Episode 001. FTX. Why we have financial regulation.

FINANCE (ADVANCED)

Recorded November 15, 2022

 

Our inaugural episode of At The Rotterdam uses the recent events in crypto – FTX and Celsius failures – to explain why we (in the US) have the financial regulation we do. 

 

It’s all due to history: From the Forgotten Depression of 1920-1, through the Crash of 1929, the bank and mortgage market failures of the early 1930s, and the broker defaults of the 1970s.

 

The US government, its agencies and the financial industries themselves regulated financial markets in order to restore investor trust and confidence. 

 

In the 1920s, the Chicago exchanges and the Federal government cleaned up and legitimized commodity futures markets by requiring brokers to segregate funds and eliminate manipulation and conflicts of interest. 

 

The regulation that established the SIPC in the 1970s ensured that retail client funds would be safe even if the broker defaulted. The SIPC helped repay all of Madoff’s small investors.

 

If FTX and Celsius were regulated like their traditional counterparts, at the very least the losses would likely have been mitigated and likely compensated, and the events might never have happened.

 

We shouldn’t need crises to remind us why we have consumer protection regulation in financial markets. History should be enough.

 

References:

What do we know about FTX so far.

What happened at Celsius.

Coinbase’s policies.

Rasheed’s book on the regulation of markets in the 1920s and 30s

Reminiscences of a Stock Operator (1923)

The history of the Securities Investor Protection Corporation (SIPC)

Refco bankruptcy

Links:

Show Twitter: https://twitter.com/AtTheRotterdam

Rasheed’s Twitter: https://twitter.com/r_sale

Disclaimer: Nothing At The Rotterdam should be considered as investment advice. Always speak to a registered financial advisor before investing in anything mentioned on this podcast.