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FTX balance sheet, revealed

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Re: FTX balance sheet, revealed

#231

Post by imtringued »

oldgradstudent wrote: post #119
stephen_g wrote: post #69

Earlier quoted context omitted.

Bank deposits, of course, are >100% backed (by a mix of assets), the 10% reserve ratio is just specifying a minimum amount of one kind of asset (central bank reserves). Most countries don’t have the same kind of explicit reserve requirement and most have plenty stable banking systems.

> Bank deposits, of course, are >100% backed (by a mix of assets), The reserves are there to provide liquidity for people who want to withdraw their funds in normal times. The assets are mostly loans. The lenders sometimes fail to repay the loan, and the collateral may not be worth as much as initially estimated. The bank has capital requirements, so that if loans are not replayed, the bank shareholders take the hit.…

The system is so fragile that politicians and central bankers don't want to imagine the potential chain reaction that the failure of a big bank would result in. The only solution is to prevent banks from becoming too big in the first place and bigger banks should have more stringent reserve and capital requirements to discourage monopolization.

Re: FTX balance sheet, revealed

#232

Post by imtringued »

catbird wrote: post #226
oldgradstudent wrote: post #119

Earlier quoted context omitted.

> Bank deposits, of course, are >100% backed (by a mix of assets), The reserves are there to provide liquidity for people who want to withdraw their funds in normal times. The assets are mostly loans. The lenders sometimes fail to repay the loan, and the collateral may not be worth as much as initially estimated. The bank has capital requirements, so that if loans are not replayed, the bank shareholders take the hit.…

What does it mean here that “the shareholders will take a hit?” Do the shareholders normally receive some regular payments that would stop (or be reduced) in that situation? I know nothing about finance, but the stories unfolding this week have me interested to learn more about how all this works.

You can own a bank like any other business. Shareholders will get less dividends or stock buybacks.

Re: FTX balance sheet, revealed

#233

Post by im3w1l »

macrolime wrote: post #121

I haven't verified this for veracity, but supposedly a screenshot from tumblr blog of the CEO of Alameda Research "this blog endorses double-or-nothing coin flips and high leverage" https://pbs.twimg.com/media/FhaKXhRXwAEfvKD?format=jpg&name=...

It's kind of an interesting puzzle though. It obviously doesn't work but breaking down exactly why it doesn't is a bit nuanced.

The simplest model we can make is that the market will instantly jump either up or down. Why does the strategy not work in this case? If it jumps up you win. But if it jumps down you lose not just your stake, but you actually go into debt because of slippage. However if you add the possibility of call bankrupcy to discharge the debt, then it actually does work.

On the other hand if you use a more realistic (but not fully, of course) continous model, then it doesn't work. Why? Because there are such a high proportion of paths the price can take where it reaches your stopout before it reaches your payout. It could go down (game over) up up up, or it could go up up down up down down up down down (game over). I believe you can use martingale theory to prove that it doesn't work.

Re: FTX balance sheet, revealed

#234

Post by FollowingTheDao »

acdha wrote: post #225
FollowingTheDao wrote: post #175

Earlier quoted context omitted.

Ponzi schemes are not obvious, until they’re totally obvious. That’s why they keep happening. A lot of people will explain to others that it’s a Ponzi scheme, but those people are making so much money that hey don’t want to hear it. Crypto is a Ponzi scheme, and it always was. I’m not just talking about these companies, being Ponzi schemes, I’m talking about the whole ecosystem being a Ponzi scheme. You can either li…

I think your second paragraph is correct but contradicts the first. It’s not that these aren’t obvious so much as some people really wanting to find ways to ignore that so they can get rich without feeling like a scammer.

What I meant by " Ponzi schemes are not obvious, until they’re totally obvious. That’s why they keep happening."

Is that they are totally obvious once they fall apart. No contradiction.

Re: FTX balance sheet, revealed

#235

Post by imtringued »

shawabawa3 wrote: post #207
djbebs wrote: post #116

Earlier quoted context omitted.

Exchange business models are supposed to be 100% different from banks. If exchanges are using fractional reserves of any kind or amount, they have already committed fraud.

Also people are missing that banks having 10% reserves doesn't mean their assets are 10% of their liabilities It means they have 10% of their deposits held as cash. The remaining 90+% is in liquid marketable securities (usually mortgages and other loans which are freely traded if they need the liquidity)

Also, when you transfer money from one bank to another, that other bank may buy the assets of your bank or it lends the reserves to your bank. When cash is withdrawn banks can still borrow reserves from the central bank.

That is kind of the whole point why we have central bank intermediation and why every country has adopted it.

Re: FTX balance sheet, revealed

#236

Post by imtringued »

collaborative wrote: post #22
AmericanOP wrote: post #14

My mental model of the blockchain industry is akin to FTXs balance sheet. I see an endless string of branded code servicing similar technologies, but where are the customer inputs putting in the billions needed to support the industry? Is blockchain liquidating crypto valuations into developer salaries with a VC subsidy?

Is banking liquidating bank account funds into banker salaries? Sry for being the advocate of the devil and I am by no means a crypto fan

They take a cut on every loan that is successful, they don't take those fees from bank account balances, the borrower is ultimately paying for it.

Re: FTX balance sheet, revealed

#237

Post by coffeebeqn »

Aramgutang wrote: post #138
lysecret wrote: post #19

Wait will the forced liquidation crush a large part of crypto ?

There isn't much there to liquidate that still has any worth. They didn't have significant holdings of any of the major assets. That's kind of the main reason they were insolvent.

They also had this “hack” a day or two ago so it’s unclear what is left

Re: FTX balance sheet, revealed

#238

Post by everybodyknows »

bmitc wrote: post #117
irusensei wrote: post #105

The whole thing that is bugging me is that they made big political donations to both D and R. They use the money they conjured out of thin air and backed politicians with it. They probably backed the politicians who were most friendly to them. Those politicians might have won and that dirty money might have done a difference. Does that sound moral to you? I think it’s absolutely terrifying. Every candidate that recei…

I think all political donations above a certain level should be scrutinized and audited and then banned at higher levels. But I don’t think the politicians care. They removed the limits to political donations and haven’t looked back, and it has been chaos ever since. I was disturbed by Robert Mercer’s dastardly part in the 2016 election, both his donations, his people placing, and his technical consulting. The guy is…

> I don’t think the politicians care ...

Of course they don't, taken collectively. Investigative journalists are our slender hope. They and those few politicos who didn't get a share of the loot, and may now see pushing for tighter regulation as a career opportunity.

Re: FTX balance sheet, revealed

#239

Post by SkipperCat »

jmyeet wrote: post #151

This is wild. My first question was: who is the CFO who signed off on this? FTX literally has no CFO [1]. How is this possible for a billion dollar company and billions in client assets? How did the investors not insist on an adult to manage the their investment? The CFO, and the credibility they bring to the table based on their track record and reputation, is part of the system that helps prevents situations like t…

That is literally jaw dropping. I'm almost amazed that the WSJ never picked that up. I just did a quick search on the wsj.com site and saw several articles from this past summer and none even mentioned that.

WSJ nailed it with Theranos, missed it with FTX.

Re: FTX balance sheet, revealed

#240

Post by raverbashing »

irusensei wrote: post #105

The whole thing that is bugging me is that they made big political donations to both D and R. They use the money they conjured out of thin air and backed politicians with it. They probably backed the politicians who were most friendly to them. Those politicians might have won and that dirty money might have done a difference. Does that sound moral to you? I think it’s absolutely terrifying. Every candidate that recei…

Oh so maybe that's what "effective altruism" really means.
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