3 ms·

That's exactly how fractional reserve banking started...

toomuchtodo 5y ago
Which is backed by a governments, laws, and regulators… If my deposit account gives up the ghost, I know the FDIC or the Fed will make me whole (or SPIC for my brokerage account). Who will do the same for Tether and other stablecoins? Not good!
- hammock 5y ago
  >the FDIC or SPIC You mean they will print more money to fill your loss (dilution net effect zero) >the Fed will make me whole Says who?
  - toomuchtodo 5y ago
    So, I'm really unsure how to have these sorts of discussions with crypto proponents. The US government's securities (UST), as well as the US capital markets, are some of the most trusted financial assets and mechanisms in the world. Treasuries, in particular, are considered one of the safest asset classes to hold. As a crypto proponent, you might not believe that, but collectively $22 trillion of capital (and those responsible for its management, sovereign and institutional alike) believes that's the case. If the US government fails, crypto is likely to be of lesser value than say, ammo, food, and fuel. This is in stark contrast to offshore crypto operations who refuse transparent auditing of their reserves.
  - tfehring 5y ago
    The FDIC's Deposit Insurance Fund has a balance of over $119 billion as of March 31. No need for money to be printed. https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2021mar/fdic.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/stat...
- jbverschoor 5y ago
  They're not "backed". It's simply not there. They're backed by the law that if you arrange a "run on the bank", YOU will go to jail.
  - notahacker 5y ago
    They're not backed by an imaginary law, they are backed by an outstanding portfolio of expected loan repayments, the ability to borrow all the short term cash they need at lower rates, and ultimately you're backed by the FDIC even the people the bank loaned out to all default.
  - jcranmer 5y ago
    How do you go to jail if "arrange a 'run on the bank'"? There's no law against it, so far as I'm aware. As for the backing, let me go through this in more detail (see https://www.bloomberg.com/opinion/articles/2021-06-10/maybe-gamestop-is-good-now https://www.bloomberg.com/opinion/articles/2021-06-10/maybe-... for a decent coverage of how this works). There are three categories to keep in mind here: assets (which include loans, cash, precious metals, etc.), liabilities (i.e., the value of all of your deposits), and capital (which is money to support the assets that's actually the bank's owner's). Regulation requires liabilities to hit no more than about 90% of assets. They also require the bank to stake about 8% of its own capital to support the assets, on a risk-weighted basis. The risk weighting reflects the likelihood of assets crashing in value: a typical loan might have a 100% weight, so $100 in loans requires $8 in capital. Safer loans (e.g., residential mortgages) would require less capital. Stuff like cash or T-bills have a risk weighting of 0%. Riskier things include stocks (which tend to go down big when they go down), requiring maybe $24 per $100 of stocks, or cryptocurrencies... which require $100 of capital per $100 of cryptocurrency. What this actually means, when you combine stuff together, is that you really do have something like $100 in safe things for every $100 in deposits a bank has.

Which is backed by a governments, laws, and regulators… If my deposit account gives up the ghost, I know the FDIC or the Fed will make me whole (or SPIC for my brokerage account). Who will do the same for Tether and other stablecoins? Not good!

hammock 5y ago
>the FDIC or SPIC You mean they will print more money to fill your loss (dilution net effect zero) >the Fed will make me whole Says who?
- toomuchtodo 5y ago
  So, I'm really unsure how to have these sorts of discussions with crypto proponents. The US government's securities (UST), as well as the US capital markets, are some of the most trusted financial assets and mechanisms in the world. Treasuries, in particular, are considered one of the safest asset classes to hold. As a crypto proponent, you might not believe that, but collectively $22 trillion of capital (and those responsible for its management, sovereign and institutional alike) believes that's the case. If the US government fails, crypto is likely to be of lesser value than say, ammo, food, and fuel. This is in stark contrast to offshore crypto operations who refuse transparent auditing of their reserves.
- tfehring 5y ago
  The FDIC's Deposit Insurance Fund has a balance of over $119 billion as of March 31. No need for money to be printed. https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2021mar/fdic.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/stat...
jbverschoor 5y ago
They're not "backed". It's simply not there. They're backed by the law that if you arrange a "run on the bank", YOU will go to jail.
- notahacker 5y ago
  They're not backed by an imaginary law, they are backed by an outstanding portfolio of expected loan repayments, the ability to borrow all the short term cash they need at lower rates, and ultimately you're backed by the FDIC even the people the bank loaned out to all default.
- jcranmer 5y ago
  How do you go to jail if "arrange a 'run on the bank'"? There's no law against it, so far as I'm aware. As for the backing, let me go through this in more detail (see https://www.bloomberg.com/opinion/articles/2021-06-10/maybe-gamestop-is-good-now https://www.bloomberg.com/opinion/articles/2021-06-10/maybe-... for a decent coverage of how this works). There are three categories to keep in mind here: assets (which include loans, cash, precious metals, etc.), liabilities (i.e., the value of all of your deposits), and capital (which is money to support the assets that's actually the bank's owner's). Regulation requires liabilities to hit no more than about 90% of assets. They also require the bank to stake about 8% of its own capital to support the assets, on a risk-weighted basis. The risk weighting reflects the likelihood of assets crashing in value: a typical loan might have a 100% weight, so $100 in loans requires $8 in capital. Safer loans (e.g., residential mortgages) would require less capital. Stuff like cash or T-bills have a risk weighting of 0%. Riskier things include stocks (which tend to go down big when they go down), requiring maybe $24 per $100 of stocks, or cryptocurrencies... which require $100 of capital per $100 of cryptocurrency. What this actually means, when you combine stuff together, is that you really do have something like $100 in safe things for every $100 in deposits a bank has.