Friday, March 14, 2008

good question, and a rant


David sent me the following e-mail:
subject: the elephant in the room

Still trying to puzzle this out.

Banks are failing, not due to lack of regulation (Mish). But the elephant of Fractional reserve lending.

Okay I get that, what I don't get is how can a bank lose liquidity when they never had it in the first place.

They make 'money' by typing it into the computer. Yes, that's simplified, but the money never was there, so how can they lose nothing?

And yet us the 'great unwashed' will 'bail-out' the banks. Would love to see a discussion on your blog around this, maybe someone can enlighten me.


David poses a salient question, that I cannot readily answer - but to say that so much of what we are taught about the world is a bunch of bullshit.

How can a private bank (The Federal Reserve) have such control over Americans' money, and their lives? They just pulled $200 billion out of their asses to "save" the American economy. Where did that $200 bill. come from? That's easy - from interest charged on the (imaginary) trillions that America owes, and so on - back to the days of JC and the boys.

Why did they kill JFK? Maybe because he was going to release America from the strangle-hold of the Fed. Reserve, and re-introduce a government-backed "green back"?

Why is our government - through the Bank of Canada - buying frozen ABCP? I wouldn't buy it, would you? Ah, but we are buying it, and we will be bailing out all the Fucked Buyers, and CIBC, and, and, while we are impolitely raped in many other ways - like carbon taxes, property taxes, and on, and on.

And you thought that feudalism, slavery, oligarchy, and royalty were dead?

Collectively, we are a bunch of under-educated, but over-inculcated idiots. I can never get the image of the deported-to-camps Jews, Communists, Artists, etc. during WWII, who carried their suitcases with them in the belief that everything would be ok.

Man's inhumanity to man has not lessened in any way, and the pendulum is swinging back to very dark days. The Depression was no joke, and we are headed to something much worse.

I hope that people can figure out how to eat granite.

27 comments:

Anonymous said...

the central bank is allowing banks to borrow against some of the safer abcp. the boc isn't buying it. i felt the same way as you a while back when i read too many gold bug sites. the other stuff like mbs and cdo's are in a big heap of trouble. boc's new governor made a good speech the other day it's on the boc web site you should check it out.

solipsist said...

boc's new governor made a good speech the other day

I thought that he was disingenuous, and frankly, full of shite.

Just what is "safer" ABCP?

By-the-by, I don't subscribe to "gold bugs" in any way, shape, or form.

I'm into seed stock.

I may be disastrously mis-informed, but I was certain of news reports that BoC was buying ABCP.

solipsist said...

Maybe this link will help, but I am over my head here.

Anonymous said...

the boc is the bankers bank. they lend to the banks but the banks must have collateral. then the banks can lend to us. the boc is not buying abcp they are allowing it as collateral. they can make it safer by offering thirty cents on the dollar or they can take it apart and only lend against the good stuff

Anonymous said...

central banks will do what they can in this crisis but they only have billions to play with. this credit crisis is dealing with trillions

solipsist said...

the boc is not buying abcp they are allowing it as collateral

I'm really trying to be non-confrontational, but is not "allowing as collateral" not buying? Ultimately?

solipsist said...

but they only have billions to play with. this credit crisis is dealing with trillions

Maybe it's not me that is "over my head"...

Anonymous said...

sure they will use it as collateral for 28 days or 90 days but then the banks can have it back. if it really is s**t collateral and they keep renewing it then there is a problem but central bankers don't want it on their balance sheet either. the boc is trying to get the money moving again but they are not printing.

Anonymous said...

In US, Fed and JP Morgan Chase are bailing out Bear Sterns

http://tinyurl.com/23fr5r
Bear Stearns In Crisis
Carl Gutierrez, 03.14.08, 10:25 AM ET

Unbelievable! Only days after Bear Stearns Chief Executive Alan Schwartz publicly said there was "absolutely no truth" to the speculation that the brokerage firm had liquidity problems, Bear Stearns is having to pass the hat to keep its head above water.


Here in Canada, there is an article asking:

http://tinyurl.com/34lqru
Should we pay for bankers' folly?
Madelaine Drohan
Globe and Mail Update
March 13, 2008 at 1:22 PM EDT

OTTAWA — As the credit squeeze continues to worsen in the U.S., the talk has turned to using public funds – taxpayers' money – to bail out the banks.

We are nowhere near that state of alarm in Canada. Our banks are less exposed to the risky products that are shaking the financial foundations of Wall Street. But let's suppose for a moment that the ripple effect Canada is already feeling turns into a financial tsunami. Were that to happen, we need to ask ourselves: Should Canadian taxpayers pay for the fecklessness of bankers?

Anonymous said...

she lost her credibilty after:

let's suppose

Anonymous said...

this is the worst credit crisis since 1929 and there is lots to be angry about but ranting at central bankers that are monetizing debt or writing articles in the globe about it is silly. that's what central bankers do. they monetize debt.

if they so much as hint at bailing out banks with tax dollars i will be right beside you with the pitch fork and torch.

in the mean time sit back and enjoy the show, it's a once in several life times chance to see some trillion dollar fireworks.

solipsist said...

Hey anon. 123 ABC, Your input is much appreciated, but could you be 123, A, B, C, or D, Jumpin' Juniper, or sommat? Just to keep it straight.

T'anks

solipsist said...

this is the worst credit crisis since 1929 and there is lots to be angry about but ranting at central bankers that are monetizing debt or writing articles in the globe about it is silly. that's what central bankers do. they monetize debt.

if they so much as hint at bailing out banks with tax dollars i will be right beside you with the pitch fork and torch.

in the mean time sit back and enjoy the show, it's a once in several life times chance to see some trillion dollar fireworks.


