6 ms·

yeah. Regulated banks would never ever do something that irresponsible.

• mbillie1 13y ago
  Right, but the regulations do tend to grant the customers some sort of protection in the face of this sort of behavior, which is the whole argument in favor of financial regulation. That said, I did smile and chuckle at your response :)
  • wpietri 13y ago
    More importantly, they vastly reduce both the frequency and the scope for this sort of malfeasance. If MtGox had been expecting to face bank audits, they would have been forced to a) hire some people who actually understood finance, b) would have had much better internal accounting controls, and c) would have had a much harder time blowing up quite so thoroughly. When I hear people carping about "unnecessary regulation" I imagine some guy looking up at a major bridge and saying, "Ha! You don't need half that metal. I could have done it for way less." Maybe he's right. But more likely, he isn't thinking about high winds, earthquakes, and all of the other extreme circumstances that are the real drivers for how thick the supporting pillars have to be.
    • deleted 13y ago
      [deleted]
    • waterlesscloud 13y ago
      To me, the evidence seems to indicate regulations make it possible to increase the scope.
    • phil21 13y ago
      This is accurate and largely true. However, I think everyone screaming "see! regulation works!" is completely forgetting that this site really did bring Bitcoin up from some obscure hacker/modder toy into what it became today. Perhaps some other site would have filled the void, but with regulation mtgox or anything like it could not have existed. So yes, regulation has it's places. However, regulation would have made these early "bootstrap" exchanges unworkable, and probably criminal. How does that help anyone either?
• cobrausn 13y ago
  IIRC, real banks trade imaginary dollars all the time by operating as a fractional reserve. The average person probably doesn't know nor care, but FDIC insurance prevents the bank run from causing people without a lot of assets from losing it all. Of course, I could be completely wrong. Any experts care to chime in? EDIT: From the explanation linked below it looks like banks keep a fraction on hand and the rest is due to the bank in the form of lines of credit. Which I suppose explains why the FDIC still needs to exist - it's not like the bank can just tell everyone they loaned money to pay it back right away if everyone withdraws their money at once. Also, it seems we are continuously conflating 'regulated currency' with 'regulated banks'.
  • philwelch 13y ago
    https://news.ycombinator.com/item?id=7399122 https://news.ycombinator.com/item?id=7399122
  • bduerst 13y ago
    The banks have most of their as assets as liabilities, and only keep a certain percentage liquid (cash). Also, the FDIC (and eventually the NCUA) was created out of a need to stabilize the dollar, post Great Depression. It's considered an organization that helps regulate liquidity of the currency, which is essential to being a currency. Bitcoins on the other hand do not have any such regulation, and exhibit recessionary behavior not unlike gold, which was decoupled from the U.S. dollar about the same time the FDIC was created. Because bitcoins lack liquidity regulation and have an impending production cap, they will almost never make it as a currency. That's not to say some other cryptocurrency won't solve the problem later.
• codelap 13y ago
  No, regulated banks would do something worse, and then get the taxpayers to foot the difference.
  • malka 13y ago
    We agree, my comment was sarcastic ;)
    • codelap 13y ago
      I know, I was trying to add to it by bringing up the sub prime mortgage debacle, but apparently that isn't a funny topic, or I lost something in the delivery.
      • misiti3780 13y ago
        i liked the comment
  • mpyne 13y ago
    If you're referring to the subprime mortgage crises, the problem appeared to be the removal of regulation more than regulation itself. There was a reason there had used to be laws placing firm lines between banks and securities firms.
    • bduerst 13y ago
      To my knowledge, those lines haven't been put back, have they?
      • mpyne 13y ago
        AFAIK you're right. Merely some stronger rules and a couple of new agencies, but nothing as strong as Glass-Steagall.
