Comment by CryptoPunk | Hacker News Reader

Comment by CryptoPunk | Hacker News Reader

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Intellectuals should stop advocating that people be treated like children. PayPal and other e-wallets are not required to have bank charters to issue dollar-backed digital currency, and neither should stablecoins.

In the wake of the 2008 financial crisis, a well-capitalized player, Walmart, which was expanding its banking activity via its Sam's Club lending, was well positioned to replace the incumbent Wall Street firms as a major lender, but that was forestalled by Congress withholding a bank charter for political reasons:

https://www.nytimes.com/2007/03/17/business/17bank.html

Gatekeeping a market activity is extremely dangerous because it allows for massive rent seeking through corruption of the gatekeeper. It's inherently concentrates power in the hands of an elite.

e.g. this is a bit dated, but gets the point across about the revolving door between regulatory agencies and major market players:

https://philebersole.files.wordpress.com/2013/10/venn-diagra...

Even a non-corrupt gatekeeper can do enormous damage by poorly regimenting the industry. Something that has a systemic impact on a market is a systemic risk to the market. And government intervention is the only phenomena that no market player can opt out of, so it is the only one with a truly systemic impact on the market. Reducing government intervention reduces systemic risk.

Right now there is a free market in stablecoins. If you trust the attestations of USDT [1], you can use USDT. If you trust those of USDC [2] more, you can use that instead.

People should decide for themselves. And the systemic risk argument for limiting people's choices is absurd. The risk posed by any financial asset is not distributed uniformly across the economy. Its impact on any party is proportional to their direct and indirect exposure to that asset, which is something that they control and have to take responsibility for. In the absence of the government bodies that socialize the losses of irresponsible actors, those actors who take on imprudent risks would see the share of the financial market that they control steadily shrink at the expense of those who do not.

The suspension of this market feedback mechanism is what increases the risk of financial crisis.

[1] https://tether.to/wp-content/uploads/2021/08/tether_assuranc...

[2] https://www.centre.io/usdc-transparency

> stop advocating that people be treated like children

Stablecoins are money market funds. Those initially came about due to regulatory limits on deposit-account interest rates and risk thresholds. They nearly took out the real economy in 2008. Stablecoins are recreating that structure, guaranteeing a peg against a portfolio of risky assets inextricably tied to the mainline financial system. (This is a summary of the article.)

The interest bearing accounts on the stablecoins are the (edit: things analogous to) MMFs, not the stablecoins themselves — at least for backed ones like GUSD and USDC.

Edit: not sure why a basic point is downvoted, I updated to clarify.

> interest bearing accounts on the stablecoins are the (edit: things analogous to) MMFs, not the stablecoins themselves

Sorry, I was speaking metaphorically. Stablecoins are collateralized by money market assets. This backs their "guarantee" of convertibility. Money market funds used to provide a similar liquidity-risk transformation guarantee--they would never "break the buck," i.e. trade for less than $1/unit. Until they did in 2008, which created a credit crisis in the money markets as those funds all fire sold commercial paper at the same time to maintain their peg.

So we changed the rules. No fake pegs. If you find yourself in a credit crisis, you trade your fund at 98¢ instead of incurring 50¢ of liquidation costs to defend a magic number. In exchange, no marketing your funds as being as stable as deposit accounts.

See the rhyme?

No, I don't see the "rhyme" about how USDC and GUSD lack actual cash to back them 100%, because they do in fact have such cash.

Bottom line, you're painting with too broad a brush to say all stablecoins work like a MMF. At most, you're describing particular ones like Tether and Dai.

USDC does not have actual cash to back it to 100%.

>>They nearly took out the real economy in 2008.

No they didn't. The government nearly took out the real economy.

In the decade before the financial crisis, regulatory pressure was used to force banks to issue more subprime mortgages. This article from 2000 warns of the consequences:

https://www.city-journal.org/html/trillion-dollar-bank-shake...

Government sponsored enteprises, which underwrite 50% of the entire US mortgage market, started massively increasing their subprime loan guarantees at the same time.

And then you have Federal Reserve mouthpiece, New York Times columnist Paul Krugman, advocating in this 2002 article that the Federal Reserve create a housing bubble:

https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-di...

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

This revisionist account of the causes of the financial crisis is just these same powerful forces, who are receiving billions in kickbacks from all of this corruption, pinning the blame for the financial crisis on the mythical deregulation-bogeyman.

The person you're replying to isn't talking about the housing market collapse. The credit crunch that happened after was the much bigger threat to the global economy, and that was entirely caused by businesses operating with zero cash due to the assumption that commercial paper and other types of short-turnaround overnight loans were close to risk free even though they were not.

The housing market collapse is the reason for the misassessment of risk, and the over-extension of credit. Mortgage-backed securities were considered AAA assets, which is why so little in cash reserves were maintained.

>>Had Tether been around in '08, it would have been accumulating hordes of that stuff to back itself up.

That's irrelevant, because every one, including regulators, would have considered that adequate collateral. There was a systemic misassessment, due to the systemic impact that government intervention had on the housing and sub-prime mortgage market.

> Mortgage-backed securities were considered AAA assets, which is why so little in cash reserves were maintained

That's fine and irrelevant. Had Tether been around in '08, it would have been accumulating hordes of that stuff to back itself up.

The narrative you're outlining was known as "the big lie" before Trump came up with an even bigger lie in 2020.

> Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.

> Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them.

https://www.washingtonpost.com/business/what-caused-the-fina...

Not sure if they require one, but Paypal has an EU banking license since 2007: https://www.faz.net/aktuell/wirtschaft/netzwirtschaft/intern...

> PayPal and other e-wallets are not required to have bank charters to issue dollar-backed digital currency, and neither should stablecoins.

Paypal actually has a bunch of state licenses. [0] Twenty-three of those are with a banking commissioner or department.

[0] https://www.paypal.com/us/webapps/mpp/licenses

Like the other poster said, this is all about transmitting money, which is very different than keeping it, reinvesting it, and handing you a certificate/credit for it.

They have money transmitter licenses, which each state issues its own of, not bank charters.

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