The Toolkit

Tools for building the future

The Toolkit with Ed Stringham, S.C. Davis Professor of American Business and Economic Enterprise

Top Takeaways

  • The parallels between modern crypto markets and historical markets
  • How the government regulations affect the stock market.
  • How private market avoid fraud and scam
  • How private markets select investors.
  • SEC copying disclosure regulations from New York Stock Exchange.
  • Can banking sector innovate their market?
  • Why some private markets hired private police rather than government police?

Guest Profile

Edward Peter Stringham is the S.C. Davis Professor of American Business and Economic Enterprise at Trinity College, former president of the American Institute for Economic Research, and editor of the Journal of Private Enterprise.

He is the editor of two books and the author of over 70 journal articles, book chapters, and policy studies. His work has been discussed in 15 of the top 20 newspapers in the United States and on over 100 broadcast stations, including MTV.

Stringham is a frequent guest on BBC World News, Bloomberg Television, CNBC, and Fox. Rise Global ranks Stringham as one of the top 100 most influential economists in the world. He also appears on television shows, including Blue Bloods, Elementary, Girls, 666 Park Avenue, and The Blacklist.

Book by Ed Stringham

Episode Highlights

  • Stock Market History and Government Regulations: He’s been writing about stock markets for 20 years and was astounded when crypto markets were invented. It came to a point where entrepreneurs and various businesses created an enormously complex set of private rules and regulations independent of government regulations, which can enhance the stability of the market and make people engage in trade.
  • How Private Markets Avoid Scams: New York Stock Exchange was the pioneer of having a bunch of listing requirements for those certain firms that have gone through X, Y, and Z vetting can be listed on the big board.
  • Securities and Exchange Commission: When the SEC first implemented its laws 90 years ago, it copied some of the disclosure requirements of the New York Stock Exchange. The private market’s advantage is they’re giving people more choices rather than the one size fits all regulations.
  • Banking Sector: The government provides certain things like clearing checks for the bank, but done in a very outdated way.
  • Private Police: San Francisco patrol special police have been around since the days of the gold rush and, in most cases, hired by merchants who are not satisfied with the level of service from the government police. Ed actually conducted a survey of the customers of the San Francisco patrol special police, asking why they are hiring private police because it costs extra money. And the almost universal response was the government police service takes too long.

About the Host:

Justin Fortier lives in Brooklyn, NY, and works for a consulting company serving industrial companies.

How to Connect with Justin Fortier

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Transcript

Justin Fortier: Hello, and thanks for opening up the toolkit. I’m your host, Justin Fortier. Today, my guest is Edward Stringham. He’s the Davis professor of economic organizations and innovation. At Trinity, I took a class with him that studied the different ways that businesses organize themselves. I want to have Professor Stringham on today because of his book, private governance, creating order in economic and social life. This book chronicles the different ways that private institutions are able to govern effectively without government regulation, and how often government regulation actually follows private interventions and sometimes crowds out valuable private methods of governance, and adds burdensome regulation and costs that actually can make the system worse. Now, Professor Stringham got his PhD from George Mason University, which is probably the number one school for libertarian economists. You’ve got people like Tyler Cowen, Alex, to Barack, and Brian Kaplan, who all work there and are prolific writers and bloggers on the subject of incentives, economic history, free enterprise, all that. So he obviously has a bias, but I want to have Professor Stringham on specifically because in the last decade, there’s been a massive rise of cryptocurrencies, and applications of cryptography, also known as the blockchain or web three, this is creating a whole list of new ways companies, and groups of people can organize the transfer of value, etc. And a lot of people, especially a large number of politicians, and people from traditional financial backgrounds are calling for additional regulation. And to me, that sounds like a good idea. Of course, we want to reduce the risk of fraud. But Professor string makes an argument against that in his book, which I’d encourage you to read, if any of this conversation, piques your interest, please enjoy my conversation with Edward Stringham. If you want to learn more about the program, you could check us out@toolkit.fm. So, I wanted to have you on today because I’ve been covering crypto a lot in my main job and looking at the development of I guess, new financial markets, and your book private governance, which I’ll include the link in the description for anybody listening, who wants to check it out. And all the places you can find it from Oxford Press details, the the history of institutions that are able to govern without government, or a monopoly, needing to enforce rules and make laws and all that. And I thought we could start at, if you could tell me a bit about the lessons, you’ve gleaned from history about, I guess what it takes to run an effective market and why government regulation isn’t necessary in for stock markets and things like that, and why there’s actually incentives for these traders and groups of people to start to regulate themselves.

