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davelj
Participant[quote=ucodegen][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).[/quote]
First of all, I have no dog in the Dem vs. Rep discussion here. Having said that… in the 5+ years I’ve been visiting this site I’ve seen some real whoppers of misunderstanding where banks, their balance sheets and reserves are concerned and… this has got to be the winner. You have absolutely no idea what you’re talking about here. I mean zero. Although I must admire the zeal and detail you provide in illuminating your misunderstanding of the topic. You are profoundly confused as to how a bank uses its balance sheet to make money and what it’s capable of doing vis-a-vis leveraging its equity to create loans. Anyhow, go back to the drawing board and begin with two important principles: (1) in a bank, equity is leveraged, NOT assets (leverage is applied to the right side of the balance sheet, not the left side), and (2) for a bank to leverage its equity it must have… drum roll please… deposits. Contemplate these issues in the context of the discussion.
I apologize for being rude, but… I get irritated when people start blabbing (with such confidence!) about stuff about which they are clearly profoundly misinformed. And to be clear, this is not the realm of opinion – it’s basic accounting.
[quote=ucodegen]
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%
[/quote]Despite the craziness posted above, this is a salient point that I’ve pointed out before. Banks don’t own 30-year treasuries. They don’t even own 5-year treasuries for the most part. Most risk-free securities on banks’ balance sheets have a maturity of less than one year. So, after receiving 15 bps on these ST securities and then paying out 40 bps on the deposits (or borrowings) that fund them… there’s either a negative spread or no spread left. So, while the Fed is certainly providing liquidity – which is important, don’t get me wrong – the banks don’t actually make any money off of it. But it does help in keeping the doors open in times of crisis.
Participant[quote=ucodegen][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).[/quote]
First of all, I have no dog in the Dem vs. Rep discussion here. Having said that… in the 5+ years I’ve been visiting this site I’ve seen some real whoppers of misunderstanding where banks, their balance sheets and reserves are concerned and… this has got to be the winner. You have absolutely no idea what you’re talking about here. I mean zero. Although I must admire the zeal and detail you provide in illuminating your misunderstanding of the topic. You are profoundly confused as to how a bank uses its balance sheet to make money and what it’s capable of doing vis-a-vis leveraging its equity to create loans. Anyhow, go back to the drawing board and begin with two important principles: (1) in a bank, equity is leveraged, NOT assets (leverage is applied to the right side of the balance sheet, not the left side), and (2) for a bank to leverage its equity it must have… drum roll please… deposits. Contemplate these issues in the context of the discussion.
I apologize for being rude, but… I get irritated when people start blabbing (with such confidence!) about stuff about which they are clearly profoundly misinformed. And to be clear, this is not the realm of opinion – it’s basic accounting.
[quote=ucodegen]
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%
[/quote]Despite the craziness posted above, this is a salient point that I’ve pointed out before. Banks don’t own 30-year treasuries. They don’t even own 5-year treasuries for the most part. Most risk-free securities on banks’ balance sheets have a maturity of less than one year. So, after receiving 15 bps on these ST securities and then paying out 40 bps on the deposits (or borrowings) that fund them… there’s either a negative spread or no spread left. So, while the Fed is certainly providing liquidity – which is important, don’t get me wrong – the banks don’t actually make any money off of it. But it does help in keeping the doors open in times of crisis.
Participant[quote=ucodegen][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).[/quote]
First of all, I have no dog in the Dem vs. Rep discussion here. Having said that… in the 5+ years I’ve been visiting this site I’ve seen some real whoppers of misunderstanding where banks, their balance sheets and reserves are concerned and… this has got to be the winner. You have absolutely no idea what you’re talking about here. I mean zero. Although I must admire the zeal and detail you provide in illuminating your misunderstanding of the topic. You are profoundly confused as to how a bank uses its balance sheet to make money and what it’s capable of doing vis-a-vis leveraging its equity to create loans. Anyhow, go back to the drawing board and begin with two important principles: (1) in a bank, equity is leveraged, NOT assets (leverage is applied to the right side of the balance sheet, not the left side), and (2) for a bank to leverage its equity it must have… drum roll please… deposits. Contemplate these issues in the context of the discussion.
I apologize for being rude, but… I get irritated when people start blabbing (with such confidence!) about stuff about which they are clearly profoundly misinformed. And to be clear, this is not the realm of opinion – it’s basic accounting.
[quote=ucodegen]
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%
[/quote]Despite the craziness posted above, this is a salient point that I’ve pointed out before. Banks don’t own 30-year treasuries. They don’t even own 5-year treasuries for the most part. Most risk-free securities on banks’ balance sheets have a maturity of less than one year. So, after receiving 15 bps on these ST securities and then paying out 40 bps on the deposits (or borrowings) that fund them… there’s either a negative spread or no spread left. So, while the Fed is certainly providing liquidity – which is important, don’t get me wrong – the banks don’t actually make any money off of it. But it does help in keeping the doors open in times of crisis.
