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Leaders Step Back from the Brink After Missile Lands in Poland
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Leaders Step Back from the Brink After Missile Lands in Poland

Plus: The collapse of FTX and SBF.

Happy Thursday! This time next week, we’ll be lacing up our shoes for the neighborhood Turkey Bowl/and or Turkey Trot and running some durability tests on the elastic in our waistbands. 🍂🦃🥧

Quick Hits: Today’s Top Stories

  • Network election desks projected Wednesday that Rep. Mike Garcia will hold onto his seat in California’s 27th congressional district, giving Republicans 218 seats in the House of Representatives and officially ensuring the GOP will take control of the chamber come January. Six races in California, Colorado, and Alaska have not yet been called.
  • Senate Republicans voted 37-10-1 on Wednesday to retain Sen. Mitch McConnell as the leader of their conference, handily rejecting a challenge from Rick Scott, the junior senator from Florida. “I’m not going anywhere,” McConnell said, acknowledging he was “pretty proud” of the outcome. GOP senators also voted Wednesday to reelect Sen. John Thune of South Dakota as minority whip and Sen. John Barrasso as conference chair, and elect Sens. Shelley Moore Capito and Joni Ernst as vice conference chair and policy chair, respectively. Scott will be replaced as chairman of the National Republican Senatorial Committee by Sen. Steve Daines.
  • The Senate voted 62-37 on Wednesday to invoke cloture on the Respect for Marriage Act, with 12 Republicans voting with all 50 Democrats to advance the legislation that would require state and federal governments to continue recognizing same-sex and interracial marriages even if the Supreme Court overturns precedent supporting those unions—as some believe it might after this summer’s Dobbs decision. President Joe Biden is expected to sign the measure into law after the Senate officially passes it later this week.
  • Iran sentenced three unidentified protesters to death on Wednesday, underscoring concerns that the regime will resort to widespread executions—like those carried out in the 1980s—to suppress months-long demonstrations over the September death in custody of Mahsa Amini, detained for allegedly violating the country’s religious dress code. Nearly 16,000 protesters have reportedly been detained thus far, and about 1,000 indicted. Iran Human Rights, a Norway-based humanitarian group, estimates Iranian security forces have killed at least 342 protesters.
  • NASA successfully launched its Space Launch System on Wednesday, putting an uncrewed Orion capsule en route to the Moon as part of the Artemis I program. The launch—which was delayed multiple times over the past few months—is the agency’s initial step toward sending U.S. astronauts to the Moon for the first time in decades.
  • The Commerce Department reported Wednesday that U.S. retail sales rose 1.3 percent month-over-month in October after holding steady in September. The data indicated consumers are continuing to spend online, in stores, and at restaurants despite inflationary pressures, all but ensuring the Federal Reserve will continue its aggressive tightening cycle. The statistic is not adjusted for inflation, so higher prices likely accounted for some of the increase.

False Alarm in Poland

NATO Secretary General Jens Stoltenberg. (Photo by John Thys / AFP via Getty Images.)

If it seemed a little breezier outside than normal yesterday, you can chalk it up to world leaders across the globe letting out a collective sigh of relief. World War III is not upon us yet.  

National security officials were sent into a frenzy Tuesday afternoon, when unconfirmed reports began circulating of unknown projectiles striking a village in southeastern Poland and killing two people. The Associated Press confirming the incident less than an hour later—and adding that the “unknown projectiles” were in fact Russian missiles—sent the panic into overdrive. “Russia’s continued aggression in Ukraine has now put our NATO allies at risk,” Arkansas Gov. Asa Hutchinson said. “We have an obligation to protect our NATO allies, and the world will be looking to the United States for strength and leadership.”

Thankfully, decisionmakers were not operating solely on information from the Associated Press.

