Wednesday, May 31, 2017

Redneck trading pits do savings and loans correctly

Short selling Canadian bankers 
Though Block said he hadn’t heard of Element before Wednesday, the run on Home Capital Group’s deposits in recent weeks suggests that “investors denial is just starting to crack.” HCG is being drained of assets at an unprecedented pace – already 94% of retail deposits have fled the troubled lender - and the company has erased more than half of its market capitalization since a Canadian regulator accused it five weeks ago of misleading investors over an internal probe of fraudulent mortgage loan applications – a practice that bears some resemblance to US mortgage lenders’ reliance on “liar loans,” which helped inflate the subprime bubble.
This is the central bank multi-lemma.  Loans and matching deposits are created by the same entity, so depositors do not have a chance to bid on funding until  after the fact.  And when the debt created is time based, then the borrower has less opportunity to refinance.

In the sandbox, the loan to deposits is asynchronously managed, automatically when loan to deposit exceed the stated variance.  Since both depositors and borrowers participate with equal access to the trade book, and they both absorb the currency risk, then the imbalance does not build up.  When loan to deposits become imbalanced, all parties have fair access to the trade book and can compensate before interest charges are assigned, asynchronously.

Let me state that smart contracts can issue term loans, but they introduce term risk for which they charge an insurance premium.  A great business, but in smart layer, not pure cash.  S&L in pure cash is strictly maximum entropy, no term structure except the trade book is order by significance.

The difference between banking built on ignorance and banking built on the theory of everything.

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