Sep 2, 2021

Axios Capital

Greetings from Berlin, where I have utterly failed to get myself a ticket to see the refurbished Neue Nationalgalerie (see below). Guess that's as good a reason as any to plan my next trip here.

  • In this week's newsletter: Porn, Afghanistan, central bank independence, Gary Gensler, and more. (I also wrote about evictions earlier this week.) It's 1,770 words, a 6.5-minute read.
1 big thing: The anti-porn conspiracy

Illustration: Aïda Amer/Axios

If CEOs are increasingly acting as the fourth branch of government, then they certainly seem to have a moralistic streak, going much further than the law requires in terms of staying well away from porn.

Why it matters: Pornography and the production of sexually explicit material is entirely legal as far as the government is concerned — but it's also shunned by almost all of the business establishment. That makes a huge difference for its practitioners.

Driving the news: OnlyFans has become one of the fastest-growing social networks in the world, with extremely impressive financials. Were it not in the porn business, it would be fighting off VCs desperate to invest at a multi-billion-dollar valuation.

  • Instead, OnlyFans is struggling not only to raise funds but also to maintain healthy relations with the creators on its platform, who are deeply suspicious of the company after its badly explained and abortive attempt to ban porn on the site.
  • OnlyFans CEO Tim Stokely, in an interview with the FT, initially said that the business "had no choice" but to ban porn, blaming banks in general and BNY Mellon in particular. But the move looks more like an ill-thought-through attempt to pivot away from porn and toward a business model with lower costs and greater opportunities for VC-fueled growth.

The big picture: There are no major American porn companies. The biggest player in the business, MindGeek, is based in Canada; OnlyFans is based in the U.K. Even then they're sheepish about what they do: An OnlyFans pitch deck obtained by Axios, just like the official MindGeek website, never mentions porn.

  • Mainstream U.S. companies like eBay and Tumblr are implementing increasingly strict anti-porn policies, much to the annoyance of sex workers and historians.

How it works: Porn has always been a shady, marginalized industry, and has always attracted its share of criminals, including people involved in sex trafficking and revenge porn. Sites that make money from porn get targeted by anti-porn activists who get those sites blacklisted by banks and financiers worried about the reputational and even legal consequences of banking sites that might be showing underage or nonconsensual content.

  • State of play: Porn companies pay much higher fees and face much higher obstacles than most merchants to access basic payment services, and are banned entirely by many finance companies, including Stripe and American Express. Porn performers, similarly, find it difficult to open bank accounts.
  • Twitter hosts a thriving porn community, but the company hides it well to most users, and there's a constant fear that it, too, could ban such content at any time.

The bottom line: It's common knowledge that any porn company will have major difficulties navigating the world of financial services. That knowledge has effectively prevented American entrepreneurs from being able to build a wholly legitimate alternative to the secretive foreign companies that currently dominate the space.

2. Afghanistan's humanitarian paradox

Illustration: Aïda Amer/Axios

America stands ready to help the people of Afghanistan, while at the same time actively hindering the government of Afghanistan's ability to help its own citizens directly. That's the rather confused message sent by Secretary of State Tony Blinken in a major speech on Monday.

Why it matters: Afghanistan is a desperately poor country in the midst of a humanitarian crisis. There's no realistic way to get help to its citizens without the Taliban having some kind of access to that aid — they control the country, after all. But America's foreign policy seems to be predicated on that impossibility.

The big picture: Because the Taliban is a sanctioned terrorist organization, the entire country of Afghanistan is now effectively cut off from the international financial system. As Columbia University's Adam Tooze notes, the sanctions are therefore effectively aligned with the Taliban's own goal of demodernizing the country.

What they're saying: "The United States will continue to support humanitarian aid to the Afghan people," said Blinken in his speech. "Consistent with our sanctions on the Taliban, the aid will not flow through the government, but rather through independent organizations" like the UN.

  • The UN, for its part, has raised just 39% of the $1.3 billion it needs to reach 16 million Afghan citizens — and that was before the logistics of humanitarian assistance were complicated enormously by the Taliban takeover.
  • Afghanistan as a country has some $9 billion in international reserves, substantially all of which have now been frozen. Unfreezing those reserves would go a long way towards keeping food and electricity flowing in Afghanistan, but so far there's no sign of that happening.

Where it stands: America's real power is being wielded from within the Treasury Department, which has stopped money from making its way into the country since August 15.

The bottom line: The number of lives on the line, in terms of adults and children facing mass starvation, dwarfs the total casualties from both the Afghan and the U.S. armies over the past 20 years.

