Do We Need Central Banks? (2017) • Hacker News Board

Re: Do We Need Central Banks? (2017)

#161

Post by aaavl2821 » Mon, Jun 04, 2018, 5:50 PM UTC

erikb wrote: post #159

aaavl2821 wrote: post #131

Earlier quoted context omitted.

Bankers do not intend to increase risk without safety backups. In the financial crisis banks were incompetent just as much as unethical -- they had risk models that told them they had a safety net, but their models were wrong They also generally don't operate like a casino. They have customers, and sell products. The securitized RMBS products at least in theory offered social benefit: decreasing cost of housing witho…

> Bankers do not intend to increase risk without safety backups. In the financial crisis banks were incompetent just as much as unethical -- they had risk models that told them they had a safety net, but their models were wrong I agree that what you describe covers most bankers. But you only need one person to come up with something like a CDO secured by credit default swaps. And you only need one person at the top o…

I agree that its really easy for a system like the mortgage finance system to be transformed by a small group of influential people, but think its probably hard to predict or control how / how much that transformation will impact stuff downstream. I dont think the bankers who invented CDOs knew how real estate investors in socal or mortgage lenders in florida would respond, at least not the extent of the response. Of course that's just my opinion, maybe they did know. But they probably just saw this was a way to create a product that customers would buy and stopped there. A lot of banks had massive amounts of the securities on their balance sheets, if they knew exactly what they were doing their risk models would have been better

I agree that thinking you can "magically" decrease risk is probably foolish, but some really smart ppl believe that they can model risk better than anyone, and with they deploy a lot of money based on that conviction. Sometimes they're ultimately right, but if they're wrong for long enough they still lose everything (see LTCM)

Re: Do We Need Central Banks? (2017)

#162

Post by badminton1 » Mon, Jun 04, 2018, 6:16 PM UTC

a008t wrote: post #140

emodendroket wrote: post #112

Earlier quoted context omitted.

In what way is ecology getting better, rather than rapidly worse?

Car emissions are getting cleaner, leading to cleaner air. That would be one example. Deindustrialization of the West led to improvements in ecology as well, I imagine.

Car emissions are dwarfed by industrial and agricultural emissions. Plus, before an electric car is used for the first time, it already generated more carbon than the dirtiest of non-electric cars during its manufacturing.

Then, if factories move from one country to another, with a higher carbon footprint, the global emissions don't go down. You are just moving [while increasing] emissions to somewhere else.

So, the "cleaner environment" is just a local phenomenon and a global level it is not the case.

Re: Do We Need Central Banks? (2017)

#163

Post by notahacker » Mon, Jun 04, 2018, 6:18 PM UTC

a008t wrote: post #133

Nasrudith wrote: post #99

Earlier quoted context omitted.

It is if you want passive interest rates above negative. Storing money without touching it at all costs money. Worst of all to society the value is nill or negative compared to investing it in something and collecting dividends. There was even an ancient parable about that involving a lord giving money to peasants for safekeeping for a few years. He scolded the one who buried it and praised the one who used it for in…

You are right - this will be a strong incentive to keep as little as possible in a checking account, and either lend or invest the rest. There are two main differences from the current system: 1. Depositors will have to explicitly give up/lock their funds for a set period of time if the funds are to be lent out and they are to earn interest. Early withdrawals come with a significant fee. This makes bank runs very unl…

An alternative way of putting it is that

(1) Because maturity transformation is no longer permitted, every time somebody wishes to take out, say, a mortgage, the bank has to find somebody who has >$200k they're not even going to consider spending for quarter of a century. As a result, costs of borrowing go massively up, which is bad for everybody except for a small proportion of rentiers sufficiently wealthy to be entirely unworried by liquidity. Joe Sixpack proves to be even less adept at managing an overnight lending portfolio than full time professional bankers, and loses money as a result.

(2) The money supply is artificially "set" at a particular level on the basis of the unambiguously false assumption that real resources do not change over time rather than being allowed to fluctuate and grow to properly align itself with creditworthy borrowers' growth projections in a way commensurate with price stability. The boom bust cycle is replaced by permanent bust.

Re: Do We Need Central Banks? (2017)

#164

Post by DoctorOetker » Mon, Jun 04, 2018, 7:22 PM UTC

aaavl2821 wrote: post #131

erikb wrote: post #61

I'm surprised that the obvious isn't mentioned even by the "opponents" of the current banking system. What increases the risk is that banks create investments without safety backups and what destroys economic growth is the huge bonuses they take out of these investments. Maybe it's because I played poker in the past that I can intuitively see it? In poker usually players play against each other in a zero sum game. Th…

Bankers do not intend to increase risk without safety backups. In the financial crisis banks were incompetent just as much as unethical -- they had risk models that told them they had a safety net, but their models were wrong They also generally don't operate like a casino. They have customers, and sell products. The securitized RMBS products at least in theory offered social benefit: decreasing cost of housing witho…

>They also generally don't operate like a casino. They have customers, and sell products.

Similarily one could say: "Gambling houses don't operate like a casino. They have customers, and sell entertainment products.

And then continue describing the product details and trivia such as the exact rules of this or that casino game...

Re: Do We Need Central Banks? (2017)

#165

Post by DoctorOetker » Mon, Jun 04, 2018, 7:26 PM UTC

philippoi wrote: post #142

0x445442 wrote: post #139

Earlier quoted context omitted.

> creating currency out of thin air But this is one of the main things central banks do. They have a monopoly to counterfeit money. And in conjunction with their affiliated government people are forced to use it to pay taxes.

"They have a monopoly to counterfeit money." No. That's not what counterfeiting is. Counterfeiting is creating imitation money to be passed off as the genuine article.