After a brief respite in the wake of their retreat from Kherson, Russian forces on Tuesday rained dozens of missiles down on Ukrainian cities, from the capital of Kyiv, to population centers in Lviv and Kharkiv. All in all, Ukrainian President Volodymyr Zelensky claimed at least 85 rockets were fired at his country, and, although Ukrainian forces shot down about 70 of them, the ones that made it through targeted critical infrastructure and electrical networks, leaving much of Ukraine without power. Many observers’ minds jumped straight to the worst-case scenario: An errant Russian missile attacked a member of NATO, triggering the alliance’s mutual defense provision and dramatically escalating the conflict.

Leaders of the relevant parties, however, remained remarkably levelheaded given the circumstances—almost assuredly saving thousands of lives. “There is nothing, absolutely nothing, to suggest that it was an intentional attack on Poland,” Polish President Andrzej Duda said Wednesday after government officials conducted an investigation. “Ukraine’s defense was launching their missiles in various directions, and it is highly probable that one of these missiles unfortunately fell on Polish territory.”

NATO—and the White House—reached a similar conclusion. “We have no indication that this was the result of a deliberate attack, and we have no indication that Russia is preparing offensive military actions against NATO,” Secretary General Jens Stoltenberg told reporters Wednesday. “Our preliminary analysis suggests that the incident was likely caused by a Ukrainian air defense missile fired to defend Ukrainian territory against Russian cruise missile attacks.”

One person who doesn’t agree with that assessment? Volodymyr Zelensky. “I have no doubt that it was not our missile or our missile strike,” he told a Ukrainian media outlet, calling on Polish and NATO officials to give Ukraine access to the blast site for investigative purposes. “If someone says that this is our rocket, should we be in a joint investigative group? I think we should, it is only fair.”

The two deaths in Poland are obviously a tragedy—and it’s understandable why Zelensky would get defensive—but few blame Ukraine for what is now believed to have happened. “Let me be clear,” Stoltenberg said. “This is not Ukraine’s fault. Russia bears ultimate responsibility, as it continues its illegal war against Ukraine.” Duda provided an excuse as well: “Practically the entire territory of Ukraine was under bombardment.”

All in all, observers were impressed by the reaction to the incident. “I think NATO’s response has been spot on,” Sean Monaghan—an expert on NATO and European security at the Center for Strategic & International Studies—told The Dispatch. “Most NATO members have called for a calm response to establish the facts on the ground. I think that’s the right thing to do.”

Russia, perhaps unsurprisingly, concurred, with Dmitry Peskov—a Kremlin spokesman—even going out of his way Wednesday to offer President Biden some qualified praise for the “restrained and much more professional reaction of the American side and the American president.”

The West has long feared Russia would seek to escalate its war in Ukraine by targeting a nearby NATO member and triggering Article V of the alliance that dictates an “attack against one ally is considered as an attack against all allies.” The provision has only been invoked once in the treaty’s history, following the September 11 attacks.

Monaghan never thought such a move was in play this week, even if the missiles had come from Russia. “Article V is not automatic,” he said, noting all a member invoking it guarantees is consultations among the group. “It then is up to NATO members to come to consensus on what to do about it.”

Intent matters when forming that consensus. “To me, Article V was not on the table at all, even if this was a Russian missile,” he continued. “It seemed like this was something that had gone awry rather than a deliberate, pre-planned targeted strike. Where the missile landed was a piece of Polish farmland—that doesn’t sound like particularly strategic territory. But nonetheless, this is a contingency that NATO would have been thinking about and has prepared for, because there are plenty of valuable sites in Poland and other NATO members like Romania, for example, that could in theory be legitimate targets for Russia given that they are the supply routes for Western supply of arms to Ukraine.”

Member countries have made clear throughout the war that they will “defend every inch” of NATO territory from any possible incursion by Russia, but it’s far from clear what that defense would look like if push came to shove. “There are so many different things that NATO could be considering [short of kinetic military engagement with Russian forces] that would fall under a potential Article V response,” said Leah Scheunemann, deputy director of the Atlantic Council’s Transatlantic Security Initiative. Some possibilities? Offensive cyber operations, additional sanctions, bolstering troop presence on the eastern flank, or moving air defense assets into Poland. Implementing a no-fly zone over Ukraine would undoubtedly result in more direct “kinetic military engagement” with Russia, but some analysts continue to consider it a possibility. 

