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> Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies. I

> Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies. I disagree that this is "conceptually" a bank. Facebook's business model isn't lending out the reserves. If it was, banking regulation would apply. Also, in a modern bank, reserves are maybe 10%, and you get less than zero percent interest after inflation for that risk exposure. We've all seen in the past on how well "financial oversight" worked. At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there. Facebook is at least a profitable company in its own right.

DenisM 7y ago
> We've all seen in the past on how well "financial oversight" worked It worked remarkably well - no consumer lost their deposits to a bank failure. The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.
- gridlockd 7y ago
  That had nothing to do with oversight and everything to do with the fact that the government can just print the money to save a bank - and it did so. That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences. Also, you may say this "worked" in the US, but other countries didn't get quite so lucky playing that game.
  - navigatesol 7y ago
    >That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences. What most people don't grasp is just how regulated the financial industry is. Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? This stuff happens in a capitalist economy. I mean, it's not like it was "the banks" in a vacuum. It was governments, mortgage brokers, builders, house-flippers, your neighbour, speculators...everyone benefited from the wealth effect of cheap money and rising home values. Until they didn't; then it became the banks' fault.
    - gridlockd 7y ago
      > Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? No, what's unacceptable is the government bailout "guarantee" you get from being "too big to fail". That's not "taking a risk", that's not "capitalism", that's gambling with someone else's money. I will agree though that you can't blame the banks for an environment where they're effectively pushed to lend recklessly, that's the result of monetary policy.
  - mountainofdeath 7y ago
    The government doesn't print money to catch failing banks, at least not usually. For standard bank deposits, banks pay a fee to FDIC as a percentage of their assets just like any insurance policy. Keep in mind, it's to the bank's advantage to remain solvent at all costs. An insolvent bank will be liquidated and shareholders are left empty handed. Between the FDIC insurance and the liquidated assets is how these things are paid out.
- ionised 7y ago
  > The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight. I like how you're trying to make like the financial crash was no big deal because this 'oversight' worked in this narrow context. I wonder if you'd claim that the banks lending out too much money didn't have absolutely catastrophic effects on the economy in general and by association, millions of people's livelihoods around the globe.
  - sp332 7y ago
    That sounds like an argument for more regulation, not less. If there were less regulation, all that stuff would have happened and depositors would have lost their money.
    - ionised 7y ago
      I agree. I'm a big fan of heavy regulation, especially for industries that can, and frequently do, ruin millions of lives with their avarice.
- wuliwong 7y ago
  What if banks tend to lend out too much money because of the deposit insurance? This could have other, unintended consequences beyond the narrow scope of your comment.
  - ls612 7y ago
    It’s a nice theory, but unsupported by evidence. In the US since the FDIC was set up there have been far fewer bank failures than there were before then. In fact, having that oversight short-circuits the mechanism that makes bank runs happen, since getting your money back is no longer a function of your place in line.
randomvectors 7y ago
> At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there. This is so ridiculous that I don't even know how to argue with it.
- gridlockd 7y ago
  That's probably because systematic bank failure to you is just a fairly tale and you don't understand the risk exposure you have at an actual bank. Open your history book! To be clear, I wouldn't prefer to put my money with either. But if push comes to shove, would you prefer to have an account at a failed bank that holds 10% in reserves, or a private company that holds close to 100% of reserves, because it is not a bank? Before you answer, please imagine for a second that you had a decent amount of money to retire on, not whatever FDIC and the already bankrupt state promises to reimburse you with.
  - rphlx 7y ago
    This seems to be a false either-or because FB is probably not holding 100% reserves as actual paper cash in a giant Scrooge McDuck vault underneath their HQ. It's holding them at a bank, so that it can get the interest payments. Thus, a user faces systemic banking system risks plus all firm/stablecoin-provider risks. That combined risk will almost certainly be strictly larger than the systemic banking system risk you'd face by just depositing funds in a bank account that you directly control.
    - gridlockd 7y ago
      I'm arguing the principle here, so for that purpose it might as well be a Scrooge McDuck vault. Otherwise, you do have a point, a systematic bank failure would likely cause issues here as well. However, I highly doubt they'd be storing significant amounts of money as cash deposits in banks for the interest. There's better options, such as short-term treasury bonds.
      - rphlx 7y ago

