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In the wake of the 1929 crash and The Great Depression, a huge swath of regulations were put onto financial institutions so as to limit the riskiest investments

by ttfkam 3y ago

In the wake of the 1929 crash and The Great Depression, a huge swath of regulations were put onto financial institutions so as to limit the riskiest investments with money in personal savings and checking accounts, aka Glass-Steagall. FDIC insurance was also born in this time. Prior to these changes, bank runs and financial crises occurred about every twenty to thirty years. By contrast there were none until the 1980s S&L crisis following…major deregulation of the financial sector. Many provisions of Glass-Steagall were repealed by late 1999. Less than ten years later, risky investments using consumer monies mostly in the form of real estate mortgage-backed securities imploded. Deregulation of the financial sector often brings short term windfalls with near term crises and catastrophes. When folks trot out the old "government is the problem" canard, I can't help but point out the economic arsons working on Wall Street and/or owning huge buildings in the middle of downtown financial districts. The government sometimes f's things up due to bureaucracy and ineptitude. The financial sector always f's things up because risk means nothing to them when it's someone else's money and they get their bonuses either way. One makes infuriating mistakes. The other doesn't make mistakes; only self-interested sabotage. I consider the latter a greater evil frankly.

roenxi 3y ago
> Prior to these changes, bank runs and financial crises occurred about every twenty to thirty years. That isn't in itself a bad thing. There needs to be a mechanism to punish people who give their money to charlatans and to reign in malinvestment. If there aren't occasional bank runs then that suggests an excessively cautious investment environment that is destroying potential wealth. Or a lot off government bailouts to cover excessive risk. As you point out in a few lines with the "risk means nothing to them" comment, a situation has been set up where only the government cares about whether the risk profile being taken on is appropriate. Bankers don't care because it isn't their money, depositors don't care because it isn't their problem. That is a very poor outcome, everyone should care about that. People are presently empowering incompetents by flooding money into stupid ventures and they get no feedback about the damage they are doing. Mass voting once every few years combined with committees of professional bureaucrats is an ineffective way of doing risk assessment. This has to be something that people work out with their bankers on an ongoing basis. The US would look completely different and probably a lot better to live in if these incentives were corrected. It is interesting that in the crypto space a group of people have gotten so sick of this that they're going and making their own financial system (with hookers and blackjack, one suspects). It is a really interesting ongoing experiment because if the situation plays out in the obvious way, we're going to see a much healthier system in crypto. We've already seen any number of frauds cleaned out that'd probably have gotten away with it in traditional finance. And the way Tether eventually explodes will be a really interesting case study.
- ttfkam 3y ago
  Previous generations learned the hard way that when you lose your life savings, once is too often. A lot of folks never recovered after the first time it happened to them. Identifying a huckster isn't as easy as you say. A lot of folks lost everything in a local savings and loan, not some fly-by-night penny stock broker. Crypto will not stop this. Crypto has no intrinsic value. A car has intrinsic value. A house has intrinsic value. Farmland has intrinsic value. If everyone decided all these things had zero currency value, you can still transport using the car. You can still keep the rain out in a house. Crypto leaves you with electron patterns in a box. When the US dollar has dipped (and gold has gotten stronger), has the measured value of any crypto "currency" increased proportionally? No. Often it dips along with the dollar. When folks feel the crunch, they sell their crypto to pay bills. The reduced demand lowers the value of crypto. When the dollar is strongest and employment is robust, folks buy more crypto with their increased disposable income, raising demand and proportionally the price. It's a Ponzi scheme. A Ponzi scheme with a much higher fraudster-to-legit ratio than other financial options. There ain't no FDIC for Bitcoin. Be prepared for crypto's 1929 moment.
  - roenxi 3y ago
    If you add all the pieces in your first paragraph together, the obvious answer is people need to stop giving all their money to 1 institution that they can't assess the creditworthiness of. It is a bad idea. Even if the money is then backstopped. The current system encourages them to do this. And you say "lost their life savings" as though the current system doesn't do that. Anyone who has attempted to hold their life savings in a bank is being gently wiped out by inflation. We traded "might happen" for "government policy that this will happen". They're losing most of the value in their cash every 25 years. The official policies are consistently inflation combined with low interest rates. > Be prepared for crypto's 1929 moment. Hasn't it has already lost 80% of its value more than once? I'd hope people are prepared with a history like that.
    - ttfkam 3y ago
      > the obvious answer is people need to stop giving all their money to 1 institution that they can't assess the creditworthiness of. You literally just described everyone who has a bank account. The finance sector is anything but transparent. See: Bear Sterns. > I'd hope people are prepared with a history like that. People play the lottery. Humans are REALLY bad at probability. There's an argument that the human brain itself is bad at it. Human perception is the source of optical illusions, sleight of hand, logical fallacies, etc. We are not biologically primed to handle these kinds of problems. Snake on the ground is a threat? Excellent. Monty Hall Problem? Even after explaining it, a majority of folks still reject the solution because it isn't naturally intuitive.

