7 ms·

I mean, this guy is shady yes, but the people who bought into a financial instrument without really understanding it made their bed.

criddell 4y ago
That sounds like victim blaming. Most people couldn't tell you how a 401k works or even how a mutual fund works. It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities.
- DANK_YACHT 4y ago
  Financial instruments are incredibly complex. It's very dangerous to engage with them unless you fully understand what you're getting yourself into. Other people have a huge incentive to exploit any weakness in the financial asset, even in regulated industries. For instance, BlackRock bought credit default swaps in a Spanish company, and then paid that company to default on its debt, thus making a profit at the expense of the counter party. Regulation isn't going to magically make complicated financial instruments safe. People should be aware that they're dangerous and to stay away.
  - 55555 4y ago
    That is incredibly shady.
  - itsoktocry 4y ago
    >For instance, BlackRock bought credit default swaps in a Spanish company, and then paid that company to default on its debt, thus making a profit at the expense of the counter party. Do you have a source for this? I feel like some details are lacking.
    - DANK_YACHT 4y ago
      https://www.bloomberg.com/opinion/articles/2017-11-17/blackstone-may-do-its-cleverest-cds-trade-again https://www.bloomberg.com/opinion/articles/2017-11-17/blacks... The tldr is that they bought credit default swaps for debt owed by Codere SA, and then offered the company financial assistance to restructure with the requirement that they pay their existing debt late to trigger a default.
      - gvhst 4y ago
        That's BlackStone, not BlackRock. They are totally different entities.
        fjkdlsjflkds 4y ago
        Not to be confused with BlackBoulder...
    - mandevil 4y ago
      Not sure about the specific instance, but Matt Levine's invaluable Money Stuff spent a lot of time discussing so-called "Manufactured Default": https://www.bloomberg.com/opinion/articles/2018-04-10/hovnanian-s-weird-cds-trade-gets-weirder https://www.bloomberg.com/opinion/articles/2018-04-10/hovnan... is an instance of how complicated these can get. He discusses the morality of this particular issue, as part of a discussion on a proposal for the SEC to regulate it, here: https://www.bloomberg.com/opinion/articles/2021-12-16/the-sec-has-big-plans https://www.bloomberg.com/opinion/articles/2021-12-16/the-se... Basically, Levine's argument is that as a result of these sorts of shenanigans, one giant investment fund (in this case, I guess, Black Rock, though again I don't know about this specific instance) gave money to an actual company that was employing people and doing something in the real world and that was in some kind of financial trouble. And it did that because it wanted to make even more money from some hedge fund somewhere, sure, but look at who was harmed (a hedge fund that was in the business of buying and selling Credit Default Swaps) and who benefited (a real company with a whole bunch of employees who would otherwise be laid off, and another hedge fund that was in the business of buying and selling Credit Default Swaps) and I'm not sure that the whole thing is that bad?
  - criddell 4y ago
    You’re explaining how regulations come to be. Something happens that harms some party, the event is studied and regulations are sometimes updated.
    - DANK_YACHT 4y ago
      For options trading, there is always a winning and losing side. Someone is always harmed.
      - deleted 4y ago
        [deleted]
      - ksaxena 4y ago
        No. Options also provide a fundamental service - insurance. So, in the case where the option buyer is paying for insurance, sellers add value by underwriting the risk that is being insured. Hence, both the buyer and the seller win - the buyer gets insurance, the seller gets cash.
        Jenk 4y ago
        ... and the insurance underwriters lose, upping their fees the next time around, so future insurance customers lose out, too.
      - lordnacho 4y ago
        Ex options trader here. You can sell me an option and we both make money: Let's say the option expires worthless. You make money having done nothing but collect my premium. I take the option, and because it's positive gamma, when it goes up I make money, and I flatten. When it goes down, I'm short, and I make money and buy. I keep doing this buying low and selling high until I've made more than the premium. ---EDIT My point is there can be reasons for both sides to do the trade. Nobody needs to be "harmed". The line of reasoning that says one of you must lose misses the point. If you buy insurance, either your house burns down or it doesn't. That doesn't mean either you or the insurance company was harmed.
  - nilsbunger 4y ago
