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FTX tapped into customer accounts to fund risky bets, setting up its downfall

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Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#531

Post by dools »

cortesoft wrote: post #368
dools wrote: post #312

Earlier quoted context omitted.

> banks at least tell you they are loaning your deposits out Side not but that’s not really how banking works. Banks create deposits when they originate loans and separately look for the assets they need in order to satisfy any regulatory requirements and net flows of funds for inter bank settlements. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

The details of how the actual transactions occur might be different, but the general concept of fractional reserve banking is still “loaning out a portion of deposits” https://en.wikipedia.org/wiki/Fractional-reserve_banking

The way banks work is this:

There is the department that issues loans. Their job is to identify credit worthy borrowers and issue loans to them.

Then there is the department that handles compliance. Their job is to make sure the bank complies with the various regulations imposed by the government, such as Basel III and capital requirements and the like.

They are separate operations though. The people issuing loans don't call up the people complying with regulations and check whether or not there are enough reserves there to issue loans today, they just issue as many loans as they possibly can because that's how they make money.

Banks borrow from each other to satisfy their liqudity and other requirements, and the central bank is generally a lender of last resort, so banks can always satisfy their short term flow of funds requirements by borrowing money. The reason banks want to attract depositors is that it's CHEAPER than borrowing the money, and without any deposits they may not actually be profitable.

So the more deposits a bank can attract, the more profitable their lending operations are, but their lending operations are not constrained by their reserves per se.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#532

Post by siftrics »

LeafGuild wrote: post #526
siftrics wrote: post #511

Earlier quoted context omitted.

Quoted post unavailable.

>Is someone paying you to say this? Did you lose a bunch of money? No and no. Avoid asking these questions please, they're fallacious and kind of rude. I just see fraud and I call it out. I'm sick of seeing these crypto-Enrons keep happening. I hope the SEC finally cracks down and anyone still involved in crypto after any more of these tumbles goes straight to prison. The entire thing is a ponzi scheme and a fraud an…

You just have no idea what you're talking about.

I can see exactly what Alameda and FTX was doing on chain. I can see the exact amounts of each token they sent, where they sent it, what they swapped it for, etc. It's all publicly documented.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#533

Post by rsj_hn »

nootropicat wrote: post #525
rglover wrote: post #404

Earlier quoted context omitted.

It's a beautiful lesson in human behavior and greed. You're given a perfect form of money (Bitcoin) that you can safely hold with minimal effort and your shortsighted greed ("yield farming") forces you to lose it all to a conman. The silver lining to all of this is that people might actually start listening to Bitcoin maxi's after this year.

Money must be backed by something. Bitcoin is backed by nothing. This makes it a ponzi, not money. It's very simple. It can be used as a means of exchange, but due to being unbacked isn't and can't ever become a store of value, which in turns means it's completely useless as a unit of account due to eternal volatility. The only way to get real wealth in exchange for bitcoin is to hope someone later decides to buy it.…

> Money must be backed by something.

One of my favorite bond films is Goldfinger (1965), starring Sean Connery as James Bond and Gert Frobe as Auric Goldfinger. In the movie, Goldfinger hatches a plan (they always hatch a plan) to destroy the gold reserves at Fort Knox. This will make his own gold holdings much more valuable, but, Bond intones, it will also destroy the world's economy, since the gold in Fort Knox "backs" our money, and if it were to disappear, we'd have hyperinflation.

And I wondered about that a bit. Suppose a meteor filled with gold were to crash onto Federal Property, and they hook up some tractors and drag the thing into Fort Knox. Would this massive new pile of gold cause hyper-deflation?

Bottom line, I don't think money needs to be backed by anything. It just needs to be limited in its quantity. For example, if gold is money, then what is gold backed by? Anyway, Goldfinger is worth a watch -- great film.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#535

Post by rwmurrayVT »

lotsofpulp wrote: post #279
NovemberWhiskey wrote: post #253

Earlier quoted context omitted.

Ehhh, that's misleading. The SEC often files enforcement actions directly with the DOJ and the SEC attorneys are often dual-hatted as SAUSAs.

Interesting, I did not know that!

That's what happened to me...

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#536

Post by zoklet-enjoyer »

tru3_power wrote: post #507
vanattab wrote: post #500

Earlier quoted context omitted.

>It is also a regulatory failure, there are reasons this kind of dipping into customer funds is quite illegal in the US. FTX should not have been reachable by US citizens (funding should have been impossible) _or_ FTX should have been sanctioned _by_ the US I wonder if Sam being the 2nd biggest funder of Democrats has anything to due with this...