Ed Stringham: Great, cool. Thanks. And I’m glad you notice the parallels Justin with the modern crypto markets and some of the historical markets. I’ve been writing about this stuff for 20 years. And when these crypto markets started being invented, I was like, wow, this is really interesting. And they’ve turned out to be much better than I predicted, which is fantastic. Yeah. So basically, what I did in my book, in my research is I looked at the origins of the first stock markets. And there’s this kind of common idea that first you have the government regulator, and then only then can the entrepreneurs come in and create the markets. And so it’s the idea that government is basically hatching new markets and setting the conditions for markets. And if you look back in history, that’s totally not the case. The regulators are usually decades or centuries behind what’s going on. And so you’ve got these entrepreneurs, various business people, traders, experimenting, and just trying to figure things out. And what I found is these things evolved over time, in ways that many people didn’t know they didn’t, couldn’t have predicted it ahead of time. But they turned out to create a enormously complex set of private rules or regulations, that underpinned those markets. And those things came about independent of the government regulators. In many cases, a government regulators thought these markets were bad forms of gambling and they just didn’t want to have anything to do with it. And so people figure it out, okay, we create our own private rules and regulations that can enhance the stability of the market and actually make People want to engage in trade or can minimize the risks associated with engaging in trade in these markets. And to see the exact same thing happening in the world’s first stock market is 17th century Amsterdam. Shortly after that, the second oldest stock market is the London Stock Market, which later became the London Stock Exchange. That was about 100 years later. And then about 100 years later, as well, you’ve got the New York Stock Exchange. And it was quite something for me to see how all of these had tremendous amount of private rules and regulations evolving in a very parallel manner.

Justin Fortier: So the, the way that they developed it was originally just people coming together in coffee houses is what they’re called right where they would get together. And that was the place where they wanted to exchange shares in at the time very few limited, or companies that there wasn’t like 1000s. Today, like in what Amsterdam there was basically one company to start or maybe two, but over time, I guess one of the concerns somebody would always have is that there’s new markets or companies could present information in a way that they’re able to take money from an unknowing investors or unsophisticated investors, how do these markets solve for that or make sure that people aren’t getting scammed? Or what are the incentives in play?

