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Unregulated Cryptocurrency Bubble Could Send the Economy Into a Tailspin



by Selvam Canagaratna

“Bank regulators are rushing to come up with cryptocurrency rules, according to the Federal Reserve official overseeing financial regulation, but many fear the rule-making comes too late, and the unregulated bonanza may already be on the cusp of crashing and causing a broader recession that would hurt the poor most intensely,” wrote Sam Knight in The Week.

Fed Vice Chair of Supervision Randal Quarles said on May 25 that his agency and two others — the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) — are taking the lead in what appears to be a scramble to act amid a period of instability with the potential to do serious damage to the rest of the economy. About one in five financial industry professionals believe that a cryptocurrency downturn could deliver a “salient shock to financial stability” over the next 12 to 18 months, according to conducted between February and April.

Though the rich might lose substantial sums in economic downturns, working-class people invariably suffer the most. The recessions and the sent millions of on the margins into poverty, with people of colour hit the hardest.

“We along with the OCC and the FDIC are engaged right now in what we are calling a ‘sprint’,” Quarles said at a hearing before the Senate Banking Committee. The OCC is the primary regulator of federally chartered banks, and the FDIC is the agency that guarantees customer savings and oversees state-chartered banks. The Fed oversees bank holding companies and non-bank financial firms, and regulates the stability of the financial system as a whole.

Quarles said the three agencies have been working “over a relatively concentrated period of time, to pull together all of our work in digital assets, and to have a joint view, a joint framework for their regulation and supervision practices with regard to them.”

“It would be premature for me to tell you where that’s going to turn out,” , “but this is something that is a high priority not only as a matter of importance, but as a matter of chronology. And we expect to be able to give at least some results from that soon.”

The sudden “sprint” by regulators to examine cryptocurrencies might come too late, with the entire market on the brink of collapse. A sell-off earlier this month saw cryptocurrencies lose some $1 trillion in value in a week, from a peak global market cap of $2.5 trillion on May 11.

Volatility has been fueled by the of cryptocurrency markets. Traders 50-125 times the amount of cryptocurrency that they purchase on popular exchanges. Ownership of cryptocurrencies is highly concentrated in the hands of a relatively small number of owners, with some 42 percent of all Bitcoin owned by 2,155 unique purchasers. The value of cryptocurrencies has also fluctuated wildly in recent weeks in response to restrictions imposed by the Chinese government, and tweets from billionaire Elon Musk.

“While it’s welcome that the Fed, OCC and FDIC are going to be examining regulatory gaps when it comes to crypto, it’s crucial that they also examine any implications for systemic risk,” said Alexis Goldstein, a senior policy analyst at Americans for Financial Reform and a Truthout contributor. “With no cryptocurrency reporting requirements whatsoever for hedge fund or private equity funds, the regulators are in the dark.”

Regulatory agencies had an opportunity to act two and a half years ago, after a previous cryptocurrency crash. Since then, the global market has grown significantly, making the negative consequences of a downturn more severe. The value of the cryptocurrency market’s most recent peak, at $2.5 trillion, was three times the size of its previous peak of $815 billion in January 2018. The most recent market boom has also come at a time of great uncertainty and hardship for many throughout the world amid the COVID-19 pandemic, suggesting that the growth might be driven by irrational optimism.

By comparison, there was roughly in outstanding subprime mortgage debt in March 2007 amid the housing market meltdown that caused the Great Recession. Banks might now be engaged in safer consumer lending practices than they were during the subprime mortgage crisis, but corporations have borrowed heavily in recent years, racking up some $10.5 trillion in debt under relaxed lending standards. Fed Governor Lael Brainard warned on that inflated stock prices and “very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.”


Cryptocurrencies have recovered somewhat since shedding $1 trillion in value earlier this month, but have said the market resembles a bubble. This cohort of skeptics Vitalik Buterin, the 27-year-old who co-founded Ethereum, one of the more popular cryptocurrencies. “It could have ended already. It could end months from now,” Buterin told CNN.

Nouriel Roubini, an economist who became famous in 2008 for predicting the subprime mortgage crisis and the Great Recession, also believes that a cryptocurrency bubble is bursting. Unlike Buterin, he questions whether cryptocurrency has any use-value at all.

“A bubble occurs when the price of something is way above its fundamental value. But we can’t even determine the fundamental value of these cryptocurrencies, and yet their prices have run up dramatically,” Roubini said on . “In that sense, this looks like a bubble to me.”

Despite Quarles’s promise of a “sprint,” recent remarks made by one of his colleagues failed to convey the same sense of urgency. FDIC Chair Jelena McWilliams said on , at the height of the market, that her priorities in examining cryptocurrencies were to “allow entrepreneurship to flourish in the United States,” and that she would be consulting with the banking industry to see “what (if anything) the FDIC should be doing.”

