[quote=DomoArigato]I’m not surprised that you are a supporter of one of the two major parties (Republican), because you are clearly clueless. JPM didn’t lend out that $390 billion. They just turned around and put it in Treasuries risk-free. Fractional-reserve lending has nothing to do with the massive bailouts the criminal banksters received.[/quote]
And you don’t belong to one or another of those two parties? We currently have a two party system here.. so there is not much choice beyond the two parties. I do wish the Independent party would field someone reasonable.
You also forgot “reserve” in “fractional reserve” banking. Imagine if you are a bank and have 100mil in assets, you have to hold back a percentage.. ie 20% and can loan 80% (20% reserve). One way to do this is loan out the 80mil holding 20mil in safe securities, ie treasuries. The other approach is to use that 100mil as reserve and borrow 500mil to loan out. The 100mil becomes the reserve. The problem is that when things turn upside down, you are on heavy leverage. You now have 100mil in liquid assets in hand, 500mil in liabilities, but those loans are now sour and are worth lets say 250mil (probably less).
Your previous position was 100mil(reserve) +500mil(on held loans) – 500mil(obligations in the form of loans where you as a bank borrowed( for a net total of 100mil => meeting your reserve requirement of 20%.
Your current net position is 100mil(reserve) + 250mil(in held soured loans) – 500mil(obligations where you as a bank borrowed), for a net total of negative 150mil and not able to meet your reserve requirements. The net reserve you had, vaporized with the collapse of the housing ponzi.
To not default on the banks creditors, which may be someones (possibly DomArigato’s) bank account or retirement or pension.. something has to offset the diff and re-establish balance and reserve. 250mil has to come from somewhere. Remember that previously their net worth was 100mil. This is how the loans from the fed end up being bigger than the previous market cap which is ‘net’ related. The ‘re-established’ reserve HAS to be held in safe securities, ie treasuries or cash (looking at the current gold rush, might have been better to be in gold than treasuries – though unwinding a gold commodities position of that size could be problematic).
PS: The situation is even nastier than I showed above.. I am just oversimplifying to make it easier to diagram/explain. By the way, the only treasuries that are currently yielding 3% or more are 20 and 30 year. There is a risk in holding such treasuries when rates go back up. Current yields are 1Mo=0%, 3Mo=0.01%, 6Mo=0.02%, 1Yr=0.09%, 2Yr=0.20%, 3Yr=0.33%, 5Yr=0.94%, 7Yr=1.52%, 10Yr=2.19%, 20Yr=3.13%, 30Yr=3.54%
What also has to be remembered is that banks are having to deal with the state and fed meddling in established loan contracts.. ie. the foreclosure forbearance and changing terms for when a bank can foreclose. Additionally, there is a potential for bankruptcies to yet again change the terms. So as a bank, it may be safer to not loan the money out.
It seems that people want to borrow, but when things get tough, they want the banks to eat it. Unfortunately these people ignore that the money the banks lend out actually belongs to someone else.. maybe even the pension of the person borrowing the money.