Ed Stringham: One of the primary reasons why these stock exchange emerged. So in Amsterdam, as you’ve mentioned, that was really just one company and then two companies, the Dutch East India Company later also the West and Dutch West India Company. And people were just meeting at the side of the commodities ports was gone to the Amsterdam bourse. And they started realizing, okay, how are we going to make these trades, and they started having informal reputation networks to say if you want to be part of this market, we need to know who you are. And they would invite newcomers, but they wouldn’t allow somebody who hadn’t established a reputation to engage in certain complicated financial transactions. They had basically, short selling forward contracts, options, contracts, and counterparty default, rest on those possibly can be really big. So they wanted to make sure they kind of just wouldn’t know about each other. And so we can think about this in modern economics, linguistics as the discipline of continuous dealings, and reputation mechanisms reciprocity, when people know that they’re interacting with the counterparty every day, there’s a quote from the stockbroker, I found Pennsylvania Vega, and he said is we don’t want to deal with people who have bad reputations, and it shows up in Adam Smith as well, that the appearance of a cheat will make someone lose. So you’ve got that type of reputation of who’s allowed to trade in the market in London became more formalized. They originally were trading in these, as you said, coffee houses. And eventually they turn into these coffee houses, Jonathan’s Coffee House, Garrow is coffee house and to private clubs that could create and enforce rules. So a defaulter would have the name written down on a blackboard, in a coffee house. So it’s really identical to a lot of the reputation mechanisms that we see in modern markets through things like eBay, obviously, a lot of the crypto markets are really trying to make sure that only good things like smart contracts, you got to make sure that the person has what they say they have, before you even sign up to exchange something. And so you’ve got a private incentive for parties to realize, hey, if this market is fraught with fraud, we’re all going to lose, and so to try and create these private rules and regulations to stop that. So that’s one type of regulation that that we can notice. The other type of regulation, which you alluded to a second ago, is what markets get traded what Sorry, what stocks get traded in a market. And I would say the big Innovator for that was the New York Stock Exchange, originally called the stock and exchange board, they started having a bunch of eliciting requirements to say, only certain firms who have gone through XY and Z vetting can be listed on the big board. Now, you could trade you know, certain other stocks there as well. But really, if you want it to be listed on the big board, you’ve got to be disclosing bits of information showing to the investors that you’re not as fraudulent. And to relate that now to modern terms, I think we we definitely see a lot of this coming about. And we need it, we need more of it, more private rules and regulations, we’re getting more private rules and regulations in the crypto space. Because unfortunately, there’s just so many, I’ll just call them goofy, crazy, sometimes fraudulent schemes out there. And as the market is evolving, you’ve got more and more entities saying, hey, look, we are actually going to be able to disclose to you exactly what we’re doing to take out a lot of the mystery of what assets are where. And the advantage is to the investors to people trading in a stock, or an asset in this case. And it’s also to the advantage of the company or entity or network of individuals, listing shares and something. Because if something looks like it’s going to be fraudulent, nobody’s going to want to invest in it. And so the people who are selling it would have to sell it at a much lower price. Whereas if they can offer assurances to investors, or people using this service, or product, whatever we’re going to call it in modern times, it’s actually better for the issuer. And it’s better for the person who’s buying those assets.

Justin Fortier: Yeah, that was one of the things that right now in the crypto markets, there are a number of exchanges, and I think US traders or crypto speculators would be most familiar with Coinbase, the big American one, but it’s actually not, I don’t even think it’s in the top three largest global exchanges by volume. But it seems to have taken the path of we’re going to require KYC or know your customer. So they like require people to actually submit who they are, they also have a slightly more while they still want to list as many crypto assets as possible. They are slower than some of the other ones there’s a really large Chinese exchange are a couple of by Nance and Hubei I don’t know how to pronounce Hubei, but that will list almost anything that’s coming out, allow that to be transacted. But I think if a more conservative or somebody looking to maybe decrease the overall risk would be looking to transact through Coinbase there may be paying higher fees for that. But they know that Coinbase as an exchange, their value proposition is we’re going to be doing more diligence than some of these other exchanges, we’re going to be trying to make sure that we’re staying ahead of what regulation should be or like setting an expectation for Yeah, just good actors, which I found was really interesting to think about that they’re providing almost taking a leadership position in the market and almost in some cases, inviting government to follow them. Now, a lot of the craziness that I’m seeing in crypto comes from that they’ve almost circumvented a lot of the rules around what is the security and securities law by creating something totally new and a new mechanism of exchange. Over time, the government has copied some of the practices that the exchanges do so the exchanges have some set of best practices. The government then eventually put some of those practices into law and like enforces them through the SEC. But what are the disadvantages from the government creating securities law? They’re trying to protect people, but prevented some of the existing securities from innovating now it’s created an entirely new market. What are your thoughts on the government’s actually making laws pertaining? Yes, and where are some of the biggest weak points?

