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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

#691

Post by caminante »

100001_100011 wrote: post #567
LeafGuild wrote: post #440

Earlier quoted context omitted.

No blockchain can ever guarantee there's any visibility or accountability. Defi means are only useful to trade cryptos for other cryptos, and you only have visibility if no one launders the money through crypto mixers. Once you want to cash out and trade your cryptos for any real assets, like buying a pizza, you instantly lose visibility again because all that has to happen off chain. Just because something is a trad…

> No blockchain can ever guarantee there's any visibility or accountability Visibility or accountability of what? Many blockchains are public. I find you not only misinformed but possibly intentionally trying to mislead people. "The amount of energy necessary to refute bullshit is an order of magnitude bigger than to produce it." - Paul Kedrosky

> Visibility or accountability of what? Many blockchains are public.

I don't know how you ask these questions if you read the parent's post.

Clearly, the parent lays out situations where going off/on blockchain dilutes visibility.

The cross-collateralization of FTX assets wasn't on blockchain.

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

#692

Post by lupire »

dools wrote: post #628
lupire wrote: post #598

Earlier quoted context omitted.

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

Can you describe the mechanism by which deposits held by a bank are lent to borrowers under the fractional reserve system described in that Wikipedia article?

"Fractional-reserve banking is the system of banking operating in almost all countries worldwide,[1][2] under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, and are at liberty to lend the remainder to borrowers"

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

#693

Post by lupire »

nfw2 wrote: post #604
lupire wrote: post #585

Earlier quoted context omitted.

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

I agree, and IDK why it is so hard to talk clearly about finance. Here is how I understand what's been said (not an expert): When a bank pays a loan out to its lender, it must have capital (valuable assets actually owned by the bank) to back it up. But these "assets" are not always easy or possible to liquidate, or turn into cash. This is where the other person's deposit comes it. They use the deposits for "cash" ins…

> and IDK why it is so hard to talk clearly about finance

Because unlike in engineering, in finance, conservation of "energy"/"money" allows arbitrary creation of negative money to cancel out arbitrary created positive money.

We pretend money is a real thing you can have, but it's actually more like one of the two opposite poles of magnet.

It's a game with made up rules, not a natural consistent system.

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

#694

Post by lupire »

ravel-bar-foo wrote: post #632
imtringued wrote: post #612

Earlier quoted context omitted.

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?

Parent meant x%+y% or some other scheme for risk management and profit.

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

#695

Post by [deleted] »

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.

[deleted]

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

#696

Post by dang »

breck wrote: post #646
dang wrote: post #596

Earlier quoted context omitted.

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.

https://news.ycombinator.com/item?id=33482032 > it's most likely that users flagged your post I think when users flag a post they should only be given that privilege if their account is under their real name and if it shows who flagged a post. I rarely flag a post but when I do I would always be willing to do so publicly and state why. Otherwise downvotes/lack of upvotes should be the only acceptable means of flaggin…

That post was indeed flagged by users, not mods.

The rule that we moderate less when YC or a YC startup is part of a story (https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...) is about mods, not users. Users are free to flag things that they think don't belong on HN.

I understand if you have a disagreement with how flags work on HN—you're not alone in that. But it is a separate issue from the point raised upthread (https://news.ycombinator.com/item?id=33553556).

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

#697

Post by vkou »

criddell wrote: post #137
reso wrote: post #105

Earlier quoted context omitted.

SEC often asserts jurisdiction over anything where American domiciled investors have suffered a large loss. That bar will definitely be met here.

SBF says US customers are not affected by this. > This was about FTX International. FTX US, the US based exchange that accepts Americans, was not financially impacted by this shitshow. > It's 100% liquid. Every user could fully withdraw (modulo gas fees etc). https://twitter.com/SBF_FTX/status/1590709195892195329

1. SBF is a proven fraud and liar, I don't think anyone should be citing him at this point. :)

2. People ITT are claiming that they can't withdraw from FTX.US.

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

#698

Post by qnt »

colinmhayes wrote: post #649
qnt wrote: post #443

Earlier quoted context omitted.

Not at all. When you get a loan, the bank creates a liability and deposit out of thin air. The deposit is a "demand deposit", which is effectively equivalent and fungible to central-bank-backed currency (hence the term "money" usually applies to both, though they are different things). The bank needs no existing customer deposits to create a demand deposit and liability in your account. You should run through your ex…

You are wrong. Without existing deposits the bank has no money to loan out. They can write numbers on screens, but eventually the money they loaned out will be transferred and the bank that it was transferred to will ask for settlement.

That's exactly the point - money is just numbers on screens. there is no money to loan out. the act of lending creates the money.

- Bank starts with $0 capitalisation or deposits - Customer goes to bank and asks for $1 loan - Bank believes customer is creditworthy and says yep - Bank creates two accounts for customer, loan account and deposit account. Loan account is -$1 and deposit account is $1 - customer transfers $1 from their deposit account to someone else's account at a different bank in exchange for goods/services - customer account at the bank is now loan account -$1 and deposit account $0 - Customer eventually needs a way to get $1 back from somewhere else to pay the loan back, else face bankruptcy proceedings etc etc

Commercial banks all agree with each other that they accept each other's demand deposit accounts as a form of money.

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

#699

Post by WoodenChair »

reportgunner wrote: post #610
WoodenChair wrote: post #553

What I'd like is a tool on Hacker News, that would allow me to click on a username in a thread and do a quick search for a term related to the thread. For example, I'd like to know how many people in this thread who are posting against SBF praised him in threads from months ago. I think the whole story with him is a testament to what's wrong with tech culture and the media more largely. It's almost Elizabeth Holmes-e…

Something like this[0] ? [0] https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

Not sure what point you're trying to make. I'm pro-crypto, anti-SBF and what he did here.

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

#700

Post by dools »

lupire wrote: post #692
dools wrote: post #628

Earlier quoted context omitted.

Can you describe the mechanism by which deposits held by a bank are lent to borrowers under the fractional reserve system described in that Wikipedia article?

"Fractional-reserve banking is the system of banking operating in almost all countries worldwide,[1][2] under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, and are at liberty to lend the remainder to borrowers"

Yes now it says:

“to lend the remainder to borrowers”

Can you describe how money that a bank has in deposits is lent out to borrowers?

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