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It’s Time for Real Time Settlement

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Re: It’s Time for Real Time Settlement

#421

Post by gher-shyu3i »

rank0 wrote: post #413
KMag wrote: post #400

Earlier quoted context omitted.

> > Great empires were built without interest. > Like which? I think part of the problem is that the GP is conflating debt leverage and interest. My understanding is that there have been societies essentially without debt leverage, and no societies without loan yield. As far as interest, all non-altruistic loans have strictly positive yield. You can use contracts to shift payments around and nominally get rid of inte…

What do you mean by debt leverage? I don't really see how you can have interest without allowing for borrowers to profit from that debt. Businesses use debt to finance their operations. I can get a mortgage and profit off the appreciation of my property. I had never heard of that contractum trinius thing! But it really doesn't seem any different. The borrow has to pay insurance premiums to the lender instead of inter…

You're correct, they're just thinking they found loopholes around the issue. Islamic texts explicitly call out this behavior and prohibits it. You can't stitch together individual legal contracts to reach the goal of lending money with interest. You can't "kid" God.

Re: It’s Time for Real Time Settlement

#422

Post by pokot0 »

kasey_junk wrote: post #181
pokot0 wrote: post #142

Earlier quoted context omitted.

My understanding is that it does. One example (there's more like the instant deposit): when you buy a stock with money from another sale not yet settled, you are basically using margin (a loan) and thus RH have cash requirements which are a % of the cost of the trade to be settled. If you don't allow that, and only let people trade on a cash basis after the trades have been settled, you effectively have 100% of the m…

Thats true but do any brokers do that in their apps? Neither my Vanguard nor my Fidelity UI make it obvious when i’m using settled vs non-settled funds.

Yes, I never used any of those but it looks like they followed suit on the RH success and implemented something similar.

I had an Interactive Brokers account for years and there the distinction is very clear. A cash account just can't use money before they are settled (not different from many bank accounts show you two balance, one available the other one including pending transactions). To upgrade to a margin account you need to go through a rather long process of documents and signatures.

Re: It’s Time for Real Time Settlement

#423

Post by gher-shyu3i »

bertjk wrote: post #333
gher-shyu3i wrote: post #225

Earlier quoted context omitted.

When did we have 0% interest on houses in modern times? I said that mortgage interest contributes to bubbles, not that it's the only cause. Interest is more insidious, because it allows people who have wealth to gather even more wealth without putting in the appropriate risk to balance it, giving them the luxury to purchase assets easily, contributing to those bubbles somewhat indirectly. However, because of interest…

Ok, this is kind of fascinating. So interest is bad. Is rent bad? If I have a car or a house is it bad if I rent it out? How about if I had a bag of cash, is it bad if I rent that out? How are the two scenarios different?

Renting a car or house is very different from renting money.

When you rent out a car, there are many logistics involved, and there needs to be work done to upkeep the car or house (maintenance, repairs, etc.). The asset itself is consumed. There is risk involved, and the "lender" (the asset owner) is not guaranteed profit (the house might burn down or the car might get totaled). Being a landlord is not easy.

Compare that to money, which Islam sees as a means to an end, not as an ultimate goal in and of itself (that doesn't mean that Islam is against gaining wealth, on the contrary, as long as the wealth is gathered and spent in good, there is a lot of reward for it).

Money when lent out is never consumed. It's an abstract thing that the lender is contractually owed it plus the lending fee (interest). For literally doing basically nothing, he's able to generate income while taking minimal risk, and exploiting the borrower at the same time. If the borrower defaults, the lender is able to go after him for not just the principal, but the interest as well. He'll go after his assets and sell them to make his basically guaranteed profit.

Furthermore, it's possible to chain debt in a way that becomes a series of dominos, where if the first one topples, everything goes. We've seen this in 2008, it's inherently built into the system. You can't really do this with rent. While you can technically sub lease, there is a limit in practice, and because of fees, it isn't really feasible to go more than one or two steps. Not so with lending. You have borrowing on top of borrowing for instance, people take out loans against their partially paid for mortgages, to take out more mortgages, to buy property. Then the whole thing collapses at a moment's notice when the markets become finicky. Banks pool debts and sell them in packages, we've seen the end result of that.

Re: It’s Time for Real Time Settlement

#424

Post by ric2b »

gher-shyu3i wrote: post #420
KMag wrote: post #400

Earlier quoted context omitted.

> > Great empires were built without interest. > Like which? I think part of the problem is that the GP is conflating debt leverage and interest. My understanding is that there have been societies essentially without debt leverage, and no societies without loan yield. As far as interest, all non-altruistic loans have strictly positive yield. You can use contracts to shift payments around and nominally get rid of inte…

> that the GP is conflating debt leverage and interest I'm not :) > The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan. In Islam, any loan that contractually requires benefit to the lender is prohibited, and that benefit do…

> loans are strictly an act of charity since they cannot take interest.

Let me guess, this means that you either have good connections or you're not buying a house until very late in life?

Re: It’s Time for Real Time Settlement

#425

Post by ric2b »

gher-shyu3i wrote: post #419
rank0 wrote: post #315

Earlier quoted context omitted.

> If that's true, then it's fundamentally broken (assuming interest bearing loans of course). You will never have a sustainable economic system that is based on interest bearing loans Yes we should all switch the current economic system which has been the root cause of societal development. And we should switch to a fairy-tail system which you describe but miraculously does not and has not ever existed. One where peo…

> switch the current economic system which has been the root cause of societal development Strawman argument, and red herring. Just because we rely on something immoral that brought some value does not mean that there isn't a superior solution. > switch to a fairy-tail system which you describe but miraculously does not and has not ever existed Proper Islamic finance exists and has existed and has built empires. > On…

> Proper Islamic finance exists and has existed and has built empires.

