They are going to have to do something, CR. A&L stock is declining again.
Your points are very well taken. Insuring deposits without regulatory oversight is a moral hazard (it encourages banks to take more risks), and if regulatory oversight can't figure out which institutions are at risk, what chance does the Average Joe have?
Wary buyers in Britain drop plans for moving house [by 25%!]
Guardian (UK)
Thousands of homebuyers have abandoned plans to move house after the British banking crisis surrounding Northern Rock led to fresh uncertainty in the housing market.
Estate agents are reporting that vital internet traffic to homebuying websites is down by a quarter since the crisis began nine days ago. The number of potential customers going into their shops has slumped, too.
At the heart of every systemic risk there exists a lie. In this case the bank is lying when it tells depositors that they can have their money back whenever they want it. This is impossible because the money has been lent out. However, it's a lie that banks can often get away with for long periods of time.
Deposit insurance is a taxpayer funded, moral hazard inducing kludge to allow the banking game to continue instead of fixing the fundamental problem. You fix the fundamental problem by removing the lie.
Set up a banking system in which there are two kinds of accounts. Demand deposit accounts where the money is stored in the vault and is actually available at any time. Second, investment accounts where the banker is required to put in a minimum fraction of capital in a first loss position and the investors provide the rest of the money. Investors would only be able to exit their investments by selling their share to a third party or through liquidation of fund assets in a manner consistent with the natural time scale of the loans.
Such a system would have no systemic risk and would require no taxpayer funded insurance. It would also wipe out the profitability of bankers and thus will never be adopted.
Having posted that, I had a question that's been on my mind for a while (perhaps posting early in the comment chain will garner an answer). I'm sure many readers would share it.
How can I assess the safety of the bank where I'm at?
Isn't a bank that loans heavy to real estate in Stockton, CA much more at risk than one that loans to businesses in, say, West Virginia?
I have concluded that the Anglo-American econo-political system has turned into a morally bankrupt system and all Americans who support the current system are responsible. Why are they morally bankrupt? All changes of laws and rules AFTER THE FACT are criminal, as in changing the rules of the game in the middle of the game based on who is winning and who is losing. The mortgage and other lending abuses have been known and well publicized for years, no?
The criminal economic and political leaders of Americans support the irresponsible individuals and businesses and penalize the responsible ones! Disgusting. They are actively promoting bad behavior. What happened to contracts and property rights? I wonder how many Americans know that democracy is inimical to property rights (an observation by one of the best economic historians in the English language, Niall Ferguson) taking by force (taxes are taking by force) from the honest and hardworking people to feed the parasites, e.g., bankers and financiers of New York City, and irresponsible part of the general population. And my criticism is based strictly on the degree of abuse and not because the system cannot be perfect. The parasites have done so exceedingly well because of the corruption in the system and not because they are geniuses. They are crooks. Period. Fed is there primarily to feed the crooks.
How can I assess the safety of the bank where I'm at?
Apropos comment.
What websites or metrics would I use?
Quite a bit of information is available via the FDIC site. Figuring out which data is the meaningful stuff is the hard part. Any chance we could get an UberNerd tutorial on the subject ?
Diemos wrote Set up a banking system in which there are two kinds of accounts. Demand deposit accounts where the money is stored in the vault and is actually available at any time. Second, investment accounts where the banker is required to put in a minimum fraction of capital in a first loss position and the investors provide the rest of the money. Investors would only be able to exit their investments by selling their share to a third party or through liquidation of fund assets in a manner consistent with the natural time scale of the loans.
OK, if the bank is simply storing cash in the vault, it cannot make any money off it. Not only that, but it must pay for all the costs of servicing the account. Just how high do you wish checking fees to be? Not only that, but it would reduce the money supply considerably. Everyone would have cash in coffee cans under such a system.
"All changes of laws and rules AFTER THE FACT are criminal, as in changing the rules of the game in the middle of the game..."
But, Jas, the game is ongoing, never-ending. It doesn't stop and start so the rules can be adjusted. They must be changed on the fly, no? People sometimes do their best and still do the wrong things, in which case they are not liars or crooks, merely people of normal ability who failed, goofed, guessed wrong, blundered...
MaxedOutMama: ... it would reduce the money supply considerably.
And then how would I borrow hundreds of millions of dollars to keep tens of thousands of peasants enslaved in my fascist megacorp? Give me economies of scale or give me death!
Greenspan was interviewed on BOOK TV for 1.5 hours that ended an hour ago (recorded broadcast). He rejected the label of right wing Republican. He said that he is a libertarian. Period. He categorically stated that Bill Clinton believed in 80% of what he himself believes in. Then he said that he cant say the same of and didnt complete the sentence. I think that he meant not just GW but both bushes.
No wonder that Greenspan supported Clintons election during 1992 via what HW Bushs supporters thought his policy of not lowering the rate in time and sufficiently. It became very clear to Greenspan that GW will not reappoint him in 2004 unless the economy was super-charged during 2003 for the 2004 election (people dont feel the growth for a year). GW waited until the last moment before announcing Greenspans reappointment in June of 2004.
