Who are you watching for your election night coverage?

[Rudyard K]

Let’s get a little reality check here folks about banking.

Banks operate at a 6%-8% capital ratio. Hardly any (I would say “None” cause I can’t think of one…but then some numb nut would come up with one..and miss the whole point) other business can operate with such limited capital. The only reason banks can operate with such limited capital is because banks borrow from each of us (as depositors in the bank) and they borrow from the Fed (or agencies that act like the Fed).

Depositors in general, don’t worry about their deposits because the FDIC guarantees those deposits (up to $250K anyway). The Fed is supporting the system so they don’t worry about it either. Once the bank borrows all this money, they loan it out (back to us) at a multiple of the money they borrowed. In other words, our system means that a bank can commence being a bank with only $6.00 in capital. And then it can borrow from depositors or the Fed another $94.00. Then the bank can loan the full $100.00 out to business and consumers for a spread over what it is paying the Fed and the depositors. That’s all a bank does. So, for $6.00 in private capital, the system produces $100.00 in available funds for business and consumers to borrow to create jobs and our economy.

Banks operate in such a manner because the Fed, and our elected officials, and therefore each one of us…have “Chosen” to have such a system. Failing having such a system…there would be significantly less money supply for businesses and consumers to borrow…banks would be much smaller…capital in such banks would be a much higher percentage of total assets…and our economy would be much smaller.

If all you folks want the banking system more secure?...then banks should have a higher capital requirement. Such demands are already occurring…probably rightly so. But the unintended consequence of such an action is a smaller economy…a smaller amount of available funds for borrowing…higher interests rates as more people chase after a smaller amount of available funds…less jobs.

There are a lot of things that need to be fixed in the banking system that could make it better. But each time we do so, we need to realize that it does have unintended consequences. The last few years have been bad…really bad. But overall,, the previous 50 had been pretty good…and we have all been eating at the trough. The system ain’t as broke as you might think. Let’s don’t throw the baby out with the bathwater.

[WTF]

Originally Posted by WTF

Fortunately there's a solution to this. And no, it's not to lynch all the bankers .

(I do not agree with this part of the article I quoted)



http://www.guardian.co.uk/business/2007/aug/13/china

The Chinese toy factory owner at the centre of the storm over lead-tainted Sesame Street figures has committed suicide, the state-run media reported today.

Chinese trade officials insist 99% of the nation's exports meet quality and safety standards, but they say they are treating the issue seriously. Despite the systemic nature of the problem, however, the government has made an example of the known culprits. In an unusually harsh sentence, the head of the food and drug safety administration, Zheng Xiaoyu was executed last month for accepting bribes in return for approving medicines that later proved to have deadly side effects.




-This is what you call taking personal responsibility for results or lack thereof! Of course PJ would want to farm out the execution to private enterprise and TTH would want to tax the shit out of the profits of that spectacle or at the very least sue the government for wanting justice! Me , I'd look no further than the mirror to find some pissed off taxpayer that would hang'em for free -

[WTF]

Originally Posted by Rudyard K

Let’s get a little reality check here folks about banking.

Banks operate at a 6%-8% capital ratio. Hardly any (I would say “None” cause I can’t think of one…but then some numb nut would come up with one..and miss the whole point) other business can operate with such limited capital. The only reason banks can operate with such limited capital is because banks borrow from each of us (as depositors in the bank) and they borrow from the Fed (or agencies that act like the Fed).

Depositors in general, don’t worry about their deposits because the FDIC guarantees those deposits (up to $250K anyway). The Fed is supporting the system so they don’t worry about it either. Once the bank borrows all this money, they loan it out (back to us) at a multiple of the money they borrowed. In other words, our system means that a bank can commence being a bank with only $6.00 in capital. And then it can borrow from depositors or the Fed another $94.00. Then the bank can loan the full $100.00 out to business and consumers for a spread over what it is paying the Fed and the depositors. That’s all a bank does. So, for $6.00 in private capital, the system produces $100.00 in available funds for business and consumers to borrow to create jobs and our economy.

Banks operate in such a manner because the Fed, and our elected officials, and therefore each one of us…have “Chosen” to have such a system. Failing having such a system…there would be significantly less money supply for businesses and consumers to borrow…banks would be much smaller…capital in such banks would be a much higher percentage of total assets…and our economy would be much smaller.

If all you folks want the banking system more secure?...then banks should have a higher capital requirement. Such demands are already occurring…probably rightly so. But the unintended consequence of such an action is a smaller economy…a smaller amount of available funds for borrowing…higher interests rates as more people chase after a smaller amount of available funds…less jobs.

