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Comment by zie | Hacker News Reader

I haven't dug into everything you are doing, but the biggest flaw I see seems to be that you assume Cash returns 0% nominal, i.e. that there is no return for holding cash. That is only true if you hide it under your mattress(and no deflation happens). Most people do not hide money under their mattress anymore, especially if they have large amounts of it. They put it in a bank account or in a MMF or some other interest producing place.

Since 1972, Cash has a real return of 0.53% (inflation adjusted):

https://www.portfoliovisualizer.com/backtest-asset-class-all...

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Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same?

Yes, see also Piketty

Is that surprising? Alternatively, do you have a fix in mind? Having power means you can build more things that give you more power faster than someone with less power. You can't change this using inflation, as people will just hold something else instead of cash (and, in fact, inflation seems to most punish the people with the least power, as those people are spending a much much greater proportion of their income on critical consumption and are least able to hold assets that aren't cash... hell: we make laws that actively limit or even prevent poorer people from holding non-cash assets "for their own protection").

That blows my mind. I'm allowed to spend $10 in a bottle of alcohol or a packet or cigarettes, no questions asked, but I'm not allowed to spend those $10 in stocks of a tiny company unless I'm able to demonstrate that I sleep with the founders or make their lunch or run their accounting, or that I have so many millions on my name that investing $10 without doing any of the above really could not harm me.

It's not like accreditation exists to ensure poor people stay poor, framing it like that is disingenuous. Small-time investors are unlikely to be able to even semi-accurately estimate the value of a company, so they're much much more likely to be tricked into overpaying.

It isn't that it exists for that reason, it merely has that effect as a callous side effect of not really caring about the power imbalance it causes on said poorer people. "The road to hell is paved with good intentions" 100% applies to people trying to protect other people from none other than themselves.

Can't hold more than roughly $5000 of real assets and qualify for Medicaid (subsidized healthcare).

Keeping that cash in the mattress is a very real option for many people with huge responsibilities (child care) and very little power.

[citations needed] - I don't know what the savings limits are as of October 2022.

According to elderlymedicaid.com[1] it's based on income, and varies by state.

[1] https://elderlymedicaid.com/medicaid-asset-limits

There a a lot of exemptions to the asset limit, including primary house and car, which are often the two most valuable assets many Americans own.

Yes, if it were not for the inherent risk that comes with it. If you put the cash in your mattress you only face the risk of losing it due to it being stolen or when it burns. You can get insurance against that it this would need to be deducted as well. So effectively you are losing money.

Now for money on your bank that pays interest it's not necessarily better. The bank can be robbed or simply go bankcrupt. And since the money there was used by the bank for various things, there's no guarantee you'll get it back. This inherent risk needs to be priced into the ROI.

So IF the government always saves banks with buyout, then yes. That's also why I believe it's not a great idea and people of such a bank should lose at least a part of their assets/savings to understand the fact that the money isn's just stored by the bank.

This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument.

1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar.

2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not.

3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized.

The current approach for banking is better than free market. Personally, I think banking would best be nationalized, a la China. It's not an industry where efficient free markets do very well. That's true for health care and parts of real estate too. (And yes, there are other industries I would privatize much more, like education. This shouldn't be an ideological socialist versus free market argument, so much as looking at the extent to which free market assumptions apply to a given industry)

> This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument.

No worries, I'm here to discuss and learn things, so happy about your reply!

> 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar.

Yes, but there is still the chance of a "haircut" or similar. At this scale, rules can be bend. But my response was a bit more independent of the country, so maybe it doesn't apply well to the US, point taken.

> 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not.

Maybe for the first time. But if you think about it, maybe the system is how it is _because_ people trust in it (too) much.

There are a couple of options. For instance, the state can give a guarantee for only a limited amount of money (think $20k or something like that) per person and/or institute.

Second, it might very well be that banks will come up with two different kinds of accounts: 1) an account where the money is not safe and can be used by the bank for investments - but you get interest. 2) an account where the money is safe, but you don't get interest but have to pay a fee for the bank's services. The money then stays your property and the bank just keeps it for you, so even if it goes bankcrupt, no one can take the money since it's still yours.

I don't think that would be a bad idea.

> 3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized.

I believe that for your health, your relationships (friends, familiy, ...) and your finances, you cannot delegate that, you must keep control yourselve. You can get people to help you, but in the end both control and responsibility are yours. That's what I think works best.

> No worries, I'm here to discuss and learn things, so happy about your reply!

Thank you! I enjoy discussions with folks like you.

> Maybe for the first time.

If we're having regular bank failures, we're going to enter "failed state" status. Can you name any nation which regular bank failures which isn't a hellhole?

People don't learn from once-in-a-lifetime events.

It's also not what I want people to learn. Systems like this ought to work well enough in a well-governed country that ordinary individuals don't need to think about it.

The US has problems, but not at the level of people worrying if their bank accounts will disappear tomorrow.

I also want sufficiently functioning police departments that people don't need to worry about how to defend themselves. There are things which ought to work. Retirement savings ought to be one of those.

> For instance, the state can give a guarantee for only a limited amount of money (think $20k or something like that) per person and/or institute.

