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CNN This Morning
Dallas Air Show, Two Vintage Planes Collide in Mid-Flight; Karen Bass Frontrunner in Los Angeles Mayoral Election; Key California Districts, Ballots Still Being Counted; Chaos Inside the World of Crypto; Interview with Duke University, Fintech Law and Policy Professor Lee Reiners; Cryptocurrency Exchanges Declare Bankruptcy, FTX's CEO Steps Down; Christmas Tree at Rockefeller Center has Arrived; Dolly Parton Recipient of Bezos Courage and Civility Award; Dolly Parton Receives $100 Million Award From Billionaire Jeff Bezos. Aired 7-8a ET
Aired November 13, 2022 - 07:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
AMARA WALKER, CNN ANCHOR: Good morning, everyone and welcome to CNN this morning. I'm Amara Walker.
BORIS SANCHEZ, CNN ANCHOR: Good morning, Amara. I'm Boris Sanchez. Democrats defy the odds. They managed to hold on to their narrow majority in the Senate, while the House remains still up for grabs. We're going to break down the path to victory for both sides and the coming leadership fight that's expected in the days ahead.
WALKER: Also, President Joe Biden set to meet with Chinese President Xi Jinping on the sidelines of the G20 summit tomorrow. What to expect or not to expect from this high stakes meeting and why Biden believes he has the stronger hand going in.
SANCHEZ: Plus, some terrifying moments at a Dallas air show. Two vintage planes colliding in midair bursting into flames. What we know about what led up to the accident and the people on board.
WALKER: One of the largest cryptocurrency platforms filed for bankruptcy just days after its founder reassured investors that everything was fine. What the collapse of FTX means for the crypto market.
WALKER: It is Sunday, November 13. It is almost nearly we're in the middle of the month pretty much. Thanks so much for waking up with us. Good to be with you, Boris.
SANCHEZ: Great to be with you as always, Amara. Yes, only a few weeks away from Thanksgiving. I know you said you weren't excited about holiday shopping but it's knocking on the door.
WALKER: It really is. I know I'm quite the procrastinator but I want to get through, you know, Thanksgiving first. But, you know -- and maybe it's because my birthday is near Thanksgiving and I don't like people glossing over this time of year for Christmas, although I do prefer Christmas, so.
WALKER: Got to get that shopping under way.
SANCHEZ: Another year about to fly off the calendar. We got to take it day by day.
WALKER: That's too fast.
SANCHEZ: And we start this morning with a major victory for Democrats because CNN is now projecting that they are going to retain control of the Senate. Now, the biggest unanswered question is who's going to control the House?
The critical moment came last night when Nevada's Senate race was called for a Democratic incumbent Catherine Cortez Masto. She had been trailing her Republican opponent Adam Laxalt by merely 862 votes before the evening ballot drop finally pushed her over the top.
WALKER: In the meantime, the ballot counting continues in Arizona where the race for governor remains too close to call. Democratic Secretary of State Katie Hobbs maintains her lead for now over Republican Kari Lake. And CNN has already projected that incumbent Senator Mark Kelly of Arizona will win that race. The Democrat gave a victory speech yesterday calling for unity.
(BEGIN VIDEO CLIP)
SEN. MARK KELLY (D), ARIZONA: No one party has a monopoly on good ideas or the support of voters. But I have seen that when we seek to represent everyone, not just the people who voted for us, we're capable of extraordinary things.
(END VIDEO CLIP)
WALKER: By claiming at least 50 seats, Democrats can control the Senate with Vice President Kamala Harris casting any tie breaking votes. It could, however, be several days before we know who will hold power in the House of Representatives. Democrats currently hold 204 seats, Republicans 211. The magic number to control the lower chamber, 218.
SANCHEZ: Yes, there are plenty of ballots still left to count in Nevada, but those votes are expected to trend toward Democrats. CNN's Rosa Flores reports.
ROSA FLORES, CNN CORRESPONDENT: Boris, Amara, the stakes were high. The margins were razor thin, but in the end, the Democratic incumbent prevailed here. Catherine Cortez Masto gets to stay as a U.S. senator from the state of Nevada and with that, the Democrats get to keep control of the U.S. Senate.