“[Russia’s invasion] was a specific act of war against Ukraine, but Putin also already views himself as at war with the West and at war with NATO,” Scheunemann said, noting those groups’ steady flow of military and financial support to Ukraine. 

But as Tuesday made clear, the parameters of our involvement in the war can change rapidly. “What worries me the most is that we think we can control our role in this conflict,” Scheunemann said. “A missile coming over the border of a NATO ally shows just how messy war is in reality.”

The FTX and SBF Meltdown is a BFD

Last Monday, 30-year-old Sam Bankman-Fried—known as SBF—was the celebrated CEO of FTX, a cryptocurrency exchange he founded and turned into one of the world’s largest. FTX stepped in to save other crypto companies during the crash earlier this year and splashed out on celebrity endorsements from the likes of Larry David and Tom Brady and naming rights to the Miami Heat arena. The wunderkind found himself on many a magazine cover and publicly championed ethical business practices, making a name on Capitol Hill advocating for “thoughtful regulatory leadership” of cryptocurrency, donating to media companies and Democratic political candidates, and pledging to eventually give away his entire fortune, then an estimated $16 billion.

That should be an easy promise to keep now that his fortune is gone. FTX is bankrupt and SBF is out as CEO, and in recent days he’s been tweeting out explanations—with disclaimers including “NOT FINANCIAL ADVICE” and “MY MEMORY MIGHT BE FAULTY”—while regulators sniff around his company’s corpse.

What happened? Price wrote a more thorough explainer on the site over the weekend, but here’s the short version: News broke last week that FTX had lent some $10 billion of its customers’ assets to prop up sister trading firm Alameda Research, which in turn had an unusually large amount of its holdings invested in FTX’s own native cryptocurrency, undermining trust in both. Industry heavyweight Binance announced it would be selling its holdings of FTX’s native currency, essentially triggering a run on the bank. FTX didn’t have enough cash in the virtual vaults, and Binance made a bailout offer to acquire FTX—then quickly backtracked after a look at the books. FTX froze withdrawals and declared bankruptcy Friday, and hired John Jay Ray III—the guy brought in to mop up Enron—as its new CEO.

In retrospect, FTX’s leadership should probably have raised some eyebrows. Take SBF’s own quirks: He played a video game during one investor pitch meeting and once told an interviewer he didn’t like books, which he considered blog posts that had run too long. FTX’s top executives lived together in a multi-million dollar house in the Bahamas—a location chosen for its lax regulatory environment that allowed FTX to sell risky financial services illegal in the United States. Other lurid details have flooded out since the company’s disintegration, including allegations of several intra-office relationships and excessive amphetamine use. (George Lerner, the company performance coach/psychiatrist, denied the latter charge in an interview with the New York Times.)

Unusual personalities are par for the course in crypto, but FTX’s management practices look especially bad. It’s still not clear what FTX and Alameda did with all the money, as FTX reportedly held less than $1 billion in liquid assets against $9 billion in liabilities the day before its collapse. The Financial Times published the balance sheet that apparently spooked Binance, which Bloomberg writer Matt Levine describes as “an Excel file full of the howling of ghosts and the shrieking of tortured souls.” That’s as good a description as any for a document that includes a baffling category for “TRUMPLOSE” and a -$8 billion entry with the intricate title “hidden, poorly internally labled [sic] ‘fiat@’ account.” Reuters estimates more than $1 billion of consumer money is still missing, and a hacker apparently capitalized on the chaos late last week, stealing more than $600 million from FTX’s frozen exchange. When a Reuters journalist texted SBF a question about the seemingly vanishing funds, he received “???” in return.

