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Bitcoin Government United States

US Regulators Flag Climate Change, Stablecoins As Potential Systemic Risks (reuters.com) 70

An anonymous reader quotes a report from Reuters: Climate change, the rapid growth of "stablecoins" and financial innovations that led to frenzied trading of GameStop shares early this year are threats to the U.S. financial system that merit closer scrutiny, a Treasury Department-led regulatory panel said on Friday. In its annual report, the Financial Stability Oversight Council (FSOC) added that while the U.S. economy has improved since the onset of the COVID-19 pandemic, risks to the financial system are higher than prior to the health crisis, with the outlook for global growth still uncertain.

The report marked the first time the body, which was created in the wake of the 2007-2009 financial crisis to spot looming threats, has flagged climate change as a major risk, reflecting President Joe Biden's push to address rising global temperatures. The FSOC, which comprises the Treasury and other financial regulators, said the physical risks posed by more frequent severe weather events and government policies transitioning away from carbon-heavy industry could dent asset values and weaken institutions, it wrote, echoing an October FSOC paper. "If these changes occur in a disorderly way owing to substantial delays in action or abrupt changes in policy, their impact is likely to be more sudden and disruptive," the FSOC said.

Similarly, the body reiterated concerns flagged in November that stablecoins, a fast-growing type of digital asset pegged to traditional currencies, could become a threat if widely adopted. While that market is currently only worth about $127 billion, its market value has ballooned more than 500% over the past 12 months and may be vulnerable to runs if investors lose confidence in the asset class's reliability, the FSOC said. The body also noted a surge of volatility earlier this year sparked by retail investors, who coordinated on social media and used zero-commission trading apps to fuel sharp rises in a handful of stocks, including videogame maker GameStop. The episode suggested financial innovations and social media are changing market participation, raising the risk of sudden asset price movements unrelated to fundamental news. That "could represent a vulnerability if they lead to cascading impacts by causing asset liquidations or putting stress on financial institutions," the FSOC wrote.

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US Regulators Flag Climate Change, Stablecoins As Potential Systemic Risks

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  • by Rockoon ( 1252108 ) on Friday December 17, 2021 @10:38PM (#62092971)

    and financial innovations that led to frenzied trading of GameStop shares early this year

    There was no innovation. Some big hedge funds made a big mistake. Individually they didnt think they were making a mistake, but because all of them were doing a lot of shorting, the combined shorts were on the hook for over 100% of the shares on the market, and that is a vulnerable position to be in.

    Unless they mean the innovation where some people werent allowed to buy gamestop shares, because the hedge funds somehow can boss around 3rd party brokers to make it so. THAT innovation?

    • by etash ( 1907284 )
      isn't naked shorted illegal? how could they short more than 100% of the stock available?
      • by Anonymous Coward on Saturday December 18, 2021 @07:11AM (#62093709)

        isn't naked shorted illegal? how could they short more than 100% of the stock available?

        90% of the shares of Zeta Corp have already been sold short.

        Ann owns 10% of the shares in Zeta Corp.

        Bob wishes to short Zeta Corp. He borrows all of Ann's shares and sells them to Carl. This is a short sale, but not a naked short (it's covered by borrowed shares).

        Shorting is now at 100%.

        Denise also wants to short Zeta Corp. She borrows all of Carl's shares (N.B. Carl has no way of knowing that the sale to him was short) and sells them to Eric. This is a short sale, but not a naked short (it's covered by borrowed shares).

        Shorting is now at 110%.

        • isn't naked shorted illegal? how could they short more than 100% of the stock available?

          90% of the shares of Zeta Corp have already been sold short.

          Ann owns 10% of the shares in Zeta Corp.

          Bob wishes to short Zeta Corp. He borrows all of Ann's shares and sells them to Carl. This is a short sale, but not a naked short (it's covered by borrowed shares).

          Shorting is now at 100%.

          Denise also wants to short Zeta Corp. She borrows all of Carl's shares (N.B. Carl has no way of knowing that the sale to him was short) and sells them to Eric. This is a short sale, but not a naked short (it's covered by borrowed shares).

          Shorting is now at 110%.

          I know it's an example set-up, but in practice a company's shares are not loaned out (shorted) to 90% levels. Clearinghouses should and do maintain a buffer of real shares to avoid being overexposed.

          But even in this example where 90% of the shares are being shorted, once Ann loans her shares to Bob and it clears (by the clearinghouse) any subsequent loaning (shorting) should not clear. The transaction should fail (at the consumer-facing brokerage) and there would be no naked shorting.