Here's how it all went down on Saturday. Clark County issued a tabulation of about 23,000 votes and here's how those votes were divided.
Catherine Cortez Masto received more than 14,000 votes or 60 percent of that batch, Adam Laxalt received more than 8,000 votes or about 35 percent of that batch. That put Catherine Cortez Masto in the lead statewide by more than 5,000 votes. At that point, CNN called the race her campaign taking to Twitter to say, quote, "What did people get wrong about this race? The first Latino Senator knows her community better than anonymous sources. The daughter of a Teamster knows how to fight for working families. And CCM's or Catherine Cortez Masto's, a former AG -- the crime attacks couldn't stick again."
The Democratic incumbent here in Nevada, Catherine Cortez Masto gets to stay as senator of Nevada. Boris, Amara?
WALKER: All right. Rosa, thank you for that. To Arizona now where Maricopa County holds continues to hold the biggest number of outstanding votes.
SANCHEZ: Yes. Well, CNN and other networks have called that Senate race in Arizona for Democrat Mark Kelly, it's still too early to call the governor's race. CNN's Kyung Lah has more from Phoenix.
KYUNG LAH, CNN SENIOR NATIONAL CORRESPONDENT: The count continues in Maricopa County 85,000 votes released here in the county. Still more votes to be counted. And still no clear answer on the governor's race here in the state of Arizona. Republican Kari Lake did manage to close the gap just a bit on Democrat Katie Hobbs, who remains the leader. If you look at the numbers, that margin has shrunk in just a tad but not enough to determine if there is a clear winner at this point.
But the late campaign releasing a little information about what it's like inside their campaign headquarters saying that they believe that these numbers offer a glimmer of hope. The campaign saying, quote, there is 100 percent a path and because the vote is still going on, that there is so much we do not know at this stage.
But we do know, CNN has projected a winner in the U.S. Senate race in Arizona, Mark Kelly, the Senator will maintain his seat. The race was called in his favor by CNN today thanking his supporters who backed his race.
(BEGIN VIDEO CLIP)
KELLY: After a long election, it can be tempting to remain focused on the things that divide us. But we've seen the consequences that come when leaders refuse to accept the truth and focus more on conspiracies of the past and solving the challenges that we face today.
(END VIDEO CLIP)
LAH: Blake Masters has not conceded but indicated in a tweet that he would be open to it after every legal vote is counted. So how many votes do remain? Maricopa County tells us there are about 185,000 to 195,000 votes remaining. The anticipation is on Sunday evening, another release of votes of about 80,000 here in this county.
Kyung Lah, CNN, Phoenix.
WALKER: As we start to get a clearer idea of the balance of power in Congress, the path to securing leadership positions amongst Republicans in the House and Senate has gotten more complicated and contentious.
SANCHEZ: Yes. After falling short of expectations on Tuesday, Kevin McCarthy is going to have to make major concessions to become House Speaker. And there are some Republican senators calling for a delay in the leadership vote in that chamber before they commit to Mitch McConnell as minority leader.
Let's take you to Capitol Hill now, and CNN's Daniella Diaz. Daniella, good morning. What can you tell us about this potential leadership fight?
DANIELLA DIAZ, CNN CONGRESSIONAL REPORTER: Boris, what we know is that former President Donald Trump has been calling his strongest allies in the Senate to try to deflect the blame from him about how Republicans fell short on Tuesday and put that blame on Mitch McConnell.
So as a result, Republicans in the conference, the Senate conference have been calling for a delay in the Senate leadership elections which are currently scheduled for Wednesday and have not been delayed, want to be clear, and want to see something different as a result because of that lackluster performance on Tuesday.
Take a look at a tweet from Senator Marco Rubio. He really sums it up, "The Senate GOP leadership vote next week should be postponed. First, we need to make sure that those who want to lead us are genuinely committed to fighting for the priorities and values of the working Americans of every background who gave us big wins in states like Florida."
Also, three other conservative senators sent a letter urging the Republicans are to delay these votes. Senator Ron Johnson of Wisconsin, Rick Scott of Florida and Mike Lee of Utah, they say that they want to have serious discussions within the conference as to why and what they can do to improve their chances in 2024, as a result of what happened on Tuesday.
