas or answers, but I don't know the exact answers.  It's almost like, we talk about proof of reserves in Bitcoin world; I kind of want proof of reserves from my bank, but then I know they're not going to have the reserves because it's all fractional-reserve lending anyway.

Jason Brett: It's at the Federal Reserve.

Peter McCormack: Yeah, crazy shit, man.

Jason Brett: Yeah.  And I think for the bank at the time, the idea was that there's a thing at the FDIC called the least cost test.  So they have to analyse what's going to be the least cost to the Deposit Insurance Fund so you don't end up abusing taxpayer money.  So this, what you saw, was considered a colossal failure on all parts, I mean you can hear it.  Believe me, after this, there were a lot of people on planes going out from the FDIC to be in those lines, there were a lot of lessons learned.

But the one lesson and what really interested me was the degree of attention to which they were all paying to how many YouTube videos the FDIC would then put out to reassure everybody and make them comfortable and understand, educate them.  And I think that after that, you saw the TARP package, you know TARP is Troubled Asset Relief Program, which I always made fun of the title, because they just said that to get as much money as they could from Congress to put in the banks, which they ended up doing.  But Troubled Asset Relief is like, "Is it homeless relief?"  It's a big house worth $1 million, somebody couldn't afford it and now they're being kicked out of it; that's your relief programme.  But it wasn't even for that person, it ended up being just an injection into the banks.

This stuff, it gets complicated.  It's kind of like with a doctor when they start to use these terms and you don't quite know what they're saying, but you know it has to do with your health.  And you have Lyn Alden on a lot, I love Lyn Alden, I understand everything she's talking about having done the capital markets stuff.  But sometimes it doesn't hit people until you see something like that, because then it's real.  We're always talking about the Federal Reserve and what they're doing, which is 1,000 times worse than this.  It's like they're bleeding our money supply, they're doing all these things, but people don't see those effects, the direct effects.  At least in this instance, there was that direct effect.

But then, with the TARP money, they just gave money so the bigger banks, like Wells Fargo, could buy failing Wachovia and others because when you think about it from a psychological perspective, if I told you on Friday, Peter, "Hey, you and your son's account, they're at this new federal bank", you'd probably spend the whole weekend trying to figure out what your balance is.  You'd be there at 2.00am trying to talk to somebody about it.  But if I told you, "Hey, Peter, you had your account in this mid-sized bank, but Wells Fargo bought it", you'd be like, "Okay, I'll go down on Monday". 

It reduced the stress and in a sense, calmed people, and this is where my eye-opening experience came to me and why it's exciting to see this whole Bitcoin community now, because I can share this; because at the time, I was almost talking to myself because I was like, "There's a real problem here, because if people don't trust what the FDIC was saying", and that's why it came down to how important it was that the FDIC put out YouTube videos, "then what do people do?  Do we just print money because the FDIC only has 1% of everyone's deposits?"

It's like you said, proof of reserves, what if we did the keys test and everyone takes their money out of the exchange; everyone, take your money out of the bank for one day!

Peter McCormack: It would never work.

Jason Brett: Right, there wouldn't be enough there.

Peter McCormack: What do you think, Danny; if you stopped in the street and asked 100 people what fractional-reserve lending is, how many do you think would know?

Danny Knowles: Oh, I don't know but not enough.

Peter McCormack: I think less than ten, maybe less than five.  I might even ask my friends when I'm back.  I don't think they realise how it works.

Jason Brett: Yeah, and that's my thought when I hear you and Lyn talking.  It's like, "Are people digesting this?" because I can show you a video and you can say, "Yeah, you can't pay your bills".  In all fairness, I know you're talking about people doing counterparty risk evaluations as the customers, but mostly FTX money was the large money that left first.  The people, the bag holders were really the smaller account holders.

Peter McCormack: As always is.  In every scenario of these things, it's always the little people who get fucked, every single time.  That's why I brought it up on this show so many times.  That's why I think the Big Short was such a brilliant movie.  It explained everything in a way you could understand and it was entertaining.  And just when you think you're about to leave entertained, in that final montage you see that family pack up their car, they've lost their house, they move away and you just go, "Oh, fuck!" and you realise.  And then, I think does it come up with the numbers, the stats at the end, how many people lost their homes, and it really hits you and you're like "Shit!"

Jason Brett: And then they start doing the same thing all over again on Wall Street.

Peter McCormack: Yeah.

Danny Knowles: And it's the one banker that went to prison, the Credit Suisse guy.

Peter McCormack: Yeah, oh, man.  It's depressing.  What was Dodd-Frank?

Jason Brett: So, Dodd-Frank was regulations to avoid what happened with the Global Financial Crisis.

Peter McCormack: That was the thing that came after, and that was, whatever it was, 7, 12 things, the stress test on the system?

Jason Brett: Yeah.

Peter McCormack: And is it annual, they have to do those?

Jason Brett: Annual, yes, if they're a systemically important financial institution.

Peter McCormack: My understanding is it's actually not a bad regulation, it's been good for testing.

Jason Brett: It's been good for testing, it's a very comprehensive process.  Sometimes, the stress test from a bank will be -- I remember one time it was over 100,000 pages.  So I mean, how can you get through 100,000 pages in a month?  But you have to get through it to figure out what the rating is.  I think that was good but to me though, that's where we now see a further centralisation of banking.  Because, like I was saying, the TARP money just gave money to the larger banks to gobble up the smaller banks that were going to fail.  So, there's this trend towards much fewer financial institutions. 

So, this is all a huge centralisation problem.  I mean, crypto, Gemini, that's nothing.  This is huge banks and they know it's getting smaller every year.  There used to be regional, community banks, but that's all going away now.

Peter McCormack: So, with IndyMac, were there large withdrawals before the failure?  Like, if you work at the bank high up enough, you know what's coming.  It's like that Margin Call moment where they realise, "Well, let's sell this shit off".  Do we know there were large withdrawals, people working there; do we know if that happened?