      • by ttspttsp ( 7600944 ) on Saturday December 18, 2021 @10:56AM (#62094089)
        Yes, naked shorting is illegal. There were several congressional hearings after the GME episode. I watched all of it. None of our representatives really broached that subject to a great degree, even though I considered it the most important question They seemed more interested in collusive activity between large hedge funds and clearinghouses. It also brought pay-for-order-flow meaning into the mainstream to some degree - - it creates legal front-running for the high frequency traders, which is still legal.
    • Explain how redditors are able to pump and dump of GME securities and the rest of humans would be sued / thrown in jail for the blatent SEC violations.

      Pumping up stocks for the purpose of dumping is illegal:

      - The Securities Exchange Act of 1934â(TM)s Rule 10b-5, which prohibits the use of misstatements and omissions related to the buying and selling of securities.

      - The Securities Act of 1933â(TM)s Section 17(a), which bars anyone from selling or offering securities as part of a scam to defraud oth

      • I agree that some pumping (and presumable dumping) occurred and continues to occur at WSB (Reddit). In the GME situation I would characterize their communication as whistle-blowing though. They exposed a sort-of fraud occurring in the financial sector that exposed the wider market (us) to a potential major harm (systemic risk).

        Fortunately for the wider economy the market maneuvered through the exposure unscathed by essentially screwing the little guy (by blocking buying and increasing margin requirement

  • At least we were warned
  • and not because the state can't control it.
    • by Anonymous Coward

      It sounds like you're attempting a sarcastic response to this report but at no point does it suggest that it's environmental concerns that make crypto a threat. It notes a number of separate threats one of which is climate change and another is the potential consequences of a loss of confidence in 'stablecoins'.

    • Systemic risk. Not threat.

      Why shouldn't governments assess the risk of things? For democratically elected governments, that's what I elect them and pay them to look out for.

      Are you saying governments shouldn't look into things? That they should let every fucking thing run wild and free?
    • The state can easily control it. A handful of whales can take over any blockchain in existence. Never mind that in the absence of regulation simple currency manipulation techniques can be used to control the price and value of cryptocurrencies. There are actually good reasons why we heavily regulate our banking and finance system. We need to stop pretending that isn't the case.
      • Whales currently do have too much influence, but they cannot "take over" anything, for decentralized cryptocurrencies like Bitcoin anyway. At most they can cause price fluctuations, at the expense of their assets.

        And the regulations also have big downsides like barriers of entry, which means banks have less competition and therefore can have the better of customers. I do not say some regulation is not necessary, even in the case of centralized stablecoins, which are in fact covert unregulated banks, but t

  • by CmdrPorno ( 115048 ) on Friday December 17, 2021 @11:22PM (#62093033)

    Invented by a "very stable genius" who always "has the best words." In uncertain times such as these, only Dear Leader can provide assurances of safety, e.g., "They are dying. That's true. And you -- it is what it is..."

  • The US successfully shut down Liberty Reserve back in 2013, and outfits like Tether are waaaay more shady.

    • Tether, Ltd. isn't incorporated in the United States. It's incorporated in Hong Kong. U.S. regulators couldn't "shut it down" if they wanted to. Most they could do would be to bar American exchanges from offering trades or services with USDT, which is fine since USDT is terrible anyway.

      Sadly I don't think they would even go that far.

      The whole of the blockchain market would be better off using something like DAI that has transparency wrt its collateralization. DAI also has no direct ties to non-blockchai

      • Liberty Reserve was based in Costa Rica, and the US had no trouble spearheading what was actually an international effort to bring their operation down.

  • It's always the same solution. They want more government power and control.

  • People portraying themselves as Asian girls are trying to get men to buy different stable coins on dating apps... I've experienced it three times already, but haven't bought any which makes them block you instantly.
  • Climate change is an existential threat, a threat to our very existence. It us a threat to all of us that cannot be ignored, it must be treated as seriously as crimes against humanity or genocide. Those that perpetuate it, need to regarded as criminal.

  • This writes about dire situation in a russian gov institute, yet all i read is a desperate ask to be defenestrated. I don't envy that guy.
  • LOL retail investors some kind of threat. Massive funds with trillions of dollars not at all a problem, a few retail investors noticing gaping holes in what is supposed to be a professional trading strategy and exploiting that using social media it's not at all a problem. I consider it a good check and balance.

    Their whole spiel reads like a corrupt crony pissed that his corruption is unable to go as far as he wanted.

  • the systemic risk introduced by stablecoins. In my understanding certain stablecoins (eg. USD coin) are backed one-to-one with the represented currency. If it's fully-backed (not leveraged) then there is no counter-party risk. The stablecoin then ends up being a very cheap and quick way to move money, which reduces friction and should then help the economy.
    • If it's fully-backed (not leveraged) then there is no counter-party risk.

      So yeaaaah, about that...

  • How many economies have been destroyed by bit coin?

    How many by politicians printing money?

Keep up the good work! But please don't ask me to help.

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