But, look, even though the senators are calling for delay in the leadership elections, Mitch McConnell is still expected to have the votes to stay probably and become the longest serving minority leader. But important to note that, of course, Republican or former President Donald Trump is, of course, trying to call his allies to delay this and has endorsed Rick Scott, for the position.
WALKER: Yes. And Daniella, we're also seeing the similar tensions when it comes to House Minority Leader Kevin McCarthy, right? I mean, what does his path look like to become speaker if Republicans, if Republicans win the House? DIAZ: Amara, if you'd asked McCarthy weeks ago what he expected on Tuesday, he would have said there would have been large margins of Republicans in the House -- as a House majority as a result of Tuesday's election. But that is not the case, it appears it's probably going to be a small margin of Republicans over 218. So McCarthy will need every single lawmaker in his conference to support his bid for Speaker. He wants that gavel. He's been working toward this since for months.
So as a result, House Freedom Caucus is realizing that they have leverage here and they want to put forward demands to McCarthy so that he can earn their support for the speaker's gavel. You know, when you talk about these members, we're talking about Marjorie Taylor Greene, we're talking about Chip Roy and Matt Gaetz, they are trying to have -- make McCarthy make concessions so that they can earn -- he can earn their vote to become House Speaker. And they're really taking advantage of the moment here.
WALKER: All right, Daniella Diaz, appreciate your reporting. Thank you very much.
Let's bring in Politico Correspondent -- Congressional Correspondent, Nicholas Wu. Good to see you, Nicholas. So we've been saying all morning and really the last few days that Democrats bucked what historically happens to the party in power during the midterms. So you've got them keeping their majority in the Senate. Just big picture here. How would you explain what happened because the wide expectation was Democrats would be punished for the economy?
NICHOLAS WU, CONGRESSIONAL CORRESPONDENT, POLITICO: Well, looking at history, there's only a few midterm elections where the President's party has really been able to limit their losses, in some cases, pick up seats, like Democrats here -- have here and that's been when there have been big historical events that kind of changed the usual thinking.
I think, you know, the 1962 elections, for example, right after the Cuban Missile Crisis, 2002 right after 911, here, we have a big historical event in terms of the overturning of Roe vs. Wade. And on top of that, it appears to be there was a larger dynamic, where voters who were still unhappy with Biden's performance as President, were more than happy to pull the lever for a Democrat at the end of the day. And that is how Democrats were able to buck these kinds of historical trends.
WALKER: So how important then is the Georgia Senate run off for both parties? I mean, do you expect Republicans to continue to push as hard for Herschel Walker here in Georgia?
WU: Both parties are going to contest this seat quite a bit, but the stakes are a little bit different. Unlike the runoff in 2020, which was crucial for Senate control, this year, it's kind of -- you know, either be an extra padding, so to speak for Democrats. You know, making the difference between a 51-49 Senate as opposed to a 50-50 Senate or for Republicans tried to limit the size of Democrats majority and try to build a launching pad to recapture the majority of themselves in 2024.
So, you know, the stakes are a little bit lower than they were in 2020. But Georgia, as it's been in these past few years, will still be the center of attention.
WALKER: Coming down to Georgia, right? So we still don't know who will control the House. Although it's favoring Republicans, when you look at the number with a narrow majority, though. Do Democrats have any reason to remain hopeful?
WU: There's a very, very, very slim pathway to a majority for Democrats, but it would require winning most of these outstanding races that have left to be called. And these few races, many of which, you know, are in swing districts in California, could do kind of favor of Republicans. So, what we're looking at is a very small House Republican majority, which is going to make it difficult for them to govern, to try to, you know, initiate many of these big legislative ideas they had floated and could make even complicate the path for Kevin McCarthy to become speaker.
WALKER: Yes. So let's talk about, you know, some of the infighting that we're seeing. I mean, you now have some pretty angry Ultra conservatives, the Freedom Caucus members, who -- they're demanding commission -- concessions I should say, from Kevin McCarthy who is jockeying to be House Speaker, if Republicans take control. What kind of concessions might they get out of them?
WU: What a lot of the House conservatives have wanted are things that, you know, could return more power to the members as opposed to the speaker. So they want things like, you know, a stronger say in the amendment process, for example. But, you know, this is all, you know, perhaps a little bit further down the line. We were still waiting on the House to be called.
