Sure, they want to rewind to a time when your bank account was unsecured and banks themselves had 0 regulation. Because it's a heck of a lot easier to make money when you can take massive risks with other people's money while lying to them and claiming there's no risk at all.

Central banking is itself insecure.

In 2008, the banks failed. They put a gun to the heads of everyone in America and said "bail us out or you lose everything". So the bankers kept all their profits and everyone else lost big.

That is just one of many central bank failures. The only difference from the many small bank system that came before is that instead of a bank here or there failing and everyone else moving on, all banks fail at the same time. Don't count on that FDIC money either. It is setup as if only one or two banks will partially fail at any given time. In massive failures, there's not enough money to secure what they promise to secure (thus the gun to your head).

The real answer is to do away with the fractional reserve lending where a bank gets $100 and then proceeds to loan out $900. That would require banks to have much smaller profit margins and maybe even become not-for-profit entities, but we certainly can't entertain that idea..

> So the bankers kept all their profits and everyone else lost big.

I believe the government actually made a profit on the bailouts (the TARP program), probably because they bought while prices were low. Not that there isn’t a lot to criticize about how things went down.

I wouldn’t put too rose-colored-glasses on the pre-central bank era either, we still had financial panics and bank failures and the fact that the world is more globalized/interconnected now is probably true regardless of if we have a central bank or not.

> The real answer is to do away with the fractional reserve lending

I saw an interesting thought experiment related to this a while back.

Say country A is careful about making loans, and B is less careful. Country B takes out 300% more loans, and runs into a huge bad debt problem, and has to write down 20% of the total of all lending. Say people lose 20% of their bank accounts (maybe because the currency depreciates after a bailout).

Which country was more responsible? Country A right?

But if you look at the results, after the write down, country B has 240% as much stuff (housing, infrastructure, etc). And the people there also have 240% as much savings in the bank, since that’s mostly bank credit backed by debt.

The author made the argument that country A resembled Russia and county B resembled China.

Examples like this make me feel that the most responsible way to handle debt (at least at the public policy level) is not really very clear, since even doing things that seem responsible can have huge costs in the end.

Interesting. Remeber where you read the though experiment?

I don't remember where I read that, sorry. On the general topic though I can recommend Ray Dalio (a retired guy who founded the largest hedge fund), who has some pretty good free stuff online that isn't too jargon heavy.

For example his video at [1] is a pretty time efficient introduction to country-level debt dynamics (and it's endorsed by some high level people like the Khan Academy guy), and he also has a free book [2] that goes into detail for bunch of historical cases.

[1] https://economicprinciples.org/

[2] https://www.principles.com/big-debt-crises/

Your issue is not with the central bank. It is with the social contract a nation state has with its citizens (which is expressed through monetary policy), which can't be solved through code.

The social "contract" is only useful up to the point that it is enforceable. Cryptography can in fact hide much from the state.

>> The real answer is to do away with the fractional reserve lending where a bank gets $100 and then proceeds to loan out $900.

That is simply not true. It's a fiction (of sorts) told by people who feel fucked by the financial system.

It is basically true.

I work hard and get paid $100 for what I did. I then deposit $100.

The bank loans $90 to person X.

Person X gives the money to person Y for some good or service.

Person Y deposits $90 and now there is $190 in the bank.

The bank loans $81 to person X+1.

Person X+1 gives the money to person Y+1 for some good or service.

Person Y+1 deposits $81 and now there is $271 in the bank.

The bank loans $72.90 to person X+1.

...

The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued.

I get 0.05% interest off my hard work while the bank gets 5-25% interest off of $900 in imaginary money (future earnings, whatever).

If I printed $900 and loaned it out, I'd be arrested.

> The last person deposits and there is now $900 in the bank when only $100 worth of actual work has been done. $900 has been printed out of nothing and the original $100 has been devalued.

Are you claiming that when person x gives $90 to person y for some good or service, no work was done?

It seems to me that there were 3 transactions totalling 271$ in goods or services rendered, and $271 put into the bank.

> If I printed $900 and loaned it out, I'd be arrested.

Yes, because you aren't subject to the various banking regulations. Oftentimes privileges come with responsibilities.

> I get 0.05% interest off my hard work while the bank

Well of course, leaving your money in a savings account is kinda dumb. You too should invest it in a more active way if you want to make a profit.

What you're really complaining about is the bank lending out money. There is no way to know if deposit X+1 is money that was already loaned out. Your accounting of the work done is plain wrong - each of the people in the chain (person Y for example) did some real work and got paid for it (otherwise why did X pay Y at all?). If whomever paid you the $100 got it from a bank, that doesn't invalidate the work you did.

What you're describing is related to the "velocity of money" and "propensity to save" which are odd concepts but also one of the most direct ways behavior effects the economy.

>> If I printed $900 and loaned it out, I'd be arrested.

The bank didn't print one damn thing in your example. They loaned out money that people gave them as deposits.

You claim the original $100 has been devalued. But has it? Person X, person X+1, etc. all owe money to the bank to pay back their loan. So it's not like we're all suddenly swimming in cash in this new $1000 economy and nobody cares about your little $100 anymore. When you sum the value in everybody's account, including debts, you still get $100 total. And cash looks pretty desirable to all those debtors.

I think it is more people who are ignorant about how monetary economics works. Try living in an economy without fractional reserve banking. You'll find credit is very hard to come by and interest rates are high.

Fractional reserve banking doesn't apply to the modern economy though, because we no longer use commodity-backed money where the economy is based on shuffling round physical tokens. Money is created by banks lending money when they update your balance.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

> This article explains how the majority of money in the modern economy is created by commercial banks making loans.

> Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.

> In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

That link is rather disturbing. They clearly state that money is created when a bank "makes a loan" and simultaneously creates a deposit in your account. In other words, they enter an amount in your account and simultaneously an IOU to themselves to redeem later.

What part of this is not fractional reserve banking?

> The real answer is to do away with the fractional reserve lending where a bank gets $100 and then proceeds to loan out $900.

To completely eliminate fractional reserve lending would be economic suicide. Without fractional reserves, lending gets incredibly expensive. Interest rates would have to be sky high to quickly recuperate money distributed from a loan to be able to fund further loans.

Should we raise the minimum reserve? Maybe. But the 2008 crash was caused just as much by people taking out mortgages they couldn't possibly afford. We really need to teach financial literacy and planning in our high schools to prevent people from being taken advantage of from banks that just want to sell as many loans as possible under the assumption that if a borrower defaults, they'll still come out ahead after foreclosure since real estate is assumed to nearly always appreciate.

The inverse take on this is that entrenched rich interests made all their money during such periods and have now used regulation to "pull up the ladder behind them". People who are foolish with their money will always find a way to lose it.

Coinbase is worth $50 billion. I like Brian Armstrong more than I like the typical finance CEO, but his company is definitely an entrenched rich interest, and if we treat them as a scrappy underdog we're going to let them get away with things they probably shouldn't. You should be skeptical on principle when a billionaire tells you that a financial regulator is being unfair to them.

in fact they make a lot of money from institutional investors https://www.theblockcrypto.com/post/116855/inside-coinbases-..., so def not an underdog.

thats basically what uber did to the taxi system and it worked.

but ir the srgument is its a savings account then theres regulatory structures for that which i doubt they are covered either.

people ultimately praise "disruption" itself when half the time its mostly breaking laws that may or may not have grown excessive redtape

> thats basically what uber did to the taxi system and it worked.

Modulo any discernible path to profitability.

It's even more obvious when you flip the relationship around. What's it called when your broker lends you money, at a fixed interest rate, for you to then go and invest in risk assets?

It's a margin loan. Which I hope I don't need to say is NOT risk-free.

Fair point, but when you take a margin loan, you also don’t have to register it as a security.

But the broker-dealer who made the margin loan is extremely heavily regulated by the SEC- margin loans are some of the things that they have the longest history with!

I know, just saying it's not a good example to make the point about "risk of loss implies need to register as security".

Those risks apply to the traditional banking system as well. Someone could phish your login and password. Someone could steal your checks. Someone could open a policy with Progressive Insurance, provide a stolen account number, and pay their premiums out of your bank account while conducting progressively larger insurance fraud. Your bank could get hacked. Your bank could go bankrupt.

We dealt with an identity theft issue around the same time that I was conducting some crypto transactions with Coinbase, and the difference in security was stark. My bank hides 2-factor auth behind an obscure account setting. If someone steals your account number, they can start making direct withdrawals immediately just by entering it into an ACH form that doesn't do trial deposits. The bank relies on you keeping an eye on your statements to notice this, and they won't reimburse any fraudulent charges over $1000.

Meanwhile, Coinbase defaults to 2-factor auth. They send you an e-mail if you login from a machine whose IP & browser fingerprint doesn't match one you've logged in before. They do trial deposits for ACH linking. They send you an e-mail whenever someone initiates an ACH deposit or withdrawal from your account. There's a mandatory waiting period (1 week I think) before the funds are available. I suspect they would suck just as much as my bank if you did get hacked (I've heard horror stories), but the proactive security measures give me a lot more confidence than the mainstream financial industry.

Account security best practices are orthogonal to how your assets are handled behind the scenes. The SEC isn't regulating securities because someone might log into your account, they regulate them because someone at Coinbase could be deceiving investors or hiding risk.

Money doesn't appear magically from nowhere. If someone is offering you return for holding your cash, it's not just sitting there. The risk is implicit in whatever they're doing to turn your N money into NM money: there is no way to absolutely guarantee that M is >0.

But with regards to this subthread specifically - the risks that the OP points out are account security best practices, and common to both Coinbase and traditional banks. If you're going to point them out as reasons that your capital is at risk, you also have to point out that your capital is at risk with traditional financial institutions.

That's moot. It's totally reasonable for the SEC to not regulate account security best practices and still regulate the company implementing those practices making off with your cash. A Ponzi scheme whose website has mandatory 2FA is not somehow better. The SEC was never designed to protect against all kinds of risks.

I mean I think they're pretty upfront about that the fact that they're not FDIC insured which is your only real protection from the kinds of events you describe happening at a bank (sans the theft I guess).

I wouldn't put my money in a bank that wasn't covered by the FDIC but who am I to tell someone else they shouldn't be allowed to -- especially if interest is better.