Geithner’s Bank Bailout Plan
by Tom on February 16, 2009
in Market Musings, banks
Thanks to Barry at The Big Picture for tipping me off to this cartoon.
Barry’s suggestions about what to do….
by Tom on February 9, 2009
in Market Musings, banks
I’ve been a big fan and reader of Barry Ritholtz for quite some time. Listed below are what he’s suggesting should be proposed tomorrow. Makes a lot of sense to me. What do you think?
Tom Vanderwell
Media Appearance: CNBC’s Fast Money (2/9/09) | The Big Picture
My suggestions:1. Stop Regulatory Capture: Saving the banks should not be the goal; Saving the finacnial system, credit operations and taxpayers should be. No more “sweetheart” deals for the incompetant creators of the mess!
2. Bank Aggregator: Federal assistance to the private equity sector buying toxic assets sounds like a bad deal for taxpayers: We have all the risk, but private equity has all the upside;
3. Good Bank/Bad Bank is a stop gap measure. The banks that are insolvent should not be rescued. Let the mortally wounded banks die, and spin out their best components — adequately capitalized, with zero debt!
4. Foreclosure Mitigation will only work if we recognize that a modest amount of delinquent homes can be saved from foreclosure; Unfortunately, the days of easy credit put too many people in homes they could not possibly afford;
5. Expanded Insurance Wrapper: Has not worked. The Bank of America and Citigroup bailouts had the US taxpayer guarantee the bad paper; The banks still went to hell, until yet another rescue plan materialized;
6. Transparency in Governance is a good idea; Does this mean the Fed will be revealing what paper they are holding?
7. Stress test? Saving Isn’t that suppsoed to be happening already with these banks via the FDIC?
Interesting take on Banking…..
What do you think?
Large vs Small Bank Lending | The Big Picture
“Did the Fed get the result it desired from shoving rates down like this? You tell me what you think. The two biggest banks actually loaned out less money in this month, according to reports, than they had in the month prior to their being handed $45 billion apiece of money from the U.S. Treasury. Meanwhile, small banks which had refused to accept even one penny of Treasury money had stepped up their lending aggressively.Most small banks are run the way banking used to be done and is supposed to be done. They take money in from savers-depositors. They lend it out to their own customers whom the managers and bank officers come to know well. They finance local business needs and local mortgages, often keeping the mortgages in its own portfolio. It was mostly loans from local and regional lenders that made it possible for home sales to actually turn up in the most recent month’s data.
My question is this: Does the Fed feel very low rates have done their job? Have they begun to edge rates back up even as markets have been distracted by the stimulus debate?
A Primer on Fractional Reserve Banking….
Thanks to Barry Ritholtz at The Big Picture for reprinting this (it was originally printed in Britain in 1957)…..
Enjoy
Q: What are banks for?
A: To make money.
Q: For the customers?
A: For the banks.
Q: Why doesn’t bank advertising mention this?
A: It would not be in good taste. But it is mentioned by implication in references to
reserves of $249,000,000,000 or thereabouts. That is the money they have made.
Q: Out of the customers?
A: I suppose so.
Q: They also mention Assets of $500,000,000,000 or thereabouts. Have they made that
too?
A: Not exactly. That is the money they use to make money.
Q: I see. And they keep it in a safe somewhere?
A: Not at all. They lend it to customers.
Q: Then they haven’t got it?
A: No.
Q: Then how is it Assets?
A: They maintain that it would be if they got it back.
Q: But they must have some money in a safe somewhere?
A: Yes, usually $500,000,000,000 or thereabouts. This is called Liabilities.
Q: But if they’ve got it, how can they be liable for it?
A: Because it isn’t theirs.
Q: Then why do they have it?
A: It has been lent to them by customers.
Q: You mean customers lend banks money?
A: In effect. They put money into their accounts, so it is really lent to the banks.
Q: And what do the banks do with it?
A: Lend it to other customers.
Q: But you said that money they lent to other people was Assets?
A: Yes.
Q: Then Assets and Liabilities must be the same thing?
A: You can’t really say that.
Q: But you’ve just said it! If I put $100 into my account the bank is liable to have to pay it
back, so it’s Liabilities. But they go and lend it to someone else, and he is liable to have to
pay it back, so it’s Assets. It’s the same $100 isn’t it?
A: Yes, but….
Q: Then it cancels out. It means, doesn’t it, that banks haven’t really any money at all?
A: Theoretically……
Q: Never mind theoretically! And if they haven’t any money, where do they get their
Reserves of $249,000,000,000 or thereabouts??
A: I told you. That is the money they have made.
Q: How?
A: Well, when they lend your $100 to someone they charge him interest.
Q: How much?
A: It depends on the Bank Rate. Say five and a-half percent. That’s their profit.
Q: Why isn’t it my profit? Isn’t it my money?
A: It’s the theory of banking practice that………
Q: When I lend them my $100 why don’t I charge them interest?
A: You do.
Q: You don’t say. How much?