DenisM 7y ago

> We've all seen in the past on how well "financial oversight" worked It worked remarkably well - no consumer lost their deposits to a bank failure. The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.

gridlockd 7y ago
That had nothing to do with oversight and everything to do with the fact that the government can just print the money to save a bank - and it did so. That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences. Also, you may say this "worked" in the US, but other countries didn't get quite so lucky playing that game.
- navigatesol 7y ago
  >That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences. What most people don't grasp is just how regulated the financial industry is. Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? This stuff happens in a capitalist economy. I mean, it's not like it was "the banks" in a vacuum. It was governments, mortgage brokers, builders, house-flippers, your neighbour, speculators...everyone benefited from the wealth effect of cheap money and rising home values. Until they didn't; then it became the banks' fault.
  - gridlockd 7y ago
    > Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? No, what's unacceptable is the government bailout "guarantee" you get from being "too big to fail". That's not "taking a risk", that's not "capitalism", that's gambling with someone else's money. I will agree though that you can't blame the banks for an environment where they're effectively pushed to lend recklessly, that's the result of monetary policy.
- mountainofdeath 7y ago
  The government doesn't print money to catch failing banks, at least not usually. For standard bank deposits, banks pay a fee to FDIC as a percentage of their assets just like any insurance policy. Keep in mind, it's to the bank's advantage to remain solvent at all costs. An insolvent bank will be liquidated and shareholders are left empty handed. Between the FDIC insurance and the liquidated assets is how these things are paid out.
ionised 7y ago
> The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight. I like how you're trying to make like the financial crash was no big deal because this 'oversight' worked in this narrow context. I wonder if you'd claim that the banks lending out too much money didn't have absolutely catastrophic effects on the economy in general and by association, millions of people's livelihoods around the globe.
- sp332 7y ago
  That sounds like an argument for more regulation, not less. If there were less regulation, all that stuff would have happened and depositors would have lost their money.
  - ionised 7y ago
    I agree. I'm a big fan of heavy regulation, especially for industries that can, and frequently do, ruin millions of lives with their avarice.
wuliwong 7y ago
What if banks tend to lend out too much money because of the deposit insurance? This could have other, unintended consequences beyond the narrow scope of your comment.
- ls612 7y ago
  It’s a nice theory, but unsupported by evidence. In the US since the FDIC was set up there have been far fewer bank failures than there were before then. In fact, having that oversight short-circuits the mechanism that makes bank runs happen, since getting your money back is no longer a function of your place in line.

randomvectors 7y ago

> At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there. This is so ridiculous that I don't even know how to argue with it.

gridlockd 7y ago
That's probably because systematic bank failure to you is just a fairly tale and you don't understand the risk exposure you have at an actual bank. Open your history book! To be clear, I wouldn't prefer to put my money with either. But if push comes to shove, would you prefer to have an account at a failed bank that holds 10% in reserves, or a private company that holds close to 100% of reserves, because it is not a bank? Before you answer, please imagine for a second that you had a decent amount of money to retire on, not whatever FDIC and the already bankrupt state promises to reimburse you with.
- rphlx 7y ago
  This seems to be a false either-or because FB is probably not holding 100% reserves as actual paper cash in a giant Scrooge McDuck vault underneath their HQ. It's holding them at a bank, so that it can get the interest payments. Thus, a user faces systemic banking system risks plus all firm/stablecoin-provider risks. That combined risk will almost certainly be strictly larger than the systemic banking system risk you'd face by just depositing funds in a bank account that you directly control.
  - gridlockd 7y ago
    I'm arguing the principle here, so for that purpose it might as well be a Scrooge McDuck vault. Otherwise, you do have a point, a systematic bank failure would likely cause issues here as well. However, I highly doubt they'd be storing significant amounts of money as cash deposits in banks for the interest. There's better options, such as short-term treasury bonds.
    - rphlx 7y ago