And, you know, this assumes that, you know, for example, if a viable alternative to McCarthy for Republicans leader did emerge, you know, McCarthy would not have to make these concessions in the first place. Conservatives might just end up voting for someone else.
WALKER: And I guess, you know, so -- and to the Senate, right, several Senate Republicans calling for the Senate GOP's leadership elections this week to be postponed. We're talking about that, Senator Marco Rubio, Josh Hawley also, making the argument that, you know, the leadership should be determined after the final results of at least a Georgia election are in. How much is Trump a factor in this infighting that we're seeing?
WU: Trump does loom very large over this infighting among Senate Republicans, for example. You know, it -- Trump for a while has sparred with McConnell, has urged Senate Republicans, in fact, an alternative to him, Rick Scott, who was the campaign chief for Senate Republicans this cycle, you know, had Trump inflated (ph) him, for example, to try to challenge McConnell and it looks like he will likely take a pass on that. But at the same time, the problem for Republicans in both chambers is that they kind of set expectations too high for what their gains would be. Some Republicans were talking about a 60-seat majority in the Senate and, you know, huge pickups in the House and that didn't materialize on election night. And so this is why where we're seeing a lot of finger pointing now. Republicans are blaming their leaders and trying to figure out who will take the fall.
WALKER: Finger pointing and scapegoating. Nicholas Wu, appreciate you joining us this morning with Politico. Thank you.
SANCHEZ: Still ahead, President Biden and Chinese President Xi Jinping will meet on the sidelines of the G20 summit tomorrow. There are major, major items on the agenda and why President Biden feels like he has the upper hand going in.
Plus, a terrifying moment in Texas. Two vintage military aircraft colliding mid-air during an air show in Dallas. An update on that next.
SANCHEZ: President Biden is meeting with the leaders of Japan and South Korea on the eve of his high stakes sit down with China's President Xi Jinping. The two leaders are meeting on the sidelines of the G20 summit in Bali, Indonesia. And it is going to be their first face to face sit down since President Biden took office.
WALKER: Yes, the meeting comes as tensions are at its highest. It's been between the U.S. and China in decades. For more on what we can expect or not expect, let's bring in CNN White House Correspondent MJ Lee, traveling with the President in Bali. And, you know, I heard one official describe it as high stakes but a very low expectations for this meeting, MJ?
MJ LEE, CNN WHITE HOUSE CORRESPONDENT: Yes, that's right. You know, Air Force One should be landing in Indonesia here any moment now, so that the President can attend this G20 summit. And there's no underestimating, just what a significant gathering this is going to be. It is taking place, of course, in front of the backdrop of the war in Ukraine, which is expected to be one of the biggest topics of discussion, and all of the economic challenges that that war has really worsen.
Of course, world leaders will be talking about other important issues, like climate change, and the President's schedule will be really packed full for a couple of days as he meets with various world leaders. But the one highlight, of course, is going to be this highly anticipated meeting between President Biden and Xi Jinping, his counterpart in China.
You know, the two men have known each other for years, even going back to when President Biden was vice president. And they've spoken a number of times throughout the President's presidency. But this is going to be the first time that the two men meet face to face since President Biden came into office. And there are just going to be so many issues for them to potentially discuss.
Earlier in Cambodia, President Biden saying that this will be an opportunity for the two leaders to learn about each other's red lines. This is what he said.
(BEGIN VIDEO CLIP)
JOE BIDEN, PRESIDENT OF THE UNITED STATES: I know I'm coming in stronger, but I don't need that. I know Xi Jinping. I've spent more time with him than any other world leader. I know him well. He knows me. There's no -- we have very little misunderstanding. We just got to figure out where the red lines are and what we -- what are the most important things to each of us.
(END VIDEO CLIP)
LEE: Now, prior to this meeting, U.S. officials have really set their expectations. They said, there aren't really a set of deliverables that they're going for, there's not even going to be a joint statement after this meeting has taken place. And it really sort of underscores that this meeting is happening at a real low point for U.S.-China relations. Things really deteriorated.