Ed Stringham: The Securities and Exchange Commission when they first implemented their laws 90 years ago, they basically in many cases, copied some of the disclosure requirements of the New York Stock Exchange. And so in the case of the New York Stock Exchange, companies listed companies it wasn’t overly burdensome, because they were already having disclosure requirements ahead of time. It was however burdensome to the some of the smaller exchanges, the more we could call them, the riskier exchanges that didn’t have the bigger companies that could afford a lot of the high fixed costs associated with more stringent disclosure. So after the creation of the SEC, George Stigler, a famous economist, wrote that he looked at the returns of company new issues, and he’s found there was no actual improvement and no new issues. But he did find that there were much fewer new companies listing their shares because you’ve got the income Risk cost of regulation. So I would say one of the advantages of private governance of private rules and regulations is allows various amounts of competition experimentation, people want to go to Blue Chip stock can say I want to invest in the New York Stock Exchange, only the London Stock Exchange, London Stock Exchange, by the way, and it’s just really cool sub market, which is called aim alternative investment market. And they basically say, we’re going to allow really small companies that don’t have a lot of history, we’re gonna let a company like maybe a big four accounting company, look at their books, and just give them a limited stamp of approval to say, this seems like a legitimate thing. And then you’re letting investors say, Okay, this company doesn’t have the same experience. But we’re going to allow people to invest in it anyway. And so you’re giving people more choices, rather than this kind of one size fits all regulation, we can really be restrictive, I think, an interesting name of a company and I won’t be able to repeat it verbatim. But one of the first companies some people call it the first major stock company, it was called the mystery company of adventures for the discovery of Parts Unknown. And so they just had a lot of people who are going on these voyages by see, does trying to figure out new things. I believe that company name later became renamed the Muscovy company. But just in their original name, it was really an open ended venture. And in a good way, I would say actually, a lot of the Spax these days are now allowing that again, to say to investors, hey, we don’t know what we’re doing yet. But here are the people involved. And we’re gonna be doing something huge, special purpose acquisition company, and now, everybody’s okay, cool. Yeah, that’s good. Uh, similarly, where a lot of the crypto space had they been requiring many years of financial performance? And what are you doing? What did you do? What are you doing? It’s, it would be, in my opinion, overly burdensome to an area, which is so new. It’s so innovative. And so you’re letting the investor opt in to what’s considered, I would say a much riskier environment. But at the same time, there’s also been a lot of potential innovation that we’ve seen, because we haven’t had to deal with all the strict traditional SEC style regulations.

Justin Fortier: Yeah, so the, and the value that comes from people being able to invest in companies and fund new ventures, it’s hard to be understated, like how much the public markets allow new ideas to be created and funded. And so it is interesting to think if you’re only worried about the downside about what can go wrong as a society, what the world would look like in terms of what would we have even trained by now? Or would they stretch across the country?

Ed Stringham: We have all of our bitcoins under our mattress.

Justin Fortier: Exactly. I just looked up the number there’s a company called CB insights, which tracks market data, but they they’re currently tracking that there are 903 companies that are supposedly valued above a billion dollars that are private currently, which I think if you look at the total number of public companies in the United States, it’s only around 5000, I’ll I can find the actual real number and put it in the notes. But the, that’s a trend that’s developed over the last decade or so is that a large number of companies in a new sector or a growing sector now it’s pretty well established technology and software, and most of them have stayed private. And now, by adding these disclosure rules at a government level, it basically raises the barrier to going public to probably a couple million dollars a year, almost in all cases, to be a public company.