McWilliams made the remarks in a speech to the Federalist Society, a highly ideological right-wing organization known for its embrace of laissez-faire dogma, and for handpicking judicial nominees for the Republican Party. The FDIC a request for information on digital assets the week after giving her speech.

Both McWilliams and Quarles are Republicans who were appointed to their current positions by former President Donald Trump. Quarles’s term as a top Fed official is set to expire in October. McWilliams’s FDIC Chairmanship won’t expire until 2023.

Quarles, in particular, has a reputation for having a rosy view of what will happen if banks are left to do whatever they want. In , while serving as under-secretary of the Treasury, he reacted to predictions of a housing market downturn by remarking: “I have to say that I do not think this is a likely scenario.” About two years later, the collapse of the US housing market brought down the entire global financial system.

The Fed vice chair was criticized at the May 25 Senate Banking Committee hearing for more recent laxness by Democratic Sen. Elizabeth Warren of Massachusetts. Warren berated Quarles for the Fed’s decision to relax its supervision of Credit Suisse before the bank lost $4.7 billion in late March after the collapse of the family fund Archegos — a firm run by Bill Hwang, a man who had been previously banned by US regulators from managing public money after pleading guilty in 2012 to insider trading and wire fraud charges.

Warren for their decision last year to absolve Credit Suisse and other foreign banks from answering to an oversight board called the Large Institution Supervision Co-ordinating Committee. She noted that prior to this decision, Credit Suisse had failed a Fed stress test in 2019 because its models were unrealistic. “Your term as chair is up in five months, and our financial system will be safer when you are gone,” Warren told Quarles.

Though the Credit Suisse debacle involved more conventional forms of assets, there are lessons for those concerned about digital asset markets, Goldstein told Truthout. She noted that family funds like Archegos Capital Management aren’t subject to disclosure requirements like other asset management firms.

It would be one thing if rich asset managers were only harming themselves. But by recklessly playing with huge sums of money, they risk spreading calamity throughout the economy. The Great Recession was caused by predatory lending and complex derivatives leading to systemic failure that spread misery among the working class, starting with the collapse of the investment bank Lehman Brothers in 2008. In the ensuing recession, neighborhoods with more than 40 percent of inhabitants below the poverty line increased their population by five between 2010-2014. A recession could similarly spread should the market for cryptocurrency plummet even further.

“There may be multiple Archegos-sized crypto whales in the shadows,” Goldstein said. “If so, they’d all be invisible to regulators because of the total lack of reporting requirements for cryptocurrency.”

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TNGlive relieving boredom



Yes, indeed, the going is tough for everyone, due to the pandemic, and performers seem to be very badly hit, due to the lockdowns.

Our local artistes are feeling the heat and so are their counterparts in most Indian cities.

However, to relieve themselves of the boredom, while staying at home, quite a few entertaining Indian artistes, especially from the Anglo-Indian scene, have showcased their talents on the very popular social media platform TNGlive.

And, there’s plenty of variety – not just confined to the oldies, or the current pop stuff; there’s something for everyone. And, some of the performers are exceptionally good.

Lynette John is one such artiste. She hails from Lucknow, Uttar Pradesh, and she was quite impressive, with her tribute to American singer Patsy Cline.

She was featured last Thursday, as well (June 10), on TNGlive, in a programme, titled ‘Love Songs Special,’ and didn’t she keep viewers spellbound – with her power-packed vocals, and injecting the real ‘feel’ into the songs she sang.

What an awesome performance.

Well, if you want to be a part of the TNGlive scene, showcasing your talents, contact Melantha Perera, on 0773958888.

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Supreme Court on Port City Bill: Implications for Fundamental Rights and Devolution



The determination of the Supreme Court on the Colombo Port City Economic Commission Bill was that as many as 26 provisions of the Bill were inconsistent with the Constitution and required to be passed by a two-thirds majority in Parliament. The Court further determined that nine provisions of the Bill also required the approval of the people at a referendum.

Among the grounds of challenge was that the Bill effectively undermined the sovereignty and territorial integrity of Sri Lanka and infringed on the sovereignty of the people. It was argued that several provisions undermined the legislative power of the People reposed on Parliament. Several provisions were challenged as violating fundamental rights of the People and consequently violating Article 3, read with Article 4(d) of the Constitution. Another ground of challenge was that the Bill contained provisions that dealt with subjects that fall within the ambit of the Provincial Council List and thus had to be referred to every Provincial Council for the expression of its views thereon as required by Article 154G(3).