Yes, wonderful system we have to manipulate the economy for personal gains by the two most powerful leaders we have.
Dick, it is actually exceptionally injurious to a community to have a bank accepting deposits and funnelling that money away from the community to invest elsewhere. The Community Resources Act (CRA) was passed to keep that from happening, and there are prohibitions against setting up branches in other states just to rake in deposits. Please remember that banks are government charters, and as such, are expected to serve public interests as well as their own profitability.
That should give you a clue about the meaning of "money supply" in this context.
Interesting lines are Total Mortgage Backed Securities (SC22) and Other (non-government) MBS (SC222). For E*Trade they are $14.7 and $4, while for Countrywide they are $18.4 and $15.7. (These numbers are in billions of dollars.) Countrywide had a much higher fraction of non-gov't MBS85% versus 27%and therefore much bigger potential exposure to the flood of low-quality MBSes.
Note: I am not an expert, just someone who is curious too.
CR's suggestion is flawed.
Firstly most depositors with larger sums are old age persons. For them security and convenience is rather important.
Secondly with Wall Street's black magic spreading all over the world, risk averse elderly need at least some guarantees (as such they are penalised by low interest rates).
Nassim Taleb, author of The Black Swan, was on BOOK TV minutes ago.
Just to give an example of his theory and how it applies in everyday life he said that he would never believe anyone who attacks bishops and priests, or religion in general, and doesnt attack the Wall Street strategists and advisers. Why? Because the latter are committing obvious fraud, according to Dr. Taleb.
--
"With the change in rates, where does the US stock market go from here?"
Don't know the next few weeks but the rate cut was because the economy is in serious trouble, much more than the Fed heads had "guessed." There are the worst guessers this side of Atlantic.
1,200, or lower, on S&P in 9 months. Below 1,000 in early 2009 and then all the hell will break loose when the depression is confirmed. I know, I know, the Fed would never allow depression. And NYPD will not allow rape and murder in NYC. Belief in Fed powers among educated Americans borders on idiocy. Fed has already baked the depression in the American e-con-pie. Actually, the Big One.
My suggestion: Please stay clear of the long side of the Scam Market.
For almost all of 2007, the market party has diverged from a troubled (and getting worse) economy. Going back to March, the market only listened to good news and exaggerated that. The market has consistently discounted negatives, especially housing and its ripples.
Eventually, probably within the next six months, the market will come back into alignment with a terrible economy and slower growth, if not recession.
But there really are two different U.S. stock markets now. In one market are large, internationally diversified blue-chip companies selling at reasonable values. In the other market are over-leveraged, over-valued, mostly smaller and domestically focused stocks that have become the darlings of hedge funds and other leveraged speculators. The latter are the ones that will get slammed.
I put some more charts up if anyone is interested. I'm leaning more deflationist in the short-term (but still comfortable with a long-term stagflationist outlook).
Stag Mark, I see the employment side of the scale goes down to 61.5%. To papaphrase the line from Jaws, I think you're (soon) going to need a bigger chart.
They must have gotten the 100,000 pound figure from the US$100,000 figure. I would think 50,000 pounds would be enough to cover. But it should be 100% coverage. The people who need to exert pressure to keep banks from doing foolish things are the stockholders, since they are the ones who will be wiped out first. A small midwestern bank owned by friends of mine had a non-family President who secretly stole 8 million some years ago. That didn't affect the depositors at all but it sure hit the family that owned the bank. Dividends stopped and have yet to be resumed. The owners have learned to be more vigilant.
"The bail-out is not for the bank, the money are given back to people only after bank goes belly up."
It's the right thing to do as long as the banks are the ones footing the bill. The taxpayer shouldn't have to cover this kind of BS IMOP because if they do it is moral hazard as it will only lead to more banks taking risk with OPM.
"I disagree that this is moral hazard. People with deposits are not investors and must not risk anything."
If they are not investors then they should not be recieving any interest for leaving their money at the bank.
They should be paying the bank to store their money.
Michael Pettis who is filling in for Brad Setser on his blog has a very very informative entry there. He gives his reasons to think that the Panic of 2007, as he calls it, is simply a blip in the rise of global liquidity and is not, as many here believe, the end of the world as we know it. He thinks international appetite for risk will probably rise instead of fall. Worth reading.
diemos thinks depositor don't deserve any interest on their deposits.
I aks why should they not received some money (never a lot) for allowing the bank to use their deposits to make money, on the money that they have "rented" as it were to the bank?
Pettis on the effect of sovereign wealth funds on global risk:
As China and the rest of the high-reserve countries increasingly recycle the US trade deficit into riskier assets, the sheer size of funds under management will appreciably drive global risk appetite up. This, as I wrote in my WSJ piece, will keep this crazy party (which has already gone on long enough) going for at least a few more years. This is also why I think it is extremely important to keep an eye on what these sovereign wealth funds are doing.
Jas, I find your continued attacks at the root problems (corruption, immorality, etc) to be most refreshing.
Diemos' banking proposals also seem logical to me. That demand accounts would be unprofitable for banks is clear. They would have to charge service fees. This is how goldmoney and bullionvault operate. You pay for use of the vault, insurance, transactions, etc.