I more or less agree, but as I said (somewhere) - 'it's like watching a movie that you already know the ending too'.

If the central banks are propping up the greed and foolishness of the "private" banks, we have a good idea that you and I will be paying the bill.

But, I am the "I told you so" type.

Anonymous said...

Re; bank bailouts.

It wasn't hard to see this coming - kinda like a drunk in a fight; coming in with a big old round-house punch that takes forever to hit his target. You can see it coming from a long ways out.

And it won't even matter if you participated in the RE ponzi scheme or not, everyone will get nailed.

This truly is like watching a bad movie - predictable as hell, too.

Anonymous said...

sorry im pretty new to blog comments' and thanks for bringing up the topic i will be gm or j6p here and elsewhere.

j6p

Anonymous said...

there will be lots of suprises yet. if i knew how this was going to end i would short the heck out of bank of xxxxx and rake in the profits. imho i think the commodities bubble is going to burst and thats when it will hit the fan for canada. but others say oil to 200 and gold to 1000 which will keep canada solvent.

j6p

Anonymous said...

make that gold 2000

j6p

solipsist said...

Here is a good take on liquidity.

Still Pretending
The maneuvers that the big banks are making nowadays, along with their enablers at the Federal Reserve and elsewhere in Washington, really amount to little more than the old Polish blanket joke -- in which (excuse my concision) the proverbial Polack wants to make his blanket longer, so he scissors twelve inches off the top and sews it onto the bottom. Only in this case, the banks are shearing x-billions of losses off the top of their blankets and re-attaching x-billions of new debt onto the bottom. This new debt, of course, goes to cover the old losses and only represents further losses-to-be-reported-later, since the banks are basically insolvent. Borrowing more money when you're broke doesn't make you less insolvent.

The banks can probably keep this gag running a little longer, but not without consequences. My guess is that it spins out of control in March sometime when some more hedge funds blow up and at least one big bank, perhaps Citi, rolls belly up like a harpooned whale. The game is really over, and all the playerz know it. The consequence of continuing to pretend the meta-fiasco of Ponzi endgame is fixable will be an even more shattering depression than the one we're already in for.

Anonymous said...

the us fed is getting close to that polish blanket circle jerk.

canada has a way to go yet.

banks in canada still seem to have loose lending standards though. and according to our government we have lots of jobs so the credit party seems to still go on.

j6p

Anonymous said...

not sure how the kunstler link attached to my post but i don't really like his writing much. even if he did save us all from y2k

j6p

Anonymous said...

Borrowing more money when you're broke doesn't make you less insolvent.

The banks can probably keep this gag running a little longer, but not without consequences.


Good commentary, although, I take exception to the conclusion that banks will face any consequences.

That simply won't happen. They operate a no-risk business plan - John Q. Public will always bail them out.

Anonymous said...

leverage

if the 'reserve' is 10%, for every $1000 on deposit the bank can lend out $10,000

that's fractional reserve lending.

last figure I saw calculated for the Royal bank (1999) had there reserve at less than 1%

damn!

we all understand when you walk in and ask for a mortgage, the bank doesn't have $500K in the vault. they just type the numbers in the computer and collect interest on something they didn't have.

what a business model, one can admire it in some respect.

this is the elephant in the room that no one seems willing to talk about.

why? do you feel a fool if you openly acknowledge what slaves we really are.

we need to talk, and maybe change will happen.

david

Strataman said...

Anonymous; There's been some bad links on this site. Suggest you not link your whole conversation as I for one am not going to follow an unamed link. Use tiny url or the actual website address.

Tony Danza said...

Anon 11:12 wrote:

if they so much as hint at bailing out banks with tax dollars i will be right beside you with the pitch fork and torch.


They already have bailed out the Canadian banks in advance, it's called the CMHC. I also guarantee you that the Canadian banks have had their mitts in the same cookie jar as the US banks and we'll be bailing them out soon enough.

OT, Why is it that Canadians think we are so much more financially conservative/astute than our neighbours to the south when all evidence point to the contrary? I used to think Americans were loudmouth braggarts but now I see our true colours and it's disturbing.

Billy TwoBaulz said...

Tony Danza:

You're dead right IMHO. There's a surprising level of arrogance among Canadians about our ability to come out smelling of roses out of this crisis - but I agree, Canadians are among the most financially inastute and business-naive people in the developed (and developing) world. Don't get me wrong, I'm Canadian of European extraction. But sometimes I think the Chinese-Canadians are the only ones keeping business afloat. European-Canadians are better at ripoff schemes and graft than real business.

We will find out how bulletproof and astute Canadians are regarding debt and risk over the next few years! Hubris and arrogance are rarely rewarded.

Billy TwoBaulz said...

I would add that the Brits are among the most financially and business-savvy people in the West IMHO. A highly literate and canny people overall, even beyond financial smarts. I lived in the UK the last few years. And since the UK is in deep doodoo, I can't see how Canada will avoid it.

Tony Danza said...

boc's new governor made a good speech the other day

I thought that he was disingenuous, and frankly, full of shite.


Exactly, we've entrusted the BOC to a 42 year old investment banker who's only known good times and has zero experience in the shite storm financial environment that is approaching. You have to know he's only capable of doing exactly what Boom Boom Ben Bernanke dictates. But I'm long the USD so it's a wash for me.