Jason Brett: I don't know if that happened.  It's funny, because I've been part of helping close banks a few times, and it's kind of funny because they give you a cover story of who you're supposed to be.  And the joke is, "The bank never wants to see the FDIC on a Friday, because that means they're getting closed"; they're getting closed at like 2.00pm on a Friday.

I remember I was on a plane and I was supposed to be this consultant from like ABC Consulting!  But the guy next to me on the plane was a New York Life salesman, so he was pitching me and he wanted to know more about my life.  I was like, "Well, I do this consulting", but he asked more questions about my background!  I think he ultimately decided I was full of shit!  But the idea was, people from the FDIC would get in trouble, you couldn't tweet about where you were going, you had to go in there and…  So, the idea is no depositors at the bank should know.

Peter McCormack: What about large counterparty risk?  We say there's $100,000 protection; could there be someone with $10 million, $20 million, $50 million at a bank and it's just gone, apart from the $100,000?

Jason Brett: Yeah, so it's not technically that it's just gone.  What they try to do and they tried to do with IndyMac, and that's where it became OneWest, is they went to sell it.  So, they sold it to Mnuchin, so the government benefited because they got money.  So, maybe let's say you were one of those people who had $1 million, maybe of the $900,000, they were able to recover $250,000 of it, fine.  So, they do that just as if you had stock in a company, so they break it off and their hope is to sell it.

Peter McCormack: Right, so you understand enough about the banking system to distrust it enough to understand enough about Bitcoin to realise the concepts of Bitcoin are better, self-custody, no counterparty risk, hold your own keys.

Jason Brett: Yes.  And I want to say, Peter, in terms of the crypto and the crypto mess we're seeing now, a lot of what I hear sometimes is that if we got better regulation or if there was a regulator overseeing like what Sam Bankman-Fried was doing, that that would have solved the problem.  I don't know that that's totally true.

Peter McCormack: Danny questions that too.

Jason Brett: Well, I tell you, so the IndyMac, the one we're looking at now, the western regulator for the Office of Thrift Supervision, which was the regulator at the time, it was found out later on 31 March 2018 that IndyMac was bankrupt, it should have been shut down.  But instead, right before they filed their SEC filing where they would have had to admit it, the regulator let them backdate an infusion of capital from their holding capital in early May, whatever it was, I don't remember the amount, they were a $32 billion institution, to show that they were solvent on 31 March.  That was a federal regulator, like me, kind of.  And he was fired and eventually, the Office of Thrift Supervision was shut down; they consolidated with the OCC.  That's how bad of a mistake it is.

But think about the trust.  I don't put it by a guy like Sam Bankman-Fried to maybe talk to a regulator into doing something like that, but yeah, it's out there, it was a whole investigation.  It's not often talked about, but that's with the regulator that's supposed to be watching over.  Think about what that regulator did as far as damage to those people?

Peter McCormack: Fuck yeah.

Jason Brett: Because, had they done it in March instead of letting it bleed out to July, how many more people opened up accounts in IndyMac and then lost their money.  So, regulation's helpful, but it's not perfect, like you're saying; there's a balance to it.

Peter McCormack: But we still have similar risks now.

Jason Brett: It's the same risks now.

Peter McCormack: We've still got the same risk in that we have risk to our money, but my assumption is that the risks are different because there is certain protection with Dodd-Frank, in terms of stress testing to try and prevent certain scenarios.  Also, we don't have the same financial engineering around the housing market, so we don't have that same bubble.  So, we still have risk, but it feels like it's not the same level of risk.  You can disagree with me.

Jason Brett: No, I give you that the Dodd-Frank has made things in a way where we're trying to get back to the Glass-Steagall moment, we had it.  My worry with Dodd-Frank is that could be watered down or changed.  Look, the FDIC, OCC and Federal Reserve people, I mean they're all super-smart and I'm sure they do the best job they can with those reviews.  The question is, if it's systemically important, what they're really trying to figure out is, is there a will to wind it down in a safe and sound manner, and I don't know that there is.  Because, what we learned in 2008 is that the mob, the people, as you seen once certain things take hold, it's very hard.  And I just don't know if psychologically we're there yet where we say, "Well, there wouldn't be a bank run because people would understand".

I think most people don't understand what you're just saying now like, "Oh well, the systemic risk test", they don't understand that any more than they do the Federal Reserve stuff and fractional-reserve banking; people just want their money.

Peter McCormack: Danny, can you fact-check me.  Can you look up if Donald Trump tried to repeal Dodd-Frank, because I'm sure he did.

Danny Knowles: Signed bill rolling back some of Dodd-Frank regulation.

Peter McCormack: Yeah, so some of it, he did, and I would question whether that's because he felt it was too restrictive, or is it that uncomfortable connection between the White House and Wall Street?

Jason Brett: I think he was trying to help Wall Street, or help banks get back to a point where there's less regulation in general.

Peter McCormack: I mean, the Republicans tend to be de-regulation?

Jason Brett: Yeah.

Peter McCormack: Yeah, which in certain scenarios, I would agree and certain ones, I would disagree.  Interesting.  So, do you believe there is a banking sector we can build that is more trustworthy that isn't a cryptocurrency, which is within the current system?

Jason Brett: I think so.  I think it would go a little bit against the idea that we rely on Dodd-Frank and this stress test, because I think these banks are getting "too big to fail".  They're too large, so just any one of them, whenever you have that kind of power and authority, it creates a danger, so I'd like to see it more decentralised, and I hate to say, limits on the size of bank.  But at this point, banks are like a utility.  So, it's like AT&T got broken up at one point to different, smaller phone companies.  I think that could be a way around it. 

What I think people lost trust in was what happened with the TARP money and the $700 billion, because that was supposed to go to the people, but then just went right to the banks as we've created.  I mean, that's how occupied Wall Street got kicked off.

