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> This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market. How does this happen again 15 years later? Is it be

> This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market. How does this happen again 15 years later? Is it because we ineffectively dealt with 2008? A result of the repeal of Glass-Steagall? Or have we over regulated banking to the point the miscreants went underground to build things like crypto? I don't get it. Crashing over and over doesn't seem good for anyone.

nickelpro 4y ago
Technologically distinct market, even if economically parallel, Glass-Steagall wouldn't have prevented this. The crypto companies have operated almost entirely outside of regulatory oversight prior to the last 18 months or so.
LatteLazy 4y ago
In this case the damage will be limited to a bunch crypto companies. The issue before was it hit companies we relied on for things like mortgages and current accounts. Crypto companies can just be allowed to fail and no one except their users will be effected. Hence they are not regulated. So even keeping GS (which was limited to big banks and a few similar institutions) wouldn't have made any difference. Not that keeping it would necessarily have been a bad ide...
- unityByFreedom 4y ago
  > In this case the damage will be limited to a bunch crypto companies. The issue before was it hit companies we relied on for things like mortgages and current accounts. Crypto companies can just be allowed to fail and no one except their users will be effected. I don't buy the argument that crypto lives in a vacuum. People valuing that asset are part of the global economy. The question is, is crypto really as valuable as the crypto exchange markets claim, and do companies assign face value to these assets, or do they account for the amount of risk they deserve?
  - LatteLazy 4y ago
    At the risk of getting semantic... Value is not a single concept. The value of something to me is different to to you. And for both of us it changes over time. Value cannot really be defined, let alone measured. So we are stuck with prices. And prices are sort of connected to value. But the connection is very non linear. We can know the price of crypto (or gold or shares or credit default swaps). But it's value is purely a matter of personal taste...
cormacrelf 4y ago
The powers that be aren't trying to crash it all on purpose, nobody wants another 2008. They have produced a pretty hands-off response, because of a number of factors. Crypto has an explicit project to escape US regulation, so lots of money is in e.g. the Bahamas and difficult to target. Many companies are trying really hard to avoid even having US customers, so that's a hands-off win for regulation as the feds have nobody to protect from e.g. Binance directly. The big companies that do operate in the US have led a mostly successful campaign to position themselves as innovators and deserving of a long leash, IMO too successfully as only now is the SEC feeling the pressure to clamp down. There is a long tail of complex regulatory actions to take against really quite small individual operations. Finally I think a lot of this has been influenced to a huge degree by the cheapness of cash, and increasing interest rates will do a lot of the work people want to see from regulation by forcing people to make better investments and making bonds/deposits more appealing as people look for an alternative to the apparent huge risk that they're discovering they've been given a premium for taking on until now. The answer on regulation is a mix, then. Some of it has been effective (if only at scaring off potential investor dangers completely), some of it is difficult, some of the response is underwhelming. So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect, and I still don't think it is yet, so really now's the time to take preventive measures but it's not too late for that. It is too late to protect all the people who've lost big so far, but that is a much smaller number than those who suffered in 2008. In my opinion the movers and shakers who care about worldwide financial stability are tuning in around the right time and are overwhelmingly accepting that regulation is going to be necessary. I predict the EU and the US will both push some pretty solid efforts soon; EU through explicit regulation, US through maybe some legislation but definitely through better enforcement.
- pvarangot 4y ago
  Wouldn't regulating crypto need an influx of dollars from the exchanges or other liquidity providers back into the government? If that money doesn't exist or is hidden well enough regulation is only going to crash down liquidity providers and screw this people you are saying it should be designed to help. The US is already very much ahead of most countries in regulating but not outright banning crypto. It's closer to banning it than let's say Switzerland. With the way they consider any sale a taxable event if US regulations were better for let's say the retail crypto trader as a whole they would all massively move to US regulated exchanges like Coinbase but that would remove a lot of "natural" circuit breakers like bots or manual arbits.
KaiserPro 4y ago
Its an unregulated market. People are convinced that since its cryto, it won't be vulnerable to the same old issues that every other traded instrument has had since the south sea bubble/tulip mania. the 2008 market crash was similar as you pointed out, in that it involved wholesale fraud (using a subset of good mortgages to market worthless ones) that were "validated" by ratings agencies. Here, there were no real third parties to provide ratings. Just people saying "Look its crypto, you can loose because its backed by real something or other"
nikanj 4y ago
Crashes are a huge wealth transfer from the optimistic to the opportunistic. They’re very good for the few
- thelamest 4y ago
  True, but they’re still a negative sum event. (Putting aside libertarian-ish arguments, ironically overrepresented in crypto, that in the long term a crash is a healthy garbage-collection event.)
  - lupire 4y ago
    Negative-sum events are extremely popular with the winning side, and the winnings are momey, which converts to power.
  - zaphar 4y ago
    Crashing early is better than crashing later because it limits the damage and moderately frequent crashes creates some level of caution in the market. Propping up a market because it's too big to fail can in some cases create worse fallout. It's a judgement call though and I'm not entirely sure we have a really good rule of thumb here. If there were a way to have enough transparency that we had smaller crashes more frequently it would probably help to limit the damage to those who can afford to lose it. The truth is that you can only push a correction so far out. It will happen eventually and the farther out you push it the worse it will be.
  - unityByFreedom 4y ago
    Also, I doubt you can predict a crash and make bank on it without having a whole bunch of people point in your direction. You'd have to have been speaking about it publicly prior to and have had zero inside information on some too-big-to-fail organization failing. I know people feel the US justice system doesn't hold the wealthy accountable, but I also think the wealthy are pretty good at knowing where the line is drawn. You can have all the money in the world but it's no fun if everyone's out to get you.
Paradigma11 4y ago
In my very uninformed opinion the financial system is a big correlation machine. People buy stuff that is mechanically and logically unrelated to their other assets. Everybody does this, but when the crash hits they have to sell those assets too, to satisfy margin calls or other obligations. Voila, instant correlation.
hericium 4y ago
> How does this happen again 15 years later? It didn't stop. Lehmans were thrown under the bus and business continued like there's no tomorrow with more and more financial instruments created and investment bankers putting their clients money in crap positions. > I don't get it. Crashing over and over doesn't seem good for anyone. There's money to be made on crashes, too. And if someone got rich before, they can patiently wait. There'll be money to be made before next crash, too. I doubt the pattern bothers them. Have you heared how Buffet assigns blame[1]? [1] https://www.youtube.com/watch?v=k2VSSNECLTQ https://www.youtube.com/watch?v=k2VSSNECLTQ
marvin 4y ago
> How does this happen again 15 years later? It's human nature to create and participate in systems that are untenable over time but are tempting for short-term speculation. Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008. Cryptocurrency is a new asset class, of course it's going to go through some of the painful learning experiences that traditional finance has. I've been saying since 2013 that we're going to see the exact mistakes of finance repeated with cryptocurrency.
- unityByFreedom 4y ago
  > Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008. The point I wanted to make is when you regulate too much you may encourage the growth of things that are unregulatable. Gambling and alcohol come to mind. I don't know that that's what happened, hence the question. Phrasing it another way, are we post-WW I (over regulated) or post-WW II (got it right, but you'll never be perfect)?

