Larry Summers And The Crypto Con

Don't forget who helped legitimate the crypto ponzi scheme.

This morning, my colleagues Julian Scoffield and Henry Burke have a piece out in The American Prospect about Larry Summers and the ever growing but little known ties he has to an array of shady financial companies. The latest development is that Digital Currency Group (DCG), a firm that Summers advised for years, and its subsidiary Genesis Global Trading now face prosecution from the Commodities Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the New York Attorney General for fraud. Oh, and the Department of Justice has been investigating since earlier this year. It’s getting hard to keep track!

Summers worked at DCG in an advisory role starting in 2016, but when he left remains a mystery. He was listed on the DCG website until at least November of 2022, but when Protos wrote a piece about his departure (citing our earlier work), Summers’ spokesperson said that he had left several months prior. Whatever the case, Larry Summers got out of Dodge with all deliberate speed. 

What Julian and Henry highlight in their piece this morning is that simply being able to extricate himself before any significant legal issues arose at DCG doesn’t absolve Summers of serious scrutiny for the time that he did spend there. Basically, there are two possibilities. Perhaps, Summers knew what was going on; whether or not he directly participated, he would still be complicit on some level. Then again, maybe he didn’t know what was going on—which seems like it would require being rather distanced from DCG’s operations given the scale of the internal shenanigans Julian and Henry have documented. If that’s the case, then it’s a pretty clear case of taking a paycheck in exchange for leasing his reputation to boost the firm’s image. 

In either case, he actively helped a firm defraud its customers, either by participating in the ruse or in being willing to sell the legitimacy of having a former Treasury Secretary advising your board without working to ensure that his influence was not misused. To be clear, this is not an allegation of any criminal wrongdoing. But it should make it crystal clear that Summers is not what he is presented as by the media. He is not an emissary of objectivity. He’s a pundit with a price tag that shady fintech companies use as a veneer of respectability. 

This isn’t just speculation, DCG basically said this was part of why they brought on Summers (along with their other advisors): 

“The addition of these advisors underscores the importance of the various stakeholders DCG feels will be critical to helping digital currencies and their applications reach a broad group of users and achieve mainstream adoption.” (emphasis added)

Summers’ comments similarly said:

“Digital currencies, blockchain and ‘the internet of value’ will create new platforms for financial inclusion, and Barry and his team at DCG are building an important platform with great potential to help these technologies reach mass adoption.” (emphasis added)

This isn’t the first time it’s been obvious that Summers’ role is to increase firms’ legitimacy. Here are some others (emphases added):

• The CEO of Xapo, a crypto firm where Summers started as an advisor in 2015, said that the advisors they have should put consumers at ease, saying “If it's your mom, those names should give her comfort.”

• When he joined the payment processing company Block (formerly Square)—which is also heavily invested in crypto—Forbes observed “The addition of Summers is sure to give the fast-growing startup some political and economic clout.”

• Australian Financial Review reported that Afterpay added Summers to “help Afterpay navigate US regulation and introduce the company to contacts to smooth its growth in the US market.”

• When Summers left fintech company Lending Club, Fintech Nexus noted that “Larry Summers not only helped put LendingClub on the map but he gave the entire industry some serious credibility in its early days.”

• As a former bank regulator told TruthDig, Revolution Money “hired [Summers] for the name and contacts, because he’s politically active and politically connected”

As Henry and Julian mention in their piece, crypto relied on a perceived seriousness fostered by “the buy-in of established, influential—and, more importantly, ostensibly neutral—elites like Summers.” By now, it should be readily apparent that the entire crypto industry is reliant on spurious accounting and an inflow of new customers. In other words, it’s a high tech Ponzi scheme. As Timi Iwayemi and I wrote last year:

“Ephemeral pricing that’s frequently manipulated by opaque market participants in a new product without meaningful historical parameters makes the accounting shenanigans of the “traditional” financial sector seem quaint. To maintain the illusion of solvency, the brokerages, exchanges, and investment firms peddling crypto need to make sure that there are enough purchase orders to simulate demand and that there are few enough sell orders to keep supply from flooding the market. The way that most crypto hucksters achieve this feat is by relying on market makers (such as Alameda in FTX’s case) to buy and hold large amounts of tokens.”

Beyond this clear pattern of hawking his reputation, there is an intertwined pattern of Summers being held to shockingly low standards in his punditry. Henry and Julian round out their piece with a discussion of how Larry Summers surely understands the ethical issue of selling your name while being an economic pundit. He just recently accused Joe Stiglitz of the same exact thing for…doing consulting work for quasi-governmental housing agency Fannie Mae. 

Not once in this newsletter or in Henry and Julian’s article have we expressed a concern about an actual consulting product from Summers. Everything we are criticizing him for are board memberships and official board advisory roles: positions where he is not producing written reports or actual research. By criticizing Stiglitz, Summers overplayed his hand. Stiglitz did actual work for a prominent housing agency. Summers sold his name, reputation, and connections to numerous firms involved in the biggest ponzi scheme of the century. Surely if Stiglitz ought to be held accountable (for what is not clear, there is nothing wrong with economists writing reports for quasi governmental agencies), Summers must be doubly so. 

In addition to that, in an earlier edition of this newsletter, I wrote about Summers not being held to the same disclosure standard as other Bloomberg commentators.

Even comedians are being held to higher standards than Larry Summers! Back in September, The New Yorker published an article about Hasan Minhaj, known from his roles on The Daily Show and Patriot Act, alleging that he inserted fabricated and exaggerated details into stories he told about his life. Yesterday, Minhaj released a lengthy video disputing a number of those representations, apologizing for some details, and presenting evidence of him doing his best to exercise integrity. Regardless of who’s right, it is absurd that comedians are having this type of conversation before pundits who get taken seriously when they call for millions of people to lose their jobs. Why do we hold someone telling stories for laughs to a higher level of scrutiny than someone who routinely weighs in on important policy matters, is taken seriously as a pundit by policymakers and the media, and also is in bed with an industry whose entire premise is a scam?