Hacker News Reader

Comment by ackbar03 | Hacker News Reader

I saw an update on coindesk that they confirmed it was a hack on their official telegram channel?

What a dumpster fire. But let's be honest, I think retail investors weren't getting anything back anyways. Probably only impacts creditors

View on HN

Lol, a 'hack.' An unfortunately extremely convenient one that I'll almost guarantee specifically took customer funds, you know, after the bros already took their first cut.

It happens on Wall St as well but more "subtle". Retail investors and tax payers have always been the bag holders.

Do banks get hacked very often? They seem to have their security in order. Probably because they would have to reimburse their customers if something went wrong.

I imagine they do their best to run a tight ship yes, but I also imagine the fact that banks still run a lot of legacy pipelines and audits means it's also a little harder to find bugs in the apps and websites, that would actually let you achieve much.

When the banks get bankrupt (i.e due overleverage, stealing/using customer's money etc) their customers get nothing back. A such example is MF Global. I'm not going into the whole story why banks and centralised/opaque finance is bad.

Now the whole point of crypto was the tech behind it which was supposed to replace banks, exchanges and missuse of your OWN money. It's supposed to be an alternative to the trash financial tools we already use. The fact that people are using entities such FTX, Binance makes them deserve to be punished for their betrayal. Regardless if they use FTX or JP Morgan they pretty much deserve to experiment the shortfalls of centralised finance. I think it's part of the hello world example of what DeFi is trying to solve.

One more thing: If FTX was hacked I bet it has almost nothing to do with the crypto technology.

https://en.m.wikipedia.org/wiki/MF_Global

MF Global wasn’t a bank.

“Nothing to do with the crypto technology” is an empty and meaningless statement.

IF, and that’s a very big if, they got hacked, the fact that $600m could be moved and disappeared so quickly is 100% to do with the “crypto technology”. In the real financial system it is exponentially harder to make money disappear, transfers are logged on three sides of the transaction, you have to hack multiple autonomous and different tech stacks, and you have to wait as the transfers get transmitted, validated and passed in.

“In January 2013, a judge approved a settlement that would return 93 percent of customers' investments”

A great deal larger than nothing.

You wrote: <<their customers get nothing back>>

Another comment already noted that MF Global was not a (commercial/retail) bank. One part of it was a broker-dealer.

Also, in the United States customers of MF Global brokerage were covered by the Securities Investor Protection Corporation (SIPC) which (to quote Wiki): <<can pay the customer (via its trustee) up to $500,000 for missing equity, including up to $250,000 for missing cash>>. Please read more here: https://en.wikipedia.org/wiki/Securities_Investor_Protection...

Even with all of the bad behaviour during MF Global's last days (to quote Wiki again): <<In January 2013, a judge approved a settlement that would return 93 percent of customers' investments, with the prospect of additional payouts from the company's general estate.>>

Impressive, considering the extent of fraud at MF Global! Can any collapsed crypto exchange claim the same recovery rate? I doubt it.

I have direct knowledge of several bank hacks. Most of the time they don’t publish it.

Isn't the difference that banks have insurance for those hacks?

Yes banks have fidelity bonds called bankers blanket bonds (BBB) which cover losses from fraud, theft, etc. The FDIC doesn’t ensure against robbery, identity theft(banking fraud), etc. so this is an important protection for banks to provide.

Ah! I had no idea FDIC didn't cover robbery. Thanks for clarifying!

They will cover the depositor's funds up to the 250k limit in the event of an event where the bank cannot return your funds, but banks assets or property is not covered under FDIC and need to be separately insured.

Wall Street doesn't rug pull people. It sells them bad bets and takes the opposite side of those bets. There is a massive difference.

It’s not a massive difference just a rug pull at a higher conceptual level (informational) because the obvious financial rug pull was done a hundred years ago and has since been regulated.

They always give you the information, too. People just don't always like to read it. Some people don't care, and others just jump on whatever bandwagon they can find.

Almost everyone who has lost their shirt in financial derivatives in the past 50 years could have learned about the risks they were taking from some text in a prospectus somewhere, but chose not to.

That's exactly the same for crypto too though, all the warning signs are constantly there.

It's not that Wall Street gives you warning signs. They literally tell you "this is a probably a bad bet, and you should not take it" in the descriptions of most products. Very few people actually read those descriptions, despite the fact that they really should if they are buying weird financial products. The banks tell you to read them. And yes, a mortgage is a weird financial product.

For example, people who lost a lot of money holding XIV (a leveraged inverse-VIX ETN) had the warning about not holding the thing overnight in bold red text in the prospectus. People holding leveraged CDOs and every kind of CDS had all kinds of warnings in big bold text in their prospectus. The good old "liar's loans" of the early 2000's had big bold text saying "it will be bad for you if you lie about your income."

Pretty much the only financial products that don't come with big bold text saying "you are an idiot for buying this" are single stocks and the most boring of ETFs/mutual funds (eg SPY).

Contrast that with the warning signs from crypto projects, which are a lot more oblique than big bold text in a document that they tell you to read. Wall Street screws you, but they generally do it slowly and they tell you how. Crypto projects just straight up steal your money one day out of the blue and run to Dubai.

CDO2s backed by worthless subprime loans were put into AAA rated bonds. I'd call that an outright scam. For that matter all versions were far more risk than they claimed they were, given that they were worthless, even if there was some fine print somewhere.

I don't have an ISDA with a bank or a copy of a CDO-squared prospectus, but it's hard to imagine that there wasn't a big warning about them being a leveraged product that you should not invest in long-term.

The rating agencies did not understand the products they were rating. However, the warnings were almost certainly on the label.

That's why the rating agencies were sued over this, and not the banks.

A rating inherently claims understanding though. Is a bridge safe to walk on? Some guy who doesn't understand engineering is putting signs on it rating its safety. Ignorance is not a defense at this point.

They did sue the banks. For many things including inflated appraisals of the loans.

I'm sure they have some kind of warning for everything that isn't FDIC insured. But misrepresenting high risk as low risk instead of zero risk is just a quantitative difference. There are plenty of scams that do this. for example just lying about a company's earnings. I suppose the precise crimes they charge them for may differ a bit.

Retail investors are creditors right? Though I guess you mean only the larger creditors. I think the bigger difference is that bankruptcy proceedings take a long time and to a retail investor ‘you might get some money back in N years’ isn’t so different from ‘you get nothing’.

> bankruptcy proceedings take a long time and to a retail investor ‘you might get some money back in N years’ isn’t so different from ‘you get nothing’.

Does anyone actually remember MtGox? It wasn't actually that long ago!

Karpelès never went to jail. He was convicted of poor recording keeping, not of embezzlement, and given a suspended sentence.

If - hypothetically - someone else wanted to take a similar path, the odds of jail time are actually pretty low.

I just had that realization that I'm sure so many have already had.. In a bankruptcy, we really are creditors.. but we're not Creditors, and won't get our money back until big C's have had all they want.

There’s such a thing as seniority of claims and it may often be the case that the mass of ordinary people don’t have the most senior claims but it isn’t about the size – investors (who, in some sense, have the most junior claims) will likely get hosed even though they’re big.

I think there are two ways to think about this:

1. If you’re a company and you have N classes of debt then probably ‘ordinary people’ will all be in the same class (this can vary, eg if you’re a big retail store then wages owed will likely be a different more senior class of debt than anything you owe customers). So the more senior claims are more likely to be big companies as are the more junior claims, and it is unlikely that the ‘ordinary people’ class of debt will be the most senior. For FTX I expect the hedge funds and retail customers to have the same seniority.

2. Hedge funds, etc, will be able to retain lawyers and seek representation in the bankruptcy process in a way that is unaffordable to ordinary people. So they might end up with favourable timelines/restructurings or better accounting of what they’re owed but those arrangements can’t be that the big members of the class get a higher proportion of their money back than the smaller members.

In my country the first creditor that gets their money in case of a bankruptcy is the tax man.

And a lot of bankrupt companies owe the government a lot of money in due taxes...

Reply on news.ycombinator.com