Peter McCormack: Isn't it mad though, wasn't the whole thing like $800 billion to rescue the sector, and they do a $1.7 trillion infrastructure -- the money now, the scale of money now which has been printed compared to then, $800 billion doesn't seem too bad!  You save the whole sector for $800 billion; but now we're printing $1.7 trillion for bridges!

Danny Knowles: I don't think they even used all the $800 billion, did they?

Peter McCormack: It's insane really.

Jason Brett: No, some of them didn't.  But what's even crazier is you can hear the Treasury Secretary at the time, Hank Paulson, comment on it, about why he asked for that amount of money.  What he says is, he goes, "Well, we couldn't ask for $1 trillion, because that would be too much, and we didn't really want to start with too low of a number, but we wanted to get as much money as we could.  So, we thought about $500 billion but we thought, 'Let's say $700 billion'", this is really his thinking.  And he goes, "If we say $700 billion, most people don't know the difference between $500 billion and $700 billion; what's a couple of hundred billion dollars?" and that's how they did it, just like buying a car, "Just under $1 trillion".

Peter McCormack: I mean, the whole thing is insane.  It's insane to look back at some of this stuff, but to live through it…  I bought a house in June 2008!  Yeah, I know.

Jason Brett: But you didn't know, I mean it was a housing crisis and there were gamblers, people taking the mortgages and selling them, and it became a house of cards.  So, that's why I have a lot of empathy for the consumer protection side.

Peter McCormack: It makes me think of that Allen Farrington tweet again where it's like, "Money goes into the financial system", and then there's all these squiggly lines and he says, "Financial engineering, collapse afterwards", or something.  Okay, shall we watch this second video, or was there anything else you want to cover on that?

Jason Brett: No, we can watch the second video.  It's a good explanation of what they decided to do with IndyMac, and it shows the person who was the CEO from the FDIC at the time, so it's just a few minutes.

Peter McCormack: Oh, they got the water.

Jason Brett: Yeah, the water for the customers involved, right?!

FDIC CEO: Well, people don't need to wait in line.  95% to 98% of the customers of this bank had less than $100,000 in the bank and they are fully insured.  They can take their money out if they want some other day, but they're in long lines waiting today and they can do it some other time.

Customer 4: I got the total amount, I was very pleased and I have tremendous confidence in the FDIC.  It was just a very pleasant experience.  I feel quite sad for the people that work here in IndyMac, and it's a very sad day for them.

Customer 5: I feel comfortable enough, because it is insured, so you know, you take it out and you put it somewhere else, the same thing could happen.

FDIC CEO: Our plan would be to market the institution to try to sell it in its entirety to another healthy bank.  And if that turns out not to be possible, then we would sell pieces of the organisation.  We would like, within the upcoming months, to return it to the private sector.

Peter McCormack: Okay.

Jason Brett: Thank you for indulging me with that, Peter.  I think first of all, if you think about the last thing that was said in that video for a moment.  You're saying to all these people on a hot day in Los Angeles, (a) "Just go home", and (b) "This bank is perfectly safe, but as soon as we can sell it, we're going to try to.  And if we can't, we'll start to sell pieces of the institution".  That did not create the kind of confidence you want, right.  That to me is an example really of why a lot of people think the government shouldn't really run things.

But in all fairness to him and in general, no one had any training on how to run a bank.  We're the examiners, we're the regulators, so it was really uncharted waters.  And I think for me, this created the break in what we trust and allowed the idea of Bitcoin to kind of flourish.  That to me is what's interesting, just having lived that; that's what I wanted to share with people.

Peter McCormack: Why did they raise the insurance to $250,000; was it just complaints from people who lost so much, or is it the people who get to make that decision are the ones who'd lost that much?!  They're the kind of people with $250,000 in there.

Jason Brett: Yeah, well a lot of people, a lot of wealthy folks will have $250,000 in a variety of different institutions, we use a broker to do that, so it's all protected.  But it was overdue, it should have been raised.  It had gone from $10,000 to $100,000 a long time ago, I don't remember the date.  But then it went from $100,000 to $250,000 mainly after this, but also to account for inflation, make sure it's an appropriate amount.

Peter McCormack: Yeah.  That FDIC insurance, how did that relate to mortgages, because people lost their houses as well, but I can't remember the detail.  I know we studied this in this Mnuchin thing, but we made that like three years ago.  I can't remember the detail, but there were people who lost their houses.  How did the insurance relate to that?

Jason Brett: So, it doesn't, it's not connected.  But what's connected though is that Steve Mnuchin went to the FDIC, bought this bank that became OneWest Bank.  There are questions about the fairness of the deal, or whatever, but he went and bought the bank.  And what they did was -- so, where the FDIC does come in, where I stand corrected is, they agreed to share some of the potential losses in the mortgages in the portfolio of the bank that Steve Mnuchin bought.

Peter McCormack: Yeah, didn't he say he would only buy it if they covered part of that?

Jason Brett: Part of it, yeah.  It's like, "Here's my home, Peter, would you please buy it?  I have this stinking bag of trash in the corner".  You're like, "Well, I'll buy it, but I'd like for you to go half with me on that stinking bag of trash, because that could mean my whole investment turns out to be really lousy".

Peter McCormack: I think some of the main criticisms of Mnuchin and the takeover is that they tried to get a lot of mortgages off their books and in doing so, there was that whole thing with the Robo-signing, where they were just getting rid of customers and people were losing their homes; I remember that.  I also remember, wasn't there a connection to Kamala Harris; she didn't investigate something she was meant to?  Was she the AG at the time?

Danny Knowles: Let me have a look.

Jason Brett: I think that might be right.  What I think you'll note with that is, that's actually why I went on my sort of second thing and left the FDIC, was to join Obama's efforts.  I don't think this matters, I mean I'm a registered Democrat, but I believe in Bitcoin, it's not about politics.  It's about, you had these people who were losing their homes with the Robo foreclosures and just getting it off the books.  And the idea with the Home Affordable Modification Program was at least to give people the opportunity to either go get a 40-year mortgage at 2%, or whatever it is, and I know that's even controversial to people like, "Why should I pay for the mistake they made in taking on a home they couldn't afford?"

