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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

#631

Post by ravel-bar-foo »

zarzavat wrote: post #595
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?

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 a…

I'm a bit confused here. I understand that depositing money creates a liability for the bank in the sense that money (and interest thereupon) may be withdrawn at any point... but until the depositor withdraws, isn't the actual cash that has been deposited in an account an "asset," in the sense that it is on the bank's books?

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

#632

Post by ravel-bar-foo »

imtringued wrote: post #612
lupire wrote: post #584

Earlier quoted context omitted.

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

I have seen a type of banking proposal where the bank always borrows from the central bank at x% and issues loans that way and just passes the x% cost to anyone holding the money. That means no deposits were required to begin with. If anything, cash means that the person who withdrew money would be stuck with the borrowing fee until they deposit their cash back in. So yeah although this is still theoretical, it is in…

In that proposal, it seems like all the risk of the loan is carried by the bank with none of the profit. How would such a bank be profitable? What happens if the loan is not paid back?

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

#633

Post by sam345 »

datalopers wrote: post #417
muxator wrote: post #410

Earlier quoted context omitted.

I'd like to read this in context; do you know where this declararion could be found? Who is speaking? Thanks!

Sequoia deleted it. You can find a cached version though at https://webcache.googleusercontent.com/search?q=cache:pizI33...

Thanks. great article. also never want to get a letter like that "your investment is marked to zero". got to love this quote from article "“Everything was rickety—there was no avoiding the ricketiness. Obviously, the line between rickety and shady is a little unclear at times, but the places that seemed like they were going to steal customer funds outright, we didn’t touch,” Singh says. “Even the best players in the space were having big problems.”

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

#634

Post by mccorrinall »

UncleEntity wrote: post #338
mccorrinall wrote: post #320

Earlier quoted context omitted.

Where does this Etherium-meme(?) come from? I’ve seen several people writing Etherium and Monaro instead of Ethereum and Monero on mailing lists, but never understood what it means and where it comes from.

Since when is bad spelling a meme?

It must be a meme, especially since a quick search reveals that joe_the_user wrote it correctly 1 year ago!

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

#635

Post by mccorrinall »

joe_the_user wrote: post #376
mccorrinall wrote: post #320

Earlier quoted context omitted.

Where does this Etherium-meme(?) come from? I’ve seen several people writing Etherium and Monaro instead of Ethereum and Monero on mailing lists, but never understood what it means and where it comes from.

Maybe 'cause they're phonetically similar?

You tell me!

So, there is no interesting lore behind it?

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

#636

Post by mrjin »

zeroclip wrote: post #625
mrjin wrote: post #597

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.

Decentralized exchanges exist that process about the same volume as centralized exchanges, without centralizing trust to a single entity.

What do you mean by "Decentralized exchanges"? If decentralization ever worked, I don't believe exchanges would be necessary.

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

#637

Post by jefftk »

lupire wrote: post #592
jefftk wrote: post #421

Earlier quoted context omitted.

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

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

Downsides of dictation!

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

#638

Post by jacooper »

teedeepee wrote: post #514
jacooper wrote: post #400

Earlier quoted context omitted.

Ftx.us is apperantly a totally separate exchange

Alameda was also a totally separate entity, until we found out it wasn't.

But at least FTX.us doesn't have withdrawal issues

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

#639

Post by erincandescent »

lupire wrote: post #585
gigatexal wrote: post #582

Earlier quoted context omitted.

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.

You deposit $10k in the bank

The bank originates a mortgage to someone. It uses (some of) your $10k to give cash to the customer getting the mortgage, and the customer then uses that cash to buy the house.

For whatever reason, a bank run happens, i.e. everyone comes to make a withdrawal all at once

You try to withdraw your $10,000. The problem is that everyone wants cash, not shares of houses, but the bank only has so much cash.

The bank is good for your $10k, but not on the timeframe you want it. The bank is _illiquid_, but _insolvent_.

The bank will try and sell it's mortgages to someone else for the money, but if it tries to do this all at once it will likely end up selling them at prices that are below par. In that case the bank might end up with less assets than liabilities; this makes the bank _insolvent_.

In a deposit insurance scheme, the government takes over the bank, pays out to customers, and services the loans. The government can do this because it can easily create liquidity. Generally in recent history the government still makes a profit when it reduces an illiquid bank

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

#640

Post by dmak »

LeafGuild wrote: post #423
siftrics wrote: post #354

Earlier quoted context omitted.

This is not true at all. If you are the only person in the world with the private key to your coins, you are the only person who can move them. Period. FTX is a centralized entity that custodies funds. It has nothing to do with a blockchain, which could have completely prevented this. There are many examples of decentralized exchanges (DEXs) for which it is mathematically impossible to loan out depositor's funds with…

>If you are the only person in the world with the private key to your coins, you are the only person who can move them. Period. This is completely and utterly irrelevant and has not stopped anyone from performing massive fraud. Just look at the long history of crypto scams. They still happened constantly despite blockchains having that feature. It's just impossible for a blockchain to prevent these frauds. It doesn't…

Your arguments are very misguided, long, rambly, and often digresses. It's hard to decipher your points and it is very exhausting to read. Would love to have discourse, but your points need to be shorter, concise, and clear.
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