    In reality most people aren't very savvy though. Are you advocating they shouldn't invest in basic things like an S&P 500 fund or a "target date" fund or whatever? That kind of investment is almost a necessity in the US. I'd agree they shouldn't get into CDS and other esoteric instruments, and I also would put crypto investments in the 'esoteric' bucket.
- itsoktocry 4y ago
  >Most people couldn't tell you how a 401k works or even how a mutual fund works. If you don't understand how a mutual fund works, you have no business investing in some obscure "stablecoin". But let's be real: 99.9% of the "victims" were trying to get-rich-quick themselves. Many are gambling again on Luna 2.0 right now. Caveat emptor.
  - chasebank 4y ago
    Interesting you're getting downvoted. You're completely right. It's not 99% of "victims", it's most definitely 100% were trying to get-rick-quick.
- boringg 4y ago
  Who doesn't know how a 401k works? Honestly, who? Mutual fund - ok the mechanics are a bit more complicated but pretty straightforward.
  - rm_-rf_slash 4y ago
    I would reckon minimum wage workers who have never been offered a company sponsored retirement plan or had enough to save for retirement at the end of the month, would not likely understand the mechanics of a system they can’t even participate in. In other words, a lot of people.
    - boringg 4y ago
      No offense but I don't think it's minimum wage workers who are putting tons of money into the crypto market. And my argument about who doesn't understand 401k is to the demographic who invested in this specific asset class which likely isn't minimum wage workers.
    - staticassertion 4y ago
      The point is that people who participate in 401ks likely understand (in the majority) how they work to a reasonable degree. It's not reasonable to compare it to crypto where the people who participate understand virtually nothing about it.
  - BaseballPhysics 4y ago
    A large number of people don't even know how tax brackets work (hence some people thinking that if they get a raise they'll lose money). Basic financial literacy is not as common as you seem to think.
    - rurp 4y ago
      Similar to this, federal tax withholding is poorly understand by many people. A lot of people want to give the govt an interest free loan every year and don't understand why anyone wouldn't.
- graeme 4y ago
  You can go into regulated instruments with little research because they’re regulated. I had friends in Luna. We all told them over and over it was a scam. They could not listen. “Dock your stuff at terra station, 20%, how are you not in crypto, look at my account size, here are ten explainer videos showing complex gamified mechanics for why I’m a savvy insider” etc I agree regulators dropped the ball, but also at some point people really are almost willfully blind to downsides. We even had the example of Iron and Titan which collapsed similar to Luna and UST.
  - ksaxena 4y ago
    The example of Olympus DAO as well
  - smt88 4y ago
    > also at some point people really are almost willfully blind to downsides I agree with you, but in societies with the concept of bankruptcy, compulsory healthcare, etc., we all bear the burden of their willful blindness. That's why it should be a supply-side solution: people shouldn't be able to sell dangerous/scammy/faulty products at all, because there will always be suckers that the rest of us have to prop up when they launch themselves into poverty,
  - TylerE 4y ago
    I’m convinced no one really believes any of this shit is legit. They just think they’re smart enough that THEY aren’t on the bottom layer of the pyramid.
    - dudus 4y ago
      I can attest that's not the case. A lot of people think they found a really good investment and it would be a bad move to not massively invest in it.
  - puranjay 4y ago
    Same. I knew acquaintances who worked in very well paid positions in some of the world's top companies, including investment banks, and they all were so smitten by this new shiny thing that they forgot to do their basic dilligence. I tried to warn them to treat it as a "gotta check on it thrice a day" investment and not a "set it and forget it" investment but they were all lured in by the LUNA "community" and basic greed.
- seabird 4y ago
  There comes a point where you have to ascribe some level of responsibility to the investor. Cryptocurrency is massively ridiculed for scams like this, to the extent that it's hard to feign ignorance of it. I'm not saying that the scams should be allowed, but telling people to take even the smallest of steps to protect themselves is not victim blaming. People not understanding a 401k or mutual funds isn't a reason for them to not do due diligence.
  - timcavel 4y ago
    [dead]
  - munificent 4y ago
