Not exactly, because banks tell you that they will loan out your money and you might not get it back, that's why you get interest on the account. They can't go horse betting, but they can loan it out. You don't have "title" over the USD in the bank reserves.

This is like if you put $100 in Chase's security deposit box, and they opened it up, took the cash, and lent it out, and then when you come to get it, they say, woops, we lost it all. That would be just straight up theft or fraud.

Only tangentially related, but don't put cash in safety deposit boxes. Police can take them under civil forfeiture laws:

https://nypost.com/2021/06/12/fbi-aims-to-keep-valuables-86m...

https://www.businessinsider.com/fbi-raid-1400-boxes-us-priva...

Civil asset forfeiture is one of those things that feels really unjust in the US, and I'm somewhat surprised there hasn't been a Supreme Court case ruling it unconstitutional per the 4th Amendment.

I'd love to hear a steelmanned argument in favor of it, maybe I'm missing something obvious?

> I'd love to hear a steelmanned argument in favor of it, maybe I'm missing something obvious?

If it were a big shipment of plutonium laced heroin, it seems fair game.

I think the biggest issue with civil asset forfeiture is the conflict of interest where police departments are keeping/using the seized assets. From the outside it looks a lot like the government acting like a gang.

The other big problem is it seems like it is up to the owner to prove the assets "innocence", rather than police proving the assets were the result of illegal activity.

If assets are seized, they need to go to a third party that can store them safely, return the assets to their owners. If found "guilty", the assets should go to some victims of crime fund, or destroyed.

Gold is legal. So is cash - in fact it’s legal tender for all debts public or private. By contrast, plutonium laced heroin is definitely not legal without the appropriate licenses from multiple regulatory agencies.

Yeah, I guess I wasn't super clear. I meant seizure of certain things is fair game i.e. Obviously problematic stuff. I didn't mean to suggest that means all things are fair game to be seized.

Looking at Wikipedia's definition of civil asset I see my "in head definition is slightly wrong:

> Civil forfeiture in the United States, also called civil asset forfeiture or civil judicial forfeiture, is a process in which law enforcement officers take assets from people who are suspected of involvement with crime or illegal activity without necessarily charging the owners with wrongdoing. While civil procedure, as opposed to criminal procedure, generally involves a dispute between two private citizens, civil forfeiture involves a dispute between law enforcement and property such as a pile of cash or a house or a boat, such that the thing is suspected of being involved in a crime...

So my use of clearly illegal assets being seized means it wouldn't actually be civil asset forfeiture. Mea culpa!

Civil asset forfeiture is a surprisingly complicated network of related legal issues, unfortunately. It can be incredibly complicated to litigate. Asset forfeiture cases often involve the federal government and have to be litigated in federal court, which is difficult and expensive.

If you want to think of laws as an ecosystem, then think of civil asset forfeiture as a highly evolved species with all sorts of specialized defenses.

It seems to be slowly being ground away. The modern version of civil asset forfeiture was as a tool to take away the profits of drug kingpins in the 1980s and bootleggers during prohibition. Seems like the modern drug kingpins are companies like Johnson & Johnson, though.

The only steelmanned argument for civil asset forfeiture goes back to its origins, when it was used to seize smuggled goods on ships. Since the ship's owner was almost always a wealthy person living in a different country making them almost impossible to go after, and the smuggled goods were missing tax stamps etc. making it clear that they were being illegally smuggled, the government would simply seize the goods. That's literally the origin of civil asset forfeiture in the US, and all of the horrible and unjustifiable examples of it that we see nowadays grew out of that much more limited and justifiable example.

Seems to me in the specific case of wealthy foreigner owns smuggled good a better (more just) arrangement accuses them not the goods, but with the mechanism that if they for some reason don't want to attend court (maybe because they're super guilty?) their goods are seized but the crime still exists.

There are some nuances to work out to ensure cops can't accuse say Vladimir Putin of a crime involving the $8000 they found in your house, and then since Putin doesn't show up they keep your money, but the general idea seems more sound than civil forfeiture.

