Goldman Sachs spent $105.71 million on a portfolio of development sites and new affordable projects this fall, according to records filed with the City. The deal was recorded and published on February 16th, making it the largest single largest transaction during the week of February 12th to Feburary 18th (The sale at 181 East 65th Street, posted earlier, takes the second spot for that week) Signature Bank held this package of properties on their balance sheet before going defunct in spring 2023. Since the bank was deemed to be posing a ‘systemic risk,’ the FDIC closed it down.
Signature Bank faced a run on their deposits last spring during the same period Silicon Valley Bank collapsed. Both banks held investments in cryptocurrency, and doubts over crypto’s viability were cited in their downfalls. Along with cryptocurrency, Signature Bank also held a sizable number of mortgages of affordable multifamily buildings. After New York Community Bank, Signature Bank was the second largest lender to affordable housing stock in New York City.
Goldman Sachs will assume ownership of the twenty-one properties, fifteen of which are affordable housing projects, either new or under construction. Six properties are located in Manhattan, while nine of the other affordable housing projects are located in the boroughs. Many of these projects are built or under construction on irregular lots, renovations of older buildings, or have or had used other creative measures to get the project built.
Goldman Sachs has been active in New York’s affordable multifamily market this century. Notably, they partnered with L+M Partners to develop the sizable vacant lot languishing in the heart of the Lower East Side on the corner of Delancey and Essex Street. While Signature Bank was a smaller bank, founded in 2001, and based out of California, Goldman Sachs is much larger, more tenured, and based out of downtown Manhattan.
During Signature Bank’s collapse, Barney Frank, a board member of the institution and former US Senator from Vermont, commented on the scene playing out. Signature Bank’s collapse came as a shock to him, according to remarks made to the New York Times. He also guessed that regulators decided to take over the bank in a move meant to discourage other banks from investing in cryptocurrency, saying “They shoot one man to encourage the others.”
Followers of Signature Bank’s collapsed may be surprised to learn of Mr. Frank’s board seat since he devoted a lot of work in the Senate to reign in bank lending. In 2010, then-Senator Frank helped usher in new laws increasing oversight over private lenders. Collectively known as ‘Dodd-Frank’ these provisions sought to make banks safer for users by establishing a liquidity requirement and lowering leverage ratios. The law targeted larger banks, ones that some call “Too Big to Fail”, or “systemically important.” Curiously, U.S. banking law previously associated the word ‘systemic’ with banking corporations, in a law passed in 1991 (Title 12 Section 1823). One section, 4, a, G, empowered the Federal Deposit Insurance Corporation to take over banks deemed to pose ‘systemic risk.’
Viewing Barney Frank’s remarks under a foggy lens, one could find that the public regulator’s action that he specifically condemns is one he tirelessly worked on to authorize as US Senator, that being the Dodd-Frank legislation. But a closer reading shows the law authorizing Signature Bank’s takeover was enacted much earlier, in 1991. In fact, Signature Bank was not named on the Financial Stability Board’s list of ‘systemically important’ institutions prior to their collapse. They were the 29th largest bank according to the Congressional Research Service.
For the retired Vermont Senator to express dismay over the dissolution of a smaller bank he held a stake in tracks in his overall record as outspoken Democrat from Massachusetts. What is developing in the winddown (or shutdown) of Signature Bank’s property portfolio, including but not limited to the transfer of its NYC affordable housing assets to Goldman Sachs, is the government’s stance toward cryptocurrency operators.
Along with affordable housing projects, Signature Bank held a sizable portion of their assets in cryptocurrency. After the collapse of tech-focused Silicon Valley Bank, it is evident this portion of assets, the cryptocurrency, played a part in FDIC’s decision to take over Signature Bank. As Signature Bank was solvent at the time of the takeover, and its specific holding of cryptocurrency led to the takeover, it may be helpful to define what cryptocurrency is in order to unpack the government’s motivations. Advocates for the currency often point to the secure mode by which cryptocurrency is transferred as one of its hallmark benefits.
The process of trading cryptocurrency involves computers solving large intricate logic riddles, after which the commodity is traded. In this way, advocates contend, it is almost impossible for a fraudulent transaction to occur, as a human could never compute the solution to these lengthy riddles themselves. Those who reference fraud impresario Sam Bankman Fried in a parry to my slapdash explanation would befit to notice Bankman-Fried did not claim to offer users actual cryptocurrency, but more a platform for trading it. Without offering his customers an actual crypto-wallet, Bankman-Fried likely did not execute the transactions his platform reported to be executing. Non-withstanding the fraud he did carry out, Bankman-Fried does not quite present an exception to the fraud-protected nature Crypto advocates claim the currency holds.