This model (fee-based demand accounts) doesn't work very well when the things you put in the vault have a short half-life (fiat). You need all sorts of alchemy to make that work.
I doubt I will ever see a fair banking system, but for my kids sake I hope so. We waste unbelievable resources on this beast. I should be programming right now, but I'm watching this goddamn financial system.
I have no problem with depositors recieving rent on their money as long as they accept the risk that they might not get it back.
What people want is something for nothing, riskless returns. The only way for a deposit to be riskless is if it sits in the vault. The only way to generate rent is to loan it out. You can't have both at the same time. That's why our current banking system is fundamentally dishonest and why deposit insurance generates moral hazard. The taxpayer guarantees that if the bank's losses on their loans are sufficiently large taxpayer money will make them whole.
A group of angry millionaires from London is to join those already seeking a $100m-plus settlement from Bear Stearns amid claims that hedge-fund managers working for the banking group gave misleading advice about their investments.
In the next week, at least eight London-based investors are expected to join a legal action against Bear Stearns, launched by Wall Street lawyer Jake Zamansky, following the collapse of two $1bn-plus hedge funds run by the investment bank. Other Britons and several British institutions have been contacted by the New York lawyer and could also become involved in the coming weeks.
A confidential report about the Bear Stearns hedge-fund case, obtained by The Observer, claims that the bank and its hedge-fund managers presented investors with charts that showed how 61 per cent of the funds assets were invested in safe 'asset-backed' securities and only 6.8 per cent invested in risky assets, such as so-called 'sub-prime' mortgage-related securities and derivatives.
It is Zamansky's contention, however, that more than 60 per cent of the fund was invested in sub-prime-related assets. 'If the funds were invested in safe assets, why did they lose 100 per cent of their value in June?' he said.
MOSCOW (Reuters) - Russia's top consumer lender, Russian Standard Bank, has temporarily halted issuing cash loans as a result of the global credit crunch, the Financial Times reported on Saturday.
The FT quoted Chief Executive Dmitry Levin as saying the stoppage would last to the end of this month. The bank was also tightening requirements for credit cards and point-of-sale loans.
More good charts on your site - two questions on your 'Not in Labor Force' chart - how does that look normalized to the working age population (say % of working age) and what is that uptick around 2003?
Also, (oops ok three things...) what about some smoothing, a moving average though not sure of the period, and slope changes to the MA (wait, the four things...lol).
Greenspan was interviewed on BOOK TV for 1.5 hours that ended an hour ago (recorded broadcast). He rejected the label of right wing Republican. He said that he is a libertarian. Period. He categorically stated that Bill Clinton believed in 80% of what he himself believes in. Then he said that he cant say the same of and didnt complete the sentence. I think that he meant not just GW but both bushes."
Funny, I thought he was referring to Bill's WIFE when he failed to complete his sentence.
Well maybe that will teach the government in the UK to have more sensible programs in effect. Their insurance scheme was stupid to begin with and now they have gotten, one hopes, the message.
James that scheme is all over EU, everywhere with exception of one two states theres only 90% coverage and almost all countries have up to 20k euro covered
James "That seems to me like saying the owner of a house is entitled to rent for it as long as he accepts the risk that he might not get it back."
I am not sure that is a fair analogy. When you rent it out you accept the risk that your home may not get the qualtiy of care that you would provide is more appropiate and that does make sense. To be really fair we should have to pay for our own insurance on our money. We also should not have to accept the risk of constant devaluation of our savings which forces us to search for higher yield.
People who rent out their houses ARE taking a risk that they won't get it back. Plenty of landlords have turned up at their rental only to find the renters gone, the contaminated remains of a meth lab and the value of their property a total write off.
If they would like to purchase private insurance against this risk that's their perogative. If bank depositors were required to purchase private insurance against loss then their gains minus the cost of the insurance would yield a negative return. The fact that that is not the case currently indicates that there is a public subsidy.
diemos, are you saying that 100% of population is getting a subsidy that should be removed? please tell me who is in advantage in not getting a subsidy? those who dont use money? how many of them are there and how much do they pay in taxes? ou i forgot they dont use money
besides you know what rates are in the banks, i mean everyone who has money in bank is loosing it because the rates not covering even the inflation. if you own stocks you get an inflation hedge with risk, if you own money you are loosing it in the end.
You can get a feel of the "% of working age" not working (for whatever reason) by simply looking at the Employment-population ratio and subtracing it from 100% (unemployment would be included, but it is a fairly small part).
The uptick around 2003 represents people buidling bomb shelters for themselves. That's my favorite theory and I'm sticking to it! Or perhaps companies were just getting better at "encouraging" employees to leave. You know, using a hot fireplace poker or something. Or, maybe after 9/11 and the recession, people became so optimistic that they decided to retire early. Hurray!
Funny you should ask, next chart going up is a close up of the 2004 to present (with a trend line). I'm a polynomial junkie personally, moving averages are for wimps (tongue in cheek, since I cringe at the thought that any trend line is worth betting money on). It will be up shortly, in theory.