ParticipantThere is a previous discussion on this topic here:
http://piggington.com/meredith_whitney_quote_data_point
SK in CV makes relevant points, but alas, the devil is in the details. Yes, theoretically banks build up specific reserves (via provisioning) on delinquent loans as these loans move through the credit quality “buckets” (pass>watch list>substandard>doubtful>loss), but… some banks play games with both the appraisals and the required reserves. Regulators provide “guidelines” on these issues but there are no hard and fast rules. So, games can be played because banks have some discretion where these issues are concerned. It is much more difficult to play these games today, however, than it was in 2008, for instance, because both the auditors and regulators (both imperfect) are much less tolerant today than they were a few years ago.
ParticipantThere is a previous discussion on this topic here:
http://piggington.com/meredith_whitney_quote_data_point
SK in CV makes relevant points, but alas, the devil is in the details. Yes, theoretically banks build up specific reserves (via provisioning) on delinquent loans as these loans move through the credit quality “buckets” (pass>watch list>substandard>doubtful>loss), but… some banks play games with both the appraisals and the required reserves. Regulators provide “guidelines” on these issues but there are no hard and fast rules. So, games can be played because banks have some discretion where these issues are concerned. It is much more difficult to play these games today, however, than it was in 2008, for instance, because both the auditors and regulators (both imperfect) are much less tolerant today than they were a few years ago.
ParticipantThere is a previous discussion on this topic here:
http://piggington.com/meredith_whitney_quote_data_point
SK in CV makes relevant points, but alas, the devil is in the details. Yes, theoretically banks build up specific reserves (via provisioning) on delinquent loans as these loans move through the credit quality “buckets” (pass>watch list>substandard>doubtful>loss), but… some banks play games with both the appraisals and the required reserves. Regulators provide “guidelines” on these issues but there are no hard and fast rules. So, games can be played because banks have some discretion where these issues are concerned. It is much more difficult to play these games today, however, than it was in 2008, for instance, because both the auditors and regulators (both imperfect) are much less tolerant today than they were a few years ago.
ParticipantThere is a previous discussion on this topic here:
http://piggington.com/meredith_whitney_quote_data_point
SK in CV makes relevant points, but alas, the devil is in the details. Yes, theoretically banks build up specific reserves (via provisioning) on delinquent loans as these loans move through the credit quality “buckets” (pass>watch list>substandard>doubtful>loss), but… some banks play games with both the appraisals and the required reserves. Regulators provide “guidelines” on these issues but there are no hard and fast rules. So, games can be played because banks have some discretion where these issues are concerned. It is much more difficult to play these games today, however, than it was in 2008, for instance, because both the auditors and regulators (both imperfect) are much less tolerant today than they were a few years ago.
ParticipantThere is a previous discussion on this topic here:
http://piggington.com/meredith_whitney_quote_data_point
SK in CV makes relevant points, but alas, the devil is in the details. Yes, theoretically banks build up specific reserves (via provisioning) on delinquent loans as these loans move through the credit quality “buckets” (pass>watch list>substandard>doubtful>loss), but… some banks play games with both the appraisals and the required reserves. Regulators provide “guidelines” on these issues but there are no hard and fast rules. So, games can be played because banks have some discretion where these issues are concerned. It is much more difficult to play these games today, however, than it was in 2008, for instance, because both the auditors and regulators (both imperfect) are much less tolerant today than they were a few years ago.
Participant[quote=Jacarandoso][quote=davelj]
So, I doubt it’s a racial issue so much as a cultural issue (but since I don’t know you I could be wrong). Now… this is where some folks jump up and down and say, “Discriminating on the basis of culture is just veiled racism!” To which I’d respond (as EconProf pointed out), “Talk to Jesse Jackson about that and then get back to me.”
[/quote]
Discriminating on the basis of “culture” is probably closer to “snobbism” in most instances. Sometimes it passes pretty well for common sense, but not when it is habitual or rigid.[/quote]
I’m not so sure about this because I think that the discrimination cuts across cultures. For example, I think you’re viewing it in the context of folks from the higher socioeconomic classes excluding folks from the lower socioeconomic classes, when in reality it cuts the other way as well. I don’t think most blue collar folks sit around wishing they were invited to the latest wine tasting event – it doesn’t interest them (generically, of course). And I don’t think they sit around saying, “Gosh, I wish I had invited that economist from the university to the barbeque.” On the contrary, “that dude’s a freaking bore.” Different strokes for different folks, but I don’t think it’s a “snob” issue (although it can be in certain instances).
Participant[quote=Jacarandoso][quote=davelj]
So, I doubt it’s a racial issue so much as a cultural issue (but since I don’t know you I could be wrong). Now… this is where some folks jump up and down and say, “Discriminating on the basis of culture is just veiled racism!” To which I’d respond (as EconProf pointed out), “Talk to Jesse Jackson about that and then get back to me.”
