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My bank only needs to keep 10% of its deposits backed by cash, securities. [0] [0] https://en.wikipedia.org/wiki/Reserve_requirement#United_States https://en.w

My bank only needs to keep 10% of its deposits backed by cash, securities. [0] [0] https://en.wikipedia.org/wiki/Reserve_requirement#United_States https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta...

aikah 8y ago
> My bank only needs to keep 10% of its deposits backed by cash, securities. True, but your FIAT is FDIC insured to an extend. Neither Tether nor any of these funny moneys are. Furthermore, I'm pretty sure non accredited banks cannot run fractional reserves legally.
- notahacker 8y ago
  Also, fractional reserves are fully backed by outstanding loans due for repayment, which is not the same as being backed by nothing. A decade ago, we saw how bad it was for the whole ecosystem when more loans than expected turned into nothing... That's not at all similar to Bitfinex only pretending to back Tether.
  - ceejayoz 8y ago
    Also also, banks don't falsely claim "we're not fractional reserve" on their websites for years.
bhouston 8y ago
You are misunderstanding fractional reserve banking. Fractional reserve banking means that the bank only has to keep enough cash on hand to meet their expected reasonable obligations. Banks still need their books to balance. That means that their liabilities can not exceed their assets. A bank can be solvent on paper but if there was a rush to withdraw by their customers, they may not be able to pay cash for all withdrawals because that cash would be tied up in loans. In the Tether case it isn't that they loaned out the money they took in, rather their liabilities exceed their assets. Thus Tether is bankrupt on paper. And if everyone tried to withdraw their assets, they would also not be able to pay everyone back. Thus banks may be illiquid with a balance sheet that ultimately balances (e.g. not bankrupt), but tether is both bankrupt and likely also illiquid because of the 850M loan fiasco. I swear tether is like Wiley Coyote who has run off a cliff but hasn't yet looked down. I question my sanity a little bit because I do not understand why tether isn't completely disreputable at this point, I must be missing something.
- ei8htyfi5e 8y ago
  I tend to agree with your Wiley Coyote comment and it made me laugh. Thanks.
- cremp 8y ago
  Because Tether is the de-facto way for the exchanges to bypass USD regulations.
- b_tterc_p 8y ago
  Bankruptcy doesn’t mean assets < liabilities. It means you can’t pay off the liabilities you have and are basically giving up on doing so in the future. As far as I’m aware, tether doesn’t really have any liabilities. They claimed that each tether was backed by a dollar, but didn’t say it was redeemable for a dollar. They don’t need to pay anything. There can’t be a run on the bank because this bank doesn’t give you your money back. Why does the market allow this? ... I have no clue but I would guess that money laundering fits into it somewhere.
  - comex 8y ago
    That’s not correct; Tether does nominally allow redeeming for USD, although only in bulk, and the service has opened and closed over time and generally been a mess AFAIK.
    - b_tterc_p 8y ago
      Fine. Sometimes they do, but legally are not obligated to do so. So it’s a moot point. They’re protected from runs because they don’t have to cash out. Their current terms of service state: > Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.
elliekelly 8y ago
It's not really an issue of sufficient reserves so much as it's an issue of co-mingling corporate and client funds.

aikah 8y ago

> My bank only needs to keep 10% of its deposits backed by cash, securities. True, but your FIAT is FDIC insured to an extend. Neither Tether nor any of these funny moneys are. Furthermore, I'm pretty sure non accredited banks cannot run fractional reserves legally.

notahacker 8y ago
Also, fractional reserves are fully backed by outstanding loans due for repayment, which is not the same as being backed by nothing. A decade ago, we saw how bad it was for the whole ecosystem when more loans than expected turned into nothing... That's not at all similar to Bitfinex only pretending to back Tether.
- ceejayoz 8y ago
  Also also, banks don't falsely claim "we're not fractional reserve" on their websites for years.

bhouston 8y ago

You are misunderstanding fractional reserve banking. Fractional reserve banking means that the bank only has to keep enough cash on hand to meet their expected reasonable obligations. Banks still need their books to balance. That means that their liabilities can not exceed their assets. A bank can be solvent on paper but if there was a rush to withdraw by their customers, they may not be able to pay cash for all withdrawals because that cash would be tied up in loans. In the Tether case it isn't that they loaned out the money they took in, rather their liabilities exceed their assets. Thus Tether is bankrupt on paper. And if everyone tried to withdraw their assets, they would also not be able to pay everyone back. Thus banks may be illiquid with a balance sheet that ultimately balances (e.g. not bankrupt), but tether is both bankrupt and likely also illiquid because of the 850M loan fiasco. I swear tether is like Wiley Coyote who has run off a cliff but hasn't yet looked down. I question my sanity a little bit because I do not understand why tether isn't completely disreputable at this point, I must be missing something.

ei8htyfi5e 8y ago
I tend to agree with your Wiley Coyote comment and it made me laugh. Thanks.
cremp 8y ago
Because Tether is the de-facto way for the exchanges to bypass USD regulations.
b_tterc_p 8y ago
Bankruptcy doesn’t mean assets < liabilities. It means you can’t pay off the liabilities you have and are basically giving up on doing so in the future. As far as I’m aware, tether doesn’t really have any liabilities. They claimed that each tether was backed by a dollar, but didn’t say it was redeemable for a dollar. They don’t need to pay anything. There can’t be a run on the bank because this bank doesn’t give you your money back. Why does the market allow this? ... I have no clue but I would guess that money laundering fits into it somewhere.
- comex 8y ago
  That’s not correct; Tether does nominally allow redeeming for USD, although only in bulk, and the service has opened and closed over time and generally been a mess AFAIK.
  - b_tterc_p 8y ago
    Fine. Sometimes they do, but legally are not obligated to do so. So it’s a moot point. They’re protected from runs because they don’t have to cash out. Their current terms of service state: > Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves. Tether makes no representations or warranties about whether Tether Tokens that may be traded on the Site may be traded on the Site at any point in the future, if at all.

elliekelly 8y ago

It's not really an issue of sufficient reserves so much as it's an issue of co-mingling corporate and client funds.