But is cryptocurrency actually more efficient, or less costly to use? For a stock purchase made in U.S. dollars through an established brokerage, which is what many could argue is the pre-cryto method of investing, fees for the trade range between 1 and 2 percent, according to Investopedia. The rough average of this range between 1 and 2 percent would be 1.5%. To trade Bitcoin, which is the most common form of cryptocurrency by volume, the site charges of a fee of 1.51%, exactly 0.01 percentage point more than the average fee for trading in regular currency. In this comparison, the cost of a crypto and non-crypto transaction is virtually the same.
If we were to directly engage with cryptocurrency’s core advantage, (that there is no fraud), we could notice that regular financial markets have not seen reports of widespread counterfeit currency, or ‘false’ trades, in the time since 2010, when cryptocurrency became available. The One Malaysia Development Berhad Scandal strikes the writer as the closest incident to a true fraudulent or counterfeit operation on the level of individual transactions. In that scandal, a Malaysian premier embezzled money dedicated to the pacific nation. By accessing an account that was not his, he bypassed a border that cryptocurrency could have enforced.
In another example Bernie Madoff’s Ponzi scheme did not involve falsification of account identities, and the scheme’s occurrence does not discreetly support the use of cryptocurrency. Madoff fooled his clients rather than his trading partners. While the 1MDB scandal constitutes a potential oversight cryptocurrency could have prevented (since there is no way the premier responsible could have fooled computers using complex riddles to verify his identity), the Madoff scandal does not present a use-case for cryptocurrency.
In observing a dearth of high-profile cryptocurrency use cases, the argument that this method is safer and less fraud-prone falls on its head. Both the safety and the cost arguments for this type of money fall flat, so why does it exist, in great amounts at that, and what is its purpose?
For those following cryptocurrency’s development, there is one distinct feature it holds (that regular currency does not). Namely, the difference is in the amount of human labor involved in dealing cryptocurrency compared to regular currency. There are thousands of employees at banks and trading institutions, many of whom are ensuring trades are executed properly with real money. Whether they are web engineers, clearing agents, underwriters, managers, or quality assurance specialists, these people make sure their institution does not process any fraudulent transactions. On the other hand, at cryptocurrency companies, such as Bitcoin or Ethereum, computers perform much of this necessary labor verifying transactions’ validity, through the use of the aforementioned complex riddle. This process, which may be referred to as ‘mining’, involves a riddle so robust, only computers may verify a given transaction.
In these two cases, of regular currency and cryptocurrency, the proof is in the pudding. According to a cursory Google search, and gleaning the pages of Forbes, the US Currency Education Program, K33, and Statista, there are more than ten times more people employed per circulating dollar (or crypto-dollar) in the regular banking industry compared to that of the cryptocurrency industry. According to these sources, the regular banking industry employs 1.97 million people watching over 2.25 trillion regular dollars in circulation in the US, equating to about 1,100 dollars circulating per regular banking employee. The cryptocurrency industry currently employs 190,000 people watching over 2.48 trillion crypto dollars in circulation, which equates to 13,000 circulating crypto-dollars per crypto-employee.
This metric, showing a difference of more than ten times, is consequential in measuring the upsides and drawbacks of cryptocurrency. As for the FDIC takeover of Signature Bank, they may (or may not) be motivated to protect jobs. By taking over a bank and selling its cryptocurrency assets, they may reduce the amount of cryptocurrency in circulation (and increase the amount of regular money circulating). Since regular currency involves more banking employees, this FDIC move may be creating jobs.
Regulators and traders should be eager to know the cryptocurrency industry is intensive in the use of physical capital (and less intensive in human capital). The French theorist Thomas Piketty has dedicated a 700-page tome, “Capital in the Twenty-First Century” dedicated to discussing how the use of physical capital (like a machine or a chair) affects economic welfare and inequality. His exhaustive investigation uncovers a critical (and positive) link between the amount of physical capital used in an economy and the level of both GDP and inequality of that economy.
Social scenes in the U.S. have been hit with a barrage of discourse surrounding cryptocurrency in the last ten years. Finance workers, tech workers, tech enthusiasts, and even socialites have spent time and energy advocating the use of the commodity. Listening to such outpouring describing the commodity’s nature has felt scattered and generally lacking in a lynchpin that describes its purpose. In examining the conditions and activities surrounding cryptocurrency trades, especially the takeover of Signature Bank, its meaning sheds a ray of light. That is, cryptocurrency inherently necessitates fewer humans to administer account maintenance and asset trading. The way this technology works, in solving deep computer riddles, and in the current stats confirming humans are not needed to verify trades and identities, an important attribute is revealed. For fewer humans to be involved, cryptocurrency represents the forward march of technology. As simple as a flour miller buying the next iteration of machine requiring less upkeep and less supervision, the decision to transition to a less costly mode of production need not be weighed down with discourse or difficulty.
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