Not only that their deposit insurance rule is antiquated, their bureaucracy is a royal mess, on top of which their politicians keep on making ad hoc promises. Nobody has the gut to admit that the system is not working.
Everyone benefits from the subsidy during the long expansion as banks make more and more foolish loans. Then when the inevitable crisis hits everyone pays for that subsidy through the public bailouts. Account for the total costs over time and it's a net loser. Policies which distort the costs, risks and benefits of economic decisions lead to suboptimal allocation of capital compared to clearly seeing those factors up front.
You're right that our fiat currency is always depreciating and that this policy makes cash look more attractive but it's another kludge. The root cause of depreciating fiat currency is government money printing. You solve THAT problem by stopping the printing presses. We were talking about eliminating systemic risk from the banking system which is a different problem.
I disagree with a lot of people here, including CR. I think having a 90% insurance feature for a very large sum is a way to balance between moral hazard and reducing panic runs on banks.
Everyone needs some skin in the game, but if they lose, they aren't completely ruined.
diemos, i wont take 10% cut on my money. when i hear of troubles i move the money. the problem is unlike in usa, in my small country we have around 10 banks and all of them are heavily into mortgages (120%, ninja, 40 years, everything you can wish for) since we are an emerging market and have a nice RE bubble, so what am i suppoosed to do? my money is being eaten away by inflation and by extremly low interest rates. and since we are too small even our stockexchange is joke with ridicioulous small volume. the investment products are filled with fees and risk, so what should the savers do? hold money at home? ok thats an option since the soviets made damn sure only their army and the police are the only ones with guns in the east block
The Bank of England brought all this on by allowing pumping of house prices and enabling financing through such outfits as Northern Rock and it now suggests underwriting losses through increasing deposit insurance.
Meanwhile, the Fed is effectively trying the same with aggressive interest rate cuts staged at opportune times for the "bulls".
And now it is suggested Fannie and Freddie ought to be able to finance anything, anytime, any way.
Imho, definitely time to cash out and just buy and put away physical gold and silver, mostly stored in Swiss Bank and sit and watch and wait while these guys just keep debasing everything they can till there is no middle class left.
I'll take the 5,000 years of history that gold has as money any time against the crap that is now being exponded as rational today by the Fiat Ponzi Central Banks and all their so called governing authorities.
BTW, annual primary gold production is only 70 or 80 million ounces which is about $50 to $60 Billion per year. Seems any central bank can dump that much fiat into circualtion through cash or credit on any given day and i think that propensity has been well demonstrated by several in the past couple of months.
I sympathize. My savings are getting eaten away by inflation as well and most of my investment options are currently overvalued relative to what I see as economic fundamentals. It's a lot more fun to have a theoretical discussion about what's wrong with the current system and how it should be fixed than to figure out which way to jump to survive the current system.
revro 4:55 diemos 5:44, the obvious solution to your shared problem (of inflation eating away your savings) is trading your fiat monies for precious metals. Gold, silver, and platinum can fluctuate wildly but in the long term hold their value. PMs are the ultimate in conservative investing.
First, and totally agree...
They are going to have to do something, CR. A&L stock is declining again.
Your points are very well taken. Insuring deposits without regulatory oversight is a moral hazard (it encourages banks to take more risks), and if regulatory oversight can't figure out which institutions are at risk, what chance does the Average Joe have?
Surprise, surprise.
I certainly hope whatever is implemented includes the risk-based premium element. That seems key.
Let banks indulge in risk behavior but randomly shoot one of every ten execs of a failed bank.
The Chinese would do that.
Wary buyers in Britain drop plans for moving house [by 25%!]
Guardian (UK)
Thousands of homebuyers have abandoned plans to move house after the British banking crisis surrounding Northern Rock led to fresh uncertainty in the housing market.
Estate agents are reporting that vital internet traffic to homebuying websites is down by a quarter since the crisis began nine days ago. The number of potential customers going into their shops has slumped, too.
More at
Wary buyers drop plans for moving house |
Business |
The Observer
At the heart of every systemic risk there exists a lie. In this case the bank is lying when it tells depositors that they can have their money back whenever they want it. This is impossible because the money has been lent out. However, it's a lie that banks can often get away with for long periods of time.
Deposit insurance is a taxpayer funded, moral hazard inducing kludge to allow the banking game to continue instead of fixing the fundamental problem. You fix the fundamental problem by removing the lie.
Set up a banking system in which there are two kinds of accounts. Demand deposit accounts where the money is stored in the vault and is actually available at any time. Second, investment accounts where the banker is required to put in a minimum fraction of capital in a first loss position and the investors provide the rest of the money. Investors would only be able to exit their investments by selling their share to a third party or through liquidation of fund assets in a manner consistent with the natural time scale of the loans.
Such a system would have no systemic risk and would require no taxpayer funded insurance. It would also wipe out the profitability of bankers and thus will never be adopted.
Having posted that, I had a question that's been on my mind for a while (perhaps posting early in the comment chain will garner an answer). I'm sure many readers would share it.
How can I assess the safety of the bank where I'm at?
Isn't a bank that loans heavy to real estate in Stockton, CA much more at risk than one that loans to businesses in, say, West Virginia?
