Confessions of a wall st. nihilist

[CA renter]

[quote=davelj][quote=Russell][quote=CA renter]And this is exactly why we’re in trouble.

The economy should be more about solvency and productivity than about wishing, hoping, and “confidence.” If “confidence” is the foundation of our economy, something is seriously f’ed up.[/quote]
Has there ever been a time when “confidence” and attempted enforcement of that confidence was not involved in any economy?[/quote]

Fractional reserve lending began in the 15th century once goldsmiths saw that people would not generally redeem all of their gold-based notes at the same time, and they saw the opportunity to invest their coin reserves in interest-bearing investments. So, in effect, “confidence” has been one of the foundations of the world economy for, oh, about 500+ years. A few times each century – the recent crisis being a good example – confidence is shaken and bad things happen in the financial system and the economy… as it should be. None of this is particularly new. It’s just new to those living through it for the first time.

The term “Ponzi Scheme” is thrown around an awful lot these days, and generally in an incorrect context. While our financial system may have “ponzi-like elements,” (arguably, fractional reserve lending displays ponzi-like elements), that “like” word is an important distinction. For example, Madoff operated a true Ponzi Scheme. He had to keep raising new money to pay off previous investors or the scheme would collapse, and it did. There were very few assets actually backing his operation – the money was lost or spent. In contrast, our banking system is backed by real assets – securities, loans, etc. Now, you may not believe the assets are worth what the banks say they are (in many cases, I certainly don’t), but… there are real assets there backing the capital in the system. So, this is far from a true Ponzi Scheme. Although one could argue that because “confidence” is necessary (that is, all depositors and lenders can’t have their money at the same time), there is a ponzi-like “element” to the system. But these are two very different things.

Just wanted to clarify these concepts.[/quote]

Needless to say, I’m not a fan of fractional reserve lending. 😉

[davelj]

[quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.

[davelj]

[quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.

[davelj]

[quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.

[davelj]

[quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.

[davelj]

[quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.

[CA renter]

[quote=davelj][quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.[/quote]

They’d be much, MUCH higher…and I would LOVE it!

We’ve been sitting on lots of cash earning under 2% for far too long (trying to stay liquid in case we find the right house and want to use cash). We have no debt other than one or two credit cards that we pay off every month. For us, higher interest rates and lower asset prices would be a godsend.

[CA renter]

[quote=davelj][quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.[/quote]

They’d be much, MUCH higher…and I would LOVE it!

We’ve been sitting on lots of cash earning under 2% for far too long (trying to stay liquid in case we find the right house and want to use cash). We have no debt other than one or two credit cards that we pay off every month. For us, higher interest rates and lower asset prices would be a godsend.

[CA renter]

[quote=davelj][quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.[/quote]

They’d be much, MUCH higher…and I would LOVE it!

We’ve been sitting on lots of cash earning under 2% for far too long (trying to stay liquid in case we find the right house and want to use cash). We have no debt other than one or two credit cards that we pay off every month. For us, higher interest rates and lower asset prices would be a godsend.

[CA renter]

[quote=davelj][quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.[/quote]

They’d be much, MUCH higher…and I would LOVE it!

We’ve been sitting on lots of cash earning under 2% for far too long (trying to stay liquid in case we find the right house and want to use cash). We have no debt other than one or two credit cards that we pay off every month. For us, higher interest rates and lower asset prices would be a godsend.

[CA renter]

[quote=davelj][quote=CA renter]

Needless to say, I’m not a fan of fractional reserve lending. ;)[/quote]

Fair enough. What do you think interest rates would be without fractional reserve lending?

Take into account leverage and the cost of capital for providers of equity.[/quote]

They’d be much, MUCH higher…and I would LOVE it!

We’ve been sitting on lots of cash earning under 2% for far too long (trying to stay liquid in case we find the right house and want to use cash). We have no debt other than one or two credit cards that we pay off every month. For us, higher interest rates and lower asset prices would be a godsend.

[Arraya]

http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

[Arraya]

http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

[Arraya]

http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

[Arraya]

http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
Everyone has heard of pyramid, or Ponzi, schemes. In their simplest form they are short-lived deliberate frauds where a small number of existing members are paid from the buy-in of a larger number of newer members until the supply of newer members is exhausted, whereupon they collapse. Typically, the founders, and perhaps a few others who got in early and out before it was too late, end up making a lot of money at the expense of later entrants, who end up holding the empty bag. There are always many more losers than winners. What most do not realize, however, is that Ponzi dynamics are far more pervasive than people think. There are many human systems that ultimately rest on the buy-in of new entrants, and every one of them will ultimately meet the same fate, although it can take far longer for complex constructions than for simple pyramid frauds.

[Author]

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