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Why do we even need regulations, isn't it in the shareholders best interests that the bank doesn't go bust? If these supposed regulations could have prevented

Why do we even need regulations, isn't it in the shareholders best interests that the bank doesn't go bust? If these supposed regulations could have prevented shareholders from losing money, wouldn't they have done them voluntarily instead of needing regulations? It's not regulations that are the problem. They were obviously using this bank as a free margin account using customers money to leverage their debts. They did it because they have a lot of money to win when betting with other people's money and only 100% to lose. 10x margin and the government making your counterparty whole if you fail? Of course this degenerate bank used it in the most VC way. Don't make a single client of them whole. Those banking there probably had connections to the people making tons of money when the bets went their way. Those who recommended banking there need to lose their credibility. The risk they took was not a mistake. It was a feature. It was intended.

MrMan 4y ago
I mostly agree with this. these players should not be rewarded for using the deposits of the bank as a multiplier of their funds AUM, and the portfolio companies were pawns who willingly played along, or were ignorant and either way deserve to lose.
fvdessen 4y ago
Youd’t think people wouldn’t want to drive under the influence and risk dying in a car crash, but they do ! They also main innocent along the way. That’s why you need regulations.
CPLX 4y ago
You need regulation because you have a better and more productive society when you have it than when you don’t. Having to pay a lot of attention to your bank to wonder what’s going on behind the scenes is work and requires expertise. There’s no reason to have everyone do it, we can create agencies full of experts to do it for us.
- machina_ex_deus 4y ago
  You can't regulate away malicious intents from misaligned incentives. Regulations giving banks privileges is what caused this abuse to happen in the first place. You can't solve it with further regulations. Only thing that can stop this misalignment of incentives is to revoke the regulatory privileges of banks. Let everyone bank directly at the Fed. There's no reason these banks should get the privilege of holding other people's money. They dont hold the risk so they shouldn't hold the privilege.
  - CPLX 4y ago
    > You can't regulate away malicious intents from misaligned incentives. This sentence sounds profound but it’s meaningless. Of course you can regulate incentives, by definition a regulation is something that changes the incentive structure. For example the fact that I have more money if I don’t pay my taxes is one incentive. If that was the only incentive at work there’s a good chance I wouldn’t pay anything. But there’s also an incentive that if I pay I avoid heavy fines and possible imprisonment. So I do. I have a financial incentive to steal shit, and a regulatory incentive to not steal shit. And so on.
    - machina_ex_deus 4y ago
      Sure you can do it, to people with criminal prosecution. Criminal prosecution isn't regulation. If the only deterrent to stealing things were fines, the poor would only be stealing things all day. They would have nothing to lose and everything to win . But when you're up against corporations, the only thing they can lose is money. And the incentive structure is such that losing 100% with some probability is still profitable. That's why this happens. No regulation can bring the loss further down. Therefore you can't regulate it away. Regulation is only a possible solution to a problem when it has a high enough probably for a penalty, and high enough penalty (100% is always the maximum!), to tilt back the expectation value from different choices. You can't solve this with regulation. Regulation can't, by definition, solve misaligned behavior which already happens under when the risk is 100% loss on getting discovered.
      - 4y ago

MrMan 4y ago

I mostly agree with this. these players should not be rewarded for using the deposits of the bank as a multiplier of their funds AUM, and the portfolio companies were pawns who willingly played along, or were ignorant and either way deserve to lose.

fvdessen 4y ago

Youd’t think people wouldn’t want to drive under the influence and risk dying in a car crash, but they do ! They also main innocent along the way. That’s why you need regulations.

CPLX 4y ago

You need regulation because you have a better and more productive society when you have it than when you don’t. Having to pay a lot of attention to your bank to wonder what’s going on behind the scenes is work and requires expertise. There’s no reason to have everyone do it, we can create agencies full of experts to do it for us.

machina_ex_deus 4y ago
You can't regulate away malicious intents from misaligned incentives. Regulations giving banks privileges is what caused this abuse to happen in the first place. You can't solve it with further regulations. Only thing that can stop this misalignment of incentives is to revoke the regulatory privileges of banks. Let everyone bank directly at the Fed. There's no reason these banks should get the privilege of holding other people's money. They dont hold the risk so they shouldn't hold the privilege.
- CPLX 4y ago
  > You can't regulate away malicious intents from misaligned incentives. This sentence sounds profound but it’s meaningless. Of course you can regulate incentives, by definition a regulation is something that changes the incentive structure. For example the fact that I have more money if I don’t pay my taxes is one incentive. If that was the only incentive at work there’s a good chance I wouldn’t pay anything. But there’s also an incentive that if I pay I avoid heavy fines and possible imprisonment. So I do. I have a financial incentive to steal shit, and a regulatory incentive to not steal shit. And so on.
  - machina_ex_deus 4y ago
    Sure you can do it, to people with criminal prosecution. Criminal prosecution isn't regulation. If the only deterrent to stealing things were fines, the poor would only be stealing things all day. They would have nothing to lose and everything to win . But when you're up against corporations, the only thing they can lose is money. And the incentive structure is such that losing 100% with some probability is still profitable. That's why this happens. No regulation can bring the loss further down. Therefore you can't regulate it away. Regulation is only a possible solution to a problem when it has a high enough probably for a penalty, and high enough penalty (100% is always the maximum!), to tilt back the expectation value from different choices. You can't solve this with regulation. Regulation can't, by definition, solve misaligned behavior which already happens under when the risk is 100% loss on getting discovered.
    - 4y ago