Source?

https://www.forbes.com/sites/mattdurot/2022/11/08/ahead-of-h...

His mom is Barbara Fried https://stanforddaily.com/2020/01/16/stanford-connected-fund...

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#537

Post by breck »

dang wrote: post #425
breck wrote: post #382

Earlier quoted context omitted.

> I think this merits your tradition of moderating less if YC's interests are implicated. That tradition has gone out the window: https://twitter.com/breckyunits/status/1590858862504316928

As far as I'm concerned, that tradition is exactly as it has always been. If you're going to make a claim like that you should say why, and post links, so readers can make up their own minds.

I wrote a post critical of the actions of YCombinator and its affiliates, it received thousands of unique visitors and rose quickly on HN, and then was flagged and removed and comments blocked.

I don't think anyone should be able to flag anonymously. Judges don't get to hide behind anon accounts when they hand out sentences. Not in America anyway. It's cowardly and dishonorable.

I don't mind when dumb stuff I submit gets flagged. But when something strikes a chord and rises to the top and then is flagged, we have a "make something people want, that the censors approve of", type of situation.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#538

Post by memish »

wslh wrote: post #288
chlodwig wrote: post #151

From the article: "FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said." In the FTX International terms of service ( h…

How many years could Sam Bankman-Fried get in jail? It is also interesting to read on his Wikipedia profile [1] about "Bankman-Fried is a supporter of effective altruism and claims to pursue earning to give as an altruistic career. He is a member of Giving What We Can and has claimed that he plans to donate the great majority of his wealth to effective charities over the course of his life.". Having direct access to…

This is crazy. He was funneling customer funds to politicians too? $40m worth and was planning up to $1b.

"SBF was planning to spend up to one billion dollars to help influence 2024 presidential election campaigns. His real plan is to bankroll the candidate running against former president Donald Trump. In 2020, SBF donated $5.2 million to the Joe Biden presidential campaign.

According to Open Secrets, a platform following the money in politics, SBF is the sixth largest political contributor. The platform reports that he has made a total contribution of $39.8 million for the 2021-2022 cycle."

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#539

Post by nootropicat »

rsj_hn wrote: post #533
nootropicat wrote: post #525

Earlier quoted context omitted.

Money must be backed by something. Bitcoin is backed by nothing. This makes it a ponzi, not money. It's very simple. It can be used as a means of exchange, but due to being unbacked isn't and can't ever become a store of value, which in turns means it's completely useless as a unit of account due to eternal volatility. The only way to get real wealth in exchange for bitcoin is to hope someone later decides to buy it.…

> Money must be backed by something. One of my favorite bond films is Goldfinger (1965), starring Sean Connery as James Bond and Gert Frobe as Auric Goldfinger. In the movie, Goldfinger hatches a plan (they always hatch a plan) to destroy the gold reserves at Fort Knox. This will make his own gold holdings much more valuable, but, Bond intones, it will also destroy the world's economy, since the gold in Fort Knox "ba…

Gold isn't money. It was when the US government (and other before) forced people to sell other wealth for it to pay taxes. It was an early implementation of money.

Gold has very weak utility today.

>I don't think money needs to be backed by anything.

Which was empirically tested for the last 13 years. What happens is that people get bored of old ponzi schemes and stop buying them, instead preferring to be early in new ones. Which is why inflation-adjusted btc is at the very early Dec 2017 price. Nobody borrows in bitcoin (denominated in it - borrow x btc, pay back x+y btc) for unrelated investments which is one of the main use cases for money.

>It just needs to be limited in its quantity

Artificial scarcity is infinite. Claiming first artificial scarcity is token is somehow special is just a marketing spiel - one that's visibly losing its effectiveness. Which is why bitcoin dominance is dropping so fast.

Re: FTX tapped into customer accounts to fund risky bets, setting up its downfall

#540

Post by dougSF70 »

tartoran wrote: post #519
easytiger wrote: post #463

Earlier quoted context omitted.

Everyone should read that article. The delusion is insane

I listened on it and was definitely good and very eye opening. The delusion does seem surreal

Somewhat related, the bull run of the last decade has made it possible to run a fund and only have a 10% hit rate (absolute winners), compared to a 52% hit rate for hedge funds in the public markets. The net effect in VC must have been a sense of a "can't lose" attitude. Added to the fact that there is a herd mentality when a firm that is hot is raising money, the due diligence boils down to "other big VCs are investing and we don't want to miss out". In other words Group Think, but it doesn't matter provided the public markets are sending newly minted IPO stocks to the moon. Perhaps more turbulent public markets will enforce more stringent due diligence...
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