There are a lot of things that need to be fixed in the banking system that could make it better. But each time we do so, we need to realize that it does have unintended consequences. The last few years have been bad…really bad. But overall,, the previous 50 had been pretty good…and we have all been eating at the trough. The system ain’t as broke as you might think. Let’s don’t throw the baby out with the bathwater.

You are missing the point RK.

We know how banks work....what people are sick of is the huge amount of money a small select few have gotten from this system. The system sure seems to keep on keeping on for them. Had they revamped the system without taking out huge amounts for themselves I'm sure most could have lived with that.

How can you come on hear and say how great it (or at least everyone fault) is/was for everyone when everyone had to chip in to continue what has amounted to huge bonuses for setting up this system that continues to fail without bailouts. Be like telling a cow how nice a person you are for fattening him up, right before you slaughter and eat him. Chickens might fall for that shit but we've seen the Chick-Filet commercial!

But at least people may be beginning to understand what a Ponzi scheme this really is.

[Randy4Candy]

Originally Posted by Big Juan

Amen Gents!!
Anybody catch the Donald on Fox w/ Greta. There is a part two coming up. He said the Chinese are raping us and we need to tax (tariff) their goods and services in order to stop funding their rebuilding.
this is going to get interesting.

I'm with you 1000% on this. Every other country has a VAT (the new code for tariff) and we're taking it in the shorts by not having one. I'll betcha the party lines are blurred on why we don't have one - everybody loves campaign contributions...LOL.

[Randy4Candy]

Originally Posted by WTF

You are missing the point RK.

We know how banks work....what people are sick of is the huge amount of money a small select few have gotten from this system. The system sure seems to keep on keeping on for them. Had they revamped the system without taking out huge amounts for themselves I'm sure most could have lived with that.

How can you come on hear and say how great it (or at least everyone fault) is/was for everyone when everyone had to chip in to continue what has amounted to huge bonuses for setting up this system that continues to fail without bailouts. Be like telling a cow how nice a person you are for fattening him up, right before you slaughter and eat him. Chickens might fall for that shit but we've seen the Chick-Filet commercial!

But at least people may be beginning to understand what a Ponzi scheme this really is.

+1 and...

Well, things went pretty smoothly with the "antiquated" and "restrictive" regulations implemented in the Great Depression. Hmmmm, who says we can't re-invent the wheel - unfortunately that wheel was headed the same place it was in 1929.

Fuck, no one wants to screw any business out of reasonable (there's the rub) profits made by selling a product or service which has value and is desirable. People are angry (though they cannot adequately articulate it) at people/banks/corporations gaming the freaking system, profiting from it and not having to be subject to the consequences of their actions. It sounds good to say, "Screw 'em all, let 'em fail," but that approach also throws the baby out with the bath water in that the severe negative effects continue to ripple throughout the economy unchecked. At least the TARP and Stimulus softened the blow somewhat - which, btw, was what we were all told it would do - NOT that it would cure everything immediately. As theoretically unpleasant as it may be to some, things have to be regulated to a certain extent in order to curb the excesses. What was learned from the Great Depression is that though a whole bunch of stock brokers jumped to their deaths upon the Crash, the residue and effects of their actions reverberated throughout the economy until industrial production to fight WWII pulled us out of the disaster. Yep, they got punished, but their "legacy" lived on - not good enough. So, though it SOUNDS GOOD, turning everyone loose in a no holds barred environment and waiting until these someones do bad things through unhealthy and unethical practices and then punishing them WILL have dire consequences - like closing the gate after the livestock has left the building. The decision was made to regulate, and thus sacrifice some efficiency, in order to protect the system from idiotic loose cannons. It worked well and only when the newest group of "financial wizards" convinced (paid) Congress to do otherwise did we get our collective tits in a wringer.

[pjorourke]

Originally Posted by WTF

...what people are sick of is the huge amount of money a small select few have gotten from this system....

Can you identify which specific "select few" are getting all this benefit -- please name names or at least companies so we can understand what the hell you are talking about.

Otherwise, we have to conclude this is just another episode of http://www.youtube.com/watch?v=B72fbXDQ7Lg

[Randy4Candy]

Originally Posted by pjorourke

Can you identify which specific "select few" are getting all this benefit -- please name names or at least companies so we can understand what the hell you are talking about.

