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We will not pursue the potential acquisition of FTX

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Re: We will not pursue the potential acquisition of FTX

#321

Post by chii »

JumpCrisscross wrote: post #318
fspeech wrote: post #316

Earlier quoted context omitted.

It's not exactly out of "thin air", since we are trying to be nuanced here. If you take out a mortgage to buy a house the bank does loan you the money out of their own funds. It's just that the seller who receives your funds will put the money back into the banks (not necessarily the same bank, but the money market is there for the banks to settle among themselves). So in effect the sellers make the loans to buyers,…

> the bank does loan you the money out of their own funds Nope. This is the toy model of money and banking taught in high school. When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.

> When a bank makes a loan, it creates money.

The bank must reach some level of capital requirement to make this loan. In other words, if the bank does not have enough reserves, they cannot make this loan.

The bank can use customer deposits as part of their reserves. They can also borrow from another bank (presumably, paying them interest). Lastly, i think central banks also have a reserve borrowing method (but not sure about this).

Re: We will not pursue the potential acquisition of FTX

#322

Post by [deleted] »

JumpCrisscross wrote: post #318
fspeech wrote: post #316

Earlier quoted context omitted.

It's not exactly out of "thin air", since we are trying to be nuanced here. If you take out a mortgage to buy a house the bank does loan you the money out of their own funds. It's just that the seller who receives your funds will put the money back into the banks (not necessarily the same bank, but the money market is there for the banks to settle among themselves). So in effect the sellers make the loans to buyers,…

> the bank does loan you the money out of their own funds Nope. This is the toy model of money and banking taught in high school. When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.

[deleted]

Re: We will not pursue the potential acquisition of FTX

#323

Post by [deleted] »

chii wrote: post #321
JumpCrisscross wrote: post #318

Earlier quoted context omitted.

> the bank does loan you the money out of their own funds Nope. This is the toy model of money and banking taught in high school. When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.

> When a bank makes a loan, it creates money. The bank must reach some level of capital requirement to make this loan. In other words, if the bank does not have enough reserves, they cannot make this loan. The bank can use customer deposits as part of their reserves. They can also borrow from another bank (presumably, paying them interest). Lastly, i think central banks also have a reserve borrowing method (but not s…

[deleted]

Re: We will not pursue the potential acquisition of FTX

#324

Post by fspeech »

JumpCrisscross wrote: post #318
fspeech wrote: post #316

Earlier quoted context omitted.

It's not exactly out of "thin air", since we are trying to be nuanced here. If you take out a mortgage to buy a house the bank does loan you the money out of their own funds. It's just that the seller who receives your funds will put the money back into the banks (not necessarily the same bank, but the money market is there for the banks to settle among themselves). So in effect the sellers make the loans to buyers,…

> the bank does loan you the money out of their own funds Nope. This is the toy model of money and banking taught in high school. When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.

What do you mean "toy model"? It is how it works operationally. Banks have to settle up by end of each business day or they are out of the business. The fact money is created with loans in a fractional reserve system does not negate operational constraints.

Re: We will not pursue the potential acquisition of FTX

#325

Post by Semaphor »

jjitz wrote: post #295
Nathanba wrote: post #238

Earlier quoted context omitted.

I've never even heard of FTX and I've been in the crypto space for many years. Binance however was always near the top since it came out. There was one american exchange that used to be nr.1 but became irrelevant after they weren't allowed to serve non-americans anymore. I can't remember the name and it isn't in the top 300 anymore, maybe they had to shut down. EDIT: I just checked and FTX was only founded 3 years ag…

I hate to gatekeep, but I find it pretty impossible that you are "in the crypto space" in any meaningful sense but somehow have not heard of FTX. That's like being "in the crypto space" but not knowing what Ethereum is.

Never heard of FTX either until this whole implosion happened. I’m certainly not super active in crypto, but it seems to me there are worlds between Binance and FTX.

Re: We will not pursue the potential acquisition of FTX

#326

Post by fshbbdssbbgdd »

tim333 wrote: post #232
rippercushions wrote: post #187

Earlier quoted context omitted.

It's almost as if crypto tokens are intrinsically worthless!

Though that's not really the issue here. Obviously they were worth something to the people buying and selling them.

They’re worth something today because people want them today. If they don’t have any real-world yield, that doesn’t make them worth anything tomorrow. As FTT just demonstrated, like so many have before.

Re: We will not pursue the potential acquisition of FTX

#327

Post by cturner »

fspeech wrote: post #324
JumpCrisscross wrote: post #318

Earlier quoted context omitted.

> the bank does loan you the money out of their own funds Nope. This is the toy model of money and banking taught in high school. When a bank makes a loan, it creates money. The fact that there are stabilising deposits is a fortunate convenience. This is why leveraged finance is inherently unstable. The BoE had a good paper about this.

What do you mean "toy model"? It is how it works operationally. Banks have to settle up by end of each business day or they are out of the business. The fact money is created with loans in a fractional reserve system does not negate operational constraints.

The toy model is the idea that a bank gets deposit from one customer and loans it to another. This is not how it works. If you go to a bank for a loan, they do a risk assessment of you, and then make some marks on a ledger. As a result of this, new money appears in your account.

But - what stops banks from creating infinite money? There is a byzantine system of rules laid out by the Basel Accords and national regulators within that. That system limits the activities a bank can conduct, lays out rules for the way it must go about business it can conduct, and sets capital requirements.

There is nothing close to a full reserve and the system is not defined in those terms. Rather, there are ratios. If you have so many AAA rated treasuries posted with your central bank, then you can grow your balance sheet by X. But for B rated investments, you can only grow your balance sheet by Y. When a commercial bank issues a loan, it literally creates money.

Re: We will not pursue the potential acquisition of FTX

#328

Post by porb121 »

SilasX wrote: post #152
JumpCrisscross wrote: post #13

In the thick of it, illiquidity and insolvency blur. But not after the fact. As usual, Levine put it best: “the problem is not a timing mismatch, in which FTX’s customers asked for their cash back but FTX did not have enough ready cash because it had long-term but money-good loans out. The problem is that FTX took its customers’ money and traded it for a pile of magic beans, and now the beans are worthless and there’…

That’s why I hate when people in these discussions refer to needing/providing “liquidity”. It feels like such a weasel word. Unless you know enough to conclude it’s really a cash flow mismatch, then don’t mince words or overcomplicate it. Money. They need some g/d m/fing money. Maybe they need it as arms-length loans on legitimately illiquid capital. Maybe they need underpriced loans for the risk of the business. May…

> You can absolutely find a buyer instantly! At about the same price it traded for five minutes ago! Just not at the price you need it to be.

this is extremely stupid. you can't just sell arbitrary amounts of coin without moving the market a ton and paying a fortune in slippage. they do need liquidity.

Re: We will not pursue the potential acquisition of FTX

#329

Post by [deleted] »

twblalock wrote: post #183

It's amazing how all of this was based on personal credibility, and a single Tweet caused the death spiral to start. Wells Fargo isn't going to go out of business if the CEO of Bank of America insults it on Twitter. But even if it did , there is FDIC insurance for deposits, and nobody whose balances were under the insurance limits will lose a penny. FTX succeeded solely based on the reputation and personal credibilit…

[deleted]

Re: We will not pursue the potential acquisition of FTX

#330

Post by cjg »

masklinn wrote: post #59
ignoramous wrote: post #34

Earlier quoted context omitted.

I'd say Stripe but unlikely given their missed IPO window. Perhaps, Amazon, if they are feeling lucky?

Why would they want to take on what is reported to be net 6bn in liabilities?

Just buy the assets.
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