Elizabeth Holmes got the guilty verdict for the wrong reasons

Surely the most extraordinary aspect of the criminal case against Elizabeth Holmes is the verdicts; out of eleven counts, she was guilty on only four, and acquitted of three relating to damage to patients. All the guilty verdicts related to the peculiarly American crime of wire fraud. As Matt Levine frequently points out, everything in the US is wire fraud, since it only needs one phone call or email to qualify. In the eyes of the jury, the misery, pain and distress inflicted on the victims of Theranos’ dud blood tests were insufficient for a guilty verdict.

The US justice system being what it is, there was always the chance that the jury would be seduced by Ms Holmes, just as so many big-shot investors had fallen for her charms. She is appealing against the verdicts, which to readers of Bad Blood, John Carreyrou’s brilliant account of the scandal, is hardly a surprise. 

A significant proportion of the hundreds of millions of dollars the company raised from investors went not on the business it was supposed to be pursuing, but to hiring America’s most expensive lawyers. They were deployed against former employees, doctors who dared to suggest that the company’s finger-tip blood test was a sham, or Carreyrou’s employers at the Wall Street Journal. Intimidation by the threat of legal costs would have stopped a lesser investigation. 

As others have pointed out, the atmosphere for high-risk start-ups in America has become more febrile rather than less in the years since Theranos collapsed. Wannabe investors with hundreds of millions to spend often have no time to do even the basic due diligence before someone else has stepped in, and you’ve missed the boat. For the rest of us, one moral of this story stands out: avoid any company which responds to criticism by reaching for rottweiler lawyers. 

The MPC’s wake-up call

Someone in the Bank of England has a sense of humour. “Can’t we just print more money?” is a new publication which is surely aimed squarely at our financially incontinent prime minister. Unfortunately, it might also be aimed at the Monetary Policy Committee, which has been doing just that ever since the banking crisis 13 years ago, buying government debt with paper money it churns out of its Debden printing works.

This has had a magical effect on the price of the said debt, and has ensured that successive governments have been able to borrow unprecedented amounts at unprecedented rates, often close to zero. This process, called Quantitative Easing, has indeed been a magic money tree, but trees do not grow up to the sky, and this one is starting to look blighted. 

It’s unfortunate that the book was not available to the MPC last year, when the first serious stirrings of inflation became apparent. Dismissed by the members as “transitory” and the result of covid-driven temporary shortages then, it is now getting established. This week Next, Britain’s most effective non-food retailer, forecast 6 per cent price rises for 2022. 

Measured by the Retail Prices Index, which the Bank would rather we ignored, it is already over 7 per cent. Trades unions are gearing up their wage demands, while employers are having to raise wages to attract or keep employees. Energy costs have gone up dramatically. Manufacturers are raising their prices. Capital Economics now expects inflation measured by the Consumer Price Index to reach 7 per cent this year. The prospect of a wage-price spiral is very real, even before the cuts in living standards hit in April.

Perhaps the new publication, due out in May, will remind the MPC that its primary mandate is to keep the rise in the Consumer Price Index as close as possible to 2 per cent. As it is, the rise in Bank Rate to 0.25 per cent is hopelessly behind the curve the MPC is supposed to anticipate. So the answer to the question in the book is that, in the end, printing too much money leads to inflation, which, once established, needs the painful medicine of higher interest rates to stop.

All that glisters

Would you rather have a gold bar or a bitcoin? Neither carries any sort of guarantee, except that they will always have scarcity value, gold because it is hard to find, and bitcoin…well, because it has been designed to be limited to 21m coins, and each succeeding coin is more expensive to mine. Both are stores of value as long as people believe they are, in the case of gold a few thousand years, in the case of bitcoin a few thousand days.

Now the analysts at Goldman Sachs have decided that the coin will be a better store of value than the metal. The logic here is that the stock of bitcoin is currently worth less than a third of the $2.6 trillion stock of gold held as investment, so they suggest that each coin could be worth $100,000, or over twice today’s price, to get to a fifth of this “store of value” market.

Well, maybe. Bitcoin fans seem impervious to warnings that the whole edifice is little more than a sophisticated Ponzi scheme, and unlike the precious metal the coins are weightless and beyond the reach of Goldfinger thieves. Just don’t forget your access code.

Neil Collins co-hosts a weekly podcast, A Long Time In Finance, with Jonathan Ford, published every Friday. Listen on the Apple app or Spotify.