Big Tech’s tough day in D.C.

Good Wednesday morning. The Elon Musk-backed company Neuralink unveiled its plans to wire your brain to the internet last night — more on that below. (Want this by email? Sign up here.)

A glimpse at how lawmakers may rein in Big Tech

Lawmakers took shots at tech giants yesterday during three hearings on Capitol Hill. Amazon, Apple, Facebook and Google faced questions about their market power, perceived bias as gatekeepers of communication and, in Facebook’s case, plans to reshape the financial industry.

Perhaps the most revealing hearing was before the House Judiciary Committee, where a subcommittee on antitrust gave the best look yet at how lawmakers are thinking about capping Big Tech’s market power, Steve Lohr, Mike Isaac and Nathaniel Popper of the NYT write. Most of the questions were for Amazon and Facebook.

• Representative David Cicilline, the Democratic head of the subcommittee, pushed them on whether tech companies’ marketplaces — for goods, software apps and online ads — give them an unfair advantage over rivals who rely on those marketplaces to distribute their own products or services.
• Representative Joe Neguse, Democrat of Colorado, zeroed in on their M.&A. He pointed out that Facebook owns four of the world’s six largest social networks (itself, along with Instagram, Messenger and WhatsApp). “We have a word for that,” Mr. Neguse said. “It is called monopoly.”

“The hearing performances were a telling moment, showing the rising force of the backlash against the tech giants,” Mr. Lohr, Mr. Isaac and Mr. Popper write. “Not long ago revered as treasures of American capitalism, they are now targets of political attacks from both parties, growing public criticism and regulatory scrutiny.”

More: Google said it had officially scrapped its China search engine project, code-named Dragonfly. And the E.U. is reportedly set to begin a formal antitrust investigation into Amazon’s dual role as seller and market platform.

Facebook’s biggest problem with Libra? Itself

Lawmakers made one thing clear at a Senate Banking Committee hearing yesterday: The largest roadblock to Facebook’s cryptocurrency plans is the company’s reputation, Mike Isaac and Nathaniel Popper of the NYT write.

The hearing began with a stinging critique by Senator Sherrod Brown, Democrat of Ohio:

• “Like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over, and called every arson a learning experience. We would be crazy to give them a chance to experiment with people’s bank accounts, and to use powerful tools they don’t understand, like monetary policy.”

Things didn’t get much better as David Marcus, who leads Facebook’s cryptocurrency initiative, was questioned for more than two hours. Lawmakers brought up many of Facebook’s missteps — including data privacy and Russian interference — to highlight concerns about the company’s entry into finance.

Libra critics are now lining up. In the last week alone, Treasury Secretary Steven Mnuchin, President Trump and the Fed chairman, Jay Powell, have all raised concerns about the project.

Unsurprisingly, Mr. Marcus struck a conciliatory tone. â€œWe’ve made mistakes in the past,” he said. “We have been working, and are working hard to get better.”

• But when asked by Mr. Brown whether lawmakers could persuade Facebook to scrap Libra, Mr. Marcus said only that the company wouldn’t move ahead until regulators’ concerns were addressed.

Libra faces another grilling today as Facebook officials appear before the House Financial Services Committee at 10 a.m. Eastern.

More: Facebook is said to have briefed government agencies on its Libra plans last month, but the meeting reportedly only amplified concerns that the company wasn’t more prepared to address major issues.

Trump’s unintended power over the Fed

President Trump has repeatedly and publicly tried to jawbone the Fed into lowering interest rates. But he may have found a better way to make that happen, Jeanna Smialek of the NYT writes: his own policies.

It’s an odd time for the Fed to cut rates, given signs of strength in the U.S. economy. Retail sales in June were strong, and manufacturing activity has picked up.

But Mr. Trump’s trade wars have undermined the global economy, which is now struggling with China’s economic slowdown and a drop-off in manufacturing.

Economic uncertainties “have increased,” especially around trade, Jay Powell, the Fed chairman, said at a conference in Paris yesterday. He said the central bank would “act as appropriate to sustain the expansion.”

So that, rather than Mr. Trump’s badgering, could force the Fed’s hand to cut rates, Ms. Smialek writes. Investors certainly seem to think the central bank will act that way, if pricing in federal funds futures markets is anything to go by. (The central bank’s pre-meeting quiet period starts Saturday, so its chances to change that perception are increasingly limited.)

Three takeaways from bank earnings season

Many of Wall Street’s top banks have reported their second-quarter results this week, and the news has been largely positive. Here’s what we’ve learned so far.

Trading is mostly in a funk. Both Citigroup and JPMorgan Chasereported disappointing trading revenue, reflecting a prolonged slump in what had been Wall Street’s most profitable business. The exception so far: Goldman Sachs.

Banks are concerned about falling interest rates. JPMorgan cut its forecast for net interest income for the rest of the year, briefly sending its shares lower despite beating analysts’ overall profit expectations. And Wells Fargo said that lower rates would affect its bottom line.

Consumers are big business. JPMorgan touted its consumer-lending business, which reported a 22 percent increase in profits from the same time last year. And Goldman remains focused on building out projects like its Marcus banking unit and its Apple Card initiative, despite spending $1.3 billion on them so far.

We’ll find out more when Bank of America reports today and Morgan Stanley tomorrow morning.

A glimpse at Elon Musk’s plan to wire up your brain

Neuralink, a neuroscience company in which Mr. Musk has invested $100 million, officially unveiled its big product last night: a device that one day could connect your brain directly to the internet, John Markoff of the NYT writes.

