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> Even if the origin, operation of Tether is highly suspicious: if it functions, is widely adopted and does what is expected … may last longer than people think
by xur17 5y ago
> Even if the origin, operation of Tether is highly suspicious: if it functions, is widely adopted and does what is expected … may last longer than people think.
I think you're right about this point, and I've been trying to imagine what might cause Tether to collapse - you really need a run on the bank situation triggered by something causing them to become insolvent.
- rossdavidh 5y agoLike, say, a bunch of Chinese firms who need cash quickly to pay dollar-denominated bonds, all selling their Tether at the same time?
- Traster 5y agoThe real question is basically how much is it leveraged. We learned this from so many other frauds/crashes. It's not so much that "as long as there isn't a run on the bank it's fine" it's that an outflow of a tiny percentage could effectively be a run on the bank, since they may only be backed by a tiny fraction of what they claim to be backed by. It's one thing if they have 90% backing. What happens if it turns out it's only backed 0.05%? A run on the bank won't kill them, an averagely bad few days could see it all collapse. This is exactly why banks have regulations.
- perl4ever 5y agoA run on a bank can make it insolvent? I thought that insolvency was when they don't have the assets to cover their liabilities. My understanding of a bank run is it happens when a bank is solvent, but doesn't have enough in reserves - liquid, short term assets. But if they simply don't have at least 100% of their liabilities in assets, then they are bust because they can never pay people back barring a miracle.
- marvin 5y ago> But if they simply don't have at least 100% of their liabilities in assets, then they are bust. Only when we find out!
- Closi 5y agoWell usually banks have huge audit requirements and are covered in regulation to avoid this happening (after learning what happens when you have entirely unregulated financial institutions)
- deleted 5y ago[deleted]
- stevage 5y agoInsolvent literally means liabilities exceed assets. There are various ways a company can trade while insolvent, including being a Ponzi scheme.
- the_optimist 5y agoLiquidity squeezes and credit crises are correlated: inability to repay happens at the same time as unwillingness to lend. In practice, you get a commercial paper default at the same time you get increased liquidity demands. All you need is one event; one fraud, one excess-risk taking that doesn't pay off. If Tether is investing reserves, it is only timing until they default. There is no exception, and everyone sophisticated in finance knows this. Banks play the same games with probability distributions on risk assets; this 'social science' still reliably fails and banks are accordingly bailed out. Tether has no such recourse.
- PKop 5y agoA crash in the corporate paper they hold, which would destroy the rest of the economy even more. Tether would be a footnote to that event.
- wpietri 5y agoThat they claim to hold. They won't prove it, and many financial industry insiders have suggested they couldn't possibly hold what is normally thought of as "commercial paper" in the quantities they claim.
- jfrunyon 5y agoWhat corporate paper? People always bring this up as though they've ever actually proven to hold reserves as they say. Even though it's been repeatedly proven that they DON'T.