    > Cryptocurrency is massively ridiculed for scams like this This is true in the social bubbles you and I likely occupy but very much not (yet) true elsewhere. I have had many conversations with friends and family that are outside of tech asking my what crypto is and if it's something they should invest in because all they see right now is the hype, excitement, and ads from crypto companies.
    - yebyen 4y ago
      > all they see right now is the hype, excitement, and ads I think this should really answer the question, and I don't quite understand how anyone can be self-aware enough to recognize these things without also connecting the dots that "companies which do those things to promote their products are not generally trustworthy at-large" I know this phenomenon all too well though. It's the classic formula. "Generally Well-Understood Thing" is familiar to lots of people without need for any special qualification or training to understand the thing across a fairly wide range of functional parameters. "Generally Well-Understood Thing, but On The Internet" on the other hand is a completely new animal with all old assumptions required to be re-examined for a new understanding from first principles, assume we know nothing. The understanding is tried, too many foreign concepts enter the discussion, often the desire to understand "how this is different" results in an under-founded belief or assumption that adding the internet DOES in fact somehow make this thing different than it was before, end with a newly emergent confusion overarching the whole and 9/10 times no further understanding is gained and no connection between the two ideas of "thing" and "thing on the internet" is retained.
- zarathustreal 4y ago
  Being a victim and being responsible for one’s own actions are not mutually exclusive. Like all things, this is not black and white but nuanced.
- nilsbunger 4y ago
  I'm ok with there being a "poorly regulated" corner of finance in crypto, if individuals receive sufficient warnings that they don't have the same protections as with normal financial products, and may not even have recourse for fraud if the promoters are international or anon.
- infecto 4y ago
  I wanted to counter point some of the responders to this post but figured I would add support here instead. Yes, people are to blame but I think history has shown us that the masses are easy to fall for these kinds of games over and over. It is the reason we have regulation and while yes, these people are to blame, I think the bigger fault is on the government for allowing it to happen. These instruments are scams in the guise of valid financial instruments.
- yieldcrv 4y ago
  The victims are the developers and users of Defi products caught in the contagion. Such as when a developer hardcoded TerraUSD deposits as equalling 1 and the whole project gets arbitraged out of existence due to the mispricing. Gullible buyers of TerraUSD (pre-crash) directly don't share this courtesy.
- fjkdlsjflkds 4y ago
  > It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities. Please correct me if I am mistaken, but it seems to me that you either fail to understand what an NFT is or fail to understand what a "security" is (note: the vast majority of NFTs do not grant nor claim to grant you any explicit form of equity or fixed income). Perhaps some NFTs can be seen as a form of equity (e.g. those representing collateralized debt positions), but the vast majority of them simply don't. According to this logic, things like Beanie Babies and Magic: The Gathering cards should also be regulated as securities (since they're also collectible things that people trade/buy/sell). TL;DR: Just because X can be bought/sold/traded, it doesn't necessarily make X a "financial instrument" or a "security", regardless of the question of whether economic activity around X should be regulated or not.
zarathustreal 4y ago
I think it’s important to note that this framing is not moralistic. In general, objective facts will share the same property of amorality.
Johnny555 4y ago
Sometimes victims deserve blame. That doesn't mean they deserved to lose their money, but if they put money into an unregulated security that they didn't understand themselves, it's hard to not put some of the blame on them. Get rich quick financial scams have been around for a long time, I remember back in the 80's when my dad got scammed buy an oil "investment" - I don't even know how he found out about it, but they mailed him an official looking prospectus with geology reports showing oil deposits, and even a sample of oil that they'd "drilled" from one of the plots, all they asked from him was $5,000 to buy rights to the land, and soon he'd be making huge profit from oil leases. But that profit never came and soon the company just closed up shop. If he'd invested that $5,000 in the stock market, it would have grown to over $60,000 by the time he passed away 10 years ago.
quickthrowman 4y ago
Only the greedy and stupid assume a 20% yield is risk free.
Seriomino 4y ago