But the issues were, I mean think about it.  That point you talked about where you see the people at the end of the movie, the Big Short, leaving their home.  But then you're leaving your home and you didn't have a seat at the table when it was foreclosed; it just happened automatically and then the sheriff's showing up saying, "It's time to leave".

Peter McCormack: Yeah, hard-working people who want a home for their family, lose it because of no fault of their own but the greed of people who created weird financial engineering because they got greedy and they fucked them.  And it's always the small person who gets fucked in multiple ways.  I mean, we cover inflation, it's always the small person who gets fucked on inflation, even small amounts of inflation do that.  But in these scenarios, it's usually the little guy who's got the least buffer to protect themselves in these scenarios, the smallest savings.  Maybe they don't even have more than a month's savings, maybe they've just done everything they can to get to a place where they can afford a home and they're foreclosed. 

How do they even get back to that point?  It's always the little guy that gets fucked, and it's always the arseholes who create this who get away with it.  Like Danny said, one person went to jail.  It's unbelievable to me that only one person went to jail.

Danny Knowles: And with OneWest, they were known as being ruthless, I think, in their foreclosures.

Peter McCormack: They were ruthless.

Danny Knowles: There were foreclosure violations that Kamala Harris refused to prosecute.

Peter McCormack: Yes, and I'm pretty sure there's a connection back to donations to her, I'm pretty sure.

Danny Knowles: I'd believe it.

Peter McCormack: I mean, I think Kamala Harris is a piece of fucking shit, I always have, not just that, her treatment of dope smokers and whatever.  But for me, this was another sign of the elite doing what the elite wants.  And I'm going to sound like the conspiracy theorist that I sometimes criticise, but this was elite protection, protect the elites' money, protect the elites' actions.  It's absolute scandal still to this day.  It pisses me off.

Jason Brett: Even with the TARP package, the $800 billion that was rightly sized so they would buy it, one piece of the package that they wanted as part of the bill, Peter, was to keep their Wall Street executive salaries at the same level, not to reduce it, but you can't increase it and you can't get bonuses.  And you know what, that was a dealbreaker, they had to take it out.  So, it's hard in our system to punish the banks, the system, it's very hard.  It's not like I think Iceland where some of them did go to jail.

Peter McCormack: Yeah, I mean look, this is the argument against pure, free markets, in that in pure free markets, you will have all this weird financial engineering that you cannot get away with, and people can get completely screwed again and I'm sure there's solid counterarguments to that.  I just think most people just want to go to work, go home, heat their home, feed themselves, spend some time with their kids and they've got no control over all this craziness that's going on around them.  That's the vast majority of people.  I think it's a very small slither of society that is making greedy, awful decisions that impact other people more and they get away with it.  Yeah, it fucking annoys me.  It's a good "why Bitcoin".

Jason Brett: It is, and it makes me think a little bit about the deal with Sam Bankman-Fried right now too, because he's sort of acting like one of the elite, in that he's pleading not guilty, he will stay in this nice home, not yet in jail, and the question is usually he's betting that people like him usually don't go to jail.  But the difference is though that it's crypto, it's not a major bank, so there's not enough elite I think to protect him from the harm that might come, which would be simply prison time.

Peter McCormack: I mean, I think he almost certainly has to go to jail if everything I've read is correct, I just think he does.  I think he's basically the crypto Bernie Madoff and he's affected people's lives.  I know people who've been directly affected in severe ways and it's devastating for them, and again through no decision of their own, bad financial engineering, bad decision-making, bad management, bad policy, fraud, alleged fraud but fraud, he's done very destructive things.

So, my question to you then is, and this won't be popular with a segment of listeners, but you talk about consumer protection.  What consumer protection can come to Bitcoin, because consumer protection, the best consumer protection you can have is to hold your own keys; but that's kind of bullshit really, because that protects your sats, but that doesn't protect your purchasing power while Bitcoin's not a unit of account?  We've all taken big losses this last year and there are fears that if Bitcoin and wider crypto keeps getting bigger, the kind of systemic failure we had this year could bleed into the rest of the economy, and that's feasible, I get it.  So, what do you think can be done?

Jason Brett: So, I'm a believer in consumer protection mainly for the little guy, and I think that with Bitcoin right now, it's considered a digital commodity in the US by the CFTC, Commodity Futures Trading Commission.  And so, there's a lot of interest, because Bitcoin is regulated there, as to how some of these other coins might come over to be commodities that maybe went through an ICO or things like that.

But here's the thing, Peter, the CFTC should actually be, I know they don't want to, but they should be defending Bitcoin against scams, things that try to impersonate Bitcoin; that's where the regulator needs to come in, just like you would if someone was taking advantage of the cow market or the orange juice market or anything like that.  If somebody's trying to manipulate that market, you have a duty to protect that digital commodity from fraud and manipulation. 

I think between them and the Federal Trade Commission, the Federal Trade Commission should be out there to one degree or another, because that's just when it's an outright scam.  That's when you find they will come in and say, "Look, you're pretending to trade Bitcoin, but you're not actually doing it"; that's their role, so there is a role and a place for it. 

It's funny, I mean I'm a Bitcoin lover, but the first bill I tried to introduce in Congress and pushed for was a stablecoin bill.  People were like, "Why are you focusing on stablecoins, Jason?"  Well, it was the Stablecoin Bill back in 2020, it was introduced by Representative Tlaib and Representative Lynch, I worked on it with a lot of the progressives.  But I said, "The problem here is people are thinking a stablecoin is like a US dollar, and it's going to be a real problem if something [that did come true, which is with Terra] happens.  People won't understand that, because they'll have dollars.  They have $1,000 one day and then it's gone, and it's the little person that suddenly doesn't have that $1,000 that's the problem, not the person --"

You bought 5 Bitcoin, suddenly you're like, "Hey, I'm down".  Unfortunately, at least in America, you don't get a lot of people in Congress like, "I'm really sorry for you, Peter, what can we do to help?"  They're like, "Look, you took a chance on Bitcoin, it's volatile".  But if you're offering something to say it's representative of the US dollar, my whole argument in the bill was, "We need to have a disclosure that's given to that person to recognise this is owned actually by a company, it's not like a US dollar in the banking system, so just beware.  If that company goes bankrupt, you may not have your stablecoins any more".  It was very unpopular, very unpopular in the crypto community, because they felt it was too restrictive to the growth of the stablecoin industry. 

