Facebook’s foray into the crypto world has been met with fear, anger, and skepticism, but one US Senator has slammed Libra and compared it to the subprime mortgage crisis. Libra has received significant pushback from Congress ever since it was announced back in June, and this is yet another setback Libra didn’t need. Senator Sherrod Brown pulled no punches and let rip into Libra during the congressional hearings that David Marcus is currently navigating for Facebook.
Comparisons to the Mortgage Crisis
The subprime mortgage crisis was the catalyst for the 2008 recession that led to millions of people around the globe losing their jobs, homes, and forcing many to take their own lives. Back in 2008, bankers were proposing this incredible new financial instrument that let institutions soak up debt for the chance of large returns in subprime mortgages. In return, Americans were able to borrow more money than they could afford, allowing them to get on the housing ladder. Eventually, it all blew up and triggered the worst recession since the Great Depression.
In his testimony, Senator Brown said:
Before they blew up the economy in 2008, bankers were pitching an ‘innovative’ new product called subprime mortgages. Just like Facebook – which claims its new currency will help the unbanked and underbanked – these mortgages were supposed to help people who never had access to credit achieve the American dream of home ownership.
Brown then followed up with:
In reality, those mortgages ripped off millions of families who ended up losing their homes, they wrecked the economy, and they made the staggering inequality in this country even worse… Big tech companies and Wall Street banks are hiding behind innovation as an excuse to take over important public services.
Will Libra be all Bad?
Despite all the fear over Libra, there is a slim chance it could be good. Libra is promising to bank the unbanked by allowing them to access the financial world through Facebook. Facebook users would be able to pay for goods and services using funds in their account. They could add funds to their account using gift cards from stores all around the globe, meaning no bank account is needed to access the financial world. This could be incredible for the unbanked, as well as e-commerce companies that sell through Facebook. Tapping into the 1.7 billion unbanked people in the world certainly provides merchants a lot of new potential customers.
Can People Trust Facebook?
Cast your mind back to last year, you might remember the massive data scandal Facebook was embroiled in. Cambridge Analytica had been harvesting user data from Facebook – for a large time with Facebook’s knowledge and consent – and then using it to run hyper-targeted marketing campaigns. While Facebook claims this unethical use of data is now history and won’t happen again, there is nothing to say that Facebook won’t be misappropriating data on the down-low.
If you want Facebook to know everything about you – including where you go, what you eat, who your friends are, and what you like to do – and combine that with controlling your bank account, then Libra might be a good idea. If you’re starting to get worried, then you might want to run as far away from Libra as possible.
Libra is quickly becoming a hot topic all over the world, becoming the second most searched term on Weibo towards the end of July. Should Libra does manage to break through the regulatory and congressional hurdles, then we could see it changing the financial world as we know it, similarly to how PayPal changed the online shopping industry.