What websites or metrics would I use?
--
Thanks, CR, for emphasizing the Moral Hazard.
I have concluded that the Anglo-American econo-political system has turned into a morally bankrupt system and all Americans who support the current system are responsible. Why are they morally bankrupt? All changes of laws and rules AFTER THE FACT are criminal, as in changing the rules of the game in the middle of the game based on who is winning and who is losing. The mortgage and other lending abuses have been known and well publicized for years, no?
The criminal economic and political leaders of Americans support the irresponsible individuals and businesses and penalize the responsible ones! Disgusting. They are actively promoting bad behavior. What happened to contracts and property rights? I wonder how many Americans know that democracy is inimical to property rights (an observation by one of the best economic historians in the English language, Niall Ferguson) taking by force (taxes are taking by force) from the honest and hardworking people to feed the parasites, e.g., bankers and financiers of New York City, and irresponsible part of the general population. And my criticism is based strictly on the degree of abuse and not because the system cannot be perfect. The parasites have done so exceedingly well because of the corruption in the system and not because they are geniuses. They are crooks. Period. Fed is there primarily to feed the crooks.
The system of the...
Jas
How can I assess the safety of the bank where I'm at?
Apropos comment.
What websites or metrics would I use?
Quite a bit of information is available via the FDIC site. Figuring out which data is the meaningful stuff is the hard part. Any chance we could get an UberNerd tutorial on the subject ?
Diemos wrote Set up a banking system in which there are two kinds of accounts. Demand deposit accounts where the money is stored in the vault and is actually available at any time. Second, investment accounts where the banker is required to put in a minimum fraction of capital in a first loss position and the investors provide the rest of the money. Investors would only be able to exit their investments by selling their share to a third party or through liquidation of fund assets in a manner consistent with the natural time scale of the loans.
OK, if the bank is simply storing cash in the vault, it cannot make any money off it. Not only that, but it must pay for all the costs of servicing the account. Just how high do you wish checking fees to be? Not only that, but it would reduce the money supply considerably. Everyone would have cash in coffee cans under such a system.
"All changes of laws and rules AFTER THE FACT are criminal, as in changing the rules of the game in the middle of the game..."
But, Jas, the game is ongoing, never-ending. It doesn't stop and start so the rules can be adjusted. They must be changed on the fly, no? People sometimes do their best and still do the wrong things, in which case they are not liars or crooks, merely people of normal ability who failed, goofed, guessed wrong, blundered...
MaxedOutMama: ... it would reduce the money supply considerably.
And then how would I borrow hundreds of millions of dollars to keep tens of thousands of peasants enslaved in my fascist megacorp? Give me economies of scale or give me death!
The Chinese would do that.
they have 1 billion people, they can spare a few.
we need every banker we have to in US&K to compete.
--
OT, but real-time commentary
September 22, 2007
Greenspan on Clinton versus Bushes
Greenspan was interviewed on BOOK TV for 1.5 hours that ended an hour ago (recorded broadcast). He rejected the label of right wing Republican. He said that he is a libertarian. Period. He categorically stated that Bill Clinton believed in 80% of what he himself believes in. Then he said that he cant say the same of and didnt complete the sentence. I think that he meant not just GW but both bushes.
No wonder that Greenspan supported Clintons election during 1992 via what HW Bushs supporters thought his policy of not lowering the rate in time and sufficiently. It became very clear to Greenspan that GW will not reappoint him in 2004 unless the economy was super-charged during 2003 for the 2004 election (people dont feel the growth for a year). GW waited until the last moment before announcing Greenspans reappointment in June of 2004.
Yes, wonderful system we have to manipulate the economy for personal gains by the two most powerful leaders we have.
Jas
Off Topic:
With the change in rates, where does the US stock market go from here?
"It would also wipe out the profitability of bankers and thus will never be adopted."
Won't happen your right.
"Give me economies of scale or give me death!"
Will happen at some point at least the death part of it but I don't have a clue where your going with the economies of scale crap.
Dick, it is actually exceptionally injurious to a community to have a bank accepting deposits and funnelling that money away from the community to invest elsewhere. The Community Resources Act (CRA) was passed to keep that from happening, and there are prohibitions against setting up branches in other states just to rake in deposits. Please remember that banks are government charters, and as such, are expected to serve public interests as well as their own profitability.
That should give you a clue about the meaning of "money supply" in this context.
RayOnTheFarm: This FDIC page appears to let you search for bank financial data. For example, here are E*Trade Bank and Countrywide Bank, FSB for June 2007.
Interesting lines are Total Mortgage Backed Securities (SC22) and Other (non-government) MBS (SC222). For E*Trade they are $14.7 and $4, while for Countrywide they are $18.4 and $15.7. (These numbers are in billions of dollars.) Countrywide had a much higher fraction of non-gov't MBS85% versus 27%and therefore much bigger potential exposure to the flood of low-quality MBSes.
Note: I am not an expert, just someone who is curious too.
CR's suggestion is flawed.
Firstly most depositors with larger sums are old age persons. For them security and convenience is rather important.