Recently, as you know, after House Speaker Nancy Pelosi made that controversial visit to Taiwan. So there are just going to be a lot of different things for them to potentially discuss. And we'll see whether that meeting ultimately ends up playing any role in bringing down the temperature but there's just no question that both for President Biden's presidency and his foreign policy, and then just for U.S.-China relations. Specifically, this is going to be a huge, huge moment and really will be the highlight of the G20 summit.
SANCHEZ: It will be a major historic moment for the relationship with so much looming over it. MJ Lee, thank you so much for breaking that down for us.
Still ahead, a look at the Los Angeles mayor's race as Karen Bass takes a lead over Rick Caruso.
SANCHEZ: There was a horrifying scene in the skies over Dallas yesterday when two vintage airplanes collided in mid-air.
WALKER: Yes, the accident happening during an airshow sending flaming wreckage plummeting to the ground as spectators were watching. We do want to warn you, the video may be disturbing to some viewers.
(BEGIN VIDEOTAPE) WALKER (voice-over): A Boeing B-17 Flying Fortress and the Bell P-63 Kingcobra collided and crashed at the wings over Dallas airshow Saturday, according to the Federal Aviation Administration.
In a press conference, Saturday afternoon, Hank Coates, president and CEO of the Commemorative Air Force, told reporters about the crews during the World War II demonstration.
HANK COATES, PRESIDENT AND CEO, COMMEMORATIVE AIR FORCE: The B-17 normally has a crew of four to five that was on the aircraft and the P-63 is a single piloted fighter type aircraft. I can tell you that it was normally crude. I cannot release the number of people on the manifest or the names on the manifest until I'm released to do so by the NTSB.
WALKER (voiceover): The Allied Pilots Association, the labor union representing American airlines pilots, has identified two pilot retirees and former APA members among those killed in the collision. The APA said, former members Terry Barker and Len Root were among the crew members on the B-17 Flying Fortress.
Our hearts go out to their families, friends and colleagues, past and present, their tweet said.
The NTSB is launching a go team to investigate Saturday's midair collision. A tweet from the NTSB on Saturday evening said in part.
No spectators or others on the ground were reported injured. The debris field from the collision includes the Dallas Executive Airport grounds, Highway 67 and a nearby strip mall.
SANCHEZ: It is worth noting that the FAA does require these stunts to be approved ahead of time. One expert tells us, though, that even as safety measures have been put in place over the years there's still tremendous risk when performing these complex and dangerous moves. Here's Mary Schiavo.
(BEGIN VIDEO CLIP)
MARY SCHIAVO, CNN TRANSPORTATION ANALYST: When tragedies happen at air shows, the FAA has to reevaluate whether this should be allowed. Because remember, even though the regular federal aviation rules don't apply, the FAA does approve them, license these aerobatic flights, license these dramatic maneuver events and air shows, and permit the have these air shows.
So, the FAA does, overtime, has increased requirements and safety measures. But in the end, you're flying extremely complicated maneuvers, you're doing aerobatic flight, you're supposed to be licensed to do so or to fly in formation. You have to have special certificate, dynamic maneuvering, you know, rocking your wings dramatically, you know, from left to right, et cetera. UNIDENTIFIED MALE: Right.
SCHIAVO: that all has to be approved by the FAA.
(END VIDEO CLIP)
SANCHEZ: The air show was scheduled to run through today, but the remaining events have been canceled.
Turning back now to our coverage of the midterm elections, ballots are still being counted in California where multiple House seats remain up for grabs.
WALKER: But it's not just Congress we're watching. There still hasn't been a winner declared in the L.A. mayor's race between Democrat Karen Bass and Republican Rick Caruso. CNN's Camila Bernal has more.
CAMILA BERNAL, CNN NATIONAL CORRESPONDENT: Amara, Boris, this is still a very tight race. But Karen Bass is expanding her lead little by little. Saturday morning, she was up by about 4,000 votes. Then we got new numbers, Saturday evening, she is now up by about 9,000 votes.
Look, this is a race between the establishment candidate. Karen Bass has been representing Los Angeles in Congress for years now. She was endorsed by former President Barack Obama. She was on the short list for President Joe Biden's vice-presidential pick. So, she is essentially that establishment candidate here in Los Angeles up against a billionaire, Rick Caruso, a real estate developer here in L.A.
