7 ms·

When people say "hey, Tether is no worse than the existing financial system" I wonder if they don't understand the difference between holding a fraction of depo

When people say "hey, Tether is no worse than the existing financial system" I wonder if they don't understand the difference between holding a fraction of deposited money as reserves, and only having a fraction of deposited money as assets, period. As far as I know, when the latter happens in a real bank, they get shut down, shareholders lose their money, and only the FDIC saves the depositors. Just because that's the primary factoid I know about banking.

dnautics 5y ago
Moreover the Fed implicitly has the authority to do the bullshit that it does. Arguably that makes it more pernicious and evil, but short of political collective action there's also not much as an individual you can do about it. You can certainly do things about the tether situation, e.g. exit crypto, short tether (this may be stupid, lol), etc.
Dma54rhs 5y ago
I've never held any coin but why can't it be true? The money is imaginary anyway and while you can talk about backing dollars with tanks and bomb at the end of the day is there are believers there is a market snd one market can outlive another. Saving depositors in regular banking is pure belief as well.
- wpietri 5y ago
  > Saving depositors in regular banking is pure belief as well. Not in the same way. FDIC insurance goes back more than 90 years. Its value has been proven through major financial crises. It is pretty transparent about what it does, and it's accountable to the public. There is also arms-length regulatory verification between banks and their various regulators to make sure that they aren't taking on too much risk. Tether, on the other hand is intentionally opaque, run by a small number of people, has mysterious relationships with other players, and has been caught lying about their backing. It has never been tested by a serious crisis. And of course there's no real regulation, so you basically have to take the word of people who have demonstrated they're not trustworthy.
- jcranmer 5y ago
  If a bank makes a loan to somebody else, the value of that loan is recorded as an asset. Customer deposits at a bank are recorded as liabilities. Even when banks loan out money to other people, they are careful to make sure that their assets exceed liabilities--and not by a small amount, but by something like 10%. Now, not all loans are repaid, and when that happens, the bank will take a write-off of that asset, reducing its assets. In a bad financial crisis, this might hit something 5, 6, 7% of their total assets--but remember that they started with 110% assets over liabilities, so they're still left with more assets over liabilities. The thing with Tether is that if you look at Tether's claimed accounts, their assets-to-liabilities ratio is 100.2%. When that ratio dips below 100%, you are insolvent. If I recall my math correctly, a 5% drop in the price of Bitcoin would make Tether literally insolvent. You might argue that all the financial shenanigans are ultimately illusory, but the fact remains that the person crowing about the unreality of finance is the one that is tapdancing on an oil-soaked rope while juggling flamethrowers. And huffing ClF₃ at the same time, perhaps--they're unwilling to tell us.
  - ufo 5y ago
    Additionally, that 100.2% figure comes from Tether's own creative accounting. In all likelyhood the numbers are even worse than that.
  - sumedh 5y ago
    > a 5% drop in the price of Bitcoin would make Tether literally insolvent. Didnt BTC go down to 30K from 60K just recently?
    - jfrunyon 5y ago
      Your point being? There are many, many ways for businesses to hide their insolvency, for years[1], or even decades[2]. [1] https://en.wikipedia.org/wiki/Wirecard#Scandal_and_insolvency https://en.wikipedia.org/wiki/Wirecard#Scandal_and_insolvenc... [2] https://en.wikipedia.org/wiki/Madoff_investment_scandal https://en.wikipedia.org/wiki/Madoff_investment_scandal
      - 5y ago
- jfrunyon 5y ago
  Why can't what be true? Do you truly think that Monopoly money is as valuable as real money backed by all the money, power, influence, and force of a major world government?
  - perl4ever 5y ago
    >real money backed by all the money, power, influence, and force of a major world government This meme bugs me though, even if the USD is in fact more secure. I don't think the US military or having to pay US taxes is a requirement for the dollar to be sound and useful. It's a cliche that people use cigarettes or whatever in prison, with no army backing it up. Noncitizens use US dollars outside the US, where they are neither subject to its jurisdiction nor owe taxes. And I think people use or have used Swiss Francs all over the world, without any particular empire or force projection of that state. What is necessary is that the money supply is kept under control.
- perl4ever 5y ago
  >Saving depositors in regular banking is pure belief as well. What matters, I believe, is that they have the assets to back the liabilities. 100% plus a safety margin. As far as I know, a regular bank or credit union meets that criteria and Tether does not. Haven't you ever watched "It's a Wonderful Life"? Where the guy in an effort to stop a bank run, explains that the deposits are tied up in the homes and businesses of the people of the community? That stuff isn't imaginary, it's just that people are panicking and forgot that it's all connected.
dsjegkl 5y ago
>...holding a fraction of deposited money as reserves... US banks haven't had reserve requirements since March 2020. https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- jfrunyon 5y ago
  And yet their assets:liabilities ratio is still approximately "#DIV/0!" times that of Tether.
  - dsjegkl 5y ago
    I highly doubt Tether has embezzled 100% of their assets.
    - jfrunyon 5y ago
      I highly doubt you know what "approximately" means.

dnautics 5y ago

Moreover the Fed implicitly has the authority to do the bullshit that it does. Arguably that makes it more pernicious and evil, but short of political collective action there's also not much as an individual you can do about it. You can certainly do things about the tether situation, e.g. exit crypto, short tether (this may be stupid, lol), etc.

Dma54rhs 5y ago

I've never held any coin but why can't it be true? The money is imaginary anyway and while you can talk about backing dollars with tanks and bomb at the end of the day is there are believers there is a market snd one market can outlive another. Saving depositors in regular banking is pure belief as well.

wpietri 5y ago
> Saving depositors in regular banking is pure belief as well. Not in the same way. FDIC insurance goes back more than 90 years. Its value has been proven through major financial crises. It is pretty transparent about what it does, and it's accountable to the public. There is also arms-length regulatory verification between banks and their various regulators to make sure that they aren't taking on too much risk. Tether, on the other hand is intentionally opaque, run by a small number of people, has mysterious relationships with other players, and has been caught lying about their backing. It has never been tested by a serious crisis. And of course there's no real regulation, so you basically have to take the word of people who have demonstrated they're not trustworthy.
jcranmer 5y ago
If a bank makes a loan to somebody else, the value of that loan is recorded as an asset. Customer deposits at a bank are recorded as liabilities. Even when banks loan out money to other people, they are careful to make sure that their assets exceed liabilities--and not by a small amount, but by something like 10%. Now, not all loans are repaid, and when that happens, the bank will take a write-off of that asset, reducing its assets. In a bad financial crisis, this might hit something 5, 6, 7% of their total assets--but remember that they started with 110% assets over liabilities, so they're still left with more assets over liabilities. The thing with Tether is that if you look at Tether's claimed accounts, their assets-to-liabilities ratio is 100.2%. When that ratio dips below 100%, you are insolvent. If I recall my math correctly, a 5% drop in the price of Bitcoin would make Tether literally insolvent. You might argue that all the financial shenanigans are ultimately illusory, but the fact remains that the person crowing about the unreality of finance is the one that is tapdancing on an oil-soaked rope while juggling flamethrowers. And huffing ClF₃ at the same time, perhaps--they're unwilling to tell us.
- ufo 5y ago
  Additionally, that 100.2% figure comes from Tether's own creative accounting. In all likelyhood the numbers are even worse than that.
- sumedh 5y ago
  > a 5% drop in the price of Bitcoin would make Tether literally insolvent. Didnt BTC go down to 30K from 60K just recently?
  - jfrunyon 5y ago
    Your point being? There are many, many ways for businesses to hide their insolvency, for years[1], or even decades[2]. [1] https://en.wikipedia.org/wiki/Wirecard#Scandal_and_insolvency https://en.wikipedia.org/wiki/Wirecard#Scandal_and_insolvenc... [2] https://en.wikipedia.org/wiki/Madoff_investment_scandal https://en.wikipedia.org/wiki/Madoff_investment_scandal
    - 5y ago
jfrunyon 5y ago
Why can't what be true? Do you truly think that Monopoly money is as valuable as real money backed by all the money, power, influence, and force of a major world government?
- perl4ever 5y ago
  >real money backed by all the money, power, influence, and force of a major world government This meme bugs me though, even if the USD is in fact more secure. I don't think the US military or having to pay US taxes is a requirement for the dollar to be sound and useful. It's a cliche that people use cigarettes or whatever in prison, with no army backing it up. Noncitizens use US dollars outside the US, where they are neither subject to its jurisdiction nor owe taxes. And I think people use or have used Swiss Francs all over the world, without any particular empire or force projection of that state. What is necessary is that the money supply is kept under control.
perl4ever 5y ago
>Saving depositors in regular banking is pure belief as well. What matters, I believe, is that they have the assets to back the liabilities. 100% plus a safety margin. As far as I know, a regular bank or credit union meets that criteria and Tether does not. Haven't you ever watched "It's a Wonderful Life"? Where the guy in an effort to stop a bank run, explains that the deposits are tied up in the homes and businesses of the people of the community? That stuff isn't imaginary, it's just that people are panicking and forgot that it's all connected.

dsjegkl 5y ago

>...holding a fraction of deposited money as reserves... US banks haven't had reserve requirements since March 2020. https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm

jfrunyon 5y ago
And yet their assets:liabilities ratio is still approximately "#DIV/0!" times that of Tether.
- dsjegkl 5y ago
  I highly doubt Tether has embezzled 100% of their assets.
  - jfrunyon 5y ago
    I highly doubt you know what "approximately" means.