Otherwise, we have to conclude this is just another episode of http://www.youtube.com/watch?v=B72fbXDQ7Lg

Record bonuses on Wall Street do anything for ya?

[pjorourke]

Originally Posted by Randy4Candy

Record bonuses on Wall Street do anything for ya?

a) You do realize that there is much more to banking than "Wall Street"
b) You do realize that some Wall Street bankers earned their bonuses by doing things that in no way endangered the banking system.

[Randy4Candy]

Originally Posted by pjorourke

a) You do realize that there is much more to banking than "Wall Street"
b) You do realize that some Wall Street bankers earned their bonuses by doing things that in no way endangered the banking system.

Maybe - but I DO realize that they were the ones bailed out.

[pjorourke]

Who? What companies. Give me a few examples.

[Texas Contrarian]

Originally Posted by Big Juan

Anybody catch the Donald on Fox w/ Greta. There is a part two coming up. He said the Chinese are raping us and we need to tax (tariff) their goods and services in order to stop funding their rebuilding.

The Chinese print renminbi like crazy and buy dollars like there's no tomorrow so they can keep their end of the dollar/yuan pair undervalued by around 30-40%. They're the biggest and most aggressive mercantilist power in history. Of course, they also restrict imports in a variety of ways.

There's considerable disagreement on whether and how we should fight back. Doing so in any meaningful way would obviously be a risky game, but the status quo is clearly very bad. Add it to our thirst for imported oil and the whole imbalance is a real drain.

Originally Posted by Randy4Candy

Every other country has a VAT (the new code for tariff) and we're taking it in the shorts by not having one.

In that regard, we do place ourselves at a great disadvantage.

Most countries rebate the tax when their companies export goods and assess the full tax load on imports. That acts as a de facto tariff. The idea is called "border adjusted taxes." WTO rules do not allow the U.S. to "adjust" since it operates an income tax system, not a VAT. In other words, we allow ourselves to get shafted.

Originally Posted by Randy4Candy

I'll betcha the party lines are blurred on why we don't have one...

I think the reason we don't have one is simply that we've spent many years giving tax cuts and promising that we will continue to keep the tax burden on the middle class very low compared with that imposed by a typical European social democracy. In fact, politicians have promised that no one earning less than about $250K will see a tax increase of any kind. (That promise is obviously unsustainable over the long run.)

It's been said that conservatives oppose the VAT because it's a big money-raiser and liberals because it's regressive.

About 20 years ago, Larry Summers famously said (perhaps only half jokingly) that we would probably implement a VAT when conservatives realize that it's regressive and liberals realize that it's a huge money-raiser!

[Big Juan]

Good stuff CapM. I like your insights.
Sure as shit, I posted somewhere yesterday, the media is sayin';

DOW jumps after Fed press release. Day after election, how friggin' stupid do they think we are. I would be interested to see who is doing the trading volume ..... er ..... nah ...it couldn't be the TARP banks!!!
Somebody say it ain't so.

[pjorourke]

Yup, that must be it. I'm sure they are betting 'our TARP money" in the stock market -- manipulating the shit out of it to make Obama look bad. The bastards!

[Randy4Candy]

grrrr, Wall Street (the whole bunch of them) would have collapsed into one giant sink hole if not for the bail out, so just look up the name of any of the investment houses, investment banks, street sweepers and hot dog vendors and providers associated...

Just can't split that hair thin enough for you, eh?

[Rudyard K]

Originally Posted by WTF

You are missing the point RK.

We know how banks work....what people are sick of is the huge amount of money a small select few have gotten from this system. The system sure seems to keep on keeping on for them. Had they revamped the system without taking out huge amounts for themselves I'm sure most could have lived with that.

How can you come on hear and say how great it (or at least everyone fault) is/was for everyone when everyone had to chip in to continue what has amounted to huge bonuses for setting up this system that continues to fail without bailouts. Be like telling a cow how nice a person you are for fattening him up, right before you slaughter and eat him. Chickens might fall for that shit but we've seen the Chick-Filet commercial!

But at least people may be beginning to understand what a Ponzi scheme this really is.

No WTF...you're missing the point. How much did these scumbags (yep, I think so too) get away with over the course of the last decade? $10's of millions?...$100s of millions?...a $Billion?...$10Billion?...$100 Billion?

The GDP...of which this banking system is its main support...was $14,000 Billion in 2009 alone. And you're running around carping about a bunch of guys who got off with less than 1% of one year. I'm all for pruning the trees of the deadwood. But setting the forest on fire because there are some web worms is foolish.