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Ask HN: Do you think this is the start of the new financial crisis?

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Re: Ask HN: Do you think this is the start of the new financial crisis?

#151

Post by latchkey »

philipwhiuk wrote: post #140
latchkey wrote: post #135

Earlier quoted context omitted.

HN can't think past price goes up/down and see that a lot of crypto is a valuable resource that you can use as collateral and borrow against it without having to go to a bank and beg for permission.

You still need permission from the person/company on the other side to use crypto as collateral.

Maybe I'm not explaining myself correctly.

I can take crypto (and I'm talking about BTC/ETH, but can be others) and lend it out (generally for a positive APY). I can then borrow (typically USD*, but can be many other tokens) against that collateral (sometimes even for a positive APY!).

No permission needed and happens in the scope of transactions that cost pennies.

This is a massively important aspect of finance that goes beyond daily price swings. It is a relatively new aspect in crypto that has only been around for the last ~3 years or so.

Example: https://aave.com/ ($8.2b locked up right now)

Re: Ask HN: Do you think this is the start of the new financial crisis?

#152

Post by sheepybloke »

AnimalMuppet wrote: post #148
shagymoe wrote: post #125

The emperor has no clothes. How many crises do we have to go through before we admit the fed and banks either have no idea what they are doing or they know exactly what they're doing and it's malevolent? The number of people here defending the system and saying this isn't inflation is mind boggling. Where do you think the money comes from when the government rescues banks? No matter how you slice it, the taxpayer pay…

> How many crises do we have to go through before we admit the fed and banks either have no idea what they are doing or they know exactly what they're doing and it's malevolent? False dichotomy. The Fed can have good intentions, and a good-but-not-perfect idea what they're doing, and things can be working out, not perfectly, but better than they would in the absence of the Fed. Is there any evidence for that? Yeah, l…

Exactly. Economics likes to pretend it is a hard science because it has mathematics and formulas and hard numbers, but it's not. It is much closer with a social science, where work has either big assumptions or is much closer to a study about the market's behavior. But because economics has masqueraded as a science, we expect it to be more exact than it really is, and I think that dissonance can be quite impactful to how we see the fed as it tries to make decisions at times like this.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#153

Post by pas »

stephen_g wrote: post #81
pas wrote: post #77

Earlier quoted context omitted.

why do you think it's not effective just because it's not perfect? the US central bank has a dual mandate, price stability and close to full employment. having just one it could be much more aggressive.

Because it's never proven to be effective in either direction! (Neither stimulating the economy by dropping rates, nor controlling inflation by raising them)

What would you consider a strong enough proof?

I mean there's Milton Friedman's 2005 paper [1] that provides a visual argument. Then I'd recommend reading this interview [2] with an empirical macroeconomist, and I think it's pretty clear that nowadays any serious economic argument has to be data driven [3] with a corresponding statistical treatment. (At worst low-complexity simulated data. And in the linked paper they are basically using a regression model to estimate the treatment effect. And on page 23 of the document [26 in PDF pages] you can see the "interest rate to GDP and inflation" response curves, and then later they present an absurd amount of additional graphs too.)

Aaand of course the picture that seems to present itself is that "it's not that simple". In this [4] 2022 paper the argument is that it makes sense to consider low- and high-inflation states, because their behavior seems to be significantly different, hence it's important to apply different monetary interventions. (The many graphs paper has a whole chapter on state dependence.) That said, on page 61 they also include a response curve that might interest you on empirical effectiveness of interest rate based monetary policy.

[1] https://www.aeaweb.org/articles?id=10.1257/08953300577519678...

[2] https://noahpinion.substack.com/p/interview-emi-nakamura-mac...

[3] https://www.frbsf.org/wp-content/uploads/sites/4/wp2017-02.p...

[4] https://www.imf.org/en/Publications/fandd/issues/2023/03/POV...

Re: Ask HN: Do you think this is the start of the new financial crisis?

#154

Post by claytongulick »

mattbgates wrote: post #102

Banks are still as greedy as ever in a market that is no longer really theirs, especially in real estate. They have high mortgage rates, yet CDs are approaching 5% which I haven't seen since 2004-2005. I remember socking some $5000 into one of those for 10 years when I had just turned 18... at the time it seemed like a good idea and I was collecting about $50 - $60 a month, which was a good ROI of around 144%. Althou…

If you can swing it, the 15 year rates aren't terrible, I just closed at 5.3

Re: Ask HN: Do you think this is the start of the new financial crisis?

#155

Post by UncleEntity »

fragsworth wrote: post #66
sbelskie wrote: post #32

Earlier quoted context omitted.

I don’t think hyperinflation and bank bailouts go together. https://marginalrevolution.com/marginalrevolution/2023/03/ba...

The argument you linked is ignoring the fact that when you provide a bank with dollars (M1 bailout cash), it is lent out by the banks and creates a much bigger sum of M2 money (bonds, liquid assets) because of fractional reserves. Any bailout that is large enough, and isn't done in tandem with major deflationary events, would certainly impact inflation. I think 2008 was spectacularly smooth with respect to inflation/…

> I think 2008 was spectacularly smooth with respect to inflation/deflation because they allowed enough banks to fail.

They also started paying interest on excess reserves held at the Fed as they printed up a bunch of money to recapitalize the banks so as to not end up creating trillions of dollars of new money.

This time they injected trillions of dollars directly into the economy (hello, Helicopter Ben) and are now dealing with the effects. All that cash caused a huge bubble in Silicon Valley because people had nothing to do for quite a while except buy and consume stuff off the interwebs.

Now we have the correction for the Covid stimulus spending.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#156

Post by claytongulick »

avisser wrote: post #49
lumost wrote: post #20

Earlier quoted context omitted.

About a third of housing sales now go to investors. We really don’t know what their balance sheets look like - but presumably someone is lending them money. Some fraction of those loans will be variable interest rate. Housing was returning 20% YoY - I wouldn’t be surprised to learn some investors are holding 10% mortgages which they may not be able to carry.

I can't say I understand what will become of things if those investors go belly up, but I can't say I have any sympathy for investors who've made the housing crisis worse. Let them crash and put the houses back on the market.

Keep in mind that "investor" doesn't necessarily mean big evil corp.

An "investor" is also someone who saved up enough money for a down payment on a house in their neighborhood that they Airbnb and go over and clean and wash dishes to try to supplement their income.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#157

Post by shagymoe »

nebula8804 wrote: post #149
shagymoe wrote: post #134

Earlier quoted context omitted.

All good points. Let's remove the power to control money from these people.

Great idea! As someone who spent time volunteering for Bernie Sanders campaign, I'll wait here while you go do that: Good luck!

I was right there with you. We're collectively too stupid or too easily manipulated to enact the change we need.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#158

Post by claytongulick »

FrontierPsych wrote: post #100

2008 was bad. This is much worse, in my opinion. At least the loans were backed by real property in 2008. Homes that will have value and in fact have came back way, way more valuable than the bottom of that crash. What we have now is a crash in financial instruments themselves. It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic. Simple supply and de…

I don't understand what you're saying. I'm far from an expert, but the situation seems to be the opposite of your points?

In 2008 we had crazy financial instruments that were derivatives of bad home loans.

Now we have good loans, but a low interest rate on them so they aren't worth a lot compared to new loans at a higher rate.

The thing that seems to get missed in all the hand-wringing is that these new loans at higher rates are quite profitable.

The issue today seems to be the same as always, if there's a run on a bank, it'll be in trouble.

If not, banks should finally be able to make money in normal ways with the higher rates.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#159

Post by blablabla123 »

FrontierPsych wrote: post #100

2008 was bad. This is much worse, in my opinion. At least the loans were backed by real property in 2008. Homes that will have value and in fact have came back way, way more valuable than the bottom of that crash. What we have now is a crash in financial instruments themselves. It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic. Simple supply and de…

But banks also had much more relaxed capital requirements.

> It's about supply and demand. The USA has been printing up dollars like crazy since the beginning of the Covid pandemic.

Indeed it's about supply and demand. The inflation is largely caused by a physical supply shortage.

The current banking problems are separate from that and because some (smaller) banks didn't have to comply with Basel III and all.

Re: Ask HN: Do you think this is the start of the new financial crisis?

#160

Post by JakeAl »

US debt to GDP ratio has been over 120% since 2020. By IMF definition that's an economic death spiral. By 2028 all of our loan payments for all this printed money will only be going to the interest, and the death spiral will be irreversible with insolvency by 2042. Unless they reset the system or erase debt globally.
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