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

wsj.com

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

#591

Post by nsxwolf »

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…

He "plans to".

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

#592

Post by lupire »

jefftk wrote: post #421
eruleman wrote: post #363

Earlier quoted context omitted.

Using client funds to go double or nothing is ethical in utilianism. When the ends justify the means, anything goes.

Very few utilitarians or affective altruists (including me) consider that ethical.

Affective altruism is quite a different thing, practically opposite of effective altruism. ;-)

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

#593

Post by lupire »

Digory wrote: post #291
delusional wrote: post #243

Earlier quoted context omitted.

The ledger ensures that the handing over of the "thing" can happen without trust in any intermediary. You still ultimately have to trust the counterparty to deliver what they promise. Think of it like HTTPS. Nobody can sneak anything into the request, but the counterparty you're contacting could still be a fraud.

But this isn't counterparty risk, it's fraud risk, right? It sounds like "Atrium borrowed a bunch of houses from FX, but FX didn't own the houses." When you check the Recorder (the blockchain for houses), the deeds should all say "John Doe owns 123 Main St." In the world with a Recorder of Deeds, Atrium is screwed, and FX might be screwed, but John Doe is easily confirmed as the owner of 123 Main. It sounds like peop…

"fraud" is a subjective assessment of intent. Empirically, in the marketplace, fraud looks the same as incompetence.

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

#594

Post by lupire »

zen21 wrote: post #545
tartoran wrote: post #528

Earlier quoted context omitted.

Still on you. Who did you trust that lied to you? Then starting to ask oneseld: Why did you trust them in the first place. Understanding that part would make it possible not fall for it the second time.

Luckily in many cases this is in fact not “on you”, but rather is a crime , or is subject to civil litigation depending on the nature of the fraud in question. This helps to avoid instances of retributive violence, which is the general solution when a legal system isn’t available.

That's fiat thinking, which is exactly what crypto people want to avoid.

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

#595

Post by zarzavat »

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?

The bank has a balance sheet of assets and liabilities. When you deposit money, that’s a bank liability. When you take a loan, that’s a bank asset.

If some people don’t pay back their loans, then that loan gets written down, so the bank has fewer assets than before. A certain level of default is expected and baked into their operations.

If many people don’t pay back their loans, the bank no longer as as many assets as it expected. But it still has as many liabilities. The value of the bank will decrease, potentially to nothing.

As the grandparent notes, banks are subject to special requirements in law that define how much capital the bank needs to have to remain solvent. If the bank is no longer solvent then it can’t cover the liabilities (deposits).

In that case either the government will step in to bail the bank out, or the bank will collapse and the depositors will have to be paid from a deposit insurance scheme.

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

#596

Post by dang »

breck wrote: post #537
dang wrote: post #425

Earlier quoted context omitted.

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…

What is the link? From a quick look at your submissions, it's most likely that users flagged your post, but I'd need to see a link to be sure.

Actually users have been emailing us to complain about your submissions, and I've been trying to hold them off.

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

#597

Post by mrjin »

That's the exact example why cryptos solved no problems at all. Centralized institutions are there for a reason, and obviously cryptos failed to recognize that. And soon exchanges were created which are in the exact role of banks etc. they swore to remove but with almost no regulations. I would be surprised if no such things happen at all.

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

#598

Post by lupire »

JamesianP wrote: post #471
cortesoft wrote: post #368

Earlier quoted context omitted.

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

It's more accurate to say they loan out a multiple of deposits based on the inverse of the fraction (the "money multiplier"). If someone puts 1 million in the bank and the fractional reserve is 20 percent, they can now create loans of up to 4 million. Such that the reserve is 20 percent of their total assets of 5 million (= 4 million loans + 1 million cash).

No, fractional reserve means that they can lend out $800K of the $1M deposited, even though the $1M is still counted as the depositor's money and also $800K is a available to lend.

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

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

#599

Post by lupire »

JamesianP wrote: post #485
qnt wrote: post #474

Earlier quoted context omitted.

Again no, neither of these are accurate. Modern banks do not operate on a fractional reserve basis at all. This is a falsehood peddled by well out of date undergrad econ textbooks https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

I'm describing what fractional reserve means. Technically that fraction has been set to zero very recently so it is trivial though still not false. This was discussed a lot elsewhere on this board.

If that you say is true then banks could lend infinite money to their friends and never collect it.

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

#600

Post by lupire »

ChadNauseam wrote: post #270
cmeacham98 wrote: post #197

Earlier quoted context omitted.

Civil asset forfeiture is one of those things that feels really unjust in the US, and I'm somewhat surprised there hasn't been a Supreme Court case ruling it unconstitutional per the 4th Amendment. I'd love to hear a steelmanned argument in favor of it, maybe I'm missing something obvious?

No civil asset forfeiture: cop pulls a drug dealer over, the drug dealer bribes the cop and is on his way. With civil asset forfeiture: cop pulls a drug dealer over, the drug dealer offers to bribe the cop, the cop laughs and takes all his stuff anyway, books him, and the police department buys a martini machine. Kind of a weak case, but that was the best steelman I could think of.

Why would a cop give the money to the department instead of keeping it as a bribe for himself?
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