Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk • Hacker News Board

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#91

Post by vkou » Thu, Dec 21, 2017, 10:53 PM UTC

cm2187 wrote: post #81

vkou wrote: post #74

Earlier quoted context omitted.

That's not quite correct. The problem with subprimes was that banks were issuing questionable loans, and then selling them to investors (Without telling them that the loans weren't worth the paper they were printed on.) This carries a significant reputation risk because they were, quite literally, defrauding their customers. A crypto trading desk, on the other hand, just lets them buy or sell crypto on a customer's b…

Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers. This is not very dissimilar. I am certain the maj…

> Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers.

There's certainly more due diligence that they could have done, but that's a red herring. There was plenty of outright fraud on the part of the ratings agencies. No subprime mortgage should have been rated triple-A. Yes, you could blame investors and pension funds for not realizing that they were systemically duped, and buyer beware and all that, but the ecosystem expected that CRAs were not flat-out lying to them.

Also, some of those investors were legally obligated to invest portions of their portfolio into AAA instruments. Their hands were, quite literally, tied.

> Investors losing money = investors suing. Selling products that you don't believe in yourself = testifying in front of a bunch of angry senators waiving internals emails about "shitty securities" at you.

When I buy a shitty penny stock from my stock broker, and the stock tanks, I can send as many nasty e-mails to him, and my senator as I want. Unfortunately for me, nobody will care one whit.

When Charles Schwab sells me a share of MSFT stock, it's not because they believe, or don't believe in MSFT. Their opinion of MSFT is completely irrelevant to this transaction. They do it because I asked them to sell me a share, and because someone else asked them to buy a share.

When some crook sells me a mortgage that they underwrote, that they then bribed a credit rating agency to rate highly, that I'm legally obligated to buy... That is an entirely different situation. Do that enough, and you bet some state senator is going to be gunning for them.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#92

Post by aslkdjaslkdj » Thu, Dec 21, 2017, 10:53 PM UTC

cm2187 wrote: post #81

vkou wrote: post #74

Earlier quoted context omitted.

That's not quite correct. The problem with subprimes was that banks were issuing questionable loans, and then selling them to investors (Without telling them that the loans weren't worth the paper they were printed on.) This carries a significant reputation risk because they were, quite literally, defrauding their customers. A crypto trading desk, on the other hand, just lets them buy or sell crypto on a customer's b…

Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers. This is not very dissimilar. I am certain the maj…

A simple trading desk does not create the kind risk that caused the financial crisis. The nature of the CDS/MBS contracts the bank owned in their name caused the counter-party risk. Buying and selling bitcoin on behalf of customers does not come with anywhere near the amount of risk as signing a CDS that says Goldman owes a pile money money if AIG defaults.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#93

Post by ttul » Thu, Dec 21, 2017, 10:57 PM UTC

sytelus wrote: post #88

In gold rush, you want to be person providing services to people chasing gold, instead of being person chasing the gold.

Today, an 80-year old client of a friend's financial services firm wrote: .

"Hi. Thank you for your excellent stewardship of my retirement savings all these years. You have helped us change a lot of things, and weather some pretty terrific storms like the Fall of 2008. I am now focused on a higher risk-reward trade off, and will be entrusting my son to invest my assets into the brave new world of crypto currencies. With thanks, please kindly close all of my accounts and begin the process of moving my funds to my son so that he can purchase Bitcoin."

I am not kidding. This, folks, is how the world ends.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#94

Post by cm2187 » Thu, Dec 21, 2017, 10:57 PM UTC

aslkdjaslkdj wrote: post #92

cm2187 wrote: post #81

Earlier quoted context omitted.

Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers. This is not very dissimilar. I am certain the maj…

A simple trading desk does not create the kind risk that caused the financial crisis. The nature of the CDS/MBS contracts the bank owned in their name caused the counter-party risk. Buying and selling bitcoin on behalf of customers does not come with anywhere near the amount of risk as signing a CDS that says Goldman owes a pile money money if AIG defaults.