He is from the area. He is well-known. But he was a Republican, then independent, now, a Democrat. and now a Republican. And a lot of this, of course, contributing to this uphill battle that he's had here in Los Angeles. But he's dumped a lot of money -- his own money, into this race. So, it will be interesting to see if that money will help him, at all, in this race.
The other thing to point out here is that according to the current numbers, Karen Bass is at 50.8 percent. Rick Caruso is at 49.2 percent. This is with about 60 percent of the vote counted. So, there's still a lot to go here. There's still a lot of votes that need to be counted here in Los Angeles, and frankly, across the state. We're not only waiting for the mayor of Los Angeles to be called, but we're also waiting for at least 10 different House races. At least nine of those races are key for the balance of power in the House of Representatives.
So, whether or not this shifts the balance of power, it is yet to be seen. But it could influence the margin of power in the House of Representatives. So, now all eyes on California as we wait for these votes to be counted. Boris, Amara.
WALKER: All right. Coming up, chaos inside the world of cryptocurrency after a major player files for bankruptcy. We'll talk about what it means for the future and how far the damage could spread. (COMMERCIAL BREAK)
WALKER: One of the largest cryptocurrency exchanges in the world says it is investigating a possible $473 million hack. FTX's general counsel says, the company has moved user' funds off-line to mitigate any damage after observing what it calls, unauthorized transactions.
SANCHEZ: The unconfirmed theft coming shortly after the company filed for bankruptcy with some describing it as the Lehman Brothers of crypto. CNN's Brian Todd has more.
(BEGIN VIDEO CLIP)
BRIAN TODD, CNN CORRESPONDENT (voiceover): It wasn't long ago that Sam Bankman-Fried was called the Mark Zuckerberg of crypto, a modern day J.P. Morgan. But in the span of a week, the 30-year-old wonder kin founder and CEO of FTX, the mega powerful cryptocurrency exchange, has resigned, has lost his fortune. His firm's in bankruptcy. And by Thursday in a Twitter thread to investors and customers, he was saying, "I'm sorry. I effed up and should have done better."
RANA FOROOHAR, GLOBAL BUSINESS COLUMNIST AND ASSOCIATE EDITOR, FINANCIAL TIMES: In some ways, this collapse of FTX is the Lehman Brothers' moment of the crypto world. It is a classic financial crisis.
TODD (voiceover): At its peak, FTX was worth $32 billion. It had backers like NFL superstar quarterback Tom Brady, his soon-to-ex-wife supermodel, Gisele Bundchen, and tennis star, Naomi Osaka. But its value has not plummeted. Bankman-Fried's net worth, once over $15 billion, cratered to under $1 billion in a single day, according to the Bloomberg Billionaire Index.
The NBA's Miami Heat had its venue renamed as FTX Arena last year, but now that name is coming off the building. The meteoric collapse of FTX was triggered last week when serious questions were raised about the health of its finances. Those questions ignited a run on the bank-like crisis.
ANGUES BERWICK, INVESTIGATIVE REPORTER, REUTERS: Clients suddenly rushed to withdraw several billions worth of cryptocurrency from the exchange that -- then put, you know, FTX owner Sam Bankman-Fried in a position where, you know, whereby he effectively, you know, he -- his company ran out of money.
TODD (voiceover): Back in July when he did an interview with CNN Business, Sam Bankman-Fried discussed the danger of Ponzi schemes in the crypto world.
SAM BANKMAN-FRIED, FOUND AND CEO, FTX: Because I think when you have something which is basically an empty product, which I do think is true in some places, you know, some assets in crypto, you know, that is something where there's certainly real crash potential.
TODD (voiceover): FTX's fall has more than a hint of irony. Comedian Larry David did an ad for FTX during this year's Super Bowl. Portraying a buffoon who missed the boat on big inventions.
UNIDENTIFIED MALE: I call it, the wheel.
LARRY DAVID, COMEDIAN: I don't think so. What does it do?
UNIDENTIFIED MALE: It rolls.
DAVID: Yes, so does a bagel. OK.
TODD (voiceover): At the end of the spot, David is presented with an offer.
UNIDENTIFIED MALE: It's FTX. It's a safe and easy way to get into crypto.
DAVID: I don't think so. And I'm never wrong about this stuff. Never.