  • As Tooze writes, about sanctions as a diplomatic tool: "If there was ever a case that revealed the pitiless violence of liberalism’s preeminent means of international coercion, it is Afghanistan."
3. There's no such thing as an independent central bank

Illustration: Sarah Grillo/Axios

The skirmish over Jay Powell's future as Fed chair provides a glimpse of a much bigger fight — one that could mark the beginning of the end of the modern era of independent central banking.

Why it matters: Powell epitomizes the way in which central banks, working alongside the government, took on the role of rescuing the economy from the shock of the pandemic. Now some lawmakers want to keep the relationship much closer than it has been in recent decades, to harness some of the power only central banks have.

The big picture: Central banks in general and the Federal Reserve in particular, have never been more important, or more powerful.

  • The other side: Central banks have also never been as constrained in their range of possible actions. The natural interest rate is close to zero, which means that their main policy tool — the ability to set interest rates — also has to remain near zero.

Driving the news: Left-wing members of Congress have asked President Biden to replace Powell as Fed chair, saying that they want a "whole of government approach" to eliminating climate risk.

Between the lines: The letter clearly considers the central bank to be part of the government, rather than an independent agency working within a relatively narrow mandate.

  • The letter makes clear that central bank decisions are unavoidably political, especially when it comes to the issue of climate change. The Fed is either going to pursue a zero-carbon agenda or it isn't, and either way it's going to upset certain politicians.
  • The EU implicitly capitulated to the reality of a political central bank when it appointed a politician, rather than an economist, to lead the European Central Bank.

The bottom line: The debate over Powell's renomination is really a debate over the degree to which Fed mission creep is something to be embraced and extended, rather than accepted only as a necessary evil.

Go deeper.

4. Gary Gensler, agenda setter

Illustration: Aïda Amer/Axios

Gary Gensler is the most important financial regulator in the world. He also presents a clear vision of what he wants to achieve, with no particular desire to set the financial world's worries at ease.

Why it matters: Gensler refuses to negotiate against himself. The SEC chair's agenda takes a maximalist view of what the commission is interested in and should do, then leaves all options visibly on the table. Wall Street knows, from his years running the CFTC, that he isn't bluffing.

Where it stands: Out of the five main regulatory roles in government, two — the heads of the CFTC and the OCC — are unfilled, while a third — the Federal Reserve's vice chair for supervision — is held by a lame-duck Republican who will lose that office next month. That has given Gensler a clear headstart in terms of setting regulatory policy, alongside Rohit Chopra at the CFPB.

What they're saying: "At the SEC, we’re tasked with protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets," Gensler said in prepared remarks to the European Parliament Committee on Economic and Monetary Affairs on Thursday.

  • In recent interviews with Barron's and the FT, he has expanded on what that means: Potentially banning the practice of payment for order flow, which accounts for some 80% of Robinhood's revenues; and forcing substantially all of the crypto world's $2 trillion in assets to submit to regulatory supervision.
  • "If it’s going to have any relevance five and 10 years from now, it’s going to be within a public policy framework,” he said to the FT about crypto. “History just tells you, it doesn’t last long outside."

The bottom line: If anybody involved in finance, from SPACs to DeFi, was hoping to be able to cruise along on the basis of "this is how we've always done it," those hopes have been dashed by Gensler. If you want to maintain the status quo, you're going to have to persuade him that it's somehow optimal.

5. Coming up: The August jobs report

Illustration: Aïda Amer/Axios

Job growth is expected to have cooled last month compared to July, Axios’ Hope King and Sam Ro write.

Why it matters: A slowdown in job creation would add to existing economic evidence that the Delta variant is hurting the economic recovery.

  • The Fed may view all the data collectively as a sign that it should wait to announce tapering.
6. Building of the week: Neue Nationalgalerie, Berlin

Photo: Jens Kalaene/picture alliance via Getty Images

Berlin's Neue Nationalgalerie — one of my two favorite art museums in the world, from a purely architectural perspective — has finally reopened after a meticulous six-year renovation.

  • Unlike Sir John Soane's Dulwich Picture Gallery, which is a perfect space for exhibiting and viewing art, this museum is unapologetically impractical, driven instead by Mies van der Rohe's vision of a massive, glass-walled, column-free perfect square.
  • Art came second to architecture: The permanent collection was relegated to a dim, carpeted downstairs area, while the very large artworks that could meet the scale of the upstairs exhibition hall were unable to pass through its relatively small doors.

The refurbished building has finally solved the original's condensation problems, which would regularly leave puddles of water on the floor. The new windows, which weigh 1.3 tons apiece, were imported from China — but still can't regulate internal temperatures particularly well.

  • The solution: A ban on any paintings being exhibited upstairs in either the summer or the winter.

Go deeper: The Guardian's Olly Wainwright talks to the architect of the conversion, David Chipperfield, and looks forward to a more practical neighbor forthcoming from Swiss starchitects Herzog & de Meuron.