So, those are the kinds of consumer protections, is in disclosures, I think.  It's for the little guy that, as you say, usually gets fucked, because that's the one that I think unfortunately, we have to have minimal protections for them because if we don't, then they'll continue to be taken advantage of by scams, not just in digital assets, but everywhere.

Peter McCormack: There's a fucking of the little guy in this that a lot of people don't think about, or maybe they do, maybe I'm wrong.  But when we talk about the little guy here in the functional breakdown, the systemic breakdown of the US economy and the banks, we're thinking of the guy who got foreclosed on, or the resulting recession that came after and people lost their jobs.  Bitcoin, I think there's a more important little guy scenario to this where I think a few small, I struggle to say "elite", I don't Sam I'm afraid as an elite, I just see him as some guy who fucked a business up who has these connections. 

But him, Mashinsky, Three Arrows Capital, anyone else in this previous period who've essentially fucked this market, they've caused not just a problem for the little guy in the US, but they've caused a problem for the little guy in El Salvador who bought into Bukele's dream, who invested in Bitcoin; and if it gets worse, if there's really draconian regulation or restriction that's highly damaging for Bitcoin, they've damaged a guy in Belarus, or they've damaged the guy under an authoritarian state, or the lady who needs money and she can't access money because she's not allowed.  All these people who use this tool for freedom in less privileged countries, that's the little guy they've fucked, who've got this final tool for freedom, and that bothers me, that bothers me a lot.

This is why I think the work that you're doing, David Zell's doing, that's trying to defend Bitcoin, is super-important.  Do you think we're at any serious risk with Bitcoin, or do you think it's got too big now?

Jason Brett: I don't think we're at risk of, let's say --

Peter McCormack: Outright ban.

Jason Brett: Yeah.  But I do think the one dangerous area is KYC AML, Know Your Customer, Anti Money Laundering protections.  I mean look, in the 1980s it started because of the drug money and back in the 1980s, you could have a Treasury official come and take your whole bag of cash and you'll never get it back, just because they found a little trace of cocaine on it.

Peter McCormack: Dude, if you get on a plane with more than $10,000, they can take it and not give it back, here in the US.

Jason Brett: Yeah, so no one likes you having or using large amounts of cash, and that was really to combat the drug wars in the 1980s, and then we had the 2001 9/11 thing, so everyone is suddenly like, "We need to stop the terrorists too".  And now there's a third thing that's added, the FATF, which is the Financial Action Task Force, it's an international conglomerate, all the different countries.  They're focused on the proliferation of finance, like how North Korea might be getting money from crypto, which is why, not to promote my non-profit, but I'm trying to do it by technology to show the Department of State how Bitcoin mining works and how it works in a way where we could help the United States, preserve us against these others.

But the BSA AML stuff, Peter, for the little guy, it's become like the bouncer at the club, it's made the club more exclusive.  And the problem is, the bouncer's supposed to keep out the really bad people.  What if the bouncer doesn't let in somebody that just wants to be here, that was able to get it last week, and that's what I think because of the reliance of our system on who's the customer, making sure they're not a terrorist has become so exclusive that it actually bars people from the financial system, some people that shouldn't be.

Peter McCormack: So, what would be the right regulation?  Some people think none, "Let us figure it out"; some people say, "Regulate the exchanges"; I certainly don't think any regulation on un-hosted wallets is particularly bright.  But what, and this is obviously just your personal perspective, what is the right types of regulation that you would agree with?

Jason Brett: Well, I think we need to get rid of the $200 -- we give some sort of de minimis tax advantage.  So, if you have Bitcoin and it's under $200, you used it buy coffee or whatever, that shouldn't be taxed.  That's something that I think we could actually let Bitcoin grow a little bit in the United States.

Peter McCormack: That's in the Lummis/Gillibrand Bill, yeah.

Jason Brett: It's been pushed around for a while.  I do think regulation of exchanges is important after this.  It's not perfect but as you were saying before, it's important with what Dodd-Frank does and the systemic risks.  Whether it's FTX or Binance, you're going to need some regulators there just to overlook what's happening to make sure the little person isn't getting screwed.

Danny Knowles: How do you do that if it's offshore?

Jason Brett: So, the question then would be, what would be their appetite to operate in the United States?  So, one of the proposals is, let's say I have a bank in England but I want to operate a foreign branch in the US, then I have to come under US regulations.  So, you can operate without being in the US, but you run a real danger because they always talk about the long arm of the law.  If you touch one US customer, if they can prove you touched one customer, you're under US regulations.

Peter McCormack: And they'll come after you.

Danny Knowles: Is that what happened to BitMEX?

Peter McCormack: Essentially, yeah.  It was, wasn't it?

Jason Brett: Well, I think BitMEX, if I'm not mistaken, they were offshore, I think it was the Seychelles?

Peter McCormack: Yeah, that's correct.

Jason Brett: So, first of all, the way the CEO handled it, I don't remember his name.

Peter McCormack: Arthur Hayes.

Jason Brett: Yeah, was not very good at dealing with regulators.  And the one tip I would give that would probably upset a lot of your audience, but I'll say it anyway is, don't be disrespectful to regulators.  It's like just in life, don't be disrespectful to people.  So, the first he did was to say, "Come and get me, motherf'ers", on Twitter to the authorities; that's not a good way to start the process!

Danny Knowles: It's kind of legendary though!

Jason Brett: I will give the legendary F the man, kind of thing.

Peter McCormack: But they did come and get him.

