5 ms·

How it it different from what banks do? (Except for a central regulator.)

by killerstorm 2y ago

tonyhart7 2y ago
FEDS can print money while Binance does not
- skeeter2020 2y ago
  not exactly true - Binance is indeed "printing money", just with no centralized regulation. When the Feds do it the expectation is that they are aware of the long-term impacts of doing so, and include in their calculation. For crypto it's the opposite: do it before you erode trust & goodwill to the point where it's no longer valuable. I see it more like it is very different than printing money in a economy that's perceived as stable and quite similar to printing money in one where the people have no faith in the value of sovereign currency. So the crypo-promoters are right about the use-case in certain jurisdictions, but the problem is that's not where the wealth is, so they target rich economies that tend to have stable government currencies & established banking, and do not need crypto for legitimate tasks.
  - tonyhart7 2y ago
    I doubt they can because they peg it to USD, do you think they can pay aws bill with busd??? maybe you can but people with busd would convert it to usd at some point
phony-account 2y ago
> How it it different from what banks do? I often read this sort of comment from crypto-defenders, but is it what banks do? I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.
- malfist 2y ago
  That's because they're mistaken. In traditional banking only the central authority can print money, not the individual banks. If someone stole a trillion dollars from JP Morgan, JP Morgan can't make themselves whole by creating a new trillion dollars. The central authority might guarantee the customers of JP Morgan that their money is protected, but they won't print money to make the bank whole.
  - lxgr 2y ago
    That's one model/theory for how modern money creation works. Another is modern monetary theory (MMT), and in that, commercial banks are indeed the primary creators of money, with the central bank playing a technically more passive role. Still, in either model of money creation (i.e. classical "money multiplier" and MMT), governmental regulators (which can be the central bank or others) do ultimately control the rate of money creation via various mechanisms.
  - killerstorm 2y ago
    False. Banks create money. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
    - JW_00000 2y ago
      Banks create money by issuing loans; but they can't create money out of thin air if $1.5B was stolen from them.
    - malfist 2y ago
      Banks create credit within the confines of law. That isn't creating money. Only the central bank can do that
jqpabc123 2y ago
How it it different from what banks do? (Except for a central regulator.) Your exception is the answer. Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity. The bizarro world of crypto has no such regulation and as a result, it is inherently unstable. The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate. Contradict and hypocrite much?
- owlninja 2y ago
  I saw a quote somewhere: >Crypto is speedrunning the entire evolution of finance to end up at the same place
  - jqpabc123 2y ago
    I saw a quote somewhere: Those who don't learn from history are doomed to repeat it. The only thing new about crypto is paper has been replaced by electrons. Individuals/banks minting their own money has been tried before. It didn't go well.
    - philipov 2y ago
      However, this quote is usually intended to be a warning, not an opportunity to run all the old scams again. These people hear it and think "You mean we get to repeat history?!"
      - mikeyouse 2y ago
        It’s not an uncommon joke about how easy it would be to be a serial killer or bank robber in “the olden days” - just need to move 1 town over and you can do it all again which has a strong similarity to being able to commit crypto crimes with hardly a consequence by virtue of doing it across jurisdictions..
    - deleted 2y ago
Fade_Dance 2y ago
Because while banks hold duration, the net value of their current assets, future asset streams, and equity is above zero. Indeed the core focus of the business and regulatory side is ensuring this is so. The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to. What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily. The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.
skeeter2020 2y ago
Banks don't print money for each other, and if they get money for free it's backstopped by the government and hence all of us. Crypto wants this single aspect but none of the central regulation. Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.
- killerstorm 2y ago
  Banks borrow from each other all the time. What do you think "overnight loans" is for? And when banks gives a loan that creates money

How it it different from what banks do? (Except for a central regulator.)

tonyhart7 2y ago

FEDS can print money while Binance does not

skeeter2020 2y ago
not exactly true - Binance is indeed "printing money", just with no centralized regulation. When the Feds do it the expectation is that they are aware of the long-term impacts of doing so, and include in their calculation. For crypto it's the opposite: do it before you erode trust & goodwill to the point where it's no longer valuable. I see it more like it is very different than printing money in a economy that's perceived as stable and quite similar to printing money in one where the people have no faith in the value of sovereign currency. So the crypo-promoters are right about the use-case in certain jurisdictions, but the problem is that's not where the wealth is, so they target rich economies that tend to have stable government currencies & established banking, and do not need crypto for legitimate tasks.
- tonyhart7 2y ago
  I doubt they can because they peg it to USD, do you think they can pay aws bill with busd??? maybe you can but people with busd would convert it to usd at some point

phony-account 2y ago

> How it it different from what banks do? I often read this sort of comment from crypto-defenders, but is it what banks do? I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.

malfist 2y ago
That's because they're mistaken. In traditional banking only the central authority can print money, not the individual banks. If someone stole a trillion dollars from JP Morgan, JP Morgan can't make themselves whole by creating a new trillion dollars. The central authority might guarantee the customers of JP Morgan that their money is protected, but they won't print money to make the bank whole.
- lxgr 2y ago
  That's one model/theory for how modern money creation works. Another is modern monetary theory (MMT), and in that, commercial banks are indeed the primary creators of money, with the central bank playing a technically more passive role. Still, in either model of money creation (i.e. classical "money multiplier" and MMT), governmental regulators (which can be the central bank or others) do ultimately control the rate of money creation via various mechanisms.
- killerstorm 2y ago
  False. Banks create money. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
  - JW_00000 2y ago
    Banks create money by issuing loans; but they can't create money out of thin air if $1.5B was stolen from them.
  - malfist 2y ago
    Banks create credit within the confines of law. That isn't creating money. Only the central bank can do that

jqpabc123 2y ago

How it it different from what banks do? (Except for a central regulator.) Your exception is the answer. Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity. The bizarro world of crypto has no such regulation and as a result, it is inherently unstable. The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate. Contradict and hypocrite much?

owlninja 2y ago
I saw a quote somewhere: >Crypto is speedrunning the entire evolution of finance to end up at the same place
- jqpabc123 2y ago
  I saw a quote somewhere: Those who don't learn from history are doomed to repeat it. The only thing new about crypto is paper has been replaced by electrons. Individuals/banks minting their own money has been tried before. It didn't go well.
  - philipov 2y ago
    However, this quote is usually intended to be a warning, not an opportunity to run all the old scams again. These people hear it and think "You mean we get to repeat history?!"
    - mikeyouse 2y ago
      It’s not an uncommon joke about how easy it would be to be a serial killer or bank robber in “the olden days” - just need to move 1 town over and you can do it all again which has a strong similarity to being able to commit crypto crimes with hardly a consequence by virtue of doing it across jurisdictions..
  - deleted 2y ago

Fade_Dance 2y ago

Because while banks hold duration, the net value of their current assets, future asset streams, and equity is above zero. Indeed the core focus of the business and regulatory side is ensuring this is so. The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to. What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily. The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.

skeeter2020 2y ago

Banks don't print money for each other, and if they get money for free it's backstopped by the government and hence all of us. Crypto wants this single aspect but none of the central regulation. Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.

killerstorm 2y ago
Banks borrow from each other all the time. What do you think "overnight loans" is for? And when banks gives a loan that creates money