Calling All Hackers: How money works (2024)

> In practice, buybacks can be used to create what is effectively a shareholder dividend in a more tax-advantaged way. Whereas with dividends, they are taxed as income, and this is realized immediately. With buybacks, they are taxed as capital gains, but crucially the gains are not realized until the asset is sold. This could be indefinitely far in the future, so it's more capital efficient. It has the added benefit that it helps pump the token, and imo this is kind of cute because it marries both the fundamental and speculative aspects.

This depends a lot on jurisdiction.

Some jurisdictions give you a certain amount of dividend income tax free. Some jurisdictions tax your capital gains even when they aren't realised. Lots of other variants exist.

I have this crazy insatiable addiction to food and shelter. My paycheck supports my addiction.

Thought experiment: you have three sets of 10 recent college grads. One set works as enterprise devs in a tier 2 city, one set works at BigTech and another set works for a startup, which group do you think will have the highest median income after 10 years?

I would much rather work for a “meaningless paycheck” (and RSUs in a public company), than bust my ass at a startup for below market wages and “equity” that is illiquid and will statistically be worthless.

> What limits lending is capital, not reserves, and leverage is tightly regulated at roughly 10× equity, not 100×.

I'm with you in principle. But alas there's lots of regulation that muddies the economic waters. Eg reserves do limit lending in some places at some points in time.

> What you’re describing only works in an absurd edge case where people borrow money just to park it and pay interest without spending it. That’s not fractional reserve banking, that’s a broken thought experiment.

Yes, indeed. People usually get a loan to spend the money (ie invest it). Otherwise, why bother with the expensive loan?

> but reading indictments to learn from others' mistakes.

Oh oh.

> It's about knowing where to buy estradiol valerate on the internet and how to compound injections

Oh no.

This is 5 paragraphs in, and I already red-flagged out of this, not just because of the time it would take to read this, but because I don't want to go crazy reading this stuff.

In case it isn't clear, it's not healthy to read indictments thinking how to avoid being caught by law enforcement and buying grey market hormones. Politics aside, at least get a prescription, it's not like they are not giving them out.

Hacking is a huge spectrum I know, but if we have to decide on some limits to what is open to be modified and understood by the lay(wo)man, and what is closed and left to professionals, wouldn't we agree that law and medicine would be such fields? (and possibly military?) Trying to hack medicine or law is as extremist as arguing that you don't have the rights to plant the seeds of fruit you buy. As far as rights go, sure people are given the rights to represent themselves pro-se and apparently to buy hormones online, but going beyond what's allowed, are you really willing to ruin your life just to stick it to the man or to exercise your right to do whatever?

Mostly agreed.

> I don't think anyone is under the illusion that credit expansion itself creates wealth in the sense of more dollars moving around means more wealth.

Alas, lots of people have very weird, and very wrong ideas.

> I think the relavent point here is that this form of credit expansion does expand the numerical value of deposits ("create money") which has asymmetric advantages to the bank. Due to having a central bank, the banks are basically acting as arms of the federal government when they do this.

Yes and No. From the bank's point of view fractional reserve banking works pretty much the same way you have described it here under eg a gold standard as well.

> The payoff the banks get from this is capturing the interest differential on these expanded credits as well as benefitting from the Cantillon Effect whereby they usually have prioritized access to new money entering the economy.

I rather doubt the Cantillon effect in an economy made up of smart actors who anticipate that new money entering the economy. (Though experiment to illustrate: if the Fed announced today that they are going to double the amount of money in the economy in exactly 12 months, you would see prices going up today in anticipation. The Cantillon effect would require prices to slowly go up one by one starting at the earliest in 12 months as the money makes it way through the economy like some kind of hydraulic fluid.)

Btw, there are also plenty of shadow banks that provide similar services to the economy but are not regulated as banks. They serve as a release valve for the economy.

In a very loose sense my stock broker (IBKR) is a shadow bank: lots of people have uninvested cash in their brokerage accounts and IBKR lends some of it to me as a margin loan so I can buy more stocks. Money market funds are another sort-of shadow bank.