Wall Street Journal: Facebook Libra is Playing with Fire with the US Government

Original Title: "Humble New Facebook is Playing with Fire in Washington"

Author: John D. Stoll Published in The Wall Street Journal

Translator: BlockBeats-HQ

The social media giant is seeking approval for its cryptocurrency, but it needs to find a more compelling way to say, "Oops, my bad."

Facebook's David Marcus headed to Washington this week to defend the launched Libra. Over the past year and more, Facebook's executives have appeared publicly seeking forgiveness (Note: In '18, Facebook faced a data breach incident involving up to 30 million user accounts), and David Marcus sought permission as well, but this humble approach has had little effect. Clearly, lawmakers from both parties are questioning the same thing: If Facebook can't even guarantee the security of my summer vacation photos, how can it securely handle cryptocurrency?

A California company based in Menlo Park is hoping to smoothly navigate the necessary U.S. regulatory approvals before launching its financial services business in 2020. However, it appears that if it wishes to receive a government approval similar to Libra's, it may require more time.

David Marcus, responsible for Facebook's Libra business, along with the consortium backing it, presented the argument that Libra is a better digital currency at a congressional hearing. He also brought along various documents such as a white paper, technical reports, and talking points, but these are currently unavailable. Obviously, before Facebook can start engaging in encrypted transactions, it first needs to come up with a more convincing argument: "Oops, my bad."

Facebook has some shocking past incidents: the scandal of the UK data analysis firm Cambridge Analytica exposed Facebook's shortcomings in protecting user data; violation of the Federal Trade Commission's privacy agreement, anticipating a $5 billion fine; failure to prevent Russian interference in U.S. elections; improper handling of rumors posted on Facebook causing bodily harm in Sri Lanka and Myanmar, etc.

Barbara Kellerman, a Harvard University professor specializing in leadership studies, recently wrote: the biggest mistake is choosing to live in a "bubble that prevents professors from focusing on leadership research," choosing to live in a "bubble that prevents the correct perception of external events."

Now, the bubble is making it difficult for Libra to gain Washington's approval. This week, Ms. Kellerman told me that the public has had enough of Facebook's "we messed up, it won't happen again" rhetoric. "I am tired of looking at Facebook through the lens of Mark Zuckerberg or Sheryl Sandberg." While CEO Mark Zuckerberg and COO Sheryl Sandberg may see it as a mere blip, "we no longer believe them" and in some ways, the Facebook credibility crisis has become a big business cost.

The 2019 Gallup Confidence in Institutions report showed that public confidence in big business is on par with, but below, confidence in the newspaper industry, and lower than confidence in banks, the medical system, or the presidency. Confidence in the criminal justice system, insurance, and Congress is even worse. The issues with Facebook are particularly severe. A March poll by The Wall Street Journal (WSJ) and NBC found that less than half of respondents trust Facebook with their personal data, far below Amazon.com Inc. or Google under Alphabet. To address this, Ms. Kellerman believes Facebook needs to issue a comprehensive, independent analysis report outlining what went wrong, who was responsible, specific changes made, etc., to ensure it doesn't repeat these mistakes.

Facebook has released its position papers, testified before Congress, and participated in media interviews. Yet, apart from investigative journalism, it's hard to find other comprehensive, independently conducted assessment reports showcasing internal issues. Ms. Kellerman believes the 'apology tour' that was once seen as novel and persuasive is now overdone as every company seems to be going through penalties, rendering the CEO's "I'm sorry" obsolete.

On how to stage a comeback, Harvard Business School Professor Bill George points to Starbucks as a good example following its recent response to a racism incident at one of its stores. Bill George notes that shortly after the incident, the coffee chain's leader was in Philadelphia. In contrast, Mark Zuckerberg and Sheryl Sandberg took five days to address the Cambridge Analytica scandal.

Another example is General Motors Co. hiring former U.S. prosecutor Anton Valukas to investigate its safety crisis involving over 100 deaths due to an ignition switch fault. Anton Valukas, who previously authored a report on the collapse of Lehman Brothers Holdings Inc., conducted a 315-page investigation report on General Motors' safety crisis after interviewing 2,300 witnesses and reviewing 41 million documents. What was initially an embarrassing situation turned into a turning point for the beleaguered automaker.

David Marcus testified before Congress on Tuesday and Wednesday that Facebook would acknowledge its mistakes. However, his performance illustrated that Facebook still needs to find its way. As the former President of PayPal and former Head of Communication Products at Facebook, David Marcus made a compelling case for the launch of Libra, but he couldn't provide lawmakers with specific legal assurances that the system wouldn't be abused, nor did he definitively state if Facebook would be willing to suspend it if Libra went off track.

The argument in favor of launching Libra is this: Many internet users are unbanked and wouldn't make purchases with a credit card aside from cash and cryptocurrency. This means that the 90 million businesses on Facebook would lose out on this market. By giving Facebook users without bank accounts a digital dollar, it would open up a more active, accessible, and profitable market space.

Is this a catch? Cryptocurrencies like Bitcoin are a breeding ground for scammers, rife with accusations of tax evasion, money laundering, and fraud. Congress has reason to question how Libra users will be protected, as most are required to use government-issued identity information to register, such as a driver's license. What is the plan for crime prevention? Can Facebook venture into financial services without repercussions?

Former Chairman of the Commodity Futures Trading Commission and senior Treasury official in the Clinton Administration, Gary Gensler, warned a House committee on Wednesday to proceed with caution. He stated that Facebook's currency would require stricter regulation, and a white paper and a press release would not suffice to prove its legitimacy.

“Finance has a common foundation,” Gary Gensler waved a finger in the air as he spoke, “trust.” Everything begins there: when a company gains our trust, the system starts to function. When Enron Corp. or Lehman Brothers, WorldCom Inc. or Countrywide Financial Corp. disregarded this fact, the system collapsed. “Unfortunately, Facebook, for some inexplicable reason,” Mr. Gensler said, “made these bold proposals at a time when public trust in Facebook was low.”

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