What if currency is in fact counterfeit respect?

Re: Do We Need Central Banks? (2017)

#166

Post by DoctorOetker » Mon, Jun 04, 2018, 7:32 PM UTC

spookthesunset wrote: post #145

philipwhiuk wrote: post #115

Earlier quoted context omitted.

Okay. I'm Chase Bank. How do I issue 600 BTC given I have 20 BTC in my account. There is zero allowance in the protocol for this to happen.

Easy. As an exchange almost all your volume is “off chain” transactions between two traders. And since you aren’t audited or beholden to any financial regulation there is nothing stopping you from having one side of the trade be your own bot. All that bot does is sell newly created fake bitcoin and keeps the dirty USD fiat for the exchange owner. Again since the system isn’t audited, the exchange can have massively m…

sure but these "off chain" transactions are not really Bitcoin, but the exchange's promises of Bitcoin (or whatever cryptocurrency under discussion). As long as custommers succeed in end-to-end conversion the distinction is moot, until they fail to succeed in this end-to-end conversion.

So still a commercial bank can not fractional reserve bank BTC, only fractional reserve bank promises for BTC. For a while people may fall for such a scheme but players learn...

Re: Do We Need Central Banks? (2017)

#167

Post by DoctorOetker » Mon, Jun 04, 2018, 7:37 PM UTC

philipwhiuk wrote: post #118

EGreg wrote: post #111

Earlier quoted context omitted.

We have been dealing with exactly these issues at the Intercoin project ( https://intercoin.org ) Credit is a voluntary thing. Both sides can agree to create credit lines (trustlines) out of thin air without any third party ledger or permission. (Well maybe except Usury laws.) Now the problem with credit is that you don’t know how solvent the debtor is and many debts they have. Credit agencies have sprung up to try t…

> There are far better ways. Citation needed since PoS / PoW is the way Bitcoin uses to solve the many generals problem.

Algorand's solution is in fact pure genious, however there is no implementation yet (that I know of, if someone knows of an implementation, please let me know!).

Re: Do We Need Central Banks? (2017)

#168

Post by a008t » Mon, Jun 04, 2018, 8:14 PM UTC

notahacker wrote: post #163

a008t wrote: post #133

Earlier quoted context omitted.

You are right - this will be a strong incentive to keep as little as possible in a checking account, and either lend or invest the rest. There are two main differences from the current system: 1. Depositors will have to explicitly give up/lock their funds for a set period of time if the funds are to be lent out and they are to earn interest. Early withdrawals come with a significant fee. This makes bank runs very unl…

An alternative way of putting it is that (1) Because maturity transformation is no longer permitted, every time somebody wishes to take out, say, a mortgage, the bank has to find somebody who has >$200k they're not even going to consider spending for quarter of a century. As a result, costs of borrowing go massively up, which is bad for everybody except for a small proportion of rentiers sufficiently wealthy to be en…

1. Could maturity transformation not be done by the markets? E.g. if you want a mortgage, you essentially issue a bond; lenders may then decide to hold the bond for a short period of time and then sell it on the secondary market. With regards to consumer products, I am sure the market would come up with something user-friendly. But I see your point.

2. The money supply could grow predictably, e.g. like Friedman's proposal of replacing the Fed with a computer that expands the money supply in a predictable manner.

Re: Do We Need Central Banks? (2017)

#169

Post by erikb » Mon, Jun 04, 2018, 8:26 PM UTC

throwawayjava wrote: post #119

EGreg wrote: post #105

Earlier quoted context omitted.

Suppose all the sovereign debt defaults and is restructured to be 5% of the original. Who loses? Mostly the holders of treasuries. Holders of other assets would seem to be fine! So it seems to me to be like any other default, except on a larger scale. Price the sovereign debt risk into the calculation and diversify into real assets.

> Who loses? Mostly the holders of treasuries. In the United States, defaulting on Sovereign Debt would basically guarantee the death of social security. If you're in the USA, by far the best way you can insulate yourself against sovereign debt is by: 1) organizing your life's expenses so that you can retire (or at least continue to live) with $0.00 from social security. 2) Ensuring that you don't rely on any federal…

Everybody gets old at some point, so I would extend that.

Re: Do We Need Central Banks? (2017)

#170

Post by notahacker » Mon, Jun 04, 2018, 9:12 PM UTC

a008t wrote: post #168

notahacker wrote: post #163

Earlier quoted context omitted.

An alternative way of putting it is that (1) Because maturity transformation is no longer permitted, every time somebody wishes to take out, say, a mortgage, the bank has to find somebody who has >$200k they're not even going to consider spending for quarter of a century. As a result, costs of borrowing go massively up, which is bad for everybody except for a small proportion of rentiers sufficiently wealthy to be en…

1. Could maturity transformation not be done by the markets? E.g. if you want a mortgage, you essentially issue a bond; lenders may then decide to hold the bond for a short period of time and then sell it on the secondary market. With regards to consumer products, I am sure the market would come up with something user-friendly. But I see your point. 2. The money supply could grow predictably, e.g. like Friedman's pro…

1. Banks are a market solution to maturity transformation (it's just that doing maturity transformation without frequent liquidity crises needs access to more short term borrowing facilities than private capital markets can offer). Treating mortgages as tradable financial products instead of obligations the issuer should be happy to keep on their balance sheet was the cause of the bad underwriting that led to the financial crisis, not the solution to it.

2. Friedman's k% rule is better than a fixed money supply, but it's still every bit as arbitrary and further removed from the relevant market indicators of resource constraints (creditworthy borrower demand and price inflation) than the current system.