Senators blast Facebook's cryptocurrency plan, comparing it to a toddler with matches

By Robert Schmidt, Ben Bain and Kurt Wagner

Bloomberg

July 16, 2019 4:50 PM PT

Republican and Democratic senators sharply questioned Facebook Inc.’s plan to create its own digital money, adding to a chorus of skepticism across Washington and underscoring the challenges the social media giant faces in getting its cryptocurrency off the ground.

At a hearing Tuesday before the Senate Banking Committee, lawmakers compared Facebook to a toddler playing with matches who burns down the house, blasted it for repeatedly violating consumers’ privacy and accused it of cheapening social discourse and polarizing America. Many expressed incredulity that Facebook would be able to safeguard people’s finances.

“Do you really think people should trust Facebook with their hard-earned money?” said Sen. Sherrod Brown (D-Ohio), the top Democrat on the banking panel. “I just think that is delusional.”

Senate Banking Committee Chairman Mike Crapo (R-Idaho) credited Facebook for trying to build a faster and less expensive way for consumers to move money around the world, but said he was concerned about Facebook’s “massive reach and influence” and the vast amount of personal information it keeps.

Facebook’s top executive on the project, David Marcus, pledged to address their concerns about the proposed cryptocurrency, which is called Libra. “We will take the time to get this right,” he told the committee, testifying in a packed hearing room.

The senators’ ire is no surprise to the company, which has been reeling after a series of privacy breaches and questions about its role spreading fake news in the 2016 presidential campaign. Among the critics of its crypto plans are President Trump; his Treasury chief, Steven T. Mnuchin; and Federal Reserve Chairman Jerome Powell.

Even as the rhetoric rose, Tuesday’s hearing focused attention on how cryptocurrencies should be overseen by the federal government. At least half a dozen agencies — including the Fed, the Securities and Exchange Commission and parts of the Treasury — have some say in the matter, but none has taken a lead role.

Authorities across the world have been struggling to figure out how to police virtual coins, which are often used in money laundering and other criminal activities. Some such as bitcoin have become hugely popular among speculative traders.

“It’s a good idea for us to explore this because, quite honestly, cryptocurrency now is still kind of the wild, wild West that is not well regulated,” said Thom Tillis (R-N.C.).

Bitcoin’s price declined during the hearing, dropping as much as 8.9% on the day. The currency fell to $9,951.89 as of 9:52 a.m. Pacific. It’s down more than 16% this week.

Marcus said he didn’t know which agency might oversee Libra but pledged to work with whatever regulator might step up. He also said that the decision to base the cryptocurrency operations in Switzerland was not a move to evade U.S. regulation.

Marcus, who is scheduled to appear before the House Financial Services Committee on Wednesday, pushed back on some of the criticism, saying that the token isn’t intended to compete with countries’ national currencies and won’t interfere with central banks’ monetary policy. Additionally, he said, user data would be protected.

He also emphasized that Facebook is just one of dozens of companies involved in Libra, and said that his company’s control over the coin would be limited.

At least one senator — Pat Toomey (R-Pa.) — stood up for Facebook, saying that efforts to block the Libra launch were “wildly premature” and misguided. “There are tremendous potential benefits in blockchain technology and cryptocurrencies,” Toomey said. “We should be exploring this.”

Mostly, however, lawmakers chose to question Marcus about the series of scandals that have engulfed Facebook in recent years. That included the company’s agreement last week to pay some $5 billion in a record privacy settlement with the Federal Trade Commission, as well as its role in spreading pro-Trump fake news reports in the 2016 campaign.

Sen. John Kennedy (R-La.) said that “Facebook now wants to control the money supply” and added, “What could go wrong with that?”

Kennedy hit the company particularly hard on what he said was a slow and dishonest response when it learned that Russians were using the platform to influence the presidential election. He also accused Facebook of helping speed the demise of journalism.

“Isn’t it true, and I really want your opinion, that Facebook has chosen to advance a set of values in which truthful reporting has been displaced by flagrant displays of [nonsense]?”

Marcus replied: “I don’t know how to answer that question.”

Also on Tuesday, across the Capitol in the House, the chairman of a Judiciary Committee panel investigating the market power of big tech companies said Congress and antitrust regulators wrongly allowed the companies to regulate themselves. That enabled tech giants such as Facebook, Alphabet Inc.’s Google, Amazon.com Inc. and Apple Inc. to operate out of control, dominating the internet and choking off online innovation, Rep. David Cicilline (D-R.I.) said at the start of a hearing.

“The internet has become increasingly concentrated, less open and growingly hostile to innovation and entrepreneurship,” he said.

As concerns have mounted over data privacy and market dominance of Big Tech, an increasing number of lawmakers from both parties are calling for tighter regulation of customarily freewheeling companies or even breaking them up. The Justice Department and the Federal Trade Commission are pursuing antitrust investigations of the four major U.S. tech companies.

Executives of the companies, testifying at the Judiciary hearing, pushed back against lawmakers’ accusations that they operate as monopolies. They laid out ways in which they said they compete fairly yet vigorously against rivals in the marketplace.

And Google executive Karan Bhatia, at a Senate Judiciary subcommittee hearing on online bias, insisted his company’s search engine does not filter on the basis of political views. “We surface the results that are most responsive,” he said. “We don’t use political [markers] to blacklist or whitelist.”

The Associated Press was used in compiling this report.