nickelpro 4y ago

Technologically distinct market, even if economically parallel, Glass-Steagall wouldn't have prevented this. The crypto companies have operated almost entirely outside of regulatory oversight prior to the last 18 months or so.

LatteLazy 4y ago

In this case the damage will be limited to a bunch crypto companies. The issue before was it hit companies we relied on for things like mortgages and current accounts. Crypto companies can just be allowed to fail and no one except their users will be effected. Hence they are not regulated. So even keeping GS (which was limited to big banks and a few similar institutions) wouldn't have made any difference. Not that keeping it would necessarily have been a bad ide...

unityByFreedom 4y ago
> In this case the damage will be limited to a bunch crypto companies. The issue before was it hit companies we relied on for things like mortgages and current accounts. Crypto companies can just be allowed to fail and no one except their users will be effected. I don't buy the argument that crypto lives in a vacuum. People valuing that asset are part of the global economy. The question is, is crypto really as valuable as the crypto exchange markets claim, and do companies assign face value to these assets, or do they account for the amount of risk they deserve?
- LatteLazy 4y ago
  At the risk of getting semantic... Value is not a single concept. The value of something to me is different to to you. And for both of us it changes over time. Value cannot really be defined, let alone measured. So we are stuck with prices. And prices are sort of connected to value. But the connection is very non linear. We can know the price of crypto (or gold or shares or credit default swaps). But it's value is purely a matter of personal taste...