Secondly with Wall Street's black magic spreading all over the world, risk averse elderly need at least some guarantees (as such they are penalised by low interest rates).
Hence $ 400,000 seems reasonable.
Another OT real-time comments
Taleb On Religion and Wall Street Crooks
Nassim Taleb, author of The Black Swan, was on BOOK TV minutes ago.
Just to give an example of his theory and how it applies in everyday life he said that he would never believe anyone who attacks bishops and priests, or religion in general, and doesnt attack the Wall Street strategists and advisers. Why? Because the latter are committing obvious fraud, according to Dr. Taleb.
Jas
"Deposit insurance is a taxpayer funded blah blah blah..."
Link for this assertion? Probably not, since the FDIC disagrees with you.
FDIC: Risk-Based Assessment System
--
"With the change in rates, where does the US stock market go from here?"
Don't know the next few weeks but the rate cut was because the economy is in serious trouble, much more than the Fed heads had "guessed." There are the worst guessers this side of Atlantic.
1,200, or lower, on S&P in 9 months. Below 1,000 in early 2009 and then all the hell will break loose when the depression is confirmed. I know, I know, the Fed would never allow depression. And NYPD will not allow rape and murder in NYC. Belief in Fed powers among educated Americans borders on idiocy. Fed has already baked the depression in the American e-con-pie. Actually, the Big One.
My suggestion: Please stay clear of the long side of the Scam Market.
Jas
I agree with Jas on the market.
For almost all of 2007, the market party has diverged from a troubled (and getting worse) economy. Going back to March, the market only listened to good news and exaggerated that. The market has consistently discounted negatives, especially housing and its ripples.
Eventually, probably within the next six months, the market will come back into alignment with a terrible economy and slower growth, if not recession.
But there really are two different U.S. stock markets now. In one market are large, internationally diversified blue-chip companies selling at reasonable values. In the other market are over-leveraged, over-valued, mostly smaller and domestically focused stocks that have become the darlings of hedge funds and other leveraged speculators. The latter are the ones that will get slammed.
F. Frederson,
During the S&L crisis these rules were on the books and yet the taxpayers wound up footing the bill for $125B.
Savings and loan crisis - Wikipedia, the free encyclopedia
Rules are only as good as they are followed and enforced.
Taxpayers also paid big time for the bailout of Continental Illinois in the 1980's.
not only did FDIC accounts get restored, but also non-FDIC eligible accounts too...
I put some more charts up if anyone is interested. I'm leaning more deflationist in the short-term (but still comfortable with a long-term stagflationist outlook).
Stag Mark, I see the employment side of the scale goes down to 61.5%. To papaphrase the line from Jaws, I think you're (soon) going to need a bigger chart.
unirealist,
The 0% to 100% chart does seem to give Bernanke a lot more wiggle room, lol.
Nah! Where's the fun in that? Box him I say. Box him good!
I think that there are more problems ahead
Three leading hedge funds are planning a break-up of beleaguered British bank Northern Rock according to a newspaper report on Sunday.
Three hedge funds plan Northern Rock raid: paper
| Reuters
Slice and dice.
They must have gotten the 100,000 pound figure from the US$100,000 figure. I would think 50,000 pounds would be enough to cover. But it should be 100% coverage. The people who need to exert pressure to keep banks from doing foolish things are the stockholders, since they are the ones who will be wiped out first. A small midwestern bank owned by friends of mine had a non-family President who secretly stole 8 million some years ago. That didn't affect the depositors at all but it sure hit the family that owned the bank. Dividends stopped and have yet to be resumed. The owners have learned to be more vigilant.
I think that there are more problems ahead
Me too.
I disagree that this is moral hazard. People with deposits are not investors and must not risk anything.
The bail-out is not for the bank, the money are given back to people only after bank goes belly up.
It's a right thing to do.
Taxpayers also paid big time for the bailout of Continental Illinois in the 1980's.
not only did FDIC accounts get restored, but also non-FDIC eligible accounts too.
But the stockholders got wiped out.
"The bail-out is not for the bank, the money are given back to people only after bank goes belly up."
It's the right thing to do as long as the banks are the ones footing the bill. The taxpayer shouldn't have to cover this kind of BS IMOP because if they do it is moral hazard as it will only lead to more banks taking risk with OPM.
"I disagree that this is moral hazard. People with deposits are not investors and must not risk anything."
If they are not investors then they should not be recieving any interest for leaving their money at the bank.
They should be paying the bank to store their money.
risk averse elderly need at least some guarantees
They are guaranteed to die sooner than the young.
Michael Pettis who is filling in for Brad Setser on his blog has a very very informative entry there. He gives his reasons to think that the Panic of 2007, as he calls it, is simply a blip in the rise of global liquidity and is not, as many here believe, the end of the world as we know it. He thinks international appetite for risk will probably rise instead of fall. Worth reading.
diemos thinks depositor don't deserve any interest on their deposits.
I aks why should they not received some money (never a lot) for allowing the bank to use their deposits to make money, on the money that they have "rented" as it were to the bank?
