Financial hand waving

In 2008 the prices of some structured credit products built out of subprime U.S. mortgages went down, and as a result there was a global recession and millions of people lost their jobs. If you had asked a normal person in 2007: “How would it affect your life if it turns out that investors have mispriced the super-senior risk in synthetic collateralized debt obligations built out of subprime mortgage tranches,” that person would have said “I have no idea what you are talking about, but I can’t imagine how that collection of words would affect me.” But it did. 

(Via Matt Levine in Money Stuff)

That was messy but somewhat comprehensible. I guess. And then this:

If you asked a normal person, you know, two weeks ago: “How would it affect your life if the prices of some monkey JPEGs and algorithmic stablecoins crash,” I think most people would reasonably have said “I do not own a monkey JPEG and do not aspire to own one, so this will not affect me at all.” My guess is that they would have been right. My guess is that the real world is not too affected by the crypto world, and that if crypto prices crash there will not be a ton of contagion in the rest of the financial system. But I think it is, at this point, debatable. Crypto has at least started to work its way into the real financial system. Some traditional investors also own crypto; if their crypto goes down they might have to sell regular stuff. Some public companies are exposed to crypto (because they are crypto exchanges, because they have levered crypto holdings, etc.), so your boring old index fund might go down when crypto goes down.

There is nothing about cryptocurrency and NFTs that doesn’t scream !SCAM!. The amount of magical thinking in this thing shocks me. That it will become part of the real economy, the one that helps people pay bills and buy groceries, terrifies me.

I used to say something along the lines of, “A lot of smarter people than me figured this was ok, so it must be.” I don’t say such ridiculous things any more.

Not that I don’t respect science and economics and those who do them and associated disciplines. I doubt our current definition of “smart people”. If they’re only the like of Musk and Bezos and Gates and Thiel, then I’ll spend time looking into what actual “smart people” in the arenas think.

I stopped believing in a benevolent billionaire entrepreneur doing anything beyond self-aggrandizement and adding a few extra billion to their Forbes profile.

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About Paul

I’m a Detroit expat recently returned from Tokyo living in Chattanooga. I’m a consulting security professional and father of two. I promise that my views and politics are mine; not yours or my employer’s or anyone’s. I follow no party or affiliation or anything. My things are released under the Creative Commons Attribution-ShareAlike 4.0 International license unless otherwise stated.