This is embezzlement. Mr. Bankman-Fried should be arrested. Now.
Arrested by UN? Genuinely curious
FTX tapped into customer accounts to fund risky bets, setting up its downfall
61–70 of 746 posts
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#62Earlier quoted context omitted.
>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.
They used FTT as collateral for loans used on trading activities that boosted FTT value It's not literally a Ponzi, but it's Ponzi adjacent behavior, like what Bill Hwang did.
Bill Hwang lied about his market exposure to the brokers who sold him the equity swaps. It was just garden variety fraud with no ponzi adjacent behavior at all.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#63Quoted post unavailable.
Banks are highly regulated in exactly how much of the deposits they can use and what kind of risks they can take with it. This is complicated: https://en.wikipedia.org/wiki/Capital_requirement
Also in the US at least banks are FDIC insured, so if the bank is breaking the law and gambling inappropriately consumers are still protected.
"How is crypto different than a bank" is a reductive and foolish comparison. There are many, many differences. The primary one being that almost every cryptocurrency system is a fraud at its heart.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#64Earlier quoted context omitted.
It's different in a lot of ways. The most important one that you've missed is that banks don't need to have enough liquidity to cover customer deposits, but they do need to have enough assets . If a bank's assets ever drop below its liabilities, it is immediately liquidated , the shareholders lose everything, and insurance steps in to fix any gaps. SBF has neither liquidity nor assets sufficient to cover its deposits…
> If a bank's assets ever drop below its liabilities, it is immediately liquidated, the shareholders lose everything, and insurance steps in to fix any gaps. That's how it's supposed to work. We've all found out in 2008 that's no longer the case. The FDIC took over and sold or liquidated a few hundred small banks and a handful of medium sized banks. The big ones were considered to be too big to fail and were bailed o…
> That's how it's supposed to work. We've all found out in 2008 that's no longer the case.
1. Not every bank that became insolvent had a hole on their balance sheet that required all of their equity to be wiped out to fill. The shareholders got a haircut proportionate to how big those holes were.
2. The rot would have gone far deeper, and the holes could not have been covered if those bank balance sheets looked anything like FTX's did. Banks, for the most part, faced a liquidity crisis, not an insolvency crisis, and the owners of the ones that faced the latter were, for all intents and purposes, wiped out.
3. The FDIC is funded by banks, not by taxpayers. The FDIC only cares about customer deposits, it doesn't give two figs about investments.
The controversial, taxpayer bailouts were not for retail banks (The FDIC was designed a very long ago to handle this case, and handled it well, without dipping into the public purse), they were for shit like AIG. And speaking of shareholder equity, that didn't do so hot. Their public valuation went down 98% from 2007 to 2008, and is, as of today, down 75% from their peak. I wouldn't have wanted to have been a shareholder.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#65Earlier quoted context omitted.
> But not once - not from word of mouth, or directly from them, or someone, ever, anywhere - have I heard a common sense way these guys make money due to intelligence, instead of due to a scam or due to luck. Financial markets have a fascinating property: any well-known strategy that can be implemented at reasonable cost [0] stops working. This is because people implement it and the profit goes away. If Jane Street h…
I see a lot of variations on these arbitrage and secrecy themes. Arbitrage that sticks around for years: those are scams dude. They involve collusion, not intelligence. I understand it might not be illegal collusion, but if either side of the transaction being scammed found out, they would find someone else to work with. Trust me, I know. I've worked in ad tech.
The obvious suspicion, for any company that is both a market maker and doing prop trading, is that they're engaging in some sort of front running. They're probably doing it in a highly obfuscated non-trivial way otherwise they'd get caught quickly, but nevertheless are using their visibility into trillions of dollars worth of order flow to shape their own trading strategy.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#66Remarkable that a venture-backed company can loan $10B to the founder's hedge fund without running into some sort of board/corporate sign-off that's required to literally execute the agreement/fund transfer.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#67All: please don't fulminate*. Perhaps you don't owe embattled billionaires better, but you owe this community better if you're participating in it.
HN is a site for curious conversation, so please wait to feel some curiosity before you comment.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#68Earlier quoted context omitted.
>ponzi scheme This is not a ponzi scheme. This is a good old "not firewalling your customer's money and your investment money" that everyone suffered from in 2008. The situation is cataphoric enough without people mis-using terms.
Even in 2008 that is not what happened. Tell me which retail brokerages lost their customers assets because they gambled them away? There is no glossing over the fact that all these crypto explosions are a result of largely re-implementing a pre-Fed, pre-FDIC, pre Great Depression style banking system with all its long-patched defects.
... except in a way that fundamentally prevents the patches and even lauds the defects.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#69Remarkable that a venture-backed company can loan $10B to the founder's hedge fund without running into some sort of board/corporate sign-off that's required to literally execute the agreement/fund transfer.
It feels like a very Adam Neumann move.
Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall
#70Quoted post unavailable.
Banks lend your deposits out. Banks do not play the market with your deposits. Anything close to that ended in 2008. And even the banks that did so, given they were FDIC insured and part of the Fed Reserve banking system did not leave any customers in the hole. We can argue about taxpayer bailouts and bad incentives, but the system worked the way it was supposed to - normal people can put their money in a bank accoun…
> Banks lend your deposits out. Banks do not play the market with your deposits. Anything close to that ended in 2008.
True that the Volcker rule of Dodd-Frank 2010 eliminated banks using deposits for prop trading as well as other gambling loopholes. That is, until it was weakened in 2019 by R Congress and Trump admin.
https://www.americanprogress.org/article/hollowing-volcker-r...
In any case, I would agree that the FDIC is the big difference, backed by the Fed printing press.