Pettis on the effect of sovereign wealth funds on global risk:
As China and the rest of the high-reserve countries increasingly recycle the US trade deficit into riskier assets, the sheer size of funds under management will appreciably drive global risk appetite up. This, as I wrote in my WSJ piece, will keep this crazy party (which has already gone on long enough) going for at least a few more years. This is also why I think it is extremely important to keep an eye on what these sovereign wealth funds are doing.
Banker
Welcome back.
" I think that there are more problems ahead"
Does this mean you are headed back into the bankerdome and we won't hear from you for a while?
Jas, I find your continued attacks at the root problems (corruption, immorality, etc) to be most refreshing.
Diemos' banking proposals also seem logical to me. That demand accounts would be unprofitable for banks is clear. They would have to charge service fees. This is how goldmoney and bullionvault operate. You pay for use of the vault, insurance, transactions, etc.
This model (fee-based demand accounts) doesn't work very well when the things you put in the vault have a short half-life (fiat). You need all sorts of alchemy to make that work.
I doubt I will ever see a fair banking system, but for my kids sake I hope so. We waste unbelievable resources on this beast. I should be programming right now, but I'm watching this goddamn financial system.
James,
I have no problem with depositors recieving rent on their money as long as they accept the risk that they might not get it back.
What people want is something for nothing, riskless returns. The only way for a deposit to be riskless is if it sits in the vault. The only way to generate rent is to loan it out. You can't have both at the same time. That's why our current banking system is fundamentally dishonest and why deposit insurance generates moral hazard. The taxpayer guarantees that if the bank's losses on their loans are sufficiently large taxpayer money will make them whole.
Northern Rock 'can't find buyer'
At least 12 of the UK and Europe's biggest banks have now decided not to buy the Newcastle-based lender, according to the Sunday Times.
The paper says banks have estimated that it would require too much capital - as much as £20bn - to successfully refinance Northern Rock.
Last week the government said it would guarantee all deposits held by Northern Rock, in an attempt to reinforce confidence in the firm.
However, some Northern Rock savers continued to queue outside some of the bank's branches to remove their funds.
A majority of analysts say the bank's future as an independent company is untenable, but a buyer has yet to come forward.
BBC NEWS | Business | Northern Rock 'can't find buyer'
A group of angry millionaires from London is to join those already seeking a $100m-plus settlement from Bear Stearns amid claims that hedge-fund managers working for the banking group gave misleading advice about their investments.
In the next week, at least eight London-based investors are expected to join a legal action against Bear Stearns, launched by Wall Street lawyer Jake Zamansky, following the collapse of two $1bn-plus hedge funds run by the investment bank. Other Britons and several British institutions have been contacted by the New York lawyer and could also become involved in the coming weeks.
A confidential report about the Bear Stearns hedge-fund case, obtained by The Observer, claims that the bank and its hedge-fund managers presented investors with charts that showed how 61 per cent of the funds assets were invested in safe 'asset-backed' securities and only 6.8 per cent invested in risky assets, such as so-called 'sub-prime' mortgage-related securities and derivatives.
It is Zamansky's contention, however, that more than 60 per cent of the fund was invested in sub-prime-related assets. 'If the funds were invested in safe assets, why did they lose 100 per cent of their value in June?' he said.
UK investors to battle Bear Stearns |
Business |
The Observer
UK buy-to-let housing fears seen overdone
UK buy-to-let housing fears seen overdone
| Reuters
Wow, that kind of reporting sounds familiar.
More effect of these global credit issues
Russian consumer lender halts some loans: report
Russian consumer lender halts some loans: report
| Reuters
MOSCOW (Reuters) - Russia's top consumer lender, Russian Standard Bank, has temporarily halted issuing cash loans as a result of the global credit crunch, the Financial Times reported on Saturday.
The FT quoted Chief Executive Dmitry Levin as saying the stoppage would last to the end of this month. The bank was also tightening requirements for credit cards and point-of-sale loans.
Stag Mark,
More good charts on your site - two questions on your 'Not in Labor Force' chart - how does that look normalized to the working age population (say % of working age) and what is that uptick around 2003?
Also, (oops ok three things...) what about some smoothing, a moving average though not sure of the period, and slope changes to the MA (wait, the four things...lol).
Good stuff, thanks!
jas, " September 22, 2007
Greenspan on Clinton versus Bushes
Greenspan was interviewed on BOOK TV for 1.5 hours that ended an hour ago (recorded broadcast). He rejected the label of right wing Republican. He said that he is a libertarian. Period. He categorically stated that Bill Clinton believed in 80% of what he himself believes in. Then he said that he cant say the same of and didnt complete the sentence. I think that he meant not just GW but both bushes."
Funny, I thought he was referring to Bill's WIFE when he failed to complete his sentence.
"I have no problem with depositors recieving rent on their money as long as they accept the risk that they might not get it back," says diemos.
That seems to me like saying the owner of a house is entitled to rent for it as long as he accepts the risk that he might not get it back.
Gee, that makes lots of sense, doesn't it?
Northern Rock 'can't find buyer'
Well maybe that will teach the government in the UK to have more sensible programs in effect. Their insurance scheme was stupid to begin with and now they have gotten, one hopes, the message.