Jason Brett: And that's what I'm saying, and that's my point.  Don't think because you're operating in some small country that's tax advantaged and everything else, that that doesn't mean -- because the US market is where a lot of the gravy is, so that's why they're going to want to operate in this marketplace. 

But I do also think that beyond the exchanges is that we need to have some sort of disclosure system, and maybe it's the crypto exchanges that once they get in together and are regulated, need maybe to do something like an assessment, the way it's done at the FDIC, pool money together, which I get very frustrated because this is what Sam Bankman-Fried was promoting that I was so proud of him for before this all unravelled, because he was going around saying he was going to buy Celsius and Voyager and make the customers right, and it turned out his own house wasn't even in order.  So to me, that whole thing is disgusting, but that idea is the right idea.  How do you maybe protect the customers if you're going to have these just global, conglomerate crypto exchanges?

I think it comes down to just the "too big to fail".  You have to manage it if it's going to influence a large amount of customers.  I do think the wallet issue is going to be the issue this year, in terms of the fight over whether un-hosted wallets should be unregulated, because Senator Elizabeth Warren put out a bill which, by the way, it's more of a signal bill, but it's trying to say to the Treasury that you should be regulating people's use of self-hosted wallets, and that everybody should have to go to BSA laws, even if you're just a node.

Peter McCormack: Enforcing that's going to be particularly hard.

Jason Brett: Yeah, and I think they'll realise it misses, because they don't want to enforce the whole system.  I've seen regulators twist things around in a way that just baffles me.  The person that was running to be the Head of the OCC, she ended up not getting nominated, but she actually had a paper out.  And the paper was arguing why Lightning was illegal.  It was saying, "The Lightning Network is actually just the way they're doing it on Wall Street because they're", get ready, "taking it off-chain".  So because it's not on the blockchain, they're obfuscating those funds.  I'm like, "Does she even know the amounts of money that go back and forth between people on Lighting?!  You're going after the wrong crowd.  But she was trying to basically say, because it obfuscates, that somehow Lightning nodes should be under more regulatory scrutiny, and that drives me nuts.

Peter McCormack: I mean, you can make an argument it's still on-chain.

Jason Brett: Yes.

Peter McCormack: That Bitcoin still exists on a chain, it's just --

Jason Brett: It's just locked in motion, yeah.  But what upset me was that she was trying to make the analogy of, "That's what we did with the mortgages.  They curated a derivative of --", so it's like a derivative of Bitcoin that people are then trading, so then it could create -- and it's just like, I'll say this about my fellow regulators at the risk of them not being nice to me at the next cocktail party I go to, which is you can't compare everything to the 2008 Financial Crisis.  When you start looking at it through that lens, you shouldn't be looking at Lightning through that lens.

That's the biggest problem, I think, is that the government still views it as it's either terrorists or money launderers that are using that money.  And because they're able to put that in a typology, they go after the things like the Bitcoin ATMs, they go after the mixers and tumblers of the world; that's their targets because in their minds, that's the thing that can really cause damage.  But they're breaking things, that's the problem.  They're breaking things because they're making it illegal, like with Tornado Cash, or whatever, and I just think there's so much education that still needs to happen, and also buy-in that Bitcoin's actually a good thing, and that's the fight that David Zell and BPI's doing.  That's why I support them with that, because that's something people need to realise, is Bitcoin isn't just a bad thing.

I'll tell you, I was going to the Hill, and I won't mention who the people were and I won't mention who the Congressperson was, but I was trying to explain a little bit about what Bitcoin was and the person there was doing the same thing, but they were very aggressive, they were very upset about it.  They actually thought that by people allowing Bitcoin to be used in the United States, we'd be vulnerable to North Korea, vulnerable for it to come in and take over the US.

Then they said to me with a straight face, and this is with the Congressperson and three of their aides, and they're looking at me and they go, "Okay, well we need you to do one thing", I'm like, "What's that?"  They go, "Tell us who the President of Bitcoin is?"  I said quickly, which was my first mistake, I go, "There is no President of Bitcoin", and I realised that's not going to work here, because they kept asking me, they thought I was hiding who.  So I said to them, I said, "Okay.  Well, you know the Federal Reserve?  Think of the Federal Reserve but it's a closed system.  Bitcoin's like a replacement for that but it's an open system", and there was a little bit of buy-in.  They still thought I was hiding who the President of Bitcoin was.  So, there's just so much educational efforts; they're still stuck in 2011.

Peter McCormack: We'll all the President of Bitcoin!  That's the way you say it.

Jason Brett: Yes.

Peter McCormack: Are you finding the work you're doing in DC, there is an evolving and improving understanding and more acceptance of Bitcoin; is it happening, is it slow or is it not happening?

Jason Brett: It's starting to happen.  I'll say I was really happy to see Senator Cruz on the show with you.  I remember from the last year, I was talking to people in his office and Senator Cruz's office is right across the aisle from Senator Lummis' office.  And there was a period of time where the aides were trying to get as much information as they could on Bitcoin, and they were reading books, the two Senators were sharing books they were reading about it.  I was able to actually share some information with their office to help them understand the whole energy issue so that he could study up on that and then he started talking about it publicly in Texas.

So, there's starting to be an understanding.  And I think Cruz had one really interesting thing, which was called the Accept Act, which is he said, "We should have some Bitcoin ATMs here in Congress".

Peter McCormack: Nice!

Jason Brett: That would have been, yeah, let's get to that.  So, there's still just a lot of people that don't understand it and don't really know about it.  It doesn't really matter to them, but…  I mean, well first of all, it's 6 January.  We still don't have Congress in session, unless while we've been taping this show they've finally figured out who the Speaker is.  So, there's still a lot of chaos.

Peter McCormack: He's done a deal with one person.  You're talking about McCarthy?

Jason Brett: McCarthy, yeah.

Peter McCormack: Yeah.  He's done a deal with one person.

Jason Brett: Oh, one of the 20?