In one sense, it’s a darkly funny story. The industry people had long warned was vulnerable to fraud, scams, and charlatans turned out to be … vulnerable to fraud, scams, and charlatans. At the center of it all was a 30-year-old whiz kid in a T-shirt and basketball shorts. But the crash has consequences for more than just the central figures or other cryptocurrency businesses now racing to reassure customers. According to FTX’s bankruptcy papers, it may have more than 1 million creditors—investors have filed a class action lawsuit against SBF and celebrities who endorsed FTX. FTX employees paid in direct deposits to their FTX exchange accounts currently can’t access the money. The Ontario Teachers’ Pension Plan invested $95 million in FTX—less than 0.05 percent of its total assets, according to the fund, but a sample of the crash’s wide reach. 

Recipients of FTX’s former largesse also seem to be left in the lurch. A $5 million grant to journalism nonprofit ProPublica—intended to bankroll reporting on pandemic preparedness and biothreats—is now in question. The entire team running Future Fund—the FTX arm donating to initiatives on artificial intelligence, biological threats, economic growth, and other areas—has resigned. And Democrats may miss SBF’s money. Though he walked back a promise to give the party $1 billion through 2024, he did shell out about $36 million in 2022, making him the second-largest individual Democratic donor after George Soros. Some in Congress have pledged to give FTX-donated money to charity.

The debacle has regulators and law enforcement sharpening their knives. FTX said in its bankruptcy filing that the Justice Department, the Securities and Exchange Commission, and dozens of other agencies had made contact, and, although SBF has not yet been charged with any crimes, he’s already been probed by Bahamian law enforcement—and the Bahamians are reportedly working with American officials on possible extradition to the United States for additional questioning.

Congress may not pass major new cryptocurrency rules in the already-busy lame duck, but lawmakers are champing at the bit. The House Financial Services Committee will hold a hearing on the collapse next month and members “expect” SBF and others involved to testify. Sens. Debbie Stabenow and John Boozman have promised to keep working on the Digital Commodities Consumer Protection Act (DCCPA), insisting that the crash has only underscored the need for more oversight. That said, SBF testified before Congress about effective oversight, helped craft potential regulations, and supported DCCPA. His downfall will undoubtedly undermine confidence in the proposals he helped shape.

“Going forward, it’s vital we do what is necessary to address these concerning risks and act to protect consumers and promote financial stability,” Treasury Secretary Janet Yellen said Wednesday. Michael Barr, the top regulatory official at the Federal Reserve, suggested stiffer rules are coming for cryptocurrencies and their trading platforms.

SBF claims he didn’t understand how deeply in the hole FTX was until it was too late and that his top priority now is raising more money to make customers whole. He’s also changed his tune about regulators, telling a Vox reporter “they make everything worse” and “don’t protect customers at all.” He should probably stop talking to Vox reporters:

https://twitter.com/dylanmatt/status/1592976961835765760

Worth Your Time

  • The Department of Homeland Security is a Frankenstein’s monster of agencies stapled together against their will. Is it any wonder the results are such a mess? “It’s a place where good people go to die,” one official tells Amanda Chicago Lewis, reporting for The Verge. Lewis examines the roots of DHS’s dysfunction and points out that even the best-run agency couldn’t handle all we’ve assigned to the DHS. “We see the downstream effects of the Kafkaesque ineptitude at DHS every day, even if we don’t recognize the connection between headlines about alleged sexual abuse at migrant detention centers, billions of dollars disappearing into fraudulent disaster aid, and the erasure of text messages likely detailing an attempted coup,” Lewis writes. “DHS functions as a loose confederation of subagencies, meaning that the absurdity of security procedures at airports is attributed to the Transportation Security Administration, not to DHS, and the anemic response to Hurricane Katrina was blamed on the Federal Emergency Management Agency, not its parent organization. Yet the tensions between these satellite operations and the cabinet secretary’s headquarters in Washington, D.C., are crucial to understanding DHS.”
  • Over at The Federalist, David Harsanyi has a great column out on the future of the GOP. Republicans like Ron DeSantis, Glenn Youngkin, and Brian Kemp have been remarkably successful, he notes, but their success has a lot less to do with so-called “national conservatism” than members of the New Right might think. “The white-collar worker in Virginia or North Carolina, living in a multi-use neighborhood, probably isn’t as preoccupied with drag queen story hour or the intrigues of Big Tech or the Justice Department or Chinese tariffs—as important as those issues might be—as Josh Hawley seems to believe,” he writes, arguing most voters care more about their tax bill and public school quality. “Of course, the New Right would like to claim DeSantis as one of their own. Allie Beth Stuckey, like many on the ‘New Right,’ maintains that the Florida governor’s impressive win tells us ‘we’re done with the old, corporate tax cuts GOP. We want you to use all the power available to you to crush the entities crushing us.’ That’s a Twitter reality. In the real world, hundreds of thousands of people flock to Florida (and Texas and Arizona) to enjoy an inviting regulatory environment, low taxes, and relative freedom—not to watch the governor teach Disney a lesson. A politician who cuts taxes and opens schools and businesses, despite pressure from the federal government, isn’t ‘crushing’ anyone, he is freeing them.”

Presented Without Comment

Also Presented Without Comment

Toeing the Company Line

  • Despised by many Republicans and distrusted by many Democrats, Rep. Liz Cheney may nevertheless represent a crucial slice of voters who swayed midterm results, Nick argues in Wednesday’s Boiling Frogs (🔒). “Call ‘em whatever you like—Never MAGAs, the Cheney bloc, the pro-democracy coalition, what have you,” he writes. “They’re real. And they’re spectacular.”
  • Rep. Kevin McCarthy has never been this close to the speaker’s gavel. But the last stretch of road—making concessions to win support from House Freedom Caucus members—won’t be a pleasant one. “He wanted all of the powers of the speakership that the speakership shouldn’t provide,” Jonah writes in Wednesday’s G-File (🔒). “His fever dreams of the gavel being a political Mjolnir may have to give way for him to get the dainty hammer at all, making all the pieces of his political soul he sold to get here seem wildly overpriced.”
  • Do the Democrats owe their surprisingly strong midterm results to their historically high spending? In this week’s Capitolism (🔒), Scott dives into the precedent—and the exit polls—and concludes that, much to the chagrin of econ nerds everywhere, economic issues didn’t factor into too many people’s votes this time around.
  • Chris Stirewalt takes the helm of the latest The Remnant and voyages through last week’s midterm results, hosting political scientist Ruy Teixeira for a discussion of 2022 turnout, “normie” voters, and the inevitable over-interpreting of Democrats’ midterms performance. Plus: demographic trends, crackpot electoral theories, and how Democrats should approach 2024.
  • On today’s extra-long episode of Advisory Opinions, David and Sarah touch on student loans, court sanctions, gay marriage legislation, Federalist Society gossip, and the founding principles of the United States. Ready thy popcorn.
  • On the site today, Harvest and Price report on the aftermath of Sen. Rick Scott’s short-lived attempt to oust Minority Leader Mitch McConnell, Charlotte Lawson reports on this week’s terrorist bombing in Istanbul and its effects on U.S.-Turkey relations, and Kevin Williamson walks through how Republicans played into Democratic hands this cycle by nominating easy-to-defeat candidates in a number of key races.

Let Us Know

If the missile that struck Poland had come from Russia, how would you have wanted NATO to respond?

Declan Garvey is the executive editor at the Dispatch and is based in Washington, D.C. Prior to joining the company in 2019, he worked in public affairs at Hamilton Place Strategies and market research at Echelon Insights. When Declan is not assigning and editing pieces, he is probably watching a Cubs game, listening to podcasts on 3x speed, or trying a new recipe with his wife.

Esther Eaton is a former deputy editor of The Morning Dispatch.