James that scheme is all over EU, everywhere with exception of one two states theres only 90% coverage and almost all countries have up to 20k euro covered
James "That seems to me like saying the owner of a house is entitled to rent for it as long as he accepts the risk that he might not get it back."
I am not sure that is a fair analogy. When you rent it out you accept the risk that your home may not get the qualtiy of care that you would provide is more appropiate and that does make sense. To be really fair we should have to pay for our own insurance on our money. We also should not have to accept the risk of constant devaluation of our savings which forces us to search for higher yield.
James,
People who rent out their houses ARE taking a risk that they won't get it back. Plenty of landlords have turned up at their rental only to find the renters gone, the contaminated remains of a meth lab and the value of their property a total write off.
If they would like to purchase private insurance against this risk that's their perogative. If bank depositors were required to purchase private insurance against loss then their gains minus the cost of the insurance would yield a negative return. The fact that that is not the case currently indicates that there is a public subsidy.
diemos, are you saying that 100% of population is getting a subsidy that should be removed? please tell me who is in advantage in not getting a subsidy? those who dont use money? how many of them are there and how much do they pay in taxes? ou i forgot they dont use money
besides you know what rates are in the banks, i mean everyone who has money in bank is loosing it because the rates not covering even the inflation. if you own stocks you get an inflation hedge with risk, if you own money you are loosing it in the end.
energyecon,
Stag Mark,
LOL well lets see some r bar squared with that and a...t-test? Trying to dredge up the prob stats from some survivor gray cells.
energyecon,
Want to know how much I trust R-squared?
Please watch the last half of this short video and you'll know, lol.
The Ugly Show - Episode 4
Another chart of the "Not in Labor Force" data is up. Enjoy.
Not only that their deposit insurance rule is antiquated, their bureaucracy is a royal mess, on top of which their politicians keep on making ad hoc promises. Nobody has the gut to admit that the system is not working.
Premium content | Economist.com
This breeding ground for moral hazard was once the birth place of the modern-day banking. Really sad.
Meanwhile, the UK banks rely heavily on CP and interbank loans, in addition to securitized debt.
Premium content | Economist.com
revro,
Everyone benefits from the subsidy during the long expansion as banks make more and more foolish loans. Then when the inevitable crisis hits everyone pays for that subsidy through the public bailouts. Account for the total costs over time and it's a net loser. Policies which distort the costs, risks and benefits of economic decisions lead to suboptimal allocation of capital compared to clearly seeing those factors up front.
You're right that our fiat currency is always depreciating and that this policy makes cash look more attractive but it's another kludge. The root cause of depreciating fiat currency is government money printing. You solve THAT problem by stopping the printing presses. We were talking about eliminating systemic risk from the banking system which is a different problem.
Stag Mark,
Rawsome! And ruh-roh - looks like some kind of slope change around the beginning of the year (2007), no?
I disagree with a lot of people here, including CR. I think having a 90% insurance feature for a very large sum is a way to balance between moral hazard and reducing panic runs on banks.
Everyone needs some skin in the game, but if they lose, they aren't completely ruined.
diemos, i wont take 10% cut on my money. when i hear of troubles i move the money. the problem is unlike in usa, in my small country we have around 10 banks and all of them are heavily into mortgages (120%, ninja, 40 years, everything you can wish for) since we are an emerging market and have a nice RE bubble, so what am i suppoosed to do? my money is being eaten away by inflation and by extremly low interest rates. and since we are too small even our stockexchange is joke with ridicioulous small volume. the investment products are filled with fees and risk, so what should the savers do? hold money at home? ok thats an option since the soviets made damn sure only their army and the police are the only ones with guns in the east block
The Bank of England brought all this on by allowing pumping of house prices and enabling financing through such outfits as Northern Rock and it now suggests underwriting losses through increasing deposit insurance.
Meanwhile, the Fed is effectively trying the same with aggressive interest rate cuts staged at opportune times for the "bulls".
And now it is suggested Fannie and Freddie ought to be able to finance anything, anytime, any way.
Imho, definitely time to cash out and just buy and put away physical gold and silver, mostly stored in Swiss Bank and sit and watch and wait while these guys just keep debasing everything they can till there is no middle class left.
I'll take the 5,000 years of history that gold has as money any time against the crap that is now being exponded as rational today by the Fiat Ponzi Central Banks and all their so called governing authorities.
BTW, annual primary gold production is only 70 or 80 million ounces which is about $50 to $60 Billion per year. Seems any central bank can dump that much fiat into circualtion through cash or credit on any given day and i think that propensity has been well demonstrated by several in the past couple of months.
revro,
I sympathize. My savings are getting eaten away by inflation as well and most of my investment options are currently overvalued relative to what I see as economic fundamentals. It's a lot more fun to have a theoretical discussion about what's wrong with the current system and how it should be fixed than to figure out which way to jump to survive the current system.
revro 4:55 diemos 5:44, the obvious solution to your shared problem (of inflation eating away your savings) is trading your fiat monies for precious metals. Gold, silver, and platinum can fluctuate wildly but in the long term hold their value. PMs are the ultimate in conservative investing.