Applicable constitutional provisions

Article 3 of our Constitution recognises that “[i]n the Republic of Sri Lanka, sovereignty is in the People and is inalienable”. Article 3 further provides that “Sovereignty includes the powers of government, fundamental rights and the franchise”. Article 3 is entrenched in the sense that a Bill inconsistent with it must by virtue of Article 83 be passed by a two-thirds majority in Parliament and approved by the people at a referendum.

Article 4 lays down the manner in which sovereignty shall be exercised and enjoyed. For example, Article 4(d) requires that “fundamental rights which are by the Constitution declared and recognised shall be respected, secured and advanced by all the organs of government and shall not be abridged, restricted or denied, save in the manner and to the extent hereinafter provided”. Article 4 is not mentioned in Article 83. In its determinations on the Eighteenth Amendment to the Constitution Bill, 2002 and the 19th Amendment to the Constitution Bill, 2002, a seven-member Bench of the Supreme Court noted with approval that the Court had ruled in a series of cases that Article 3 is linked up with Article 4 and that the said Articles should be read together. This line of reasoning was followed by the Court in its determination on the 20th Amendment to the Constitution Bill.

Under Article 154G(3), Parliament may legislate on matters in the Provincial Council List but under certain conditions. A Bill on a matter in the Provincial Council List must be referred by the President, after its publication in the Gazette and before it is placed in the Order Paper of Parliament, to every Provincial Council for the expression of its views thereon. If every Council agrees to the passing of the Bill, it may be passed by a simple majority. But if one or more Councils do not agree, a two-thirds majority is required if the law is to be applicable in all Provinces, including those that did not agree. If passed by a simple majority, the law will be applicable only in the Provinces that agreed.


Violation of fundamental rights and need for a referendum

Several petitioners alleged that certain provisions of the Port City Bill violated fundamental rights. The rights referred to were mainly Article 12(1)—equality before the law and equal protection of the law, Article 14(1)(g)—freedom to engage in a lawful occupation, profession, trade, business or enterprise— and Article 14(1)(h)—freedom of movement. Some petitioners specifically averred that provisions that violated fundamental rights consequently violated Articles 3 and 4 and thus needed people’s approval at a referendum.

The Supreme Court determined that several provisions of the Bill violated various fundamental rights and thus were required to be passed by a two-thirds majority in Parliament. The question of whether the said provisions consequently violated Article 4(d) and thus Article 3 and therefore required the approval of the People at a referendum was not ruled on.

The Essential Public Services Bill, 1979 was challenged as being violative of both Article 11 (cruel, degrading or inhuman punishment) and Article 14. Mr. H.L. de Silva argued that a Bill that violates any fundamental right is also inconsistent with Article 4(d) and, therefore, with Article 3. The Supreme Court held that the Bill violated Article 11 but not Article 14. Since a Bill that violates Article 11 has, in any case, to be approved at a referendum as Article 11 is listed in Article 83, the Court declined to decide on whether the Bill offended Article 3 as well, as it “is a well-known principle of constitutional law that a court should not decide a constitutional issue unless it is directly relevant to the case before it.”

A clear decision on the issue came about in the case of the 18th Amendment to the Constitution Bill; a seven-member Bench of the Supreme Court held that the exclusion of the decisions of the Constitutional Council from the fundamental rights jurisdiction of the Court was inconsistent with Articles 12 (1) and 17 (remedy for the infringement of fundamental rights by executive action) and consequently inconsistent with Article 3, necessitating the approval of the Bill at a referendum.

When the 20th Amendment to the Constitution Bill sought to restore the immunity of the President in respect fundamental rights applications, the Supreme Court determined that the “People’s entitlement to remedy under Article 17 is absolute and is a direct expression of People’s fundamental rights under Article 3 of the Constitution.”

In the case of the Port City Bill, however, the Supreme Court only determined that certain provisions of the Bill violated fundamental rights and thus required a two-thirds majority, but did not go further to say that the offending provisions also required approval of the people at a referendum.

Perhaps, the Court took into consideration the Attorney-General’s assurance during the hearing that the impugned clauses would be amended at the committee stage in Parliament.

However, Parliament is not bound by the Attorney-General’s assurances. In the absence of a clear determination that the clauses concerned required a referendum as well, Parliament could have passed the clauses by a two-thirds majority. The danger inherent in the Supreme Court holding that a provision of a Bill violates fundamental rights and requires a two-thirds majority but makes no reference to the requirement of a referendum is that a government with a two-thirds majority is free to violate fundamental rights, and hence the sovereignty of the People by using such majority. It is respectfully submitted that the Court should, whenever it finds that a provision violates fundamental rights, declare that Article 3 is also violated and a referendum is necessary, as it did in the cases mentioned.