[/quote]
Discriminating on the basis of “culture” is probably closer to “snobbism” in most instances. Sometimes it passes pretty well for common sense, but not when it is habitual or rigid.[/quote]
I’m not so sure about this because I think that the discrimination cuts across cultures. For example, I think you’re viewing it in the context of folks from the higher socioeconomic classes excluding folks from the lower socioeconomic classes, when in reality it cuts the other way as well. I don’t think most blue collar folks sit around wishing they were invited to the latest wine tasting event – it doesn’t interest them (generically, of course). And I don’t think they sit around saying, “Gosh, I wish I had invited that economist from the university to the barbeque.” On the contrary, “that dude’s a freaking bore.” Different strokes for different folks, but I don’t think it’s a “snob” issue (although it can be in certain instances).
Participant[quote=Jacarandoso][quote=davelj]
So, I doubt it’s a racial issue so much as a cultural issue (but since I don’t know you I could be wrong). Now… this is where some folks jump up and down and say, “Discriminating on the basis of culture is just veiled racism!” To which I’d respond (as EconProf pointed out), “Talk to Jesse Jackson about that and then get back to me.”
[/quote]
Discriminating on the basis of “culture” is probably closer to “snobbism” in most instances. Sometimes it passes pretty well for common sense, but not when it is habitual or rigid.[/quote]
I’m not so sure about this because I think that the discrimination cuts across cultures. For example, I think you’re viewing it in the context of folks from the higher socioeconomic classes excluding folks from the lower socioeconomic classes, when in reality it cuts the other way as well. I don’t think most blue collar folks sit around wishing they were invited to the latest wine tasting event – it doesn’t interest them (generically, of course). And I don’t think they sit around saying, “Gosh, I wish I had invited that economist from the university to the barbeque.” On the contrary, “that dude’s a freaking bore.” Different strokes for different folks, but I don’t think it’s a “snob” issue (although it can be in certain instances).
Participant[quote=Jacarandoso][quote=davelj]
So, I doubt it’s a racial issue so much as a cultural issue (but since I don’t know you I could be wrong). Now… this is where some folks jump up and down and say, “Discriminating on the basis of culture is just veiled racism!” To which I’d respond (as EconProf pointed out), “Talk to Jesse Jackson about that and then get back to me.”
[/quote]
Discriminating on the basis of “culture” is probably closer to “snobbism” in most instances. Sometimes it passes pretty well for common sense, but not when it is habitual or rigid.[/quote]
I’m not so sure about this because I think that the discrimination cuts across cultures. For example, I think you’re viewing it in the context of folks from the higher socioeconomic classes excluding folks from the lower socioeconomic classes, when in reality it cuts the other way as well. I don’t think most blue collar folks sit around wishing they were invited to the latest wine tasting event – it doesn’t interest them (generically, of course). And I don’t think they sit around saying, “Gosh, I wish I had invited that economist from the university to the barbeque.” On the contrary, “that dude’s a freaking bore.” Different strokes for different folks, but I don’t think it’s a “snob” issue (although it can be in certain instances).
Participant[quote=Jacarandoso][quote=davelj]
So, I doubt it’s a racial issue so much as a cultural issue (but since I don’t know you I could be wrong). Now… this is where some folks jump up and down and say, “Discriminating on the basis of culture is just veiled racism!” To which I’d respond (as EconProf pointed out), “Talk to Jesse Jackson about that and then get back to me.”
[/quote]
Discriminating on the basis of “culture” is probably closer to “snobbism” in most instances. Sometimes it passes pretty well for common sense, but not when it is habitual or rigid.[/quote]
I’m not so sure about this because I think that the discrimination cuts across cultures. For example, I think you’re viewing it in the context of folks from the higher socioeconomic classes excluding folks from the lower socioeconomic classes, when in reality it cuts the other way as well. I don’t think most blue collar folks sit around wishing they were invited to the latest wine tasting event – it doesn’t interest them (generically, of course). And I don’t think they sit around saying, “Gosh, I wish I had invited that economist from the university to the barbeque.” On the contrary, “that dude’s a freaking bore.” Different strokes for different folks, but I don’t think it’s a “snob” issue (although it can be in certain instances).
Participant[quote=walterwhite]Davelj nailed it and I’m gonna use that word. I’m not racist I just don’t want my kids hanging out with substantially lower class people. Culturist. I like that.
Although now that I think about it my kids have some pretty broke kind if lower class friends. Ah well.[/quote]
And obviously this goes well beyond simplistic notions of “economic class” as well. To use an extreme example, you probably have more in common culturally with a taiwanese immigrant that came to to the US 30 years ago and stresses independence, work and education to his kids, but may not have much in the way of financial resources, than you would with some dirtbag that won the lottery. I would say that “values” trump finances in how we go about discriminating.
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