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Comment by dTal | Hacker News Reader

>MtGox was also a scam by the end, since they were trading on their exchange bitcoins and USD that they didn't actually have for people to cash out.

Heh. When a bitcoin exchange does it, it's a "scam". When a bank does it, it's "fractional reserve".

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Banks that use fractional reserve should still have balanced assets and liabilities. It is just that some of their money is tied up in loans to be paid back instead of liquid cash. If everyone the bank loaned money to paid back there would be enough cash to allow all the customers to fully withdraw their accounts.

Bitfinex, on the other hand, is just outright insolvent.

Ah, so there is a difference. Thank you for clarifying.

I wish I had phrased my post as a question - as a statement it seems rather unpopular...

You would be surprised how often other people use that exact argument but as a statement they say full of conviction instead of a question :) That might be the source of the confusion here.

It also helps that banks are insured federally.

Banks don't pretend that they're not fractional reserve.

Fractional reserve is also regulated and deposits are insured up to a certain amount, so it's definitely not comparable to printing imaginary USDT - even if fractional reserve banking has many well-known issues.

That regulation didn't work so well 10 years ago. Regulation is for us, not the big dogs.

It worked fine. I don’t know what you’re talking about.

Americans got screwed and no banking executives went to jail. It didn't work.

It's one of the reasons Bitcoin was created, per the first transaction in the blockchain.

No one really went to jail because they didn't break any laws. They fucked up, but not in an illegal manner.

Fractional reserve banking is not what failed in the financial crisis. Multiple things failed, including credit ratings, mutual funds/pensions/etc investing in high risk investments, etc. The biggest risk people think of for fractional reserve - they won't have the money when you need it, a run on banks, etc - didn't really happen in the states in any significant fashion.

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