criddell 4y ago

That sounds like victim blaming. Most people couldn't tell you how a 401k works or even how a mutual fund works. It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities.

DANK_YACHT 4y ago
Financial instruments are incredibly complex. It's very dangerous to engage with them unless you fully understand what you're getting yourself into. Other people have a huge incentive to exploit any weakness in the financial asset, even in regulated industries. For instance, BlackRock bought credit default swaps in a Spanish company, and then paid that company to default on its debt, thus making a profit at the expense of the counter party. Regulation isn't going to magically make complicated financial instruments safe. People should be aware that they're dangerous and to stay away.
- 55555 4y ago
  That is incredibly shady.
- itsoktocry 4y ago
  >For instance, BlackRock bought credit default swaps in a Spanish company, and then paid that company to default on its debt, thus making a profit at the expense of the counter party. Do you have a source for this? I feel like some details are lacking.
  - DANK_YACHT 4y ago
    https://www.bloomberg.com/opinion/articles/2017-11-17/blackstone-may-do-its-cleverest-cds-trade-again https://www.bloomberg.com/opinion/articles/2017-11-17/blacks... The tldr is that they bought credit default swaps for debt owed by Codere SA, and then offered the company financial assistance to restructure with the requirement that they pay their existing debt late to trigger a default.
    - gvhst 4y ago
      That's BlackStone, not BlackRock. They are totally different entities.
      - fjkdlsjflkds 4y ago
        Not to be confused with BlackBoulder...
  - mandevil 4y ago
    Not sure about the specific instance, but Matt Levine's invaluable Money Stuff spent a lot of time discussing so-called "Manufactured Default": https://www.bloomberg.com/opinion/articles/2018-04-10/hovnanian-s-weird-cds-trade-gets-weirder https://www.bloomberg.com/opinion/articles/2018-04-10/hovnan... is an instance of how complicated these can get. He discusses the morality of this particular issue, as part of a discussion on a proposal for the SEC to regulate it, here: https://www.bloomberg.com/opinion/articles/2021-12-16/the-sec-has-big-plans https://www.bloomberg.com/opinion/articles/2021-12-16/the-se... Basically, Levine's argument is that as a result of these sorts of shenanigans, one giant investment fund (in this case, I guess, Black Rock, though again I don't know about this specific instance) gave money to an actual company that was employing people and doing something in the real world and that was in some kind of financial trouble. And it did that because it wanted to make even more money from some hedge fund somewhere, sure, but look at who was harmed (a hedge fund that was in the business of buying and selling Credit Default Swaps) and who benefited (a real company with a whole bunch of employees who would otherwise be laid off, and another hedge fund that was in the business of buying and selling Credit Default Swaps) and I'm not sure that the whole thing is that bad?
- criddell 4y ago
  You’re explaining how regulations come to be. Something happens that harms some party, the event is studied and regulations are sometimes updated.
  - DANK_YACHT 4y ago
    For options trading, there is always a winning and losing side. Someone is always harmed.
    - deleted 4y ago
      [deleted]
    - ksaxena 4y ago
      No. Options also provide a fundamental service - insurance. So, in the case where the option buyer is paying for insurance, sellers add value by underwriting the risk that is being insured. Hence, both the buyer and the seller win - the buyer gets insurance, the seller gets cash.
      - Jenk 4y ago
        ... and the insurance underwriters lose, upping their fees the next time around, so future insurance customers lose out, too.
    - lordnacho 4y ago
      Ex options trader here. You can sell me an option and we both make money: Let's say the option expires worthless. You make money having done nothing but collect my premium. I take the option, and because it's positive gamma, when it goes up I make money, and I flatten. When it goes down, I'm short, and I make money and buy. I keep doing this buying low and selling high until I've made more than the premium. ---EDIT My point is there can be reasons for both sides to do the trade. Nobody needs to be "harmed". The line of reasoning that says one of you must lose misses the point. If you buy insurance, either your house burns down or it doesn't. That doesn't mean either you or the insurance company was harmed.
- nilsbunger 4y ago