cormacrelf 4y ago

The powers that be aren't trying to crash it all on purpose, nobody wants another 2008. They have produced a pretty hands-off response, because of a number of factors. Crypto has an explicit project to escape US regulation, so lots of money is in e.g. the Bahamas and difficult to target. Many companies are trying really hard to avoid even having US customers, so that's a hands-off win for regulation as the feds have nobody to protect from e.g. Binance directly. The big companies that do operate in the US have led a mostly successful campaign to position themselves as innovators and deserving of a long leash, IMO too successfully as only now is the SEC feeling the pressure to clamp down. There is a long tail of complex regulatory actions to take against really quite small individual operations. Finally I think a lot of this has been influenced to a huge degree by the cheapness of cash, and increasing interest rates will do a lot of the work people want to see from regulation by forcing people to make better investments and making bonds/deposits more appealing as people look for an alternative to the apparent huge risk that they're discovering they've been given a premium for taking on until now. The answer on regulation is a mix, then. Some of it has been effective (if only at scaring off potential investor dangers completely), some of it is difficult, some of the response is underwhelming. So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect, and I still don't think it is yet, so really now's the time to take preventive measures but it's not too late for that. It is too late to protect all the people who've lost big so far, but that is a much smaller number than those who suffered in 2008. In my opinion the movers and shakers who care about worldwide financial stability are tuning in around the right time and are overwhelmingly accepting that regulation is going to be necessary. I predict the EU and the US will both push some pretty solid efforts soon; EU through explicit regulation, US through maybe some legislation but definitely through better enforcement.

pvarangot 4y ago
Wouldn't regulating crypto need an influx of dollars from the exchanges or other liquidity providers back into the government? If that money doesn't exist or is hidden well enough regulation is only going to crash down liquidity providers and screw this people you are saying it should be designed to help. The US is already very much ahead of most countries in regulating but not outright banning crypto. It's closer to banning it than let's say Switzerland. With the way they consider any sale a taxable event if US regulations were better for let's say the retail crypto trader as a whole they would all massively move to US regulated exchanges like Coinbase but that would remove a lot of "natural" circuit breakers like bots or manual arbits.

KaiserPro 4y ago

Its an unregulated market. People are convinced that since its cryto, it won't be vulnerable to the same old issues that every other traded instrument has had since the south sea bubble/tulip mania. the 2008 market crash was similar as you pointed out, in that it involved wholesale fraud (using a subset of good mortgages to market worthless ones) that were "validated" by ratings agencies. Here, there were no real third parties to provide ratings. Just people saying "Look its crypto, you can loose because its backed by real something or other"

nikanj 4y ago

Crashes are a huge wealth transfer from the optimistic to the opportunistic. They’re very good for the few

thelamest 4y ago
True, but they’re still a negative sum event. (Putting aside libertarian-ish arguments, ironically overrepresented in crypto, that in the long term a crash is a healthy garbage-collection event.)
- lupire 4y ago
  Negative-sum events are extremely popular with the winning side, and the winnings are momey, which converts to power.
- zaphar 4y ago
  Crashing early is better than crashing later because it limits the damage and moderately frequent crashes creates some level of caution in the market. Propping up a market because it's too big to fail can in some cases create worse fallout. It's a judgement call though and I'm not entirely sure we have a really good rule of thumb here. If there were a way to have enough transparency that we had smaller crashes more frequently it would probably help to limit the damage to those who can afford to lose it. The truth is that you can only push a correction so far out. It will happen eventually and the farther out you push it the worse it will be.
- unityByFreedom 4y ago
  Also, I doubt you can predict a crash and make bank on it without having a whole bunch of people point in your direction. You'd have to have been speaking about it publicly prior to and have had zero inside information on some too-big-to-fail organization failing. I know people feel the US justice system doesn't hold the wealthy accountable, but I also think the wealthy are pretty good at knowing where the line is drawn. You can have all the money in the world but it's no fun if everyone's out to get you.

Paradigma11 4y ago

In my very uninformed opinion the financial system is a big correlation machine. People buy stuff that is mechanically and logically unrelated to their other assets. Everybody does this, but when the crash hits they have to sell those assets too, to satisfy margin calls or other obligations. Voila, instant correlation.

hericium 4y ago

> How does this happen again 15 years later? It didn't stop. Lehmans were thrown under the bus and business continued like there's no tomorrow with more and more financial instruments created and investment bankers putting their clients money in crap positions. > I don't get it. Crashing over and over doesn't seem good for anyone. There's money to be made on crashes, too. And if someone got rich before, they can patiently wait. There'll be money to be made before next crash, too. I doubt the pattern bothers them. Have you heared how Buffet assigns blame[1]? [1] https://www.youtube.com/watch?v=k2VSSNECLTQ https://www.youtube.com/watch?v=k2VSSNECLTQ

marvin 4y ago

> How does this happen again 15 years later? It's human nature to create and participate in systems that are untenable over time but are tempting for short-term speculation. Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008. Cryptocurrency is a new asset class, of course it's going to go through some of the painful learning experiences that traditional finance has. I've been saying since 2013 that we're going to see the exact mistakes of finance repeated with cryptocurrency.

unityByFreedom 4y ago
> Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008. The point I wanted to make is when you regulate too much you may encourage the growth of things that are unregulatable. Gambling and alcohol come to mind. I don't know that that's what happened, hence the question. Phrasing it another way, are we post-WW I (over regulated) or post-WW II (got it right, but you'll never be perfect)?