Ed Stringham: Certainly very expensive. In addition to just the basic listing requirements, the first time around, you are facing tremendous legal and regulatory, ongoing legal and regulatory costs and risks. Things like the Sarbanes Oxley act, Dodd Frank, all these different things. Add in a bunch of different rules and regulations. Sometimes there’s explicit legal costs associated with other times, oh, if you want to be public, you’re going to be exposed to lawsuits, various regulators breathing down your neck all the time. So a lot of companies are choosing. I don’t want to deal with that. And so we’ve gotten out of the private equity market, which is now bigger, according to certain measures than public, publicly traded stocks. And so people just figure out, this is really not worth it. Now, we still do have strong publicly traded firms. And that’s great. We all excited about that. But I do think we’re burdening them in ways that are not necessary. I do think that suppose that the SEC regulations are like the cat’s meow and add so much value to a company will simply just allow the two companies to say, All right, I’m going to be traded on this exchange, which follows all these strict rules and regulations. And allow someone to say, I’m not going to do that. And we’ve got more streamlined regulations, such as London Stock Exchange alternative investment market, which is what they do, the market speaking, people are saying, hey, there’s alternatives out there that we don’t necessarily value any of these bureaucratic rules and regulations. And so I think that’s really coddling American corporations, American Finance and ways it doesn’t need to.

Justin Fortier: Is there any advantage to having a let’s say that the SEC, its power to enforce was taken away, but was still its job was to provide to identify what is the gold standard and make that known, like, for example, just the government to issue a recommendation, like maybe a stamp of approval versus a requirement? Is there any value in that in surfacing that across people, like regulators who are studying what’s working well in these exchanges and saying, Well, this new crypto exchange B, is not following any of these other practices? And just helping highlight that difference? Or is that something that the exchanges companies, etc, would be highlighting? It’d be in their own interest to highlight…

Ed Stringham: I would say, the latter, if you’re gonna force me to choose the SEC, just given voluntary information, and not all the other things, I’ll say, oh, that that’s a great, it’s a great idea. If you look at what they’ve done throughout the decades, expanded their their scope so much, now they’re requiring companies to report the ratio of the lowest income people to the CEO, as if that’s somehow helpful to investors. Now, maybe some people who are concerned about social justice questions are interested in but that’s not that’s not being demanded by the investors. And likewise, if there’s a set of things that people could say, we want this, that’s where you’re going to see a third party, such as the New York Stock Exchange, and intermediaries, such as the New York Stock Exchange, come in and say, Yeah, this is legitimate. And here’s why. I mean, the whole accounting industry is providing information to people to say, Yep, we’ve looked at these books, and they’re legitimate. Now, it’s always going to be the case that anybody might miss something. Sometimes we’re never going to have perfect information, but just based on best information, things work quite well. So I would say, to the extent that there’s something valuable, people want it, then there’s going to be private incentives to to create it. And to follow up on your comment about Coinbase a few minutes ago, I totally agree with you that they’re coming out and saying, Hey, look, it’s not all wild, wild west, out there. And here’s some basic procedures that we’re going to follow. And there’s probably others who are going to come up with much better than Coinbase in the future. And so I’m rooting for all of them. But it’s not exposing people to all the risks. So during the early times of Bitcoin, and all my friends are saying, it’s great, because we’re going to get rid of all intermediaries. And I was like, no, no, no, we want intermediaries intermediaries. We’re hiring them in many cases to deal with counterparty default risk, or just helping us manage various things. And we’ve all heard the stories about some of the early early exchanges, just not having proper security and people either hacking into them and running away with the money or maybe even the people at the exchange. We’re running away with the money or, Oh, I’m going on a hike in India, and I’m the only one with the keys and I got kidnapped and no one heard from me ever again. So all these crazy stories that it’s awful. Like to see the more serious companies are starting to get into the space, I think is a good sign. And I think it will take a while for the industry to evolve. But as someone who spends time around a lot of financial service people, it’s like universal.

Justin Fortier: Yeah. I do wonder the there was definitely a technological innovation with Bitcoin in that just the, the way it’s able to secure value as you send it from person to person or entity to entity. But the banking sector is one that has been heavily regulated over the last 20 years. I don’t, I haven’t looked that much more. But I guess, certainly since the Great Depression around, there’s lots of added regulation. So the banking sector has had a lot of regulation. And the fee model that they use for things like wire transfers was very high. And I think people are voting that they don’t want to pay intermediaries for $25 for a wire transfer and needing to go in person, how much does the government regulation put existing banks at a disadvantage? It’s protected them for a while and allowed the big banks to get bigger. But now, do you think that there would be able to adapt and adopt some of these new practices that crypto companies are creating?

