761–770 of 790 posts
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> smells like Binance played 4D chess all along It's not really "4D chess" to screw over your competitor to corner the market. That's like, business 101.
I'm not too familiar but can you elaborate on how the screwing happened.
Then, when FTX predictably tanked, he stepped in and generously offered to buy out FTX.
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What is the 'actuarial value' of the risk a bank takes on?
I can tell you a bank like say JP Morgan Chase, who is charged 5bp a year (i.e. 5 cents for every $100 dollars), has a much higher chance of catastrophic failure than 1 in 2000. Many banks just like them fail every few decades, and it was generous of me to only say they're undercharged by 90% (i.e. 1 in 200 odds), when the reality is probably more within a range like 1 in 20 to 1 in 100.
Am I crazy or would 5 basis points be 0.05 cents (1/100th of a percent)
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I did not comment but I have some insight on regular finance and took a Udemy course on building your own crypto... And I came to the conclusion that SBF is a crook and the whole crypto space is build on thin air.
congrats on needing to take an entire course to come to that conclusion?
Beside, It's more the remembering of the unfolding of the Subprime crisis and the financial books I read back then that raised the red flag.
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I can tell you a bank like say JP Morgan Chase, who is charged 5bp a year (i.e. 5 cents for every $100 dollars), has a much higher chance of catastrophic failure than 1 in 2000. Many banks just like them fail every few decades, and it was generous of me to only say they're undercharged by 90% (i.e. 1 in 200 odds), when the reality is probably more within a range like 1 in 20 to 1 in 100.
So you're making this numbers up? If banks are being undercharged, the insurer will be incurring losses. It's as simple as that.
The empirical rate of bank failure in the last couple decades has been slightly over 1 in 250 banks per year (that is, ~0.4%/bank/year, or "40 basis points"). This is from these two sources: https://www.fdic.gov/bank/historical/bank/ says that on average 27.3 banks per year have failed, while https://banks.data.fdic.gov/explore/historical?displayFields... says that there have been ~6500 banks covered. (I think that the probability of a massive bank failure is in fact higher than the empirical rate, due to the tail risk of catastrophic failures.)
I have not been able to find what rates JP Morgan Chase pays for their deposit insurance, but I think this page https://www.fdic.gov/deposit/insurance/historical.html suggests that the rate is between 1.5 and 40 basis points per year. Some other sources I've found do suggest that the average rate is around 5 bps/year.
Already we see that the empirical failure rate is higher than the assessment rate. (Although note that the probability was not weighted by dollars, whereas the rate is.) This is perhaps surprising, because the FDIC claims that "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage." https://www.fdic.gov/about/what-we-do/index.html Perhaps this is part of the point of this comment I am replying to.
But indeed, we find that historically the FDIC's Deposit Insurance Fund has gone negative multiple times: https://www.aba.com/news-research/research-analysis/fdic-cap... https://www.fdic.gov/deposit/insurance/assuringconfidence.pd... Historically, in such a situation, the FDIC is able to borrow from the federal government. It has done so in 1990, while in 2008 it did other maneuvers that similarly show that the rate is insufficient.
As a result, it's plausible to predict: (a) the deposit insurance fund might go negative again (ie, the insurance rate is incorrect), (b) the deposit insurance fund will definitely go negative in a situation like the S&L crisis or the 2008 financial crisis (thus requiring tricks like the borrowing mentioned above), and (c) in the event of a more catastrophic failure, the insurance fund will go so far negative that it might be explicitly bailed out by the broader federal government.
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Presumably transaction fees, market data fees, etc. would provide enough revenue to fund advertisements?
Advertising is a market, you see ads for whoever is willing to bid the highest. It seems like Coinbase had to raise money to get big. FTX arrived to the scene later. It would be hard to compete by bootstrapping from organic growth.
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Crypto would be perfect. If only humans were robots.
Not really, quite the opposite in fact. If humans were robots they’d trust each other completely, meaning all financial transactions could be done instantly with a simple database. Humans are messy, so the solution we’ve arrived at is a database enforced by a complicated legal system + state power/violence (and arguably private power/violence via the mob). This works pretty well and powers trillions of dollars around…
Though that raises the interesting question, why were so many folks, some of them quite credible, boosting cryptocurrencies the idea regardless?
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So you're making this numbers up? If banks are being undercharged, the insurer will be incurring losses. It's as simple as that.
The insurer is the United States government. They take losses on things all the time. It's called "socialized losses." I referred to it before, and it sounds like you don't even understand these finance 101 (or even basic high school civics) topics, so why are you insulting anyone?
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This doesn’t sound like very complicated chess. Sounds like those Hong Kong TV shows I watched when I was 13
Please share these TV shows so we can all watch them and learn.
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No argument from me there. I was just narrowly addressing the point in stale2002's comment. Though to be honest, it is well known that the long term fate of any crypto exchange is to go bust. So no one could really claim that they didn't know it was coming. Crypto is glorified gambling. (At least so far. In principle, crypto can mature over time into something more serious.)
I don't think it can, because all those serious things already exist and require the kinds of governance that the crypto promise rails against.