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Comment by conanbatt | Hacker News Reader

Thats not what bank regulations have achieved.

Are you sure of that? In many ways bank regulation has achieved exactly that. We have an SEC, we have mandatory filings, we have disclosure requirements, conflict of interest requirements, bank capital requirements, stress tests, and many rules about types of financial products which cannot be sold. Those create much more uniformity and trust in the system. (of course this comes with some cost, but, arguably the thing lost in the system is volatility more than anything else).

... and then we had 2008, where you can violate all of that with reckless abandon and still get bailed out.

2008 was about over leverage and speculation.

It was also about mortgage fraud ... bond rating fraud ... multinational banks selling fraudulent mortgage backed securities based on the previous two frauds. Almost no one went to jail for any of it, the few who did were little fish. The SEC, Fed, Treasury and DOJ were asleep at the wheel before and during the crash and did almost nothing after other than reward the perpetrators: A. threw $700 billion in tax payer funds at them B. forced mergers that made some of them even bigger C. the Fed printed $4 trillion dollars and handed it to them to plow in to the stock market and juiced an 8 year bull market which enriched all of them.

Cryptocurrencies certainly have their problems but the last 10 years have been a case study in how horrible fiat currencies and the current global financial system really is. Japan's central bank has printed so much money they own something like 65% of all the ETF's on the Nikkei.

China, EU, U.S. and Japan have printed something like $16 trillion dollars since the crash. If banks leverage that at a conservative 12X that's $192 trillion. The world is awash in fantasy money.

It is easy to claim that these things were fraud, but courts have not agreed that they were fraud. The dispersion of responsibility in the system made it difficult for any one person to be solely responsible for the actions of the firm. the "fraud" you perceive was an emergent phenomenon resulting from poor oversight. Few people actually committed fraud. The difference in personal responsibility is very important, especially for the people involved.

I agree, however, that our legal system lacks an adequate punishment for companies that allow such poor governance practices. I don't feel it is necessary to throw people in jail for it, though.

In my opinion, we ought to be able to convict a company of "governance failure" which would carry the concomitant punishment of mandatorily ejecting all officers and directors without severance and without the ability to exercise options.

No... large numbers of people committed fraud. Countrywide, and one of its execs, were convicted of fraud in one of the egregious examples of "the hustle". The problem was an appeals court overturned the conviction in an inexplicable decision:

https://www.propublica.org/article/us-attorney-asks-court-to...

I'm not sure 2008 was a problem of information transparency. There were people who accurately read the signs and viewed the documentation.

The crash was the result of speculation and improper risk assessment, followed by the inevitable correction.

to say that 2008 happened as proof that these regulations don't work is kind of erroneous, as many of the regulations were revised or implemented as a result of that crash, to avoid it happening again.

Had bankers broken regulations with “reckless abandon”, a few more of them might be in jail. And there’s the problem: a lot of the shenanigans might not have been on the up-and-up, but they were not illegal. For example, Moodys rating junk derivatives as AAA isn’t illegal, AFAIK, it’s a trust issue that should have put Moody’s out of business but didn’t.

We also have immense global money laundering from banks.

And in return, each bank account cost of regulatory compliance is pretty large.

Im not saying all bank regulations are bad, but its not like bank regulation is an example of policy success.

And you think it would be better without regulations?

Yes, it would be extremely useful if some of the ardent voices for unregulated crypto took a bit of time to acquaint themselves with the history of various banking collapses from 1850 to 1930, and subsequent rise of modern financial structures.

There have been many notable failures of enforcement, but as someone who has been in and out of a few banks I can assure they take compliance extremely seriously most of the time. It's enough for people to have faith in the system.

They have achieved trust is system. If my bank stops existing right now, I still have any money.

If <exchange> gets hacked, tough luck.

It depends on the holdings, not everything you can have in a bank account is FDIC insured.

Update: By "everything" I mean not all kinds of financial instruments are insured by the FDIC. They do not cover mutual funds, annuities, bonds, etc. They cover pretty much just cash and cash equivalents.

It's fairly trivial to make sure everything's FDIC insured, and being wealthy enough to care about the per-account caps should mean you've got someone to advise you on doing so.

It doesn't even require a human advisor. Many banks participate in CDAR, which spreads large deposits across multiple accounts at other banks in the network. Fidelity isn't a bank, but their cash management feature includes checks, an ATM card, bill pay, and can send and receive ACH and wire transfers; they also implement this hack.

None of this applies to securities. Presumably you could insure them. It's not obvious to me from first principles that the cost of insurance would wipe out any incremental appreciation value, but I've never heard of anyone doing this so probably it does.

Securities held at a broker are usually backed by SPIC protection.

True. But for average people at popular banks, it's very sufficient.

Thats federally insured. You are paying taxes for your 'still have your money'.

Not as clear cut as you think it is. If the government insured bitcoin 'for free' you would also see a major surge in confidence.

The government insures bank deposits because it, and the vast majority of its citizens, has/have a vested interest in the stability of its currency. That's kind of the point of fiat currency. At the end of the day, there are dudes with guns that will back its value. Not so with Bitcoin. And good luck to any expecting that to change.

Compare and contrast to hypothetical banks with no regulations at all? Maybe they're not perfect right now, but it could be a lot worse, too.

I'd certainly agree that at least in the US, regulation has greatly increased banking transparency.

There are still edge cases, but capital ratio requirements and accounting standards, compared to none? Huge difference.

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