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Comment by gridlockd | Hacker News Reader

> Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies.

I disagree that this is "conceptually" a bank. Facebook's business model isn't lending out the reserves. If it was, banking regulation would apply.

Also, in a modern bank, reserves are maybe 10%, and you get less than zero percent interest after inflation for that risk exposure.

We've all seen in the past on how well "financial oversight" worked. At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there. Facebook is at least a profitable company in its own right.

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> We've all seen in the past on how well "financial oversight" worked

It worked remarkably well - no consumer lost their deposits to a bank failure. The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.

That had nothing to do with oversight and everything to do with the fact that the government can just print the money to save a bank - and it did so. That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences.

Also, you may say this "worked" in the US, but other countries didn't get quite so lucky playing that game.

>That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences.

What most people don't grasp is just how regulated the financial industry is.

Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? This stuff happens in a capitalist economy. I mean, it's not like it was "the banks" in a vacuum. It was governments, mortgage brokers, builders, house-flippers, your neighbour, speculators...everyone benefited from the wealth effect of cheap money and rising home values. Until they didn't; then it became the banks' fault.

> Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable?

No, what's unacceptable is the government bailout "guarantee" you get from being "too big to fail". That's not "taking a risk", that's not "capitalism", that's gambling with someone else's money.

I will agree though that you can't blame the banks for an environment where they're effectively pushed to lend recklessly, that's the result of monetary policy.

The government doesn't print money to catch failing banks, at least not usually. For standard bank deposits, banks pay a fee to FDIC as a percentage of their assets just like any insurance policy.

Keep in mind, it's to the bank's advantage to remain solvent at all costs. An insolvent bank will be liquidated and shareholders are left empty handed. Between the FDIC insurance and the liquidated assets is how these things are paid out.

> The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.

I like how you're trying to make like the financial crash was no big deal because this 'oversight' worked in this narrow context.

I wonder if you'd claim that the banks lending out too much money didn't have absolutely catastrophic effects on the economy in general and by association, millions of people's livelihoods around the globe.

That sounds like an argument for more regulation, not less. If there were less regulation, all that stuff would have happened and depositors would have lost their money.

I agree. I'm a big fan of heavy regulation, especially for industries that can, and frequently do, ruin millions of lives with their avarice.

What if banks tend to lend out too much money because of the deposit insurance? This could have other, unintended consequences beyond the narrow scope of your comment.

It’s a nice theory, but unsupported by evidence. In the US since the FDIC was set up there have been far fewer bank failures than there were before then. In fact, having that oversight short-circuits the mechanism that makes bank runs happen, since getting your money back is no longer a function of your place in line.

> At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there.

This is so ridiculous that I don't even know how to argue with it.

That's probably because systematic bank failure to you is just a fairly tale and you don't understand the risk exposure you have at an actual bank. Open your history book!

To be clear, I wouldn't prefer to put my money with either. But if push comes to shove, would you prefer to have an account at a failed bank that holds 10% in reserves, or a private company that holds close to 100% of reserves, because it is not a bank?

Before you answer, please imagine for a second that you had a decent amount of money to retire on, not whatever FDIC and the already bankrupt state promises to reimburse you with.

This seems to be a false either-or because FB is probably not holding 100% reserves as actual paper cash in a giant Scrooge McDuck vault underneath their HQ. It's holding them at a bank, so that it can get the interest payments.

Thus, a user faces systemic banking system risks plus all firm/stablecoin-provider risks. That combined risk will almost certainly be strictly larger than the systemic banking system risk you'd face by just depositing funds in a bank account that you directly control.

I'm arguing the principle here, so for that purpose it might as well be a Scrooge McDuck vault.

Otherwise, you do have a point, a systematic bank failure would likely cause issues here as well. However, I highly doubt they'd be storing significant amounts of money as cash deposits in banks for the interest. There's better options, such as short-term treasury bonds.

Right - I believe the whitepaper says it'll be a mix of bank deposits in various currencies plus short-term government securities. Still my point stands: you can have lower systemic risk in a serious crisis by holding t-bills or whatever directly, rather than indirectly via FB or any other stablecoin provider. Plus you'll get the interest payments.

Storing serious amounts of money in any of these stablecoins for any real length of time is economically irrational because by exiting their walled garden, you can obtain a higher return in exchange for reduced risk. Withdrawing is even better than a risk-free reward; it's a risk-reducing reward.

Again, I'm not pitting this against all other options, I'm pitting this against bank deposits specifically and in principle.

My point is that bank deposits aren't as safe as people like to believe they are, at least beyond what is insured.

In a systemic crisis, chances are the government will just print whatever money needs to exist and bonds too will take a hit as a result. Plus, whatever happens in the US will impact the whole world. You can't realistically hedge against this with any currency/bond.

Is it because you trust the banks to keep your money safe? Have a look at what happened in 2013 in Cyprus where they did a bail-in with their customer's money to "save" a bank that was too big to fail.

I am with parent on this one.

What happened in Cyprus in 2013? Private banks in a tax haven had rich people from other countries speculating on foreign markets (US housing, among others), hoping to gain above-market returns by doing so. That speculation went sour, resulting in insolvent banks. Those banks also had regular and smaller deposits from local residents, though. In order to protect those people, Cyprus decided to not absorb the speculative losses of those rich people. Instead, the private speculative losses stayed private, which is essentially what a haircut above €100k did.

Now imagine that same situation, but with Facebook at the helm. Either Facebook is in risk of insolvency, or private speculation with zuckbucks going south. Do you think Facebook will just go bancrupt in order to protect the zuckbuck owners? Or will they more probably recreate Cyprus, but way worse for the zuckbuck holders?

In other words, you agree with the parent on the facts. People lost their money, but presumably "it serves them right" cause they were rich and tried to dodge taxes - which is totally besides the point.

As for this new cryptocurrency, it's designed not to go insolvent, because it is more or less fully backed with actual currency/bonds. It has nothing to do with Facebook's financials.

By contrast, besides insurance for a modest amount, a bank deposit is only "backed" mostly by securities and loans years into the future, most of which can go bad in a crisis.

> In other words, you agree with the parent on the facts. People lost their money, but presumably "it serves them right" cause they were rich and tried to dodge taxes - which is totally besides the point.

People willfully risked risked their capital to target above-average returns. That didn't work out, which, when looked at from a distance, is perfectly fine - other market participants made better decisions, end of story. What isn't perfectly fine is people then trying to socialize their losses afterwards. You can't have a cake and eat it, too.

We're not arguing about the safety and viability of banks. Instead, we're directly comparing the safety and viability of banks vs Facebook. If you think that Facebook comes out on top in that comparison, either you really haven't been paying attention, or we fundamentally disagree about what safety and viability mean.

Do you have any actual arguments?

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