Ed Stringham: I’m a fan of small decentralized entities. I’m also a fan of big banks. I do think that in many cases, the banks are completely hobbled by some of these rules and regulations, especially with basic lending over the last really, especially 12 years, we’ve got so many rules and regulations, and then at the same time of what counts as capital requirements, reserve requirements. And at the same time, the government is now paying banks to not lend money out interest on excess reserves. So banks are being paid to not be banks. And so to me, that’s completely pointless. I was able to get this mortgage 12 years ago, but it was another 10 years ago, it was impossible. Bernanke also tried to get a mortgage that same year, he couldn’t get him, he couldn’t get a mortgage, just because there were so many rules and regulations that they have to deal with. Now, meanwhile, you’ve got decentralized, finance, of fintax, all this other stuff, where people are saying, Well, look, there’s many ways to evaluate the trustworthiness of a borrower. And maybe we should start looking at these completely different measures of whether we think the person is going to pay the loans back or not. And so I do think there’s a reason why we see a lot of these smaller firms really becoming quite valuable at this point. Pay Pal is a very old company, but 22 years old, but it’s more valuable than tons and tons of the other way older companies. So I think that the regulations are forcing traditional banks to not innovate and saying, all right, the government does provide certain things like clearing checks for them. But if that’s being done in a very outdated way, and a lot of these clearing can be done, you know, much lower prices through specifically ether, or Bitcoin, or the layer two solutions associated with these things, you know, Lightning Network or whatever, to just say, Oh, hey, look, we can do this same thing that you wanted, at a fraction of the cost, and the big banks are not really able to get hold into it. I know a lot of them specifically have a lot of interest in this area. A lot of the mainstream financial institutions like Depository Trust and Clearing Corporation, which acts to hold and transfer stocks, all stock transactions, basically, they’re very interested in blockchain and figuring out potential use of smart contracts. So I think that it’s going to be adopted more and more by every large bank, all the Wall Street firms. It’s been interesting to look how a lot of them I’ve been a little bit on the sidelines. And we see that time and time again, throughout history, some of the industries that just don’t adapt, they become dinosaurs.

Justin Fortier: Yeah, one of the things that I’ve been thinking a lot about after the last year really, I lived two years in San Diego, I was working for a company that had asked me to move out there and partway through 2020. I asked if I could move with that company because I had spent the last four months just Working in front of my computer not going to the office at all. And I think a lot of people are having this experience where there’s a bunch of increased flexibility above anybody who doesn’t have any sort of face to face job. And to maybe segue out of the financial markets for a bit. But think about private governance as a whole, I’m seeing cities start to compete more on governance. And I guess the the product that cities can provide there in your book, I get the sense that local area, like if it’s down to neighborhoods, or towns, the book makes the case that’s where decisions can be made a little bit better. How do you think the increased flexibility of the professional working class is going to impact how government looks in our country or in the US?

Ed Stringham: Yeah, I’m a Yankee, and growing up in Boston, and spending time in Connecticut in New York. And there’s been a lot of complacency, especially among politicians in this part of the world, where, oh, all the big financial firms have always been up here. And they always will be up here. And we can push them around and boy them and not treat them well. And they can only get away with that for so long. And especially in the last couple of years, year and a half, we’ve noticed a lot of firms, just saying no, I couldn’t deal with it anymore. And so just packing up their bags, and moving. And so we obviously see a lot of major companies now in a Texas or Florida. And so I think that that governments should recognize that our goal is not to kill the goose that lays the golden eggs and recognize that we live in a competitive world out there, I was happy to hear the incoming mayor of New York actually talking about in Bitcoin and saying, we need to have more of this, we need to be realizing we’re competing with Miami, because historically, it was only less the northeastern cities where you have manufacturing, and they had access to the waterways. And now it’s anywhere, especially with this dramatic lowering of transaction costs, I do personally think there will always be value and the need for people to be interacting in person, including, especially in the financial service sector. But it’s relatively easier to say we’re going to do this completely different thing in a completely different space, rather than just having to be held up by your local politician. So that’s one of the original promises, I think of some of the people behind Bitcoin was just to allow a more decentralized world. And one of the things I got we don’t need this aspect of it was, Oh, we’re gonna get rid of all big companies and, and intermediaries. And I was like, no, no, no, I don’t like that. But the fact that they’re allowing people to do things in different ways, we’re still seeing large companies. In many cases, individuals as well profiting left this space tremendously. But opening it up in a much more competitive way, I think is really exciting.

