I wish this sort of thing would happen every time bankers screwed things up. Instead the government bails them out.
All documentation, marketing, interviews, statements, tweets, general understanding, and government licensing had FTX implemented as a full custodial trust.
FTX promised to hold any funds you deposit in safe, low-interest bank accounts or secured cryptocurrency wallets, ready to withdraw at any time. They explicitly promised to never invest them.
And then Sam broke that promise, stole customer funds and invested them. And it's not like he was planning to pay those customers interest fees if the investments paid off.
That's fraud.
So basically Peter Theil caused a run on a bank for no reason other than he got people panicked about their tbill risk ladder. Which by the way want as bad as Bank Of Americas right now.
> On March 12, 2023, a joint statement was issued by Secretary of the Treasury Janet Yellen, Federal Reserve Chairman Jerome Powell, and FDIC Chairman Martin Gruenberg
> stating that all depositors at SVB would be fully protected and would have access to both insured and uninsured deposits
> Regulatory filings from December 2022 estimated that more than 85% of deposits were uninsured.
Where'd that come from? Surely not the government?
https://www.federalreserve.gov/newsevents/pressreleases/mone...
> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
Edit: apologies, I should have included this link and blurb in my original comment.
Whole thing was a farce
“Real” banks, government approved ones, have laws governing how much cash to keep on hand, and how to “invest” the excess, etc. SVB did everything by the books and they’d probably have made it through to the other side if there wasn’t a bank run. They just had underwater investments if sold (but they’d be fine if held to maturity).
FTX was literal fraud and they didn’t protect money. They gave it to friends, and sister companies, and made a lot of bad decisions with it. There’s a big difference between that and SVB.
Oh and of course everyone was made whole in the end after SVB
Not to me. All I see is corporations that accept money, do god knows what with them and cause the money to evaporate into thin air. It doesn't really matter how much the government "approves" of the reserves and investments of banks. They're still all the same: literally one bank run away from insolvency.
B: "We bought a house for the founder's parents while they advised ways to hide it and threw millions of dollars at the insolvent-by-design crypto fund of somebody in the boss's polycule."
You: "No difference detected."
For real?
A: "We take customer money and risk it."
B: "We take customer money and risk it."
Just because one puts the money into "safe" investments does not make them any different. It's still a bank doing fractional reserve banking.
SVB: our shitty compliance department bought bonds (a government requirement) with too long of a maturity date to sell in a bank run.
One is incompetent and the other is malicious.
Also fractional banking is literally required by law.
SVB didn’t break laws, just as you said, didn’t properly manage risk. If there was no run, they’d have made it through, just with low earnings expectations.
FTX took customer money, gave it to friends, and used sticky notes and slack channels for accounting. FTX spent customer funds on beach houses and political ads and god knows what not on government bonds with a slightly too long maturity.
They literally backstop bank runs with public money.
> all of their customers were made whole
They shouldn't have been. They loaned money to the bank, they accepted the risk of losses. Should've dealt with the consequences of it.
The government should stop bailing out banks every time they screw up. Otherwise they might as well bail out Tether. What's the difference?
> the cryptocurrency goat rodeo where we constantly see large, easily foreseeable losses and most of the “community” reacts by saying that the victims should have known better and bought the speaker’s favorite token instead
That's exactly what they should do in all cases: avoid putting money into these scams. I just happen to include traditional banks into that same category.
You see, the only reason these banks are any different from crypto exchanges is the government will show up to bail them out when things get bad enough. They reason that it's "better" than a total economic meltdown or something.
I think the bank runs become extremely contagious if you do that, affecting the whole economy.
> Otherwise they might as well bail out Tether. What's the difference?
The difference is that Tether doesn't have to follow the regulations trying to avoid bank insolvency. SVB was insolvent by a relatively small margin IIRC. For all we know Tether is 50% hot air.
Let them. Why contain it? Maybe the world would be a whole lot better if people faced the consequences of their choices.
Maybe after enough people lose everything, they'd learn that banks are dangerous and would stop putting their money in them. With less capital in banks, there would be less loans and credit. That means less inflation. Less planet-destroying credit-fueled exponential growth.
> SVB was insolvent by a relatively small margin IIRC. For all we know Tether is 50% hot air.
It's either solvent or insolvent. There is no margin. Banks are insolvent by definition. There is not a single bank on this planet that can cover 100% of its withdrawals. If push comes to shove, the governments will have to step in.
Maybe, but I wouldn't count on any government wanting to try. And it does seem a bit of a economic crisis without a need.
> It's either solvent or insolvent. There is no margin.
I think it matter whether the bailout is for 1 billion or 10. Or even without a bailout, whether depositors get back 95% the next week or 10% after 2 years on bankruptcy court.
He is not wrong technically but it happened so he obviously isn’t correct either.
No he didn't. He created a hedge fund and a crypto exchange.
1. FTX got away with this for so long, in part because they weren't subject to the auditing and scrutiny of traditional finance.
2. Volatile crypto prices exacerbated the issues caused by alameda's borrowing.
3. Sam could pretend that FTX had more assets than it really did thanks to FTT, a crypto coin with no inherent value, and an artificially inflated price.
This was a banking problem, sure. But most banks didn't have this problem. The manipulated nature of cryptocurrency markets and the legal gray area it operates in facilitated this scam.
I love what happened to this Bankman guy. It's what I wish would happen every single time some banker screwed up with our money.
I agree with you though, bankers that are doing frauds should also be prosecuted.