A: It depends on the Bank Rate. Say a half percent.
Q: Grasping of me, rather?
A: But that’s only if you’re not going to draw the money out again.
Q: But of course I’m going to draw the money out again! If I hadn’t wanted to draw it out
again I could have buried it in the garden!
A: They wouldn’t like you to draw it out again.
Q: Why not? If I keep it there you say it’s a Liability. Wouldn’t they be glad if I reduced
their Liabilities by removing it?
A: No. Because if you remove it they can’t lend it to anyone else.
Q: But if I wanted to remove it they’d have to let me?
A: Certainly.
Q: But suppose they’ve already lent it to another customer?
A: Then they’ll let you have some other customers money.
Q: But suppose he wants his too….and they’ve already let me have it?
A: You’re being purposely obtuse.
Q: I think I’m being acute. What if everyone wanted their money all at once?
A: It’s the theory of banking practice that they never would.
Q: So what banks bank on, is not having to meet their commitments?
A: I wouldn’t say that.
Q: Naturally. Well, if there’s nothing else you think you can tell me….?
A: Quite so. Now you can go off and open a banking account!
Q: Just one last question.
A: Of course.
Q: Wouldn’t I do better to go off and open up a bank
Word of the Year: Bailout | The Big Picture
by Tom on December 1, 2008
in Market Musings
The word “bailout,” which shot to prominence amid the financial meltdown, was looked up so often at Merriam-Webster’s online dictionary that the publisher says it was an easy choice for its 2008 Word of the Year.
The rest of the list is not exactly cheerful. It also includes “trepidation,” “precipice” and “turmoil.”
“There’s something about the national psyche right now that is looking up words that seem to suggest fear and anxiety,” said John Morse, president of Springfield-based Merriam-Webster.
Word of the Year: Bailout | The Big Picture.
I wish I could say that this surprised me, but it doesn’t.
Anyone want to venture what they think the word of the year for 2009 is going to be? I’m going to do a post by December 15, 2008 that has what I think the top 5 choices of word of the year for 2009 are going to be and I’m going to set it to go for December 1, 2009 so we can all see how accurate (or totally off base) I was.
Quotes of the Day
by Tom on November 24, 2008
in Market Musings
Courtesy of Barry Ritholtz at the Big Picture
“If they are too big to fail, make them smaller.”
-former Nixon Treasury Secretary George Shultz, said about Fannie Mae and Freddie Mac.
“Buying a house,” he said, “is not the same as buying a house on fire.”
- James Dimon, CEO JPMorgan, on his lowball offer for Bear Stearns
Tom
Stock Market Rollercoaster
by Tom on November 18, 2008
in Market Musings
courtesy of The Big Picture
The 11 Blunders of Hank Paulson | The Big Picture
by Tom on November 18, 2008
in Market Musings
The 11 Blunders of Hank Paulson
Strategist Ed Yardeni says that “everything that [Hank] Paulson has done or endorsed has worsened the credit crisis and sent stocks reeling.”
The 11 Blunders of Hank Paulson | The Big Picture.
Read what Barry and Ed have to say, and then come back and tell me. What do you think of the job that Hank Paulson is doing? Oh, and could you do any better?
110 Banks Have Asked for $220B Under Bailout Plan | The Big Picture
by Tom on November 14, 2008
in Market Musings, banks
At least 110 banks have requested about $220 billion from the Treasury Department’s rescue fund, and many more are expected to have submitted applications before Friday’s deadline.
The tally doesn’t include requests from four life insurance companies that are seeking regulatory approval to purchase savings and loans in order to become eligible for government funds.
110 Banks Have Asked for $220B Under Bailout Plan | The Big Picture.
Okay we’ve had 19 banks fail and 110 of them want bailout funds. And we’ve got 4 life insurance companies who want to become savings and loans so they can get bailout?
Oh, and don’t forget that American Express, which if I recall correctly, is a credit card and travel company? Is suddenly transformed, in literally hours, into a bank. (Oh, and I believe it normally takes months to years to become a bank).
The only thing I can say is…..
Tax Facts for a Saturday Afternoon
by Tom on November 8, 2008
in Market Musings
Some fascinating tax data from Vincent Farrell of Soleil Securities:
Top 1%
If you are lucky or hard-working enough to have earned $364,657 in 2006, the last year for which data is fully available, you are in the top 1% of earners.
That group earned 22% of all income and paid 40.4% of all taxes levied on individuals.
The top 1% paid almost as much as the lower 95%! The percent of taxes paid by the top 1% has increased from 19% of all tax to the current 40% over the last 25 years.
Top 5%
$145,283 in earnings landed you in the top 5% of earners, and the top 5% paid 60% of all taxes.
Top 10%
$103,912 was needed to qualify for the top 10%, and that group paid 70% of all taxes.
Top 25%
The top 25% of incomes (over $62,066) paid 86% of taxes.
Non Tax Payers
It’s estimated that, in 2009, well over 40% of American earners will pay no Federal tax.
