Suggested Discussion Outline

Post Reply
johnkarls
Posts: 1712
Joined: Fri Jun 29, 2007 8:43 pm

Suggested Discussion Outline

Post by johnkarls »

.
SUGGESTED DISCUSSION OUTLINE

The central problem at the core of "The Bankers' New Clothes" is how thin the capital ratios are for commercial banks, say only 3% of deposits -- compared to, say, even 20% equity being considered "thin" for regular corporations and less than 20% equity being considered "sub prime" for a home mortgage. For Admati and Hellwig, the solution is obvious = increase the capital ratios required by bank regulators.


It is respectfully suggested that we focus on the following salient issues:


A. Why are banks desirable or even necessary??? (If, indeed, they are!!!)


A-1. What are their typical investments???

A-1-a. Credit-card credit at exorbitant interest rates.
A-1-b. High-risk, high-return investments such as from the 1990’s through the 2008-201? Economic Meltdown, joining the herd of pension funds and university endowment funds in investing in sub-prime mortgage pools.

NB-1: As we have studied many times, commercial banks generally do NOT make loans to business [in general, only the CHUMP American companies that have NOT exported American jobs need loans, and there is fierce competition to make loans to them from among the tax-haven subs of the American companies that HAVE EXPORTED AMERICAN JOBS because virtually all of the worldwide profits of the job-exporting companies is captured in the tax-haven subs which, as a practical matter, are forced by the U.S. tax law to loan the funds to the unrelated CHUMP companies -- for more details, please see Item 2 posted in the First Section of http://www.ReadingLiberally-SaltLake.org and other materials referenced therein.]

NB-2: As we have studied many times, commercial banks do NOT provide conventional mortgage financing (as distinguished from originating mortgages which they immediately sold to Fannie Mae and Freddie Mac in the old days before the Economic Meltdown, and nowadays to Chairman Ben Bernanke and his Federal Reserve which have been buying them up for the last year at the rate of $85 Billion/month for a total of $1 TRillion and counting).

NB-3: Commercial banks do NOT even provide many automobile loans because most of the automobile manufacturers have long since created their own finance subs in order to compete with each other for car sales.


A-2. What are their primary funding sources???

A-2-a. FDIC-guaranteed deposits (up to $250,000/account).
A-2-b. Capital from shareholders which, our authors point out, is less than 10% of total funding.


B. Have our authors made their case that the thin capital ratios of commercial banks are inadequate???


C. Have our authors made their case that the solution is to increase drastically the capital ratios of commercial banks???

NB: Is a better solution --
WHEREAS, since commercial banks do NOT make any worthwhile loans (just credit-card loans at exorbitant interest rates and high-risk high-rate investments that are made, and can be made solely, by pension plans and university endowment funds), AND
WHEREAS, since commercial banks obtain most of their funds from FDIC-guaranteed deposits for which taxpayers must provide bailouts whenever the particular government-guarantee corporation goes bankrupt (as occurred during the Savings & Loan crisis of the 1980’s and 1990’s and would have occurred to the FDIC vis-à-vis the commercial banks during the 2008-201? Economic Meltdown if the bailouts had not been provided before the banks could go bankrupt),
WOULDN’T IT MAKE MUCH MORE SENSE for the U.S. government to provide society with deposit institutions that invest solely in U.S. government debt??? After all, investments solely in U.S. government debt would not require any guarantees (unless the “sky is falling” and the U.S. dollar is going in the toilet), and with zero risk, current capital ratios would be more than adequate!!!


D. Proposed Six-Degrees-Of-Separation E-mail Campaign

As explained in the first attachment to this e-mail (which is also the first item posted under “Participant Comments” for 8/14/2013 on http://www.ReadingLiberally-SaltLake.org) --

Requesting President Obama to propose legislation amending the U.S. Code to spell out that in addition to the twin objectives of the U.S. Federal Reserve to minimize inflation while minimizing unemployment, the U.S. Federal Reserve should also be tasked with investing in 30-year home mortgages whenever the private-market interest rate on such mortgages exceeds a shorter-term interest rate, say the rate on 10-year U.S. Treasury Notes.

Pat
Site Admin
Posts: 170
Joined: Mon Sep 17, 2007 3:11 pm

The Proposed Six-Degrees-Of-Separation E-mail Campaigns

Post by Pat »

.
For the sake of good order, it seemed appropriate to record the disposition of the two Proposed Six-Degrees-Of-Separation E-mail Campaigns contained in the Suggested Discussion Outline in case these topics are ever discussed again.

First Proposed E-mail Campaign (quoting from the Outline) =

WHEREAS, since commercial banks do NOT make any worthwhile loans (just credit-card loans at exorbitant interest rates and high-risk high-rate investments that are made, and can be made solely, by pension plans and university endowment funds), AND
WHEREAS, since commercial banks obtain most of their funds from FDIC-guaranteed deposits for which taxpayers must provide bailouts whenever the particular government-guarantee corporation goes bankrupt (as occurred during the Savings & Loan crisis of the 1980’s and 1990’s and would have occurred to the FDIC vis-à-vis the commercial banks during the 2008-201? Economic Meltdown if the bailouts had not been provided before the banks could go bankrupt),
WOULDN’T IT MAKE MUCH MORE SENSE for the U.S. government to provide society with deposit institutions that invest solely in U.S. government debt??? After all, investments solely in U.S. government debt would not require any guarantees (unless the “sky is falling” and the U.S. dollar is going in the toilet), and with zero risk, current capital ratios would be more than adequate!!!

Second Proposed E-mail Campaign (quoting from the Outline) =

Requesting President Obama to propose legislation amending the U.S. Code to spell out that in addition to the twin objectives of the U.S. Federal Reserve to minimize inflation while minimizing unemployment, the U.S. Federal Reserve should also be tasked with investing in 30-year home mortgages whenever the private-market interest rate on such mortgages exceeds a shorter-term interest rate, say the rate on 10-year U.S. Treasury Notes.

******************************************

There were 11 in attendance at the meeting.

Although the overwhelming majority appeared to favor both e-mail campaigns, Utah Owl who had proposed the book on which we were focusing and one other member were “strong as horse radish” that we should support the authors’ recommendation of increasing capital ratios in order to minimize the risk of governmental bailouts of banks, rather than the first e-mail campaign proposal to instead eliminate (rather than merely minimize) the risk of bailouts.

Since our policy has always been that our official e-mail campaigns must be supported unanimously at one of our meetings (with a minimum quorum of 6) or, at most, have only one dissenter (in which case we describe the recommendation as supported by only a consensus), the first proposal could not be officially recommended.

Unfortunately, the same two individuals who opposed the first e-mail campaign proceeded to oppose the second with the result that it could not be officially recommended either.

Post Reply

Return to “Discussion Outline - Our Current House-Of-Cards National Banking System - Aug 14”

Who is online

Users browsing this forum: No registered users and 1 guest