The lack of regulation is worrying. That exchange that just flamed out is an example of what the entire financial system would be with no oversight.
You might think you would, but I suspect you would not.
Could you add something to the discussion? A real argument, perhaps? Nobody called for a hand-raising of who was for or against economic regulation.
If you like analogies, consider the difference between using an old, creaky, but battle-tested codebase that handles mission-critical tasks, and saying "we should just throw it all away, build a quick and dirty open source replacement, and let people fork the heck out of it". Old crufty code contains lots of horrible crap, but a lot of it is there because it's necessary. Replacing the financial system with some kind of anarchy -- meritocratic or not -- is going to have the same effect, and we can't afford for something as critical to everyone's wellbeing as the financial system turn into an unstable Darwinian mess.
In any event, I was going to write an essay, but a one-liner was funnier.
Now banks still fail (several weekly, without much notice), but depositors have mandated insurance.
Are you against that?
HOWEVER, people can be a lot more attentive now then they could ten years ago (for example, online reviews of cars/restaurants/etc) and in ten years they will be able to be even more attentive.
If we do things that foster attentiveness, everyone will be better off.
Its a good thing online reviews are reliable sources of information with transparent provenance that neither the company itself nor its competitors spend substantial efforts loading with false-flag propaganda.
Or, at least, that's a good thing in whatever alternate universe it is true in.
Banks that handled credit default swaps surprise had the lowest fractional reserves.
...and now you know why things went to hell in 2008.
Financial panics were a common occurrence before there were regulations. You're saying that less regulation would create a more stable system, but that historically has not been the case.
In other words, for what you're proposing, we tried it and it didn't work.
I barely understand how my Honda Civic works.
No degree required.
I'm having trouble understanding how such a bank would be profitable; assuming banks need to be profitable to justify their existence.
Even without FDIC insurance a bank with 100% fractional reserve couldn't be profitable (or even operate), unless accounts had negative interest rates, as it couldn't loan money out from deposits to earn revenue.
It's hard for me to judge from my position whether others who did used bad judgement or simply were unlucky while taking a calculated risk.
Then you don't need any "experts".
(To answer my own question: These types of banks don't exist because FDIC insurance makes them unprofitable)
[0] I know they were largely bailed out but there was no promise in advance (and we probably agree that they shouldn't have been bailed out to the extent that they were.
Or, more likely, the 2008 debacle (a consequence, in large parts, of removing regulations that addressed contributing causes of the 1929 debacle) would have looked more like the 1929 debacle (since you then would have also removed a regulation designed to mitigate the effect of events like the 1929 debacle).
The absence of regulation of credit-worthiness of banks doesn't give the average depositor either the time, inclination, or skill to evaluate the credit-worthiness of banks, especially when, as was actually the case in the 2008 debacle, information relevant to that is actively being concealed under many layers of obfuscation.
It does. Banks fail every day. Hundreds of banks since 2008.
Oh, I'll bet you're talking about the TBTF banks, that were kept afloat with some interesting finance to prevent the global system from collapsing.
I laugh every time someone says they should have all failed. I don't think people realize who, exactly, loses when banks go out of business. Hint: It isn't Jamie Dimon or Lloyd Blankfein (though they would temporarily lose their jobs). It's everyone who owns shares in the bank, everyone who owns bonds of the bank, everyone who works at the bank, everyone who banks at the bank (yes, FDIC covers some, but that itself is a bailout), pension funds, pensioners, insurance users, and on and on. These aren't some rich "banksters", they're your friends and neighbors.
I don't think that being a programmer was necessary to be wary of MtGox.
MtGox was being called out in strong terms as long as 3 years ago on HN and bitcoin forums (https://news.ycombinator.com/item?id=2676263). This sort of knowledge certainly should have found it's way to "non-programmers" at least in the past year.
Trusting MtGox during the past year wasn't a matter of not being a programmer. It was a matter of being an idiot.
Do idiots deserve to lose their money? No. I agree with the rest of your comment.
Noted, thanks for the warning.
The market is actually recovering quite well from that incident, so what exactly is so worrying? A bad business failed; that's what's supposed to happen.
My point? It's hard to be reasonable about things when you're coming at them from a certain perspective. Just as a criminal sentenced to life without parole probably thinks that the courts trying him are corrupt, people who lost a lot of money on MtGox probably think that the entire economic system and Bitcoin market is broken. Are they correct? It's possible, but they're not in the most rational frame-of-mind right now, are they?
We've created this kind of weird deal with banks, where you loan people money at super-low rates, but in return you're insulated from the normal consequences of failure, and have a ton of flexibility in terms of when you can demand repayment of your loan -- to the point where most people don't probably consider their bank balances a loan.
I'm not here to say that this is a good or a bad thing. Mt. Gox was more like a normal loan or almost every other financial instrument in the world, and less like a bank. It seems hard to suggest that it's uniquely bad for Mt. Gox to act like almost every other financial instrument in the world -- as long as expectations are aligned that it's not the curious anomaly known as a "bank."
The real situation turns out to be far worse than I expected, but what I expected had me off Gox months ago.
If fraud is involved, someone will go to jail and authorities will attempt to recover assets. This is perfectly normal in a functioning market.
You cannot claim that because crime occurs the market isn't functioning.
"what exactly is so worrying? A bad business failed; that's what's supposed to happen."
If all that had happened was a bad business failed, that would not be very worrying. I don't think anybody would be upset if MtGox had simply closed their doors and returned all their customers' funds. What is worrying is how many people outside of the business appear to have lost their property in the incident.
You can judge for yourself whether you feel the market is "functioning" — but if that many people lost that much money, it is absolutely not what is supposed to happen when a business fails.
You seem to be of the opinion that whether a market is riskier than most participants realize (and would be willing to tolerate if they did know) is tangential to how well it is functioning. That's a valid viewpoint. But it still makes sense for participants to worry when they realize how little safety they have in the market.
But in fact only the money invested was lost, which I imagine was an order of magnitude smaller than what was reported.
When Lehman Bros went down, the US economy went to hell.
When MtGox went down, the bitcoin price returned to its previous level within a couple days.
Clearly we need more oversight of bitcoin.
Lehman had significant assets in the fiat currency of the largest economy in the world, a fiat currency that also forms significant portions of the cash reserves of other major economies. This is to say nothing of the interconnected investments and chain reactions this caused, since it wasn't just about the amount of money lost but whose money.
The thesis of my comment was this: the collapse of MtGox involved a larger proportion of the bitcoin market than the proportion of the dollar market involved in the collapse of Lehman. Ergo, the collapse of MtGox is more significant to Bitcoin than the collapse of Lehman was to the dollar.
What lack of regulation?
MtGox existed because it is nearly impossible to open an exchange in the US. Almost every other country is more Bitcoin-friendly in terms of regulation than the US.
Or are you talking about regulating the source code and running instances of the Bitcoin client?
Do you mean that it cannot be regulated because there isn't an effective way for governments to exert control over how much of it is produced? I don't see that as being particularly worrying. No more so than foreign currencies are worrying... does Iceland worry that they cannot control the production of Argentine pesos?
Do you mean in the sense that businesses that use it cannot be regulated? Because that is obviously false. Of course businesses which use bitcoin can be regulated. Why couldn't they be? As VMG points out, the regulation of bitcoin businesses is not hypothetical; they are regulated.
Do you mean in the sense that bitcoins cannot be taxed? Because that is also obviously false. Here is how the IRS could tax bitcoin: "Attention American taxpayers: report your bitcoin shit, or we will nail you for tax evasion and send your ass to jail." How the hell do you think they tax all-cash businesses?
Bitcoin does not fundamentally change the game like many people seem to think it does.
If bitcoin is only worrying to the extent that foreign currencies are worrying, then I don't see what the big deal is. They cope with the existence of what, 179 foreign currencies right now (minus a few pegged to the dollar, but whatever)? They can learn to cope with 180.
And at least in the case of the US they can (and do) lean pretty hard on any of the other 179 governments when they really want to. There is no central Bitcoin bank to lean on. That's all I'm saying.
That's kind of orthogonal to the issue of whether bitcoin can be regulated (it can, but that has little do with why exchanges in the US are legally difficult.) An exchange that trades bitcoin for boring fiat currency has to manage and distribute funds from fiat currency accounts, and its US regulation of that activity that produces a significant compliance cost to running an exchange in the US.