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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

#581

Post by marshmallowmad »

jongjong wrote: post #564

Whenever something like this happens, I'm often surprised by the relative lack of outrage. People are too forgiving. I noticed a lot of comments about SBF along the lines of "I know he's a good guy..." or "Everyone makes mistakes" or "Everyone deserves a second chance..." F that. Society has created an environment where it's better to ask for forgiveness later than it is to ask for permission prior. Our society syste…

SBF has turned out to be a complete psychopath. It’s scary. Someone who was quite trusted in a number of circles turns out to be a liar, fraud, and just knowingly stealing from retail.

He should be behind bars.

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

#582

Post by gigatexal »

BurningFrog wrote: post #568
stephen_g wrote: post #559

Earlier quoted context omitted.

Banks don't actually even 'lend out' customer deposits. That's a very common misconception. In modern bank operations, incoming fund transfers (which involve deposits) do provide liquidity that help allow the bank to be able to lend, but banks are actually levering up capital (paid-up share capital, retained earnings, etc.) to lend. The primary limit on how much they are able to lend (by Basel III regulations) is a m…

I didn't understand much of the jargon, but if banks don't lend out customer deposits, why are they gone when banks go bankrupt? If they were not lent out, where did they go?

US banks have access to the Federal Reserve Bank and get funds from them at the fed funds rate. Then they add some margin and loan it out to you and me. They’re required to keep collateral and can only lend some smaller percentage of their capital. Etc etc.

Such is what I have pieced together.

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

#583

Post by marshmallowmad »

sytelus wrote: post #389
cbtacy wrote: post #132

Earlier quoted context omitted.

They had no real board. They had no real governance. What's amazing is that large venture funds would put this much money into this kind of company without any board seats.

He simultaneously played League of Legends when pitching to VC on Zoom call. That indicated to VC how serious and responsible he was. They unanimously and immediately signed off funding merely out of awe.

Ok. I saw this interview months ago and thought something looked off. Now I swear he is playing LoL in this interview: https://youtu.be/xVaSSTEHB0Y

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

#584

Post by lupire »

stephen_g wrote: post #559
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…

Banks don't actually even 'lend out' customer deposits. That's a very common misconception. In modern bank operations, incoming fund transfers (which involve deposits) do provide liquidity that help allow the bank to be able to lend, but banks are actually levering up capital (paid-up share capital, retained earnings, etc.) to lend. The primary limit on how much they are able to lend (by Basel III regulations) is a m…

Why do banks bother with customer deposits at all, instead of spinning out to separate companies?

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

#585

Post by lupire »

gigatexal wrote: post #582
BurningFrog wrote: post #568

Earlier quoted context omitted.

I didn't understand much of the jargon, but if banks don't lend out customer deposits, why are they gone when banks go bankrupt? If they were not lent out, where did they go?

US banks have access to the Federal Reserve Bank and get funds from them at the fed funds rate. Then they add some margin and loan it out to you and me. They’re required to keep collateral and can only lend some smaller percentage of their capital. Etc etc. Such is what I have pieced together.

That doesn't answer where deposits go in a bank run.

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

#586

Post by zizee »

ummonk wrote: post #377
zizee wrote: post #254

Earlier quoted context omitted.

> I'd love to hear a steelmanned argument in favor of it, maybe I'm missing something obvious? If it were a big shipment of plutonium laced heroin, it seems fair game. I think the biggest issue with civil asset forfeiture is the conflict of interest where police departments are keeping/using the seized assets. From the outside it looks a lot like the government acting like a gang. The other big problem is it seems li…

Gold is legal. So is cash - in fact it’s legal tender for all debts public or private. By contrast, plutonium laced heroin is definitely not legal without the appropriate licenses from multiple regulatory agencies.

Yeah, I guess I wasn't super clear. I meant seizure of certain things is fair game i.e. Obviously problematic stuff. I didn't mean to suggest that means all things are fair game to be seized.

Looking at Wikipedia's definition of civil asset I see my "in head definition is slightly wrong:

> Civil forfeiture in the United States, also called civil asset forfeiture or civil judicial forfeiture, is a process in which law enforcement officers take assets from people who are suspected of involvement with crime or illegal activity without necessarily charging the owners with wrongdoing. While civil procedure, as opposed to criminal procedure, generally involves a dispute between two private citizens, civil forfeiture involves a dispute between law enforcement and property such as a pile of cash or a house or a boat, such that the thing is suspected of being involved in a crime...

So my use of clearly illegal assets being seized means it wouldn't actually be civil asset forfeiture. Mea culpa!

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

#587

Post by neilyio »

choppaface wrote: post #558
dang wrote: post #155

Earlier quoted context omitted.

Maybe so, but please don't post unsubstantive comments to Hacker News. We're trying for a different sort of forum. https://news.ycombinator.com/newsguidelines.html

You can contact people directly instead of trying to shame in public. What you're doing here dang is flamebait

What? How does that make any sense?

How is a new Hacker News reader supposed to understand what’s considered unacceptable behaviour unless it’s called out? I don’t want a comment stream full of people unaware they’re about to violate a rule when they post.

Personally, I find dang’s feedback to be helpful and respectful.

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

#588

Post by lupire »

pm90 wrote: post #492
encryptluks2 wrote: post #339

Earlier quoted context omitted.

Or people that are unethical use charities as a front to do illegal things without remorse

They may do unethical or immoral things but generally they don’t do illegal things. If they do, they’re targets for prosecution. We’ve got this imperfect system of laws which we use to govern the way we live. Its flawed but it isn’t a free for all either.

it's extremely rare for crimes >$10M to be punished in excess of profit.

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

#589

Post by RC_ITR »

stephen_g wrote: post #559
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…

Banks don't actually even 'lend out' customer deposits. That's a very common misconception. In modern bank operations, incoming fund transfers (which involve deposits) do provide liquidity that help allow the bank to be able to lend, but banks are actually levering up capital (paid-up share capital, retained earnings, etc.) to lend. The primary limit on how much they are able to lend (by Basel III regulations) is a m…

You’re creating a lot of confusion by ignoring cash accounting (the physical dollar I give a bank is then given to a homeowner as a mortgage) and talking about GAAP accounting, without making it clear that is what you are doing (the jargon only makes things worse).

Like sure, it’s loan to capital ratio that matters but as you point out:

> Bank runs are a liquidity problem because the bank's assets aren't all liquid enough to transfer out all the deposits the bank holds,

This is because in practice the money you give to a bank is lent out, even if it’s technically leverage against capital.

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

#590

Post by jasmer »

hmahncke wrote: post #66

Remarkable 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.

The number of 'major red flags' here is shocking, and frankly, you'd think after 2008 that firms would have to hire, you know, an 'accountant'.

My god, there are so many things that were there to have been a modicum of parental oversight, the situation would not have festered.

This one is going to stain Web3, Defi, and notably VC.

Hey - VC are the partners of innovators so it's not good to see them in these situations.

Partly they are victims, but partly, they are responsible obviously.

We should note, this has a lot to do with the magical 'made up' nature of tokens. The entire Ponzi was based on tokens worth nothing, with massive leverage. It's a lot of money that VC cab hardly take their eyes off of. Why invest in 'doing stuff' when you can just 'make something up' and say it's worth billions? Given the way VC portfolios work they are going to run at that stampede because of the money flowing into it.

It's a systemic problem.

It would help if there were more regulations around this - at least to dampen he leverage. More transparency, higher interest rates will help as well.

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