• “Neuralink described a sewing-machine-like robot that can implant ultrathin threads deep into the brain.”
• “The company showed a system connected to a laboratory rat reading information from 1,500 electrodes — 15 times better than current systems embedded in humans. That’s enough for scientific research or medical applications.”
• “The company is hoping to begin working with human subjects as soon as the second quarter of next year.”
• The company said it could “help humans with an array of ailments, like helping amputees regain mobility or helping people hear, speak and see.”

One of Neuralink’s biggest challenges will be living up to Mr. Musk’s grand vision. “Independent scientists cautioned that results from laboratory animals might not translate into human success and that human trials would be required to determine the technology’s promise,” Mr. Markoff notes.

Why midsize cities can’t catch up with mega-rivals

Winston-Salem, N.C., has ambitions to become a center of biotech research. But so far that dream hasn’t been realized — and it raises questions about whether midsize cities can ever grow into thriving metropolises, Eduardo Porter of the NYT writes.

The post-World War II model is broken. Before, smaller cities were able to catch up by becoming manufacturing centers. But in the age of tech, it’s harder to keep up with Silicon Valley and New York.

Blame a variety of factors. Today’s economy doesn’t really value the kind of cheaper labor that such cities traditionally boasted of. Employers are instead setting up in centers with highly educated workers, and that kick-starts a virtuous circle of more amenities and funding, and then more workers. It’s harder for midsize cities to compete.

Winston-Salem’s failed bid for Amazon’s HQ2 is a case study of how that looks in practice. “If you go down the Amazon checklist, it requires all the things that we don’t have,” Koleman Strumpf, an economics professor at Wake Forest University, which is in Winston-Salem, told Mr. Porter. “We don’t have mass transit. No Amtrak. No good airports. It’s not a walkable city. It doesn’t have great amenities.”

How North Korea gets its luxury cars

Kim Jong-un, the country’s leader, has some serious wheels: top-of-the-line Mercedes-Benzes and Rolls Royces. That’s just one sign that, despite the odds, North Korea has found a way to evade U.N. sanctions meant to block access to luxury goods, Ed Wong and Christoph Koettl of the NYT report.

• “High-end Western goods are making their way to North Korea’s elite through a complex system of port transfers, secret high-seas shipping and shadowy front companies, according to research by the Center for Advanced Defense Studies,” they write.
• “From 2015 to 2017, as many as 90 countries served as the sources of luxury goods for North Koreans,” including China, Japan, Russia and South Korea.
• A pair of Mercedeses took a long journey to Pyongyang: from Rotterdam in the Netherlands to China, Japan and South Korea — and then a mysterious stretch where the ship carrying them went off the grid. The cars may have gone into Russia and then been flown to North Korea.
• “The evasions point to potential limits of sanctions as a tool for the Trump administration to pressure Pyongyang into serious negotiations to end its nuclear weapons program.”

Revolving door

Dr. Leana Wen was ousted as president of Planned Parenthood.

KKR has hired Emilia Sherifova from Northwestern Mutual as its chief information and innovation officer.

Christine Lagarde formally resigned as the head of the I.M.F. to prepare for her nomination as president of the European Central Bank.

The European Parliament narrowly approved Ursula von der Leyen of Germany as the next head of the European Commission.

Steve Cohen’s Point72 Asset Management has reportedly lost at least 20 portfolio managers this year, five of them to rival Citadel.

Deutsche Bank has poached 13 wealth management bankers from Credit Suisse.

The speed read

Deals

• France’s finance minister, Bruno Le Maire, said that preserving Renault’s alliance with Nissan was more important than finding the French carmaker a merger partner like Fiat Chrysler. (Reuters)
• Goldman Sachs says its pipeline of M.&A. projects is up slightly. JPMorgan Chase says its has decreased. (FT)
• Britain’s competition regulator will examine the sale of the satellite company Inmarsat to a private equity consortium. (Reuters)
• Barry Diller’s IAC agreed to buy a $250 million stake in Turo, the car sharing service, at a valuation of more than $1 billion. (WSJ)

Jeffrey Epstein

• Ties between the financier and Ehud Barak, the former prime minister of Israel, have added drama to the Middle Eastern country’s politics. (NYT)
• That fake passport found in Mr. Epstein’s vault, which listed his residence as Saudi Arabia? His lawyers said it was protection in case he were ever to be kidnapped in the Middle East. (Bloomberg)

Politics and policy

• The acting labor secretary, Patrick Pizzella, has spent decades fighting against regulations and worker unions. (NYT)
• A federal appeals court rejected a legal challenge against a presidential executive order that reduces the power of federal labor unions. (NYT)
• The House approved a resolution condemning President Trump’s attack on four Democratic congresswomen as racist. (NYT)
• The French finance minister, Bruno Le Maire, plans to push Group of 7 countries for a deal on a minimum corporate tax rate. (FT)
• John Paul Stevens, the retired Supreme Court justice who long led its liberal wing, died yesterday. He was 99. (NYT)

Tech

• President Trump said his administration would “take a look” at Peter Thiel’s claims that Google should be investigated for potentially assisting the Chinese military. (Axios)
• The Justice Department has supported Qualcomm’s appeal against a stinging antitrust ruling against the company in a case brought up by the F.T.C. (FT)
• Hedge funds and asset managers are developing algorithms to predict cryptocurrency price changes based on data scraped from social networks. (Reuters)

Best of the rest

• Billions of dollars in federal grants for opioid treatment and prevention programs are set to end next year. (NYT)
• British management consultants are basking in the healthy business that Brexit has generated for them. (FT)
• Europe is struggling to find its way back from negative interest rates. (Bloomberg)
• Why a giant gold coin that weighs a metric ton and is worth about $45 million was on show on Wall Street this week. (WSJ)

Thanks for reading! We’ll see you tomorrow.

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