  In reality most people aren't very savvy though. Are you advocating they shouldn't invest in basic things like an S&P 500 fund or a "target date" fund or whatever? That kind of investment is almost a necessity in the US. I'd agree they shouldn't get into CDS and other esoteric instruments, and I also would put crypto investments in the 'esoteric' bucket.
itsoktocry 4y ago
>Most people couldn't tell you how a 401k works or even how a mutual fund works. If you don't understand how a mutual fund works, you have no business investing in some obscure "stablecoin". But let's be real: 99.9% of the "victims" were trying to get-rich-quick themselves. Many are gambling again on Luna 2.0 right now. Caveat emptor.
- chasebank 4y ago
  Interesting you're getting downvoted. You're completely right. It's not 99% of "victims", it's most definitely 100% were trying to get-rick-quick.
boringg 4y ago
Who doesn't know how a 401k works? Honestly, who? Mutual fund - ok the mechanics are a bit more complicated but pretty straightforward.
- rm_-rf_slash 4y ago
  I would reckon minimum wage workers who have never been offered a company sponsored retirement plan or had enough to save for retirement at the end of the month, would not likely understand the mechanics of a system they can’t even participate in. In other words, a lot of people.
  - boringg 4y ago
    No offense but I don't think it's minimum wage workers who are putting tons of money into the crypto market. And my argument about who doesn't understand 401k is to the demographic who invested in this specific asset class which likely isn't minimum wage workers.
  - staticassertion 4y ago
    The point is that people who participate in 401ks likely understand (in the majority) how they work to a reasonable degree. It's not reasonable to compare it to crypto where the people who participate understand virtually nothing about it.
- BaseballPhysics 4y ago
  A large number of people don't even know how tax brackets work (hence some people thinking that if they get a raise they'll lose money). Basic financial literacy is not as common as you seem to think.
  - rurp 4y ago
    Similar to this, federal tax withholding is poorly understand by many people. A lot of people want to give the govt an interest free loan every year and don't understand why anyone wouldn't.
graeme 4y ago
You can go into regulated instruments with little research because they’re regulated. I had friends in Luna. We all told them over and over it was a scam. They could not listen. “Dock your stuff at terra station, 20%, how are you not in crypto, look at my account size, here are ten explainer videos showing complex gamified mechanics for why I’m a savvy insider” etc I agree regulators dropped the ball, but also at some point people really are almost willfully blind to downsides. We even had the example of Iron and Titan which collapsed similar to Luna and UST.
- ksaxena 4y ago
  The example of Olympus DAO as well
- smt88 4y ago
  > also at some point people really are almost willfully blind to downsides I agree with you, but in societies with the concept of bankruptcy, compulsory healthcare, etc., we all bear the burden of their willful blindness. That's why it should be a supply-side solution: people shouldn't be able to sell dangerous/scammy/faulty products at all, because there will always be suckers that the rest of us have to prop up when they launch themselves into poverty,
- TylerE 4y ago
  I’m convinced no one really believes any of this shit is legit. They just think they’re smart enough that THEY aren’t on the bottom layer of the pyramid.
  - dudus 4y ago
    I can attest that's not the case. A lot of people think they found a really good investment and it would be a bad move to not massively invest in it.
- puranjay 4y ago
  Same. I knew acquaintances who worked in very well paid positions in some of the world's top companies, including investment banks, and they all were so smitten by this new shiny thing that they forgot to do their basic dilligence. I tried to warn them to treat it as a "gotta check on it thrice a day" investment and not a "set it and forget it" investment but they were all lured in by the LUNA "community" and basic greed.
seabird 4y ago
There comes a point where you have to ascribe some level of responsibility to the investor. Cryptocurrency is massively ridiculed for scams like this, to the extent that it's hard to feign ignorance of it. I'm not saying that the scams should be allowed, but telling people to take even the smallest of steps to protect themselves is not victim blaming. People not understanding a 401k or mutual funds isn't a reason for them to not do due diligence.
- timcavel 4y ago
  [dead]
- munificent 4y ago
  > Cryptocurrency is massively ridiculed for scams like this This is true in the social bubbles you and I likely occupy but very much not (yet) true elsewhere. I have had many conversations with friends and family that are outside of tech asking my what crypto is and if it's something they should invest in because all they see right now is the hype, excitement, and ads from crypto companies.