The current limit is $250k. This seems reasonable, and potentially low. I'd set it at $1M, and include accounts like 401k and IRA accounts, so your retirement investment savings can't disappear in a poof for reasons outside of your control. If I bought stocks, I can (and should) expect their value to change, but I should be able to count on Fidelity safely making sure those are still my stocks.

> Second, it might very well be that banks will come up with two different kinds of accounts.

It might well be. 0.1% of the population will chose wisely. Like medicine, this is something you want to just work.

> I believe that for your health, your relationships (friends, familiy, ...) and your finances, you cannot delegate that, you must keep control yourselve. You can get people to help you, but in the end both control and responsibility are yours. That's what I think works best.

Why? All evidence suggests the contrary:

- People seem happiest in communal societies, where they don't pick their friends or family. We evolved in tribes.

- I'd love to live in a structure where I get healthy food and plenty of exercise as a "default." Staying healthy with companies marketing high-sugar foods, and obsolete parts of my brain pushing me to be lazy, is a constant uphill battle. I'd stop short of a mandate, but if everyone is healthy, we're all better off.

- Finance is a black hole for most people. People ought to be able to trust that if they work hard, they'll be able to afford basic food, shelter, and medicine (including in retirement). It feels like a trap to make people manage this.

If my life consisted of:

- Wake up for morning exercises. There are plenty of communal spaces for exercise. Volunteers run free dance, martial arts, yoga, etc. classes. My taxes fund the space.

- Work hard on open source, which benefits everyone, for some number of hours

- Spend time with my family

- Not worry about much of anything else, and count on systems working

I'd be pretty happy. We haven't figured out how to do that, but utopian ideals don't have everyone needing to investigate their local hospitals for corruption, banks for fraud, and mastering medicine and finance. As a nerd, I enjoy learning about those, but it shouldn't be mandatory.

> Can you name any nation which regular bank failures which isn't a hellhole?

That's a bit unfair, because there is no country (yet) where there is a system similar to what I proposed. If there were, then maybe it would be pretty normal and putting money on the bank that yields interest will just be seen and regulated as investing into stocks nowadays.

> It's also not what I want people to learn. Systems like this ought to work well enough in a well-governed country that ordinary individuals don't need to think about it.

To me it feels like you are trying to push away a responsibility that is impossible to push away. (sorry for me bad English)

What I mean is, once someone gives money to the bank and the bank _uses_ it instead of storing it (e.g. for a loan/credit) then there _is_ a risk that the money will be lost.

So if you want banks to be failsafe in the sense that it is legally guaranteed that you can never lose your money (currently that's not the case right) then banks should be fully government controlled or at least so tightly regulated that they are very very different from a regular business. I mean, banks are already highly regulated, but not nearly enough in my opinion. If the bank can't lose/go bankcrup, then it also shouldn't win, so no profit or highly regulated profit.

EDIT: I forgot to say that if the state is essentially insurance for the bank, it should charge for that service just like a normal insurance company would.

> Why? All evidence suggests the contrary: (...)

None of the points contradicts what I said.

But look: even in a communal society YOU pick your friends, no one else. And if there are two kinds of foods, one tasty, cheap and unhealthy und one so-so, kinda expensive but healthy, would YOU trust the advertisements which one to pick?

Even with a doctor: sure, it's great to have competent doctors. But it's a fact that there are better and worse doctors. So if health is important to you, YOU have to pick the right doctor. If you rely on someone else to do so, you are essentially putting your life in their hands. While anyone can decide to do that, I just don't think that it's a good idea.

The problem with your nice example life is that once things go southwards (and eventually they always do) then you can't deal with it. I prefer a slightly less optimal system that has less potential to go really bad, even if average quality of life is a bit lower.

> That's a bit unfair, because there is no country (yet) where there is a system similar to what I proposed. If there were, then maybe it would be pretty normal and putting money on the bank that yields interest will just be seen and regulated as investing into stocks nowadays.

You can do this in the USA, look up the ETF ICSH for instance :)

> Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same?

The rich aren't rich through this route, although things they do mean that bank interest rates are a guaranteed return for people who are less risk-tolerant. They're rich through one or more of: risk-taking, talent, hard work, luck, connections, etc, all of which feed into the one thing that makes them money: usefulness to other people.

Not because of this one thing, every bank offers some return on holding cash. Most are ridiculously low.

Personally I like to think of it as, the US govt guarantees a return on overnight cash based on the Federal funds rate. Banks and other people that hold cash will give you that rate minus some fee(s) for the hassle of keeping up with your cash for you. Most banks have a very hefty fee, but not all banks.

As of this writing:

The Federal Reserve will pay 2.56% for cash deposited with them.

Bank Of America pays 0.01%, for a fee of 2.55%/yr.

Ally bank pays 2.25% for their savings account for a cost of .31%/yr

If you are willing to hold cash in an ETF, ICSH will hold cash for a 0.08%/yr fee.

For the record, I'm not against Bank Of America, I have an account with them, but I don't hold much, if any, cash with them for any length of time, because I know they charge a lot for that service.

Yep, always need to pick your risk-free asset for comparison.

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