I dont oppose leverage. What I oppose is the government intervening with the economy and this faus 'inflation' based justification. I recognize that asset bubbles and hyperinflation have been the cause for most economic crashes (all?). Notice, I don't think there is a cureall for failure. Failure is unavoidable. Leveraging failure is a way to accelerate the collateral damage of that failure. I think our problem is rushing to fix failure...and we have proven our ONLY solution...is more money. Whether it is the monetarists idea to lower reserves or having the fed buy a bunch of Notes, or the Keynsians idea to have govt spend massive amounts of money, it cannot be justified considering deflation is natural. Even in your examples, most of your links lead to several of a few scenarios: 1. Hyperinflation induced by a government printing notes to fund a war (from Greece to USA) 2. Hyperinflation induced by debasement of a metallic currency (from Rome to Europe) 3. Bank run induced asset crash Hyperinflation has been the culprit. It has occurred due to printing more currency. If the government was on a metallic supply, then they started making new coins with cheaper metals to increase the money supply. If it was just notes, then they just turned on the printing machine. Here is the problem ARDY - everytime a banker lends dollars beyond the reserve, your economic security lies