What empires has it built since the Catholic church started allowing interest on loans?

> if it doesn't work out, then the investor has lost his money and is not owed anything. It's risk sharing.

That works fine for businesses and it's the reason we have the stock market and VC's.

How does that work for someone buying a house?

Re: It’s Time for Real Time Settlement

#426

Post by ric2b »

swampthing wrote: post #264
Traster wrote: post #222

Earlier quoted context omitted.

They didn't block behaviour that would lead to that. They disabled their core product and raised $3.4 billion in a week to cover their fuck up. Most likely, the founders of RH found themselve significantly diluted by this event and if they hadn't been able to raise more capital they likely would've gone bankrupt even if they disabled everything. That's pretty much the definition of over-extending yourself.

Where are you reading that they would have gone bankrupt even with the trading restrictions they put in place?

Why else would they need an emergency $3.4B fund raise?

Re: It’s Time for Real Time Settlement

#427

Post by gher-shyu3i »

selimthegrim wrote: post #414
gher-shyu3i wrote: post #408

Earlier quoted context omitted.

If there's no profit, the investors and the company owners have taken the risk and share it equally. What's the problem? I'm not aware of Pakistan's Army deal with the IMF. If they took on an interest bearing loan, it's their problem they got themselves into.

You might want to look into Amazon or “Hollywood accounting”

The fact that there are other examples of exploitation and fraud is tangential. The argument is that interest is one form of exploitation, it's not the only form.

Re: It’s Time for Real Time Settlement

#428

Post by amluto »

usefulcat wrote: post #160
amluto wrote: post #136

I have seen on Twitter that Robinhood was unable to use customer funds to satisfy clearing deposit requirements, but I couldn’t find an actual authoritative source on this. Is this correct? It seems to me that, to secure a $300 purchase buy a customer, Robinhood ought to be able to use that customer’s $300.

Consider the following sequence of events: 1) Custom initiates $300 purchase of some stock. 2) RH sends customer's $300 to counterparty. 3) After receiving the $300 and before delivering stock to RH, counterparty goes belly up. Forbidding RH to use customer funds in that manner prevents that race condition.

This particular issue you cite has little to do with customer funds. Look up delivery-versus-payment. In foreign exchange, for example, one can avoid this issue by settling via a provider like CLS [0]. I’m reasonably confident that stock transactions are immune to the problem you’re imagining.

In any case, I think it would be entirely ridiculous for one’s stock broker to front the entire purchase price for each and every stock purchase to secure customers against counterparties who might take the money and not deliver the stock. This would involve the broker coming up with 100% of the price, not merely an amount related to the anticipated worst-case P&L.

[0] https://www.cls-group.com/ In this particular instance, I do know what I’m talking about. The story of Herstatt Bank is fascinating.

Re: It’s Time for Real Time Settlement

#429

Post by princeb »

princeb wrote: post #348
JumpCrisscross wrote: post #120

Real time equities settlement and clearing is a terrible idea. It sounds great. But it breaks a lot of good stuff. I'm surprised the CEO of a brokerage is advocating for it. (The article is a bit loose with the terms settlement and clearing. Again, surprising from the CEO of a company that almost got taken out by internal clearing failures.) If you only think about the American stock market from the perspective of a…

> I'm surprised the CEO of a brokerage is advocating for it. settlement is a necessary but undesirable part of the business of a brokerage, because it locks up capital, which is costly, for a business model whose margins are shrinking rapidly. it used to be that brokerages could earn something from the overnight repo on the balance sheet in order to compete aggressively on fees but nowadays overnight rates are so low…

edit: immediate settlement is profoundly beneficial for a brokerage. imagine a single trade on the robinhood app, there is counterparty risk between the retail trader and rh and there is a separate counterparty risk between rh and the marketmaker. the two risks perfectly offset at the point of trade, but deteriorate as the market moves further away from the trade price. over several days, the loss probability can become completely lopsided. under instant settlement conditions, the counterparty risk is neutralized immediately.

as a side note, the ficc (which is the fixed income part of the dtcc) already does intraday matching. this is not, as i understand it, exactly settlement, but a pure flow brokerage, lets say, can net down their two-way exposures to reduce margin. this mollified the margining requirements surge in march 2021 when gov bond vol increased 3-4x.

Re: It’s Time for Real Time Settlement

#430

Post by gher-shyu3i »

ric2b wrote: post #424
gher-shyu3i wrote: post #420

Earlier quoted context omitted.

> that the GP is conflating debt leverage and interest I'm not :) > The yield on these loans is always strictly positive, and an interest rate equivalent to that yield is easily calculated. You can shift payments around and structure things so that there's nominally no interest, but there's still yield on the loan. In Islam, any loan that contractually requires benefit to the lender is prohibited, and that benefit do…

> loans are strictly an act of charity since they cannot take interest. Let me guess, this means that you either have good connections or you're not buying a house until very late in life?

Believe it or not, real estate owners back in the day were willing to sell their house in installments without upping the price. So neither of your suggestions apply.

Even with interest and predatory loans, people today are not buying properties until later anyway, so that's not really an argument.

Secondly, in Islam the government has duties to perform, including providing good quality of life to its citizens, something we don't see done by so many governments today. Housing goes under this.

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