Consumer group raises concerns over risks to small investors; analyst describes scheme as double taxation
In an effort to expand the utilization of Cryptocurrency beyond alleviating “driving shame” city council has moved to create a micro bond program designed to pay interest by issuing tokens on a secure and auditable Blockchain ledger. The mayor’s office touted the fact Blockchain technology, or a distributed digital ledger, allows for cost-savings and increased disclosure of secondary market trades. While no one could explain what this all means, they seemed very excited to see Berkeley be on the leading edge of yet another city program that “feels right” but has a “completely unproven track record” at best and may lure inexperienced investors into loses.
If you participated in Berkeley’s most recent bond issue you would have lost nearly 2%
Berkeleyians Unearthing Shady Trades (BUST)
Local consumer advocacy group Berkeleyians Unearthing Shady Trades (BUST) expressed concerns that these investment instruments target small investors who may end up losing money in the scheme. R U Kidding, BUST’s executive director noted, “If you participated in Berkeley’s most recent bond issue you would have lost nearly 2% before inflation. Supporters are trying to pitch this as a cash cow for expanding prosperity with zero evidence such schemes benefit investors.”
In support of BUST’s concerns, one observer noted, “such sales are typically more patriotic than practical. For one thing, they are a pricey way for cities to raise money. The underlying costs of issuing a bond are multiplied across many minibonds, and a rollout requires investments in community outreach and setting up online systems for investors. Denver, which has issued minibonds for years, struggled to build and maintain its online user system, and high costs have plagued minibond programs elsewhere.”
Its like lending money to yourself at a negative rate of return
Financial Analysis
One commentator noted that regardless of how the bonds are sold, the city still must repay the underlying debt through property taxes. “It’s like lending money to yourself at a negative rate of return. The city already has taxpayers on the hook for debt service, so this is really a creative way to get them to pay twice and feel good about it.”
However, one resident, I M Shrewd, an economic analyst at Berkeley’s Synthetic Reality Institute, suggested the plan may have “relative financial efficacy (RFE).” Shrewd points out that “every year you pay your property taxes and city road conditions decline, on average, 3-5% per year. If you only lose 1.5% on a bond, then you have cut your losses by 60%, so in a relative sense you are better off. We know it is thinking like RFE that animates city council’s justification for bold new programs.”
BUST pointed out this is little solace for the small investor who needs to make every dollar count. “Why would city government be pushing this unproven scheme to sell underperforming investments in the name of equity and fairness when the buyer would be better off with a certificate of deposit from the local credit union?”
Bartlett remains undeterred by these concerns, “Look when you have your sights set on higher political office being able to say blockchain technology and tokenized really adds a cool factor. Voters may not understand blockchain and property tax double jeopardy, but they dig cool.” Asked if the digital tokens issued by the city would be the Benji Coins, that first emerged during his 2018 State Assembly campaign for liquid democracy, Bartlett responded, “I look forward to working with the mayor and council colleagues to hammer out the details, let me remind you the Benji Coin may just be one small token but it represents a giant leap forward for democracy,”
