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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

#411

Post by seabrookmx »

cm2187 wrote: post #398
seabrookmx wrote: post #312

Earlier quoted context omitted.

> Banks inherently gamble with customers deposits, every loan is a gamble While there's a ton of nuance here, in the general case it doesn't work how you've implied. When you take out a mortgage, the bank doesn't take a bunch of money other people have deposited. It's literally created out of thin air and marked as a liability on their balance sheet. This is how the majority of money is created in a fractional reserv…

It's not, this is a common economist fallacy. In practice the bank cannot make a new loan if it doesn't have the liquidity and doesn't have the funding. You may elect to keep the money on a bank account at that bank, in which case it looks like the bank just made two accounting entries, but you often buy something for it which means the money goes away. Whatever you do, the bank couldn't make that loans if it didn't…

There's certainly rules around how much liquidity a bank needs when lending (otherwise they could lend infinitely), but they don't need liquidity equal to all their loans. That's why it's called fractional reserve.. they only need a fraction of the funds in reserve.

Re: We will not pursue the potential acquisition of FTX

#412

Post by lanstin »

oldgradstudent wrote: post #161
jeffreyrogers wrote: post #141

Earlier quoted context omitted.

LTCM actually was doing a lot of the risk management people later said they should do. Their problem was the trades they were doing were more crowded than the realized and they couldn't unwind them cheaply because everyone else was doing the same thing. Plus once people realized they were struggling other market participants started betting against them. There have been other similar situations since then. In August…

That's the point. Their models showed their strategies to be safe, while in reality, their strategy was risky enough to bankrupt the fund, and scare the entire financial system. > In August 2007 most of the big quant funds lost double digit percentages in a few days when someone had to unwind a portfolio and statarb strategies stopped working. If your strategy works for years and then a single event erases all the hi…

A lesson that few understand, which explains so much of the economic surprises of the past thirty years.

Re: We will not pursue the potential acquisition of FTX

#413

Post by Godel_unicode »

eitland wrote: post #409
Godel_unicode wrote: post #338

Earlier quoted context omitted.

Lehman brothers would like a word with you.

I answered to a comment that said every loan is a gamble.

Lehman was brought down by not adequately understanding the risks they took gambling on mortgages.

Re: We will not pursue the potential acquisition of FTX

#414

Post by bhouston »

eddsh1994 wrote: post #291
bhouston wrote: post #266

Earlier quoted context omitted.

> AGI Safety research labs If they are not part of a university, it is probably pretty sketchy anyhow.

They fund a huge number of serious initiatives in the space via EA funds - 9, maybe 10 figures.

Who is serious? A lot of that spam is snake oil salesman.

Re: We will not pursue the potential acquisition of FTX

#415

Post by eitland »

Godel_unicode wrote: post #413
eitland wrote: post #409

Earlier quoted context omitted.

I answered to a comment that said every loan is a gamble.

Lehman was brought down by not adequately understanding the risks they took gambling on mortgages.

Apples and oranges.

The original comment that I answered is technically false if there exist a single mortgage that isn't a gamble.

Now, if only a single such mortgage existed you’d still have a point, but the fact is millions of loans are given and paid back every year without any complications at all: there is plenty of income and plenty of security for very many loans.

IIRC, what Lehman did was to deliberately trade in bundles of sub prime loans.

Re: We will not pursue the potential acquisition of FTX

#416

Post by cm2187 »

seabrookmx wrote: post #411
cm2187 wrote: post #398

Earlier quoted context omitted.

It's not, this is a common economist fallacy. In practice the bank cannot make a new loan if it doesn't have the liquidity and doesn't have the funding. You may elect to keep the money on a bank account at that bank, in which case it looks like the bank just made two accounting entries, but you often buy something for it which means the money goes away. Whatever you do, the bank couldn't make that loans if it didn't…

There's certainly rules around how much liquidity a bank needs when lending (otherwise they could lend infinitely), but they don't need liquidity equal to all their loans. That's why it's called fractional reserve.. they only need a fraction of the funds in reserve.

Regulatory liquidity requirements are essentially a function of their deposits not their loans (LCR - though some credit is given to incoming cash flows). But I am not even talking about that. From a very practical point of view, the bank will not allow you to draw on a loan if it doesn't have the cash for it.

Only the central bank can create money out of thin air.