Peter McCormack: Yeah.

Jason Brett: But here's the thing, Peter, there's 19 to go and there's no real understanding of what they really want.  I mean, they nominated Donald Trump to be the Speaker of the House.  I mean, things are just chaotic right now.

Peter McCormack: Which is great for people who are anti-regulation, because shit won't get done.

Jason Brett: Well, I will say, and I know it's a little controversial, but it's not the worst thing in the world, because I don't think the government needs to pay this much attention to crypto in the first place.  The only reason they're trying to pay attention to it is because there are lots of other derivates of Bitcoin, which are shitcoins; I used to call them derivatives.  And they're all trying to get safe and harbour regulations, things like that, nothing wrong with that. 

But what I worry about though is as that happens, there's the possibility you might break things within Bitcoin; like maybe you'll say, "Yeah, do self-hosted wallet custody, that shouldn't be allowed, that's a good thing, it'll all be on exchanges", and then you're screwing over Bitcoin.  And because Bitcoin doesn't have a President, a royal precedence, that's where there does need to be some kind of representation.  Because, the Hill works in a way where you have to say who you're from, where you're from.  So, if you say, "I'm not really from anywhere", they don't really know how to compute that.

So, I do think there has to be really just a broader community effort that I think BPI is starting to harness, to really direct so that people can get educated and understand and be able to say, "Well, no, we shouldn't just do this for all of them because then we're going to not let people do Bitcoin self-custody, and that's not correct".

Peter McCormack: Yeah, I mean prior to Bitcoin Policy Institute, Coin Center did a lot of great work, it still does; you guys are doing great work now; there are people working on this.  It was a question I put to David Zell, I'll put the same question to you, there are people who say, "What are you doing?  Just fucking ignore these politicians, Bitcoin will do its thing, let's just carry on, tick tock, next block, keep building, don't worry about it"; and then there's people like you and Zell who are working on -- actually, not even just you and Zell.  CJ Wilson's doing it --

Jason Brett: Yeah, Amanda.

Peter McCormack: Amanda Cavaleri.  Fucking love Amanda by the way, she's amazing, CJ as well.  So many good people are working on this.  What do you say to people who are like, "Don't do this, you don't need to do this, fuck them".

Jason Brett: Well, I'd love to know what David said, but I'll wait to hear his show, to this response because I have a lot of respect for David, he's really smart and I think he's building a lot of good things.

Peter McCormack: He is the smartest 14-year-old I've ever met!

Jason Brett: Yeah, absolutely!  You talk about Coin Center, people looked at him and then when I met him, I decided to start working and helping him this year because he's like the next Jerry Brito, he's a very, very sharp guy.

Peter McCormack: Do you know his Bitcoin origin story?

Jason Brett: I don't know if I actually know that, which should be sad because I've spent so much time.

Peter McCormack: How old are you-ish?

Jason Brett: I'm 49.

Peter McCormack: You're older than me!

Jason Brett: Yeah.

Peter McCormack: Shit.  Okay, he discovered Bitcoin in second grade; is that correct?

Danny Knowles: I don't know when second grade is.  I think he was 11 or 12 or something.

Jason Brett: Seventh grade?

Peter McCormack: Yeah, he was in seventh grade!  How old do you feel now?!

Jason Brett: Very, yeah!  So, what I would say is, because I'm very reasonable, I do think we need a Bitcoin community that's involved, similar to the NRA or the AARP, because we need to have that voice.

Peter McCormack: The NRA, fuck, they're effective!

Jason Brett: They are, and that's what I'm saying.  The single-issue voter, we connect with people where it's like you don't want someone to take your guns, you don't want someone to take your Bitcoin.  But the thing about this is I say to them, you may not care what the government's doing and you may think what I'm doing is a total waste of time and I'm wasting my time, and I get asked that a lot, believe me.  And what I say is, "That's true", but here's the problem; they're thinking about you.  Don't you want someone communicating with the people that are spending all their time looking at Bitcoin, looking at Lightning, that might be trying to screw the space? 

Is Bitcoin going to work?  Are we going to see this revolution through?  I think any help we can get along the way is a positive help.  So, I respect the people that don't -- I think that most people when they say that, Peter, they're also the people that need a bank like IndyMac to be open so they can pay their bills and go to work and keep a happy family.  So at the end of the day, no one really lives on an island.

Peter McCormack: Yeah.  I think Zell said, "If you don't like what I'm doing, just ignore me, because it doesn't matter to you".

Jason Brett: Yeah, and he's still in seventh grade!

Peter McCormack: Seventh grade, yeah, honestly.  He's so smart, I'm so impressed with him.  He's one of the most impressive people I've ever met, not even just in Bitcoin.  He just blows my mind with the way he's able to articulate the points he wants to make.  Yeah, I love that dude.

Okay, so the new Director of the National Currency Enforcement Union, which I'd never heard, at the DoJ, a Virtual Assets Unit at the FBI, Eun Young Choi.  I had to have this so I could actually read it.

Jason Brett: Yeah, of course, I know.

Peter McCormack: She got that position because she defended the jail time for Ross Ulbricht?  What's the background to that, because Danny was telling me about this and I was like, "You fucking what?"

Jason Brett: Yeah.  So, the reason I thought to bring this up on your show is I saw one of your most recent shows and you were talking with BTC Sessions about the Canadian trucker controversy.  So, the National Cryptocurrency Enforcement Team was set up in October 2021, but they put in a leader for it, the first director, and it was right at the time of the Canadian issues and when Bitcoin was being confiscated, and I think law enforcement around the world were looking at what was happening in Canada being like, "I think we need to be prepared for this".  So, the NCET team does some good work, they were very involved in looking at Sam Bankman-Fried.

But here's the thing, and this is the point about Eun Young Choi, who she was the one in the appeals process who fought to keep Ross Ulbricht in where he is now so that he couldn't get out of jail; so, she's the one who successfully did that.

Peter McCormack: So, she's a piece of shit, in my world; I don't answer for everyone?

