Blythe Masters, the former JPMorgan executive who helped pioneer credit derivatives in the 1990s, has re-emerged as chief executive of a cryptocurrency start-up.
Digital Asset Holdings aims to be a venue for buyers and sellers of financial assets to meet and transact, switching currencies into bitcoin in order to cut the cost and time of settlement and make use of the decentralised “block chain” as a secure record of transactions.If this were a movie, instead of real life, at the first mention of Blythe Masters you would hear this music in the background.
Masters is very smart but the ultimate bankster plotter. She is widely credited with creating the modern credit default swap. Read that last sentence again.
In 2009, New Yorker explained:
In late 1994, Blythe Masters, a member of the J. P. Morgan swaps team, pitched the idea of selling the credit risk to the European Bank of Reconstruction and Development. So, if Exxon defaulted, the E.B.R.D. would be on the hook for it—and, in return for taking on the risk, would receive a fee from J. P. Morgan. Exxon would get its credit line, and J. P. Morgan would get to honor its client relationship but also to keep its credit lines intact for sexier activities. The deal was so new that it didn’t even have a name: eventually, the one settled on was “credit-default swap.”...
There was one final component to the J. P. Morgan team’s invention. The team set up a kind of offshore shell company, called a Special Purpose Vehicle, to fulfill the role supplied by the European Bank for Reconstruction and Development in the first credit-default swap. The shell company would assume $9.7 billion of J. P. Morgan’s risk (in this case, outstanding loans that the bank had made to some three hundred companies) and sell off that risk to investors, in the form of securities paying differing rates of interest. According to J. P. Morgan’s calculations, the underlying loans were so safe that it needed to collect only seven hundred million dollars in order to cover the $9.7-billion debt. In 1997, the credit agency Moodys agreed, and a whole new era in banking dawned. J. P. Morgan had found a way to shift risk off its books while simultaneously generating income from that risk, and freeing up capital to lend elsewhere. It was magic...
The new financial instruments, as clever as they were, had an unfortunate side effect: they broke banking. At its heart, banking is a simple business. Customers deposit money at a bank, in return for interest; the bank lends that money to other people, at a higher rate of interest. This isn’t glamorous or interesting, but banking is not supposed to resemble skydiving or hip-hop; what recommends it is that it’s a good way of making steady money (and of creating credit in the economy), as long as the bank is careful about whom it lends money to. The quality of the loans is critical, because those loans are the bank’s earning assets.
This isn’t some incidental issue; it’s the very core of what banking is. But the model of packaging plus securitization spurned the principle that a bank had to individually assess and monitor every loan. The mathematics of valuation models—horrendously complex equations to assess probabilities and correlations, cooked up in mad-scientist style by the firms’ ”quants”—took on the burden of assessing statistical risk. The idea that a banker looks a borrower in the eye and takes a view on whether he can trust him came to seem laughably nineteenth-century.If at this point, you don't get that Masters is a serious bankster, please note, Masters was the Chair of the Securities Industry and Financial Markets Association from 2008–2010 and also of the Global Financial Markets Association from 2012–2014.
In other words, if you were to hear that Masters was going to be designing new piggy banks, it would be wise that you never, ever, allow your kids to put another single penny in one.
But she is not playing in the piggy bank world, this top level bankster has decided to focus on Bitcoin. With regard to her role and Bitcoin, she told FT:
“There is a school of libertarian ‘visionaries’ who want to imagine a world without big banks, big governments...That’s nice, but completely irrelevant to this business model. We don’t imagine a world in which big banks and big governments don’t exist.”Digital Assets just put out a press release this morning that says in part:
I am not sure what Masters is really up to, but her involvement is not a good sign for that part of the Bitcoin community,who see Bitcoin as a method of breaking the banksters. When her firm uses the term cryptocurrency and "tracking and transfer" in the same press release, you know that this is not going in any libertarian direction. How exactly do you blend crypto and "tracking and transfer"?"The solutions Digital Asset will help scale and commercialize under Blythe's leadership have the potential to transform fundamentally how we think about the creation, settlement, tracking and transfer of assets and currencies. Blythe's experience at building successful teams and defining cultures will be a huge benefit for Digital Asset and its clients."Digital Asset has assembled a world-class management and development team with expertise in the financial industry as well as cryptography. These employees are based in New York, Chicago and Tel Aviv.
And what is this about her, as FT informs, meeting with the Fed and the Bank of England (though she didn't have to)?
The fact of the matter is that Bitcoin is not a libertarian platform. It never was. It now appears to be moving in the direction of total evil.
She seems to consider libertarian Bitcoin fanboys, as cute, perhaps cuddly, but Masters is not about cuddling and certainly not about seeing bankster dominance of the financial sector ending. She is ten steps ahead of the fanboys. In Bitcoin promotion, the fanboys have ushered in a monster. First they lost their money in the Bitcoin crash, now they are going to lose control to the banksters.
Murray Rothbard was right. libertarians have no special expertise in black markets, the libertarian advance will be done via education, study and policy discussions.
Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics