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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 bank
by 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 agoAdditionally, 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 agoYour 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
- sumedh 5y agoRead OP's point, he/she claimed that a 5% drop in the price of Bitcoin would make Tether literally insolvent, that did not happen when BTC went from 60K to 30K
- jfrunyon 5y agoRead MY point, please prove (or show any evidence) that it did not happen. You are claiming something that there is literally NO EVIDENCE of, while vast piles of available evidence points to the very opposite. Tether is, has been, and will continue to be insolvent. The only question is when people will notice.
- sumedh 5y ago> Read MY point, please prove (or show any evidence) that it did not happen. It does not work like that, you are making the claim not me. You have to show the evidence.
- jfrunyon 5y agoI did show the evidence. Again, read MY point. Goodbye, troll. (BTW, actually, you made the claim: https://news.ycombinator.com/item?id=28924975 https://news.ycombinator.com/item?id=28924975 )
- sumedh 5y agoI did not make any claim, that is fact. You can check the BTC price yourself. Where is the evidence that Tether is insolvent?
- deleted 5y ago[deleted]
- perl4ever 5y agoI don't believe in Tether, but on the other hand, my logic that insolvency should lead to immediate destruction means...I should believe they are solvent. I mean, that's basically it. Everything points to insolvency, but if it was, it would be history. Therefore, it must not be. Anyone who "notices" should make it all fall apart instantly. And loud mouth short sellers have certainly been wrong before.