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> When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000. When BTC goes up to $50,000, junior guy now has $40,000 a

> When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000. When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000. You used a lot of words to describe a Ponzi scheme.

dragontamer 5y ago
I'm describing a CDO scheme. Its important to remember the difference. Ponzi is a very, very different structure. CDOs do well as long as the underlyings don't crash beyond a certain value. The "junior" guys have lots of risk (and they _WANT_ the risk and enjoy it). The "senior guys" think they're safe. Indeed: senior/junior is roughly how we split up fiat dollars: banks do this with our money all the time (under tight regulations of course, to ensure that the banks are following the rules). Senior/junior can work, but in practice... someone out there will want to cheat the system. At that point, it all comes crashing down. Regulating the heck out of banks to ensure that no one cheats is a big part of the solution.
- hestefisk 5y ago
  Very interesting. Can you recommend any good books on this topic to learn more?
  - dragontamer 5y ago
    For 2008, I think one of the most approachable references is the PBS "Inside the Meltdown": https://www.pbs.org/wgbh/pages/frontline/meltdown/ https://www.pbs.org/wgbh/pages/frontline/meltdown/ * https://www.pbs.org/wgbh/frontline/film/meltdown/ https://www.pbs.org/wgbh/frontline/film/meltdown/ The 2012 lookback has a bit more depth, since it had more time to do interviews and stuff: https://www.pbs.org/wgbh/frontline/film/money-power-wall-street/ https://www.pbs.org/wgbh/frontline/film/money-power-wall-str... There's of course, "The Big Short" if you want a stupid 2-hour movie. But that movie glosses over so many details and is straight up hyperbole at many points... so its not "realistic" but maybe a better thing to watch if you really don't want to put in much effort? ------- I guess my post was based off of the Bloomberg blogpost "Looking for Tether’s Money" by Matt Levine. So read that for my original inspiration, though you may need a Bloomberg subscription to be able to read it.
- JumpCrisscross 5y ago
  > CDOs do well as long as the underlyings don't crash beyond a certain value Which, to be clear, didn't happen in 2008. People assumed that super safe meant super liquid. The AAA tranches of every CDO I've looked at performed as promised, in terms of not losing money. Even when the underlying securities performed abysmally. They just didn't trade in a crisis like the Treasuries their buyers were using them to replace. (Side note: a lot of algorithmic stablecoins similarly assume perfect liquidity and continuous pricing.)

dragontamer 5y ago

I'm describing a CDO scheme. Its important to remember the difference. Ponzi is a very, very different structure. CDOs do well as long as the underlyings don't crash beyond a certain value. The "junior" guys have lots of risk (and they _WANT_ the risk and enjoy it). The "senior guys" think they're safe. Indeed: senior/junior is roughly how we split up fiat dollars: banks do this with our money all the time (under tight regulations of course, to ensure that the banks are following the rules). Senior/junior can work, but in practice... someone out there will want to cheat the system. At that point, it all comes crashing down. Regulating the heck out of banks to ensure that no one cheats is a big part of the solution.

hestefisk 5y ago
Very interesting. Can you recommend any good books on this topic to learn more?
- dragontamer 5y ago
  For 2008, I think one of the most approachable references is the PBS "Inside the Meltdown": https://www.pbs.org/wgbh/pages/frontline/meltdown/ https://www.pbs.org/wgbh/pages/frontline/meltdown/ * https://www.pbs.org/wgbh/frontline/film/meltdown/ https://www.pbs.org/wgbh/frontline/film/meltdown/ The 2012 lookback has a bit more depth, since it had more time to do interviews and stuff: https://www.pbs.org/wgbh/frontline/film/money-power-wall-street/ https://www.pbs.org/wgbh/frontline/film/money-power-wall-str... There's of course, "The Big Short" if you want a stupid 2-hour movie. But that movie glosses over so many details and is straight up hyperbole at many points... so its not "realistic" but maybe a better thing to watch if you really don't want to put in much effort? ------- I guess my post was based off of the Bloomberg blogpost "Looking for Tether’s Money" by Matt Levine. So read that for my original inspiration, though you may need a Bloomberg subscription to be able to read it.
JumpCrisscross 5y ago
> CDOs do well as long as the underlyings don't crash beyond a certain value Which, to be clear, didn't happen in 2008. People assumed that super safe meant super liquid. The AAA tranches of every CDO I've looked at performed as promised, in terms of not losing money. Even when the underlying securities performed abysmally. They just didn't trade in a crisis like the Treasuries their buyers were using them to replace. (Side note: a lot of algorithmic stablecoins similarly assume perfect liquidity and continuous pricing.)