Comments: Is BitCoin a triple entry system?

Securitization is in theory, really great. But who is it that is to actually manage the loans, and make sure that they actually exist, that the payments are made, and so forth?

The lowest tranch on a bundle of debt has to be shares, not debt, and the people owning the lowest tranch have to be responsible for managing the bundle of debts.

Our recent securitization crashed because the people managing the debts had no interest in managing them, or whether they had any value.

The debts in the bundle, and the people managing them, all have to be in one geographical area, so that those managing the debts can look at the assets on the ground, and check out the people who are supposed to be paying the debts, and look those people in the eye.

Securitized debt should be bonds issued to a company whose major asset is a pile of loans, and whose major skill is managing loans - which is a very old form of finance.

Posted by James A Donald at June 13, 2011 06:25 PM

unregulated loan originators found they could access an unlimited amount of funds by paying the rating agencies for triple-A rated. As a result they no longer needed to worry about loan quality and/or borrower's qualifications ... immediately unloading the loans as triple-A rated toxic CDOs as fast as possible. There has been estimate that there was $27T in triple-A rated toxic CDO transactions during the bubble ... which would have been possibly $3T-$5T in profit, fees, and commissions between the original real-estate transaction and far backend warehousing of the CDOs (there were statements that the financial industry tripled in size as percent of GDP during the bubble off those toxic CDO transactions). I had also heard references to musical chair analogy during the height of the bubble and who would be left standing when the music stops. Zakara's "Post American World" uses a Cinderella analogy, the major players all knew they had to leave before the stroke of midnight, but most wanted to stay until the last possible minute. For the most part the individuals all walk away with what they wanted ... it was some of the institutions that were left holding the toxic CDOs.

Posted by Lynn Wheeler at June 13, 2011 08:11 PM

Note that securitized instruments had been used during the S&L failure with fraudulent documents. In the late 90s we had been asked to look at processes that might be used to significantly improve the trust & integrity of the supporting documents (the magnitude of the problem in the S&L failure was much smaller not having the triple-A ratings).

Being able to pay for triple-A ratings on the CDOs, much of the supporting documentation became superfluous and the unregulated loan originators could make no-documentation loans. No-documentation, no-down, 1% interest only ARMs became very attractive to speculators ... during the bubble some sectors of the country had 20-30% real-estate inflation & speculators could make 2000% ROI.

Posted by Lynn Wheeler at June 14, 2011 09:06 AM

one of the items pointed out in the "wall street money machine" was the frequent enormous disconnect between the compensation for individuals packaging and dealing the triple-A rated toxic CDOs and their institutions ... individuals motivated to repeatedly engage in activities that could easily take down the institution (if it weren't for gov. bailouts); there has been periodic references that the environment represents enormous "moral hazard".

Posted by Lynn Wheeler at June 14, 2011 01:45 PM

Linking triple accounting to a public database of expenditures is interesting... the network becomes the third party.

Incidentally, are you aware this post is completely unreadable in the RSS feed? All the formatting is gone and the whitespace removed.

Posted by gwern at June 28, 2011 11:23 AM

the system Bitcoin works?

Posted by Vitaliy at June 1, 2016 08:56 AM

Bitcoin is basically the future of everything. I'm not talking money, I'm talking everything.

It comes from the idea of merging a number of cryptographic protocols with a 2005 published idea of a triple entry ledger.

What that enables is a way and means of creating not only smart currency, but a means of tracking and registering anything that can exist. That's anything from IDs, reputation, people. It's everyhing from ownership of digital property rights, micropayments, associated with those, charging, assurance contracts, anything you can think of. Anything that we have now and more. It's a way of advertising, marketing, it's a way of cleaning up the planet.

Posted by "Bitcoin is everything" at April 13, 2017 04:58 PM


Posted by Patrick Delcruzel at December 14, 2017 07:30 PM
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