[bigdaddyrabbit2]

This is interesting. The hacker did not return the ETH, so the $320M has come from the deep-pocketed investors and VCs behind Solana/Wormhole.

Interesting to note that the VCs are bailing out the retail users here, instead of the usual flow where taxpayers are on the hook for bailing out too-big-to-fail WallStreet banks.

[arcticbull]

> Interesting to note that the VCs are bailing out the retail users here, instead of the usual flow where taxpayers are on the hook for bailing out too-big-to-fail WallStreet banks.

If you're referring to the 2008 bail-outs, those weren't grants, they were loans and investments. To date, beneficiaries have repaid more than the initial amount netting the government (and hence the people) a significant profit. $109B to date. And the expectation of significantly more to come. Talk about a good investment. [1]

Fannie and Freddie alone received $191B and have paid $301B in dividends so far - and all the principal remains outstanding.

[1] https://projects.propublica.org/bailout/

[andrepd]

That's very nice and good. So if I struggle to pay my mortgage, why am I evicted instead of bailed out? It's highly unlikely that I be unemployed for the rest of my life, so I would surely be able to pay back any bailout, with interest to spare. Why do banks struggle and get bailed out, but people struggle and don't?

Or looking at it from another point of view: the money spent on bailouts wouldn't be stored under a mattress if it were not spent that way, therefore you cannot compare $109B with $0. You have to compare it, for example, with the money lost from the moral hazard of rewarding the irresponsible behaviour which led to the most destructive recession in 75 years, or to the effect the money would have had it been spent helping the millions of people that lost their jobs or had their homes foreclosed on, etc.

[pirate787]

There were multiple stages of bailouts, including Federal Reserve asset purchases which directly transferred resources from dollar holders to for-profit shareholders and bondholders. The Fed's intervention dwarfed the TARP bailout and is the largely the reason TARP was successful...they moved the economic loss from Treasury to the Fed.

https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much...

[joe_the_user]

Aside from the other considerations, "it was a good investment" stuff is just ridiculous. The general bank isn't in operations to make money - it's in operation to protect the market, the currency and the economy as a whole so whether it makes money is irrelevant to whether these loans were a good idea.

But even more, if the Fed basically designates a bank "too big to fail" (as the Fed did) and loans the bank the money it currently needs, the markets can this. And this allows the bank to "print money" itself by issuing bonds - since now the market knows those bonds are effective guaranteed by the Fed and so equal to money. Thus the bank can easily issue enough bonds to repay or over-pay the Fed. But that's not a "see, problem solved!" situation.

The theoretical problem of this sort of action is naturally these large entities potentially issue loans and borrow without being disciplined by risk. That might be compensated for by other actions - say preventing them from issuing risky loans. But things still wind-up a bit "distorted". I'd recommend Doug Noland's Credit Bubble Bulletin on the subject.

[papito]

I hope this is not an argument for more bailouts. A lot of people walked away with riches while ruining the US economy. "I lost $100 but lookit I just got back $15" is not a win, it's just... less of a loss.

[jerry1979]

Who uses cash basis accounting?

A bit of googling brought me to a paper which points out that even the CBO and the Congressional Oversight Panel independently came to the conclusion that the bailouts subsidized the banks to the tune of over 60 billion dollars [0]. The paper itself puts the value closer to 90 billion. From the article:

> Costs on an ex post cash basis were only identified for a subset of the above programs, but it is likely that on that basis the government came out ahead. Hopefully, the reader has been convinced that there is little meaningful information in this fact.

[0] https://gcfp.mit.edu/wp-content/uploads/2019/02/BailoutsV12....

[panarky]

> those weren't grants, they were loans and investments

Those loans and investments weren't guaranteed to be paid back, the government took a risk.

Assuming risk of loss is a valuable thing that gets traded all the time through futures, options, swaps and other derivatives. Those futures, options and swaps have a cost.

The fact that the government gave away that value for free means it was a massive gift to Wall Street banks.

[MadSudaca]

Didn’t they have to debase the currency to make those payments?

[cbenneh]

Not really bailing out retail. There was enough liquidity for retail users to exit the tokens at risk without a penalty.

On the other hand the VCs themselves that are large owners of the tokens in Solana ecosystem would incur large losses, and that's excluding additional losses from reputation in future. It just shows how successful Jump VCs are when they put up $320M in a few hours. Maybe a month of their PnL?

[im_down_w_otp]

I don't see how this is an indicator of that. They didn't put in USD. They put in ETH. Which is a thing that has no requirements to be backed by fungible legal tender reserves. So, they're not actually putting up cash as a replacement. It's more like they're putting up assets as a replacement, but it's not even that concrete really. They're not the same thing.