The need to refer the Bill to Provincial Councils

The Port City Bill had not been referred to the Provincial Councils, all the Provincial Councils having been dissolved. The Court, following earlier decisions, held that in the absence of constituted Provincial Councils, referring the Bill to all Provincial Councils is an act which could not possibly be performed.

In the case of the Divineguma II Bill, the question arose as to the applicability of the Bill to the Northern Provincial Council, which was not constituted at that time. The Court held while the Bill cannot possibly be referred to a Council that had not been constituted, the views of the Governor (who had purported to express consent) could not be considered as the views of the Council. In the circumstances, the only workable interpretation is that since the views of one Provincial Council cannot be obtained due to it being not constituted, the Bill would require to be passed by a two-thirds majority. Although not explicitly stated by the Court, this would mean that if the Bill is passed by a simple majority only, it will not apply in the Northern Province. The Bill was passed in Parliament by a two-thirds majority. The Divineguma II Bench comprised Shirani Bandaranayake CJ and Justices Amaratunga and Sripavan, and it is well-known that the decision and the decision on the Divineguma I Bill cost Chief Justice Bandaranayake her position.

It is submitted that Article 154G (3) has two requirements—one procedural and one substantive. The former is that a Bill on any matter in the Provincial Council List must be referred to all Provincial Councils. The latter is that in the absence of the consent of all Provincial Councils, the Bill must be passed by a two-thirds majority if it is to apply to the whole country. If such a Bill is passed only by a simple majority, it would apply only in the Provinces which have consented.

The Divineguma II determination accords with the ultimate object of Article 154G(3), namely, that a Bill can be imposed on a Province whose Provincial Council has not consented to it only by a two-thirds majority. It also accords with the spirit of devolution.

A necessary consequence of the Court’s determination on the Port City Bill is that it permits a government to impose a Bill on a Provincial Council matter on a “disobedient” Province by a simple majority once the Provincial Council is dissolved and before an election is held. What is worse is that at a time when all Provincial Councils are dissolved, such as now, a Bill that is detrimental to devolution can be so imposed on the entire country. It is submitted that this issue should be re-visited when the next Bill on a Provincial Council matter is presented and the Supreme Court invited to make a determination that accords with the spirit of devolution, which is an essential part of the spirit of our Constitution.



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‘Down On My Knees’ inspires Suzi



There are certain songs that inspire us a great deal – perhaps the music, the lyrics, etc.

Singer Suzi Fluckiger (better known as Suzi Croner, to Sri Lankans) went ga-ga when she heard the song ‘Down On My Knees’ – first the version by Eric Guest, from India, then the original version by Freddie Spires, and then another version by an Indian band, called Circle of Love.

Suzi was so inspired by the lyrics of this particular song that she immediately went into action, and within a few days, she came up with her version of ‘Down On My knees.’

In an exclusive chit-chat, with The Island Star Track, she said she is now working on a video, for this particular song.

“The moment I heard ‘Down On My Knees,’ I fell in love with the inspiring lyrics, and the music, and I thought to myself I, too, need to express my feelings, through this beautiful song.

“I’ve already completed the audio and I’m now working on the video, and no sooner it’s ready, I will do the needful, on social media.”

Suzi also mentioned to us that this month (June), four years ago, she lost her husband Roli Fluckiger.

“It’s sad when you lose the person you love but, then, we all have to depart, one day. And, with that in mind, I believe it’s imperative that we fill our hearts with love and do good…always.”

A few decades ago, Suzi and the group Friends were not only immensely popular, in Sri Lanka, but abroad, as well – especially in Europe.

In Colombo, the Friends fan club had a membership of over 1500 members. For a local band, that’s a big scene, indeed!

In Switzerland, where she now resides, Suzi is doing the solo scene and was happy that the lockdown, in her part of the world, has finally been lifted.

Her first gig, since the lockdown (which came into force on December 18th, 2020), was at a restaurant, called Flavours of India, with her singing partner from the Philippines, Sean, who now resides in Switzerland. (Sean was seen performing with Suzi on the TNGlive platform, on social media, a few weeks ago).

“It was an enjoyable event, with those present having a great time. I, too, loved doing my thing, after almost six months.’

Of course, there are still certain restrictions, said Suzi – only four to a table and a maximum crowd of 50.

“Weekends are going to be busy for me, as I already have work coming my way, and I’m now eagerly looking forward to going out…on stage, performing.”

In the meanwhile, Suzi will continue to entertain her fans, and music lovers, on TNGlive – whenever time permits, she said,

She has already done three shows, on TNGlive – the last was with her Filipino friend, Sean.

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