Jason Brett: Yeah.  I understand that and I pointed to this when I heard that she was the one being promoted to be the director.  So, I bring this up because I'm trying to say, what kind of message, what is the US Government still thinking?  They still think people who are using Bitcoin are pieces of shit and what they're saying is, "We need to put the person that was able to get Ross Ulbricht in charge of our National Cryptocurrency Enforcement Team", which I don't think a lot of Bitcoin people know about or understand, but that's their view.

There's younger lawyers, is what I worry about, who are trying to make a name for themselves like her, so they've rewarded her by putting her as the leader.  It's like the Eliot Ness of this, who's going after people, and they're still coming at it from the angle of, "What's the end game?"  So, I wish her well, I just think it's a really bad signal, and it's something that scares me, quite frankly, scares me to even mention her name or talk about it.

Peter McCormack: Can you go and see her?

Jason Brett: I could, I mean she's spoken at events, I'd be happy to talk with her.  I'd love to understand if her thought of this system has developed.

Peter McCormack: Can we get her on this podcast?

Jason Brett: I can try.  So, I know you have HODL and stuff on your podcast, I was able to get Hester Pierce to come on a Clubhouse one time and talk to some folks, so I'll help you.

Peter McCormack: It's Peirce.

Jason Brett: Peirce, sorry.

Peter McCormack: Yeah, I'm telling you in case you see her, because I said it the first time I met her.  So, that was actually one of my first -- I interviewed her at the SEC, which was a really intimidating place to go to as a little, new podcaster.  I fucking adore her though; she's one of us and she stands up for us.  Just make sure it's Peirce; she doesn't like that!

Jason Brett: Same with Lummis.

Peter McCormack: "Loomis", I called her Loomis!  Another absolute hero of ours.

Jason Brett: Yeah, but I think she'll be talking -- I mean, first of all, what does NCET do?  I think she'd come on.  I mean, it would be interesting to hear what she's doing with the whole SBF thing, because apparently they supported figuring all that out.

Peter McCormack: Yeah, I probably won't call her a piece of shit in the interview!  Hopefully she doesn't listen to this, but I'm not editing it out.

Jason Brett: Well, she's a lawyer, so most lawyers are used to whatever names you call them.

Peter McCormack: Yeah, I'm not fans of lawyers.  This is flying by and we've still got a couple of things we've not even talked about.  I'm going to call it here, because I think that's a good place, unless you want to talk about this Biden Executive Order.  Is that an important issue?  If it is, we will.  Don't just say no because I'm trying to end it.

Jason Brett: I think I can cover it in just a couple of minutes.  I would like to just -- I just think it's important to understand where the Biden Executive Order came from, because I think bitcoiners need to understand that there were a few principles that at the beginning of 2022 the government wanted to keep intact, and these were conversations between the Federal Reserve, Treasury, White House, because they saw something was happening with Bitcoin, or they always just call it crypto.  So, they were looking at the larger crypto ecosystem, and they felt they wanted to do something about it.  So they basically agreed on a few principles and they wanted to keep these principles intact, and they used Biden's Executive Order to make this happen.  So, this is important to just think about where the government's coming from when it comes to Bitcoin.

The first principle is that you can't do anything that's going to ever affect the ability of the Federal Reserve to set monetary policy.  The state must be the one; it cannot be a whitepaper from someone that we don't even know who they are, that's going to dictate what the monetary policy of the United States is.  So, that's no surprise, but that has to be intact.  Number two, regulating the financial system and making sure, like you were saying, there can't be bleed over from this stuff into the regular financial system.  And, consumer protection, so a safe and sound financial system with consumer protection; that needs to apply to crypto as well.  And then the final part is the illicit finance, and that's really where the NCET, FBI and all these folks come in, is making sure there aren't illegal things happening that could upset us either on a domestic or foreign front.

Those are the three things you've seen.  That's why this has got so much attention this year with the Biden Executive Order.  It gave a lot of opportunities for us to educate though and dismiss a lot of Bitcoin FUD about energy, things like that.  But I would just say, understanding that, no matter what's happening in Washington, realising, and I think everyone knew this already, but so it's clear, the direction is not that, "Hey, we want to adopt the Bitcoin standard", right now.  The direction is, "How do we prevent it from ever adopting a Bitcoin standard.  We must maintain --", which is sad, I think, but it's what most large countries that have a hard time -- the United Kingdom had a hard time reversing when we moved away from navigating the waterways around the world and it wasn't all about your ships, and I think they're still just stuck on the US dollar concept, so it's going to be hard.

Peter McCormack: Okay.  Well, listen, this was fascinating, it's just flown by and it was great to get into some of that 2008 Financial Crisis area, because that is something I'm massively interested in just understanding where we've come from, where we're going.  We're going to have to do this again some time.

Jason Brett: Absolutely, happy to.  Thanks for having me on.

Peter McCormack: Maybe we'll come to you next time, but appreciate you coming in, Jason.  You mentioned earlier, "I don't want to promote my business"; totally promote yourself.  You've come here and obviously that's your time, so where do you want to send people to?

Jason Brett: Well, you can follow me on Twitter @RegulatoryJason and I offer this to everybody, am happy to help you if you ever want to talk to a politician about Bitcoin, I can help coach you through that.  I have a consulting firm, Key Bridge Advisors, where I help people navigate Washington DC and regulations.  And my non-profit is Value Technology Foundation.  Would love it if you wanted to help support our mission or if you wanted to educate people and help with educating other government people, because it's another angle, I think, that's important to go about.  And of course, my man, David Zell, and Bitcoin Policy, definitely helping them get to a point where they have enough funding to be secure to keep running things for five or ten years.  I think we need them.

Peter McCormack: Agreed, we should do that.  I think we did one yesterday.  Anyway, listen, thank you for coming on, really appreciate your time, this was great, we should definitely do it again, stay in touch.  Anything you need, just reach out to me or Danny.  Thank you.

Jason Brett: Thank you.