by ttfkam 3y ago

roenxi 3y ago

> Prior to these changes, bank runs and financial crises occurred about every twenty to thirty years. That isn't in itself a bad thing. There needs to be a mechanism to punish people who give their money to charlatans and to reign in malinvestment. If there aren't occasional bank runs then that suggests an excessively cautious investment environment that is destroying potential wealth. Or a lot off government bailouts to cover excessive risk. As you point out in a few lines with the "risk means nothing to them" comment, a situation has been set up where only the government cares about whether the risk profile being taken on is appropriate. Bankers don't care because it isn't their money, depositors don't care because it isn't their problem. That is a very poor outcome, everyone should care about that. People are presently empowering incompetents by flooding money into stupid ventures and they get no feedback about the damage they are doing. Mass voting once every few years combined with committees of professional bureaucrats is an ineffective way of doing risk assessment. This has to be something that people work out with their bankers on an ongoing basis. The US would look completely different and probably a lot better to live in if these incentives were corrected. It is interesting that in the crypto space a group of people have gotten so sick of this that they're going and making their own financial system (with hookers and blackjack, one suspects). It is a really interesting ongoing experiment because if the situation plays out in the obvious way, we're going to see a much healthier system in crypto. We've already seen any number of frauds cleaned out that'd probably have gotten away with it in traditional finance. And the way Tether eventually explodes will be a really interesting case study.

ttfkam 3y ago
Previous generations learned the hard way that when you lose your life savings, once is too often. A lot of folks never recovered after the first time it happened to them. Identifying a huckster isn't as easy as you say. A lot of folks lost everything in a local savings and loan, not some fly-by-night penny stock broker. Crypto will not stop this. Crypto has no intrinsic value. A car has intrinsic value. A house has intrinsic value. Farmland has intrinsic value. If everyone decided all these things had zero currency value, you can still transport using the car. You can still keep the rain out in a house. Crypto leaves you with electron patterns in a box. When the US dollar has dipped (and gold has gotten stronger), has the measured value of any crypto "currency" increased proportionally? No. Often it dips along with the dollar. When folks feel the crunch, they sell their crypto to pay bills. The reduced demand lowers the value of crypto. When the dollar is strongest and employment is robust, folks buy more crypto with their increased disposable income, raising demand and proportionally the price. It's a Ponzi scheme. A Ponzi scheme with a much higher fraudster-to-legit ratio than other financial options. There ain't no FDIC for Bitcoin. Be prepared for crypto's 1929 moment.
- roenxi 3y ago
  If you add all the pieces in your first paragraph together, the obvious answer is people need to stop giving all their money to 1 institution that they can't assess the creditworthiness of. It is a bad idea. Even if the money is then backstopped. The current system encourages them to do this. And you say "lost their life savings" as though the current system doesn't do that. Anyone who has attempted to hold their life savings in a bank is being gently wiped out by inflation. We traded "might happen" for "government policy that this will happen". They're losing most of the value in their cash every 25 years. The official policies are consistently inflation combined with low interest rates. > Be prepared for crypto's 1929 moment. Hasn't it has already lost 80% of its value more than once? I'd hope people are prepared with a history like that.
  - ttfkam 3y ago
    > the obvious answer is people need to stop giving all their money to 1 institution that they can't assess the creditworthiness of. You literally just described everyone who has a bank account. The finance sector is anything but transparent. See: Bear Sterns. > I'd hope people are prepared with a history like that. People play the lottery. Humans are REALLY bad at probability. There's an argument that the human brain itself is bad at it. Human perception is the source of optical illusions, sleight of hand, logical fallacies, etc. We are not biologically primed to handle these kinds of problems. Snake on the ground is a threat? Excellent. Monty Hall Problem? Even after explaining it, a majority of folks still reject the solution because it isn't naturally intuitive.