    • Aaronontheweb 13y ago
      Actually, regulation was part of the problem - specifically the Community Reinvestment Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act This encouraged banking institutions to increase the number of sub-prime mortgages with the stated goal of increasing home ownership among lower income communities. Changes to this regulation made during the 1990s, specifically the 1992 change to require Fannie Mae and Freddie Mac (USG-sponsored entities) to devote a percentage of their annual budget to securitizing (read: buy the loans made by other banks and bundle them into securities) these sub-prime mortgages. This, among other factors, eliminated a lot of the risk for banks - there was always going to be someone to buy the sub-prime mortgages, thanks to this regulation. And as long as housing prices went up they could afford to keep issuing predictably bad loans, since the assets that would fall under forfeiture would have a greater value than the principle of the loan. When housing prices tanked in the mid-2000s, after a solid 10+ year housing bubble, all of this mania inevitably caught up with reality as home values went under water. So let's not pretend that regulation is some short of magic wizard armor that prevents human stupidity and greed (on all parties: the banks, the Government, the realtors, the home builders, and the consumers who took the loans). Regulation doesn't guarantee anything other than unintended consequences and should be looked at as a tool of absolute last resort when it comes to addressing market issues. Consider the FDIC, often held up as an example of successful financial regulation - it's enabled plenty of new forms of reckless behavior on the part of financial institutions (see the Savings & Loan crisis from the 1980s) and more or less guarantees government bailouts to the depositors. Laws are not magic patches to the fabric of reality and human behavior. They often don't even achieve their stated goals and aren't always so easy to correct.
• bcohen5055 13y ago
  I'm not a finance guy but I took a finance class once... I believe that all banks are required to hold a minimum reserve that is set by the Fed. Each day banks with assets greater than needed "sell" their reserves to banks with less via T-notes. This is all due to regulation, banks on their own wouldn't participate in this because it costs the banks with low reserves money but it keeps banks from disappearing overnight like MtGox. To be fair though Gox was an exchange and not a bank and that is a bit different Edit: Wow bad spelling..
• bduerst 13y ago
  Regulated banks would have FDIC insurance. How many accounts in Mt. Gox got their funds back?
  • saalweachter 13y ago
    To be fair, MtGox was an exchange, not a bank. My understanding is that if a standard exchange (eg, Ameritrade) went down in a similar fashion, you'd be equally screwed.
    • svenkatesh 13y ago
      I have a trading account at Ameritrade (through ThinkorSwim). Cash in your account that is not invested in a security is still FDIC insured.
      • saalweachter 13y ago
        Huh, that's better than I expected. So if they screwed something up, and somehow lost all of your stock and cash, your cash would be covered by the FDIC and your stock would be lost? (Assuming they don't have some sort of supplemental insurance to cover loss of stock.)
        • svenkatesh 13y ago
          SEC has consumer protection rules for stocks. Even if they're managed by a brokerage, they're yours, even if the brokerage falls into insolvency
          • svenkatesh 13y ago
            I'm replying to myself, but for the curious: FDIC covers bank accounts; SIPC covers securities accounts.
• bunderbunder 13y ago
  In the US, at least, a bank would have a very hard time doing something this irresponsible. The FDIC would have noticed the problem and stepped in long before the situation could get this bad. I'll cut off the inevitable reference to 2007 at the pass by pointing out that none of the big banks that got bailed out ever made it anywhere close to digging themselves into a hole as deep as Mt. Gox did. For example, the biggest bank failure in US history, Washington Mutual, went down with about $300bn in assets against $200bn in deposits. Creditors ended up getting wiped out, but deposits were safe.
  • dnautics 13y ago
    "Creditors ended up getting wiped out, but deposits were safe." Deposits were safe, but all of society got kicked by inflation and increased unemployment. Of course, that only hurts poor people, so, win for the depositors!
    • saalweachter 13y ago
      Inflation from 2007 to 2012 was about 10% (total, not per year). Inflation from 2002 to 2007 was about 15%.
      • dnautics 13y ago
        It's higher than that, because the CPI does a lot of adjustments to the offical figure. Moreover, your years are cherry-picked; there was a wave of deflation (that occurred in 2008-2009) as loans went though a cycle of defaults to clear out bad debt. Finally, the effects of top-down stimulus take a long time to propagate, especially since the current money multiplier for dollars is still quite low, and bank's lending activities have been relatively stagnant (roughly speaking, base currency went up, but debt expansion, which is what really counts, has not caught up yet because people are reluctant to go into debt - hence the popularity of debit cards vs. credit cards). Eventually as people start using debt to paper of catastrophes and emergencies, the overall indebtedness will increase, and the inflationary increase in the base currency will propagate into the debt burden, and we will have a sudden increase in inflation. I personally think it's unlikely to be hyperinflationary, but it will be very uncomfortable, especially for poor and middle class. But, perhaps i should not have used the past tense.