Justin Fortier: Yeah, one last category, or maybe two last categories was some cities are seem to be really struggling, it appears where at least my boss currently lives in outside of San Francisco. And the consensus I get from some of my former colleagues that lived there was that they’ve got high taxes, and the government is choosing to not deploy them in the way that I guess people would expect to reduce violence like that. The most people I think that the government should have, or a lot of people have come to the conclusion that the government is best handled to solve violence, but your book or at least some of your talks to have made the case that there there may be other options to create safety than just government police or armies and things like that. What are the consequences you see of using private police are other methods like that? What Where have you been concerned? The idea of private police seems a bit dystopian to me. So why is that not the case maybe?

Ed Stringham: Well, to mention San Francisco. They’ve got a really interesting setup, one of the oldest ones in the country, and it’s called the San Francisco patrol, special police. And they’ve been around since the days of the gold rush, and in most cases hired by merchants who are not satisfied By with the level of service, if you want to call it that from government police. And so I actually did conduct a survey of the customers of the San Francisco patrol, special police. And I said, Why are you hiring these people costs extra money. And the almost universal response was, don’t get much service at all from the government police takes too long. They were one was trust issues. They scare me. So depending on the city, but especially in places like San Francisco, they prioritize the different types, is this a priority one event or what have you. So if there’s a murder, that’s going to be that the top of the list, but if there’s shoplifting in a store, they’re just they’re not going to respond at all, if there’s somebody causing probably in a store that’s not going to respond at all. And so that’s why merchants do rely on varying degrees. And this, this is nationwide as well, just varying degrees of private security, whether it’s just their employees or an unarmed security guard. In certain jurisdictions, you can have a fully deputized private police officer. And the need exists, especially when the government police who are supposed to be helping on those margins are just not doing anything. In New York City. There’s varying degrees of that as well, with some of these business improvement districts will have security ambassadors just walking around. So they’re not armed or anything. But I do think that people when there is a need to have more security, and the government’s providing that I do think that’s something that they should be allowed to opt into.

Justin Fortier: And where does that I’m thinking about businesses, but even maybe even a larger scale, coming together to protect their interests at some level. That sounds like a word like a cartel of sorts, or that’s what they’ve been called, if like two coming together at the expense of the public. How does that? How do businesses be held in check if they grow that large? Or start rolling out their police force to I don’t know, not even just police, but also just to maybe enact policies that favor them over the people living in an area? What are the guard rails for that?

Ed Stringham: I wouldn’t want people to just them act whatever rules they want, needs to be chosen by the people who are the customers. But in terms of cooperation, yeah, you do see examples of this one, big one that just jumped in my mind is in Las Vegas, they they don’t want people stealing from the casinos. And so they’ve got a tremendous amount of security for that stuff, right? That’s really obvious, everybody knows that. But they also have things like they share with each other lists of known cart counters. And so they will say, hey, look, Mr. card counter, we don’t allow card counting here. And please don’t come back. And then whoever’s in that network and Las Vegas Strip, or wherever else, they can then say the same thing they don’t, they’re not required to deal with a card counter if they don’t want to. And so I do think that we can see people working together. But that’s to the advantage of not just the casino, it’s also to the advantage of the average customer of the casino. Because we wouldn’t, I’m not a gambler. But we will be putting at risk to say, well, this person is playing by some very special strategy rules that we have no idea about, the customer is ultimately in charge of a lot of these things.

