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Sounds a lot like what banks do. They mostly lend out money they don't actually have, with the hope that the owners of the money they lend out don't notice.
by dheera 4y ago
Sounds a lot like what banks do. They mostly lend out money they don't actually have, with the hope that the owners of the money they lend out don't notice.
- gitfan86 4y agoThe main difference is that banks enforce a low loan to value ratio and collateral. So a bank will give a 10k personal loan to someone who has 100k of stock and 500k of equity in their home. If that person doesn't pay back the loan the bank can sell some of that person's stock or put a lean on the person's house. With FTX no one was putting up collateral other than crypto.
- tom-thistime 4y agoIn addition, banks don't precisely lend out "money they don't have." They lend out cash they don't have against outstanding loans that are rationally expected to be repaid. If those loans are bad and the bank conceals it, or if they misrepresent the amount of those loans, then that's fraud. (IANAL)
- dheera 4y ago> expected to be repaid In other words, they don't have the money. They just have an IOU, but that isn't money. What I deposited into the bank, that's money. And it's my money, not theirs.
- tom-thistime 4y agoIf you believe that IOUs by definition aren't valuable, then stay away from treasury bonds. If you're just drawing some kind of distinction between valuable things that aren't money and valuable things that are money then ok. I don't understand the point, but ok.
- dheera 4y ago> If you believe that IOUs by definition aren't valuable, then stay away from treasury bonds. IOUs are like a lottery. Treasury bonds, OOM call options, they all aren't valuable on their own, there's just a chance I might win. In the case of treasury bonds, that chance is more like 99.99%, in the case of the call options, it might be 20%, but it's a spectrum, and never 100%. At the end of the day, my landlord isn't going to take a treasury bond for my rent payment, and neither is my supermarket. IOUs are not the same as hard cash.
- rhaway84773 4y agoMoney is literally an IOU.
- discreteevent 4y agoWould you accept a handwritten IOU from me for your car or would you rather cash?
- dheera 4y agoHmm, I got a car loan from a credit union that didn't even ask for my assets, only my credit report.
- tom-thistime 4y agoDid the credit union ask any questions related to the value of the car? Because a car might be considered an asset.
- dheera 4y agoIt's a Tesla, and yes, they needed the entire MVPA. It might be because I applied with a downpayment of 10K so they just shut up and gave me a super low interest rate. I didn't actually need the loan, I just saw interest rate increases coming and figured I could save a few bucks by taking the loan and putting the balance of the value of the car in a CD or bond at higher interest a few months later, which I did.
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- dotnet00 4y agoA lot of what FTX did was indeed bank-like, the difference being that they avoided outright qualifying as a bank because of the associated regulations. Incidentally, this was something they got in trouble for just a few months ago because they made it seem like they were covered by FDIC (like banks are required to be), but were not.