A Former Broker’s Perspective on Facebook’s Libra

I’ve been particularly interested in the Libra situation since Facebook’s announcement in June. My view is shaped by my personal experience as a user of Facebook products, including its advertising toolkit, and my professional experience as a registered representative working for Charles Schwab for a short, but extremely relevant period of time.[1]

It’s not that I want to see Facebook fail. I’ve seen firsthand the role that Facebook can play in a political campaign. As an undergraduate at Arizona State University, where enrollment was over 45,000 at the time, I was our school’s first candidate to be elected to student government after having used Facebook advertising in a campaign. Previous candidates had used Facebook’s free tools prior to my 2010 student campaign, but to the best of my knowledge, none had ever run Facebook ads. Ultimately, my campaign was successful, and by the time polls closed, the campaign ad had reached nearly 400,000 impressions for a cost of $19.35 (I still have the invoice). The ads were no substitute for voter outreach, but all of this is to say that I appreciate the many Facebook products and tools that I’ve been able to put to use over the years.

But as a former stockbroker, I prefer not to imagine what would result from adding every Facebook-related scandal and catastrophe on top of the already turbulent waters that can trouble the financial services industry. I spoke with retail clients over the phone the night news of the Brexit decision broke in the US, as well as during the weeks following the 2016 US general election and 2017 inauguration of President Trump. With each of these events, our firm experienced an influx of support calls and messages from clients expressing sincere concerns about the future of their retirement accounts and investment portfolios. These weren’t wealthy people calling just to check on the status of their millions. These were everyday Americans hoping to share in the economic prosperity made possible by investing in the public markets, and when anxiety about world events ran high, they called for support.

Cryptocurrency was starting to be seen as a legitimate asset class by many investors during this time as well. By December 17, 2017, a single bitcoin traded for nearly $20,000. The number of support calls from clients curious to learn more also increased, even though cryptocurrency was not traded or held in custody at our firm. None of this is not to say that I’m an expert on cryptocurrency, but rather that I’ve seen the extent to which everyday American investors are also starting from square one regarding the topic.

The investors I spoke to on a daily basis were protected by American financial regulations, but the underbanked populations Facebook presumably seeks to serve with Libra lack access to comparable consumer protection regulations as much as they lack low-cost, secure and convenient financial services. In short, the underbanked are likely to be even more vulnerable to financial and data exploitation than the American people.

And that’s why this is also about so much more than establishing the right rules and then simply holding Facebook accountable when they fail to comply with the regulations set by Congress or the Fed. Facebook has already shown an inability to effectively police the use of its own platform, at times with disastrous consequences. As Senator Sherrod Brown (D-OH) put it in July, the last thing regulators should grant Facebook at this point is a green light to “experiment with people’s bank accounts.” It is true that the underbanked need access to secure, convenient, low-cost financial services, but in my opinion, Facebook’s sordid past speaks for itself. It would be irresponsible for regulators to allow Facebook to proceed with the creation of a digital currency.

[1] I worked as a Series 7 and Series 63 licensed stockbroker, authorized to buy and sell securities including stocks, exchange-traded funds (ETFs), mutual funds, and certain options contracts for the accounts of the firm’s clients. My previous registration can be verified on BrokerCheck.org, CRD#: 6598388. I worked at the firm for two years, 18 months of which was as a broker.

Sources for this post

Perspectives on Libra: Facebook’s Digital Currency Initiative

  1. The Digital Currency Solution
  2. The Institutional Trust Objection
  3. The Rules of the Road Exception
  4. Facebook Should Not Be Permitted to Proceed with the Creation of Libra
  5. A Former Broker’s Perspective on Facebook’s Libra

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