They're trading in chits, not money, when things like this happen. At least that's the case for as long as you can't regularly and commonly transact in ETH. The spot price/value of ETH multiplied across all the ETH that exists doesn't seem to be a description of total USD (or EUR or whatever) reserves available to convert ETH to USD, et al. as far as I can tell.

[rlt]

If that’s the case “restored” is an interesting way to put it.

[verdverm]

I was thinking "replaced" is more accurate

[kwertyoowiyop]

And the passive voice is telling.

[quartz]

There's precedence for this in the crypto space as well. In 2017 Coinbase famously reimbursed everyone [1] impacted by an ETH flash crash that pushed the price from $320 to $0.10.

[1] https://techcrunch.com/2017/06/24/coinbase-is-reimbursing-lo...

[tgv]

> deep-pocketed investors

Or people with a lot of ETH, that want to hold on to the value of the rest they still own.

[steelstraw]

An underappreciated improvement.

[octoberfranklin]

> so the $320M has come from the deep-pocketed investors and VCs

If that had really happened there would be a txid, and people would be parading around an etherscan link.

At the moment, this is no different from "funds are SAFU"

[shrimpx]

Something similar happened in the WSB/GameStop fiasco where Citadel and Point72 bailed out Melvin Capital and its investors.

[somenewaccount1]

How is it interesting for them to fulfill their fiduciary responsibility to individual retail user? Banks do this all the time.

[duxup]

If they didn't have the money / decided it was too much for them, they would just walk too.

[slg]

They aren't doing this because it is the morally right thing to do. They are doing it because they feel that the $320m is important to secure the value of their business, the Solana ecosystem (thanks for the correction arberx), and crypto in general.

My personal interpretation of that, there are a lot of awfully rich people who are scared of the bubble popping.

[bigdaddyrabbit2]

Nothing happens in finance because it is "the morally right thing". It's all a game of incentives. Wall Street Banks take disproportionate risks because they are incentivized to do so.

The interesting thing here is how the un-bailout-able nature of ETH affects the players in Crypto. Because ETH can't be magically printed, the VCs have to decide if they will walk away or bail out the retail end users. It looks like they decided to do the latter.

This has happened more than once in Crypto - I can think of the Binance hack, where Binance bailed out the users. OpenSea has also been covering ETH lost by its users who had their Bored Apes stolen because of user mistakes.

I wonder what it is about Crypto that causes large players to cover user loses. I need to learn more.

[arberx]

Solana ecosystem*

Exploit happened on Solana. Jump Trading has a vested interest in the Solana ecosystem and is effectively the sole market maker on it.

[X6S1x6Okd1st]

Were the 2008 bank bailouts done because it was the morally right thing to do or because they felt like it was important to secure the value of the economy.

It seemed like there was a lot of awfully well resourced individuals that were scared of slipping into a depression

[throw_nbvc1234]

Not meant as an attack on the parent comment but I've been interested in the concept of judging things by inputs versus outputs. I see aspects of this in many controversial subjects; particularly homelessness. Different groups of people seem to focus on one side and ignore the other side of the equation when making arguments. These groups just end up talking past each other then and don't make progress towards a consensus.

I'm curious what kind of research (or keywords to search for) there is around this topic. Is it just a morality thing or does it go beyond that?

[naraga]

they are scared of bubble popping yet give away $320m. okay.

[jsnodlin]

How on earth do they have enough capital to replace $320 million? I seriously doubt it was entirely replaced.

[keewee7]

>instead of the usual flow where taxpayers are on the hook for bailing out too-big-to-fail WallStreet banks

Why is there so much misinformation on the 2009 bank bailouts?

The bailouts were loans and investments that became profitable for tax payers.

>In total, the government has realized a $109B profit

https://projects.propublica.org/bailout/

[srcreigh]

$109B profit from a $635B investment over 13 years is less than 2% yearly return.

It's a huge waste considering other higher return investments.

EDIT: see replies for much needed nuance

[ClumsyPilot]

> The bailouts were loans and investments that became profitable for tax payers

I dunno man, I was always told that government being active in the market is socialism, and socialism always fails. /s

Surely we could extend this success by having the government invest trillions in zero carbo energy, an investment that has to succeed.

[andrepd]

Opportunity cost ≠ 0$.

[defaultprimate]

This is a commonly repeated trope that is completely false and based on very questionable accounting. Namely the omission of opportunity cost and the comparison of static parameters to temporal parameters.

https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much...