  - yebyen 4y ago
    > all they see right now is the hype, excitement, and ads I think this should really answer the question, and I don't quite understand how anyone can be self-aware enough to recognize these things without also connecting the dots that "companies which do those things to promote their products are not generally trustworthy at-large" I know this phenomenon all too well though. It's the classic formula. "Generally Well-Understood Thing" is familiar to lots of people without need for any special qualification or training to understand the thing across a fairly wide range of functional parameters. "Generally Well-Understood Thing, but On The Internet" on the other hand is a completely new animal with all old assumptions required to be re-examined for a new understanding from first principles, assume we know nothing. The understanding is tried, too many foreign concepts enter the discussion, often the desire to understand "how this is different" results in an under-founded belief or assumption that adding the internet DOES in fact somehow make this thing different than it was before, end with a newly emergent confusion overarching the whole and 9/10 times no further understanding is gained and no connection between the two ideas of "thing" and "thing on the internet" is retained.
zarathustreal 4y ago
Being a victim and being responsible for one’s own actions are not mutually exclusive. Like all things, this is not black and white but nuanced.
nilsbunger 4y ago
I'm ok with there being a "poorly regulated" corner of finance in crypto, if individuals receive sufficient warnings that they don't have the same protections as with normal financial products, and may not even have recourse for fraud if the promoters are international or anon.
infecto 4y ago
I wanted to counter point some of the responders to this post but figured I would add support here instead. Yes, people are to blame but I think history has shown us that the masses are easy to fall for these kinds of games over and over. It is the reason we have regulation and while yes, these people are to blame, I think the bigger fault is on the government for allowing it to happen. These instruments are scams in the guise of valid financial instruments.
yieldcrv 4y ago
The victims are the developers and users of Defi products caught in the contagion. Such as when a developer hardcoded TerraUSD deposits as equalling 1 and the whole project gets arbitraged out of existence due to the mispricing. Gullible buyers of TerraUSD (pre-crash) directly don't share this courtesy.
fjkdlsjflkds 4y ago
> It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities. Please correct me if I am mistaken, but it seems to me that you either fail to understand what an NFT is or fail to understand what a "security" is (note: the vast majority of NFTs do not grant nor claim to grant you any explicit form of equity or fixed income). Perhaps some NFTs can be seen as a form of equity (e.g. those representing collateralized debt positions), but the vast majority of them simply don't. According to this logic, things like Beanie Babies and Magic: The Gathering cards should also be regulated as securities (since they're also collectible things that people trade/buy/sell). TL;DR: Just because X can be bought/sold/traded, it doesn't necessarily make X a "financial instrument" or a "security", regardless of the question of whether economic activity around X should be regulated or not.

zarathustreal 4y ago

I think it’s important to note that this framing is not moralistic. In general, objective facts will share the same property of amorality.

Johnny555 4y ago

Sometimes victims deserve blame. That doesn't mean they deserved to lose their money, but if they put money into an unregulated security that they didn't understand themselves, it's hard to not put some of the blame on them. Get rich quick financial scams have been around for a long time, I remember back in the 80's when my dad got scammed buy an oil "investment" - I don't even know how he found out about it, but they mailed him an official looking prospectus with geology reports showing oil deposits, and even a sample of oil that they'd "drilled" from one of the plots, all they asked from him was $5,000 to buy rights to the land, and soon he'd be making huge profit from oil leases. But that profit never came and soon the company just closed up shop. If he'd invested that $5,000 in the stock market, it would have grown to over $60,000 by the time he passed away 10 years ago.

quickthrowman 4y ago

Only the greedy and stupid assume a 20% yield is risk free.

Seriomino 4y ago