FTP owed approximately $390 million to players around the world, with $150 million owed to U.S. players. FTP only had $60 million on deposit in its bank accounts, however, meaning over $300 million is owed to players worldwide.
This was the result of FTP’s payment processing channels becoming so disrupted that “the company faced increasing difficulty attempting to collect funds from players in the United States. Rather than disclose this fact, Full Tilt Poker simply credited players’ online gambling accounts with money that had never actually been collected from the players’ bank accounts. Full Tilt Poker allowed players to gamble with — and lose to other players — this phantom money that Full Tilt Poker never actually collected or possessed.”
$390 million in liabilities and only $60 million in the bank? That means that FTP had a little more than 15% in cash reserves. According to Wikipedia,
A depository institution’s reserve requirements vary by the dollar amount of net transaction accounts held at that institution. Effective December 30, 2010, institutions with net transactions accounts:
Of less than $10.7 million have no minimum reserve requirement;
Between $10.7 million and $58.8 million must have a liquidity ratio of 3%;
Exceeding $58.8 million must have a liquidity ratio of 10%
So because FTP had 15% in cash reserves, the whole operation is a Ponzi scheme. If only the proprietors had started a bank of the same size, they would have only needed 10% reserves!
David Graeber and Robert Murphy have been debating the validity of the monetary regression theory. They seem to be talking past one another. Graeber is assuming that Austrian theory agrees with neo-classical theory in areas where it does not, and Murphy is assuming that Graeber is substantially more familiar with Austrian ideas than he seems to be. To clear up the confusion, we need to take a step back and start at the beginning.
Should employers be allowed to check job applicants’ credit reports?
I debated that question on CNBC’s Street Signs today:
Of course employers should be allowed to check applicants’ credit. Why should they look only at the biased information you put on your resume? Credit reports provide a fuller picture.
My debate opponent, consumer advocate Joe Ridout, pointed out that there aren’t any statistical studies that show a correlation between bad credit and employees who rip off their employers. But why should we need such studies? How about a little common sense, which tells you that, say, someone who is routinely late in making payments just might be late for work?
The consumer advocates’ argument rests on the assumption that businesses are irrationally discriminating against applicants with bad credit.
But if we just assume that businesses are greedy and care only about making money — which, I think, the consumer-advocate types would normally grant us — then why would they spend money on credit reports that have no value? Do “consumer advocates” really believe that they not only know what’s best for you and me, but also know what’s best for businesses’ bottom lines?
Finally, let’s not forget the people with good credit and what a great service credit reports perform for them. A clean credit report lets you carry your good reputation with you wherever you go. Because of this market innovation, it doesn’t matter if you move to a new town where you don’t know the people at the bank or at your prospective employer’s office. They can check your report and see that, to that extent, you seem to be dependable.
It would be a shame if misguided activists and pandering politicians took some of this benefit away.