Todd (voiceover): Now, analysts are warning about the real future of the cryptocurrency market.
FOROOHAR: I think that the private crypto market, meaning digital coin that is not backed by a central bank is going to be in for a major correction. I mean, you've already seen that. I think regulators have a great case now to say nobody should be trading this stuff. We need a lot more rules.
TODD (on camera): And now, according to the "Wall Street Journal", both the Justice Department and the Securities and Exchange Commission are investigating FTX. And the man who FTX has appointed as its new CEO is John Ray III who helped manage the notorious energy firm Enron after its collapse in an accounting fraud scandal in 2001. Brian Todd, CNN, Washington.
(END VIDEO CLIP)
SANCHEZ: Thanks to Brian for that report.
Let's get some insight now. Joining us to discuss, Duke University, Professor of Fintech Law and Policy, Lee Reiners. Lee, thank you so much for being with us this morning. You have said that a bankruptcy like this was bound to happen in crypto. Why?
LEE REINERS, PROFESSOR OF FINTECH LAW AND POLICY, DUKE UNIVERSITY: Well, Boris, because cryptocurrency has no fundamental value. You know, you have to ask yourself, why is it trading at whatever the current market price is? There's no cash flow. You know, traditional assets have cash flow. You know, normal currencies are valued relative to one another. There's exchange rates that are determined based upon things like GDP growth in the two countries, inflation rates. That doesn't exist in cryptocurrency either.
So, what you're left with is an asset class that trades entirely on sentiment. And as we've seen over the past couple of days, you know, sentiment can be extremely fickle. And so, long term, you know, cryptocurrency will not have value unless it provides genuine economic utility and we haven't seen that yet.
So, that means that all of these cryptocurrency firms are resting on very shaky foundations. And so, you know, FTX, as shocking as it may seem, something like it was bound to happen. And we've already seen it happen over the past year. I mean, there's been a number of high- profile crypto failures, FTX being the latest.
SANCHEZ: Yes, do you think more crypto exchanges are likely to fall? And how widespread, do you think, the damage will be?
REINERS: Well, it's too early to determine at this point, Boris. I mean, we're still kind of sifting through the facts a little bit here. But I certainly think any person who holds cryptocurrency in its custody at a central exchange like FTX is probably rethinking whether or not that's the smartest strategy right now.
You know, custody of cryptocurrency is very different than custody of traditional financial assets. You know, you have something called your private key. It's simply an alpha-numeric string of characters and that's what you use to send your cryptocurrency.
And if you're entrusting your private key to a central intermediary like FTX, you know, there's a lot of security risks there. And these exchanges are not subject to meaningful regulation. They're not subject to the same standards that traditional securities exchanges are.
So, there's just really no consumer protection at all. And when an exchange like FTX goes under, you become an unsecured creditor in that bankruptcy, which is a very different situation than if, God forbid, you know, Charles Schwab or E-Trade were to go bankrupt, right, the securities you held through those platforms would still be safe.
SANCHEZ: Yes. Lee, you gave me a ton of different threads to yank at. The first one being, that unconfirmed hack at FTX. There's a lot of speculation online that the calls may have been coming from inside the house. That there might be some foul play involved here. I'm sure you've seen it. What do you make of that?
REINERS: I mean, you know, we're kind of operating in a bit of an information vacuum right now, Boris. And, you know, Twitter is kind of the place to be right now to figure out what's going on with FTX and the story seems to be changing by the hour.
So, you know, it doesn't necessarily surprise me. You know, we've seen of type of, you know, insider dealing like this in other instances and other cryptocurrency platforms, and it's very troubling because it potentially means that, you know, the thousands of consumers that are waiting to get their funds out of FTX, you know, that sort of hope is diminishing by the hour as they see these stories. So, I hope it's not true but, you know, it does appear as though, you know, in addition to the hack, that there's probably fraud involved and the Department of Justice, as Brian said is looking into this.
SANCHEZ: Yes, it would not be surprising to see a more serious investigation be announced very soon. Lee, you also mentioned regulation. How do you think Congress should handle crypto? Because that's something that folks have been calling for for some time. Would regulation, potentially devalue it because it is decentralized?
