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I read the paypal story on Founders at Work. It was one of the difficult ones. If the Russian founder cashed out with 1-2 million IMHO it would be too little fo

by Aegean 16y ago

I read the paypal story on Founders at Work. It was one of the difficult ones. If the Russian founder cashed out with 1-2 million IMHO it would be too little for all he's been through in that story.

nailer 16y ago
Even if I knew Paypal would become a success when it started, I still wouldn't believe it. They've gotten all the abilities of a bank without any of the responsibilities, and I still think the possibility of changing laws still hangs over them like the sword of Damocles.
- adammichaelc 16y ago
  They've gotten all the abilities of a bank without any of the responsibilities Last I checked, they can't do fractional-reserve banking (ie they can't loan out more money than they have on-hand or as some people like to say, "print money"). To me, this is the biggest power that a bank has, and what separates a bank from every other institution. What exactly did you mean by your statement? What "abilities" are you referring to?
  - _delirium 16y ago
    Is that actually true? They retain the full value of all PayPal account balances as 100% cash reserves? I always assumed they were playing the float, at least by rolling it into short-term instruments.
  - wisty 16y ago
    As I understand it, fractional reserves doesn't mean that banks "loan out more money than they have on-hand". They loan out most of the money that they have on hand, and keep a small fraction in reserve. However, they end up "printing money" because the people who receive the money from those loans immediately put it back in the bank, thus the total credit and debits grows to something like 1/fr, where fr is the fraction that gets held in reserve. I doubt Paypal invests their deposits (or if they do, they only put it in cash-equivalents), unlike banks which have the privilege of taking on short-term liabilities while they only hold long-term assets and a small amount of cash.
    - loewenskind 16y ago
      >fractional reserves doesn't mean that banks "loan out more money than they have on-hand". That's exactly what it means. When you go to the bank and ask for e.g. $100k to buy a house they make an account entry to first create this money (assuming doing so wouldn't put them past their reserve threshold) and then give it to you. The money only exists because you've promised to pay it back. Put another way, the loan money they're giving you is like they went into the future, took all the money you paid into the loan account, deducted their fees, etc. came back to today and gave you what was left over.
spolsky 16y ago
If you're referring to Max Levchin, he was a key early founder and made a lot more than that. But there were probably HUNDREDS of later employees who made more than about a million and THAT'S why PayPal spawned so many startups.

by Aegean 16y ago

I read the paypal story on Founders at Work. It was one of the difficult ones. If the Russian founder cashed out with 1-2 million IMHO it would be too little for all he's been through in that story.

nailer 16y ago

Even if I knew Paypal would become a success when it started, I still wouldn't believe it. They've gotten all the abilities of a bank without any of the responsibilities, and I still think the possibility of changing laws still hangs over them like the sword of Damocles.

adammichaelc 16y ago
They've gotten all the abilities of a bank without any of the responsibilities Last I checked, they can't do fractional-reserve banking (ie they can't loan out more money than they have on-hand or as some people like to say, "print money"). To me, this is the biggest power that a bank has, and what separates a bank from every other institution. What exactly did you mean by your statement? What "abilities" are you referring to?
- _delirium 16y ago
  Is that actually true? They retain the full value of all PayPal account balances as 100% cash reserves? I always assumed they were playing the float, at least by rolling it into short-term instruments.
- wisty 16y ago
  As I understand it, fractional reserves doesn't mean that banks "loan out more money than they have on-hand". They loan out most of the money that they have on hand, and keep a small fraction in reserve. However, they end up "printing money" because the people who receive the money from those loans immediately put it back in the bank, thus the total credit and debits grows to something like 1/fr, where fr is the fraction that gets held in reserve. I doubt Paypal invests their deposits (or if they do, they only put it in cash-equivalents), unlike banks which have the privilege of taking on short-term liabilities while they only hold long-term assets and a small amount of cash.
  - loewenskind 16y ago
    >fractional reserves doesn't mean that banks "loan out more money than they have on-hand". That's exactly what it means. When you go to the bank and ask for e.g. $100k to buy a house they make an account entry to first create this money (assuming doing so wouldn't put them past their reserve threshold) and then give it to you. The money only exists because you've promised to pay it back. Put another way, the loan money they're giving you is like they went into the future, took all the money you paid into the loan account, deducted their fees, etc. came back to today and gave you what was left over.

spolsky 16y ago

If you're referring to Max Levchin, he was a key early founder and made a lot more than that. But there were probably HUNDREDS of later employees who made more than about a million and THAT'S why PayPal spawned so many startups.