To take a very simplistic example, let's say we start with an empty economy, no money anywhere. The central bank creates 100 out of thin air and buys something from an individual. That individual places the money as deposit with bank A. Now bank A has 100 deposit liabilities, and 100 cash (deposit at central bank).

Now another individual can borrow from bank A and place the money with bank B, so now bank A has a 100 deposit liability and 100 loan asset. Bank B has a 100 deposit liability and 100 cash asset (deposit at central bank). This is the money multipler, m2 = 300, 100 in bank A, 100 in bank B and 100 at central bank, whereas the central bank only has created 100 of m1. However bank A cannot make a new loan out of thin air, it doesn't have cash anymore. The capacity to make loans is with bank B, where the cash is.

It is not the case that banks can make loans with no consideration for their funding and liquidity position, just by creating two accounting entries, only the central bank can do that.

Re: We will not pursue the potential acquisition of FTX

#417

Post by mstipetic »

PathOfEclipse wrote: post #406
mstipetic wrote: post #388

Earlier quoted context omitted.

People like you are so annoying. Super natural to have 70 people control 50 percent of the world wealth. Ace.

At what point in the world's history has wealth not been concentrated? What, therefore, is your argument or evidence that wealth inequity isn't natural? Even in video games with an online economy and trade that resets periodically, within a week of a reset you'll see massive disparity in wealth between the top and everyone else that only grows over time. And I mean massive . You should read "Wealth, Poverty, and Poli…

What is this magical wealth you speak of? Who is ensuring it, who is guarding it? It’s a game that people play until they feel it gives them a reasonable chance to live. Once that’s gone all bets are off and your magical numbers on a computer don’t mean much.

Re: We will not pursue the potential acquisition of FTX

#418

Post by Godel_unicode »

eitland wrote: post #415
Godel_unicode wrote: post #413

Earlier quoted context omitted.

Lehman was brought down by not adequately understanding the risks they took gambling on mortgages.

Apples and oranges. The original comment that I answered is technically false if there exist a single mortgage that isn't a gamble. Now, if only a single such mortgage existed you’d still have a point, but the fact is millions of loans are given and paid back every year without any complications at all: there is plenty of income and plenty of security for very many loans. IIRC, what Lehman did was to deliberately tra…

Nope, just smaller apples and bigger apples. There’s no such thing as a mortgage that isn’t a gamble. At best you can say there are mortgages which are safer (even much much safer) than others.

“There’s no risk here” is what causes financial crises and bank runs, which is the larger point.

Re: We will not pursue the potential acquisition of FTX

#419

Post by tim333 »

onlyrealcuzzo wrote: post #297
tim333 wrote: post #232

Earlier quoted context omitted.

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

Not really. If I buy and sell a coin from myself with monopoly money for ever increasing prices - is it really worth anything? Obviously there are some inflows into crypto. But it's about 0.00001% of the daily volume.

Yeah but that's not the situation. If you have a bitcoin you can sell it to another person for several thousand real US dollars. Even if you hate crypto it has that value to it. I mean re "about 0.00001%" I've bought and sold bitcoin myself and usually for actual money.

True there isn't much intrinsic value to the 0s and 1s making up a bitcoin but there aren't much to the the 0s and 1s making up the US$ or similar in your bank account.

Re: We will not pursue the potential acquisition of FTX

#420

Post by mumbisChungo »

uncletammy wrote: post #317
mumbisChungo wrote: post #112

Earlier quoted context omitted.

>In fact “gambling with customer funds” was by design. This is not accurate. The ToS for FTX explicitly said that customer funds would not be used for investment purposes. While it didn't explicitly say it wouldn't be used for lending, it was a broad assumption in the industry that the exchange was solvent and could back user assets on a 1:1 basis. It is widely believed now that Alameda went deep underwater during th…

> ... it was a broad assumption in the industry that the exchange was solvent and could back user assets on a 1:1 basis. Anyone in crypto who makes this assumption about any other entity in crypto is either brand spanking new or a fool.

Unfortunately this is not true in this case.

Folks who have been in the industry for 10 years, many very publicly cynical, had assets on FTX. It was viewed by many as the safest CEX in the industry.

I'm a bit more paranoid, so I maintain self-custody 100% of the time unless I'm using an on/off-ramp, but some very bright, very oldschool folks got caught up in this one.

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