REINERS: Well, I think, you know, long term, actually, regulation would benefit cryptocurrency by allowing consumers to trust it. You know, the reason that the U.S. has, you know, the deepest and most liquid, you know, capital markets in the world is because they're regulated by the Securities and Exchange Commission. Investors can invest confidently in the U.S. and in U.S. companies because they get access to information. You know, there's a court system if things go wrong.
But again, none of that applies in cryptocurrency. And one of the more interesting things about, you know, the Sam Bankman-Fried saga is that he was a really vocal advocate for some forms of regulation and very active in D.C., meeting with regulators, meeting with folks on Capitol Hill.
And so, I think anything that he was pushing for now, you know, people are going to take a step back and say, OK. Why was he, you know, wanting this specific piece of regulation, right? What was in it for him? What was in it for the crypto industry? So, he's toxic and anything he was touching is now toxic.
And so, my hope is that, you know, policymakers keep two things in mind. One, obviously, is protecting investors and consumers. But two is, ensuring, you know, financial stability. There is a silver lining in all of this, Boris, and which is that FTX's problems and crypto's problems, more generally, haven't spilled into the traditional financial system and threatened financial stability.
I think Brian mentioned this might be the Lehman moment for crypto and that's probably true, but it's not the Lehman moment for the rest of us. It's not the Lehman moment for the economy. I mean, the stock market did very well over the past week. You know, this is not going to move the needle at all on GDP. The average American is not going to feel that.
So, this is a policy success that it hasn't threatened financial stability. And I worry that, you know, with some of the various regulatory proposals out there, you're -- you would see deepening connections between the traditional financial system and the crypto sector so that problems in crypto could potentially spill into the traditional financial system. And remember how upset everyone was and rightfully so about the bank bailouts in 2008?
REINERS: Well, can you imagine how upset people would be if taxpayer funds were used to bailout cryptocurrency firms? So, I think that needs to be front and center in policy debates going forward. SANCHEZ: It is a fascinating conversation. It's crazy to think that billions and billions of dollars just went poof like that in a moment. Professor Lee Reiners, we hope you'll come back to discuss this further in the future.
REINERS: Thank you, Boris.
SANCHEZ: Of course.
Stay with CNN. We'll be right back.
WALKER: Yes, we're talking about Christmas again. The iconic Christmas tree at New York's Rockefeller Plaza is in place. A massive crane hoisted the Norway spruce into place yesterday. Guess how much it weighs. 14 tons. And measures 82 feet tall and 50 feet wide and is around 85 to 90 years old. And now the tree will be decked out in holiday bling before it is officially lit on November 30th.
Dolly Parton is being honored with an award, but this time it's not for singing.
SANCHEZ: Yes, the country music star is the latest recipient of the Jeff Bezos Courage and Civility Award. The award comes with probably a fine trophy, but also $100 million. Parton is, of course, almost as famous for her philanthropic efforts as for her music.
WALKER: During the COVID-19 pandemic, she donated money to Vanderbilt University Medical Center's vaccine research efforts. And Bezos spoke with our Chloe Melas about choosing Parton.
(BEGIN VIDEO CLIP)
CHLOE MELAS, CNN ENTERTAINMENT REPORTER: Talk to me about choosing Dolly Parton.
JEFF BEZOS, AMAZON FOUNDER: Well, look at what she's done and how she's led her life. And the way she's done it, these bold things, always with civility and kindness. She's a unifier. You know, we have big problems in the world and the way to get big problems done is you have to work together. We have too many examples in the world of conflict and people using ad home (ph) attacks on social media and so on, and so on. You won't find Dolly Parton doing that.
LAUREN SANCHEZ, JEFF BEZOS' PARTNER: And when you think of Dolly, look, everyone smiles, right? And all she wants to do is bring light into other people's world. That's all. And so, we couldn't have thought of someone better than to give this award to Dolly.
(END VIDEO CLIP)
SANCHEZ: The full interview airs tomorrow morning on CNN This Morning. You don't want to miss that.
WALKER: Absolutely. Well, that was our weekend with you. Thanks so much for starting your morning with us. We'll see you back here next weekend.
SANCHEZ: "Inside Politics Sunday with Abby Phillip" is up after a quick break. Thanks so much for joining us. Have a great day.