Justin Fortier: Trying to think about some of the the examples I’ve heard of, let’s say that if the casinos in Las Vegas banded together to change the odds of their slot machines, to where they never pay out, what types of mechanisms are there to prevent them from doing that, like collective deception or collective…

Ed Stringham: Oh, it’s just, it’s a you just are already and this has always been a problem with slot machines where what exactly is the payout? And so a lot of casinos are very explicit, to say, put this big sign up our slot machines, whatever 99% pay, I don’t know, follow the industry, but but just letting you know that it’s not 50% payout for time you do the thing. And so that would be a long standing problem. But something that people want to make sure is there’s a little bit of transparency about and again, that could be verified by a third party accounting firm to say look, this is This, these roulette wheels are legit or they’re not fake. And especially with a lot of technology that you and I were chatting about recently, the more transparency, the better for the consumer. And then on the flip side, a company that is basically told, you have to tell people you’re on the up and up. The only ones who now can succeed are the ones who are on the up and up. And we’re still going to see a lot of fraudulent examples. It will never go away. The one you and I just read about past week is the squid game. But the more that there’s transparency, the more private rules and regulations, the more it’s going to be tilted in the favor of the customer rather than the scheme stir.

Justin Fortier: Yeah, so I guess to close the I’m reading that the maybe it was at the start of the week, the President has a working group on finance, that includes Gary Gensler at the SEC and Janet Yellen at the Treasury and some other people, and they were discussing stable coin and other crypto regulation. And it looks like there are gearing up to try to figure out some added regulation to protect the American people from financial ruin or losing their fortunes in crypto or bad actors. I know you’re would probably argue against regulation entirely. But if there was, if they had to do something, because they believe they’re politically motivated to what type of regulation do you think is most helpful for their people, constituents or whatever to feel like they’ve got to win in the finance department.

Ed Stringham: They’ll be making me argue for something I don’t support. But one interesting quandary is what’s behind certain stable coins? Some people believe, Oh, it’s one for $1 for dollar, but each coin, there’s a physical dollar. There. Some people believe, Oh, well, we got a Bitcoin. It’s worth 60,000. Alright, let’s or let’s list 30,000, stable dollar coins, whatever you’re going to call them. And it’s okay. As long as Bitcoin doesn’t fall 50%. And I think there’s certain amounts of risks that people should be allowed to assume. And that’s great. I don’t think everybody needs to have actual dollar behind every single new item. But I do think that it would be useful for the private companies, and I think this could be done privately. But I think it would be a little bit more useful to have, depending on the market, a little bit more transparency to see, okay, is this stable coin? There are going to be risks? And what are those risks?

Justin Fortier: Basically, disclose if you’re a fractional reserve bank? Or if you’re a one to one bank and just say, okay, yeah, that makes sense. But I do see how that can be achieved privately as well. And why would somebody go to a bank or put their money in a bank or have takeout tokens from a bank or coins from a bank that they believed was less accurate? The government, in a sense gives the consumer or the user of those financial products have less of a reason to do diligence, and it gives them a pass. And I think what your book, which I’d encourage people to read, I probably didn’t do it justice and ask the right questions today. But I really enjoy it seems that it’s advantageous for private markets to offer that transparency and compete in that way and compete on governance, and that there are many cases where you may believe you’re protected by the government because they’re the put the right regulation, or I think I’ve heard you given a lecture and example that will protect you from a Nigerian fraudster or something like that. But like that’s really has to be on you because there’s limited recourse to solve that problem. The government, in no way has the capability to go and track down all the crypto criminals or all the whatever that’s out there. It’s much better to allow people to to actually do the work to understand their institutions and let institutions mark it that way. So thanks for joining me.

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