The problem isn't counterparty risk. The risk to GS is the reputation risk. Investors losing money = investors suing. Selling products that you don't believe in yourself = testifying in front of a bunch of angry senators waiving internals emails about "shitty securities" at you.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#95

Post by user5994461 » Thu, Dec 21, 2017, 10:59 PM UTC

ttul wrote: post #93

sytelus wrote: post #88

In gold rush, you want to be person providing services to people chasing gold, instead of being person chasing the gold.

Today, an 80-year old client of a friend's financial services firm wrote: . "Hi. Thank you for your excellent stewardship of my retirement savings all these years. You have helped us change a lot of things, and weather some pretty terrific storms like the Fall of 2008. I am now focused on a higher risk-reward trade off, and will be entrusting my son to invest my assets into the brave new world of crypto currencies. W…

Can you transfer money to your son in the US? That should be tax evasion.

Where I am from, that order would be totally illegal. ain't happening.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#96

Post by Simon_says » Thu, Dec 21, 2017, 10:59 PM UTC

ttul wrote: post #93

sytelus wrote: post #88

In gold rush, you want to be person providing services to people chasing gold, instead of being person chasing the gold.

Today, an 80-year old client of a friend's financial services firm wrote: . "Hi. Thank you for your excellent stewardship of my retirement savings all these years. You have helped us change a lot of things, and weather some pretty terrific storms like the Fall of 2008. I am now focused on a higher risk-reward trade off, and will be entrusting my son to invest my assets into the brave new world of crypto currencies. W…

> I am now focused on a higher risk-reward trade off

Yea, no kidding!

The silver lining is that at 80, he won't have to live in penury for very long.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#97

Post by zmk_ » Thu, Dec 21, 2017, 11:01 PM UTC

thess24 wrote: post #75

I've seen a few well know prop trading firms that are trading cryptocurrencies as well (Jump, DRW, probably others) and there doesn't seem to be too much talk of that. Goldman lends credibility and pretty much everyone has heard of them, so I get this is bigger news, but to me the more interesting news is in the trading firms. Prop trading firms have no reason not to manipulate the cryptomarkets (it seems legal) and…

It is not illegal as the market is not regulated right now. You can actually see manipulation in BTC right now.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#98

Post by pishpash » Thu, Dec 21, 2017, 11:04 PM UTC

workthrowaway27 wrote: post #57

kingkawn wrote: post #19

Earlier quoted context omitted.

It is small, but has an indeterminate reach throughout the international economy. Nobody knows where the exposures to its collapse would be. A market panic could ensue from such a collapse, followed by other vulnerabilities becoming magnified in importance to the minds of investors. This of course is a guess, and it could well have little impact. But it seems that the risk is larger than the size of this market would…

It will have almost no impact at this point. It's not highly levered or used as collateral in the financial industry. There's no coupling between BTC and the rest of the financial industry.

We don't know they're not used as collateral, and it doesn't have to be in the lit markets where this happens. It could be in dark markets in Asia, having knock-on effects on demand or other investments in the real economy. There is also hedging, which automatically couples correlation into other markets.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#99

Post by cm2187 » Thu, Dec 21, 2017, 11:04 PM UTC

vkou wrote: post #91

cm2187 wrote: post #81

Earlier quoted context omitted.

Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers. This is not very dissimilar. I am certain the maj…

> Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers. There's certainly more due diligence that they…

Credit ratings are merely an opinion. You can't call fraud if someone is wrong on an opinion on whether some securities will go up or down (otherwise you would jail 90% of research analysts). In this case their rating was based on the assumption that there wouldn't be a US-wide real estate downturn. That was backed by a long history and turned out to be dead wrong.

I am sure there was fraud as well. But fraud doesn't explain the financial crisis. Investor complacency, untested new product, excess leverage and reliance on short term funding, too much liquidity in the system, interest rates too low for too long, these were the fundamental reasons.

Re: Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk

#100

Post by AnimalMuppet » Thu, Dec 21, 2017, 11:05 PM UTC

twohearted wrote: post #86

AnimalMuppet wrote: post #65

Earlier quoted context omitted.

If they can't influence the money supply, but can influence its price, what difference does it make?

If you consider BTC to be the stable currency then it is USD that is crashing.

If.

I see no reason to consider that, though. You'd have to say that, not only the US dollar, but every paper currency is crashing, along with gold. That seems quite a stretch.