What if they don’t know who it belongs to?

If they reasonably cannot determine its owner, they get to seize it, but if you show up with proof it's yours they have to give it back (and go through the normal process).

No civil asset forfeiture: cop pulls a drug dealer over, the drug dealer bribes the cop and is on his way.

With civil asset forfeiture: cop pulls a drug dealer over, the drug dealer offers to bribe the cop, the cop laughs and takes all his stuff anyway, books him, and the police department buys a martini machine.

Kind of a weak case, but that was the best steelman I could think of.

It sounds like a good idea until a cop acuse you of been a drug dealer without evidence, take all your money, and then you realize why you need a constitution and a independent court system.

Why would a cop give the money to the department instead of keeping it as a bribe for himself?

Police can take anything anywhere under civil forfeiture; it's truly insane.

Asset forfeiture sucks, but I’d be more worried about run of the mill bank incompetence. Banks don’t really want to be in that business and screw up often.

The greater risk is probably that your bank will just screw up and lose your stuff:

https://www.nytimes.com/2019/07/19/business/safe-deposit-box...

Probably not.

> Every year, a few hundred customers report to the authorities that valuable items — art, memorabilia, diamonds, jewelry, rare coins, stacks of cash — have disappeared from their safe deposit boxes.

https://en.wikipedia.org/wiki/Civil_forfeiture_in_the_United...

> In 2010, there were 11,000 noncriminal forfeiture cases.

If I'm reading it correctly, that's just the Federal cases alone.

In the USA, bank accounts are guaranteed by the government, up to $250K.

And the FDIC can afford to do that because there are laws dictating liquidity requirements to banks and disclosure requirements to inspect and enforce those rules.

It’s almost as if our existing financial system, built upon the lessons from hundreds of years, is worthwhile! :-)

That's what makes it so boring, whereas DeFi is so exciting it gives you a heart attack seemingly every other day.

What does DeFi have to do with any of what is happening with FTX?

It's been funny to watch crypto basically speedrun the entire monetary system from Rai stones all the way to calls for central banking.

That doesn't stop people from thinking the Fed is the spawn of Satan.

What was that recent quote about cats thinking they are independent, but in fact are completely dependent on a system that they don't understand at all?

You would’ve been correct two years ago. We’re doing zero fractional reserve banking now. Hearing this should convince people that they should get their money out now, but nobody seems to care.

While you're correct[0], still the FDIC is guaranteeing it up to $250k.

[0]:https://www.federalreserve.gov/monetarypolicy/reservereq.htm

It may be that what the FDIC promises to do is not in sync with what it can actually afford to do.

The FDIC, as of March 2021, has 119.4 billion[0], along with "... a US$100 billion line of credit with the United States Department of the Treasury.[9]"[1].

I think they've got enough to cover any consumer issues.

[0]: https://www.fdic.gov/about/strategic-plans/strategic/insuran...

[1]: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...

How much is the total liability they are guaranteeing?

And $119 billion where exactly? In US treasuries? If so it's about as safe as the social security "fund". What if the "customer issue" includes a govt default?

All you're saying here is that we can treat an FDIC guarantee like a govt guarantee, which is probably true, but still not the same as a case where the guarantor has actual assets which the prior poster was suggesting. The FDIC is making promises and backing those promises with other promises. There's not cash laying around anywhere to back it up. I'm not saying the only response is run for the hills like the other poster, but I find these defenses rather naive. The likelihood of any insurance scheme failing is not zero. Same for a government's finances.

> There's not cash laying around anywhere to back it up.

Did you not read the part where they have $119.4 Billion dollars? And that was a year-and-a-half ago, it's probably closer to $130B now. It seems like you didn't read any of the source material, let alone my comment, before replying.

...yes I did. Your post at least, which was short and sweet. Bravo. I did not read the wiki article and don't plan to, but I skimmed the other one. Got as far as this at least: "Means and Strategies: The FDIC maintains the viability of the DIF by investing the fund, monitoring and responding to changes in the reserve ratio, collecting risk-based premiums, and evaluating the deposit insurance system in light of an evolving financial services industry."

"DIF fund" being the $119B. In my post I presumed that 119 billion is in US Treasuries. I'm also presuming US treasuries are not the same thing as cash. Whatever the case, generally people don't refer to "cash laying around" as an investment.

EDIT: Try this much more readable doc: https://www.fdic.gov/about/financial-reports/reports/2020ann....

The $119B in assets includes only $3B in cash, with $110B in treasuries.

Bank of America has an estimated 67 million customers. Assuming $250k per person, and I've got the number of zeros right, that's $16 trillion ($16,750,000,000,000) in liability if they were to go down, enough to sink FDIC.

I think you got the math wrong, because I'm 100% sure not all 67million customers have $250,000 in their accounts. Being that 56% of Americans can't cover $1,000 expense[0], and most people with >$100k assuredly have their money in assets rather than cash, I think your math is way, way, way off.

[0]: https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-...

The FDIC is backstopped by the government itself, but the amounts of insurance it has on hand are why it jumps down bank throats quickly.

Right, but the FDIC explicitly says large amounts may take longer in the status quo. The only reason to have money in the bank is for a reasonably safe, liquid form of money.

If they aren’t providing safety or liquidity, why should you use them?

They are providing safety and liquidity, your statement is laughable, honestly.

The safety is personal — no one can rob your home when you're gone and steal the money under your mattress because it's not under there, it's in a bank.

And in regards to liquidity, if you can tell me the exact day, time, and amount you tried to pull out of a consumer bank (large household bank names) and instead of getting cash in hand the bank told you "sorry, we spent your money on loans, we don't have any to give you", I'd love to see it.

Bonus points if then the FDIC didn't cover it.

Banks provide both safety and liquidity at the consumer level. It would also be a really bad idea to continue to encourage everyone to pull money out of banks and hold it in cash — both economically and personally. People largely benefit from banks existing, that's, well, why they exist!

> Right, but the FDIC explicitly says large amounts may take longer in the status quo.

Right, you can’t ramp up the printing presses instantly — which is literally what they would do if they had to.

I think people are missing the point that if it ever got so bad the FDIC had to worry about covering everyone your biggest worry would be the roving gangs looking for the Mormon food caches.

I don’t know about others, but I suspect that if the FDIC ran out of money, congress would figure out a way to fund it even if it meant printing money. I am okay with this.

But liquidity is the issue here. In the event that this happens, how long would it be before you could have access to your funds?

Why do you say liquidity is the issue? It sounds like you are imagining some specific scenario here.

He means that the bureaucratic arm may take time to process your insurance claim, after all you aren't the only one waiting for your money.

The answer seems to be “a few business days, usually next next business day” but that likely won’t appease the tinfoil hat crowd. https://www.fdic.gov/consumers/consumer/news/cnfall14/miscon...

You don’t need to guess. The FDIC is backstopped but the full faith & credit of the US government.

There is a link prominently on the website: https://www.fdic.gov/consumers/assistance/protection/depacco...

>We’re doing zero fractional reserve banking now.

No; we're not.

The required reserve amount was reduced to zero at the beginning of the pandemic as a way to increase the velocity of money. We are in ZFRB land right now.

Bank reserves have obviously dropped year over year since the introduction of this policy, especially as a percentage of M1/M2.

You are describing their reserve requirements at the fed itself. Nothing has changed with their A&L requirements from the variety of banking regulators (including the fed & fdic).

For comparison there were rumors that Credit Suisse was in trouble when r their asset to liability mix got around 1.65. That is they marked their assets to 165% of their liabilities and it was a major issue.

>The required reserve amount was reduced to zero at the beginning of the pandemic as a way to increase the velocity of money.

No; again. The Fed moved from a 'scarce reserves' regime for monetary policy to an 'ample reserves' regime; that was announced in 2019. Since the 'ample reserves' approach doesn't depend on bank reserves to implement short-term rate management, there wasn't really a need for an ongoing Fed reserve requirement.

>Bank reserves have obviously dropped year over year since the introduction of this policy, especially as a percentage of M1/M2.

Bank reserves increased hugely from 2019 through the middle of 2021, as you can see from the chart I posted. Although they've dropped somewhat since then, they're still like 75x what they were in say 2007.

Per institution. And there is a lot of consolidation. So I would be careful. It is really easy to be placing money into different banks, but essentially the same one.

there are a variety of caveats, on your side it is per entity.

If you are married it is 500K, if you have a trust it is like 1.25M. 250K for each beneficiary up to 5 (or something like that).

Actually this is not correct either.

A married couple each have 250k coverage for their personal accounts, and each have 250k for shared account(s), so they could in theory have 1M coverage at a single institution.

Other qualified relationships work similarly.

>Not exactly, because banks tell you that they will loan out your money and you might not get it back, that's why you get interest on the account.

That's not right either. They promise you will get it back (the FDIC insurance), just that e.g. large amounts may have a delay. They are also scrutinized by regulators to ensure that the loans are sane enough not to all evaporate in value overnight, as a horse bet might.

As others have pointed out in comments on this post, banks typically don't loan out customer funds and instead use them as reserves. For loans, banks can create money out of thin air and just increase the number representing the borrower's bank account balance in a database somewhere. Interest is to incentivize adding more reserves to their balance sheets which in turn allows more loans (with considerably larger interest rates) to be given out

Well, your account still shows $100, but Chase has paused withdrawals while they "sort out liquidity issues" so it's effectively $0

Yep, this is exactly what happened en masse during the Great Depression. People were selling their bank account books for a fraction of their nominal value.

People are selling their ftx.com logins the same way today.

Why is this getting downvoted? its a plain speech description of what they did

Because Chase actually does something sort of similar (primarily mortgage lending), but they employ a ton of people to think all day about managing risk.

So I think people don't like the comparison, since the true difference is FTX did horse betting, while Chase does something much more rational.

To add to that: Chase tells you what they're doing. FTX told its customers it wouldn't lend it out, and then it did. Additionally, customer accounts at Chase are insured by FDIC up to $250k. Chase tells you they're going to bet with your money, manages the risk well* on most days*, and even if they lose your money you get it back anyway. FTX did the opposite of all that.

Chase is also more restricted in how the investment banking side of the business can use funds from the retail banking side, precisely because banks in the 1920s did play fast and loose with investing customer deposits, which caused a bunch of depositors to lose savings in the 1929 crash.

The amount of interaction between the two sides that's allowed has increased and decreased over the years, but it hasn't been unrestricted since the Glass-Steagall Act of 1933: https://en.wikipedia.org/wiki/Separation_of_investment_and_r...

Doesnt fannie mae/freddie mac essentially backstop a lot of this risk too?

Probably bc all crypto exchanges are doing this, essentially. It is the burden of no regulations.

If the 50-1 shot horse won the race, they would have put your $100 back in your account and put $4900 in their account

I know pop culture and humor is frowned upon on HN, but https://m.youtube.com/watch?v=XhFTG7fFwc4 is just too relevant to not share for this whole situation.

Except

1) Chase doesn't have to show you $0, you'll still see $100.

2) When you decide to spend the money, chances are the seller is also with Chase, then all Chase has to do is show you $0 and the seller +$100

3) If the seller happens to be with another bank, Chase will just go in credit with that other bank for $100. The total of such interbank accounts is around 0 as money flows both ways, and, with a decent margin, within the bank reserve amount.

Fractional-reserve banking works so well with so little "actual" reserve money that some consider it counterfeiting.

Eventually the other bank will ask for settlement. Maybe it’s because you owe them a billion dollars and they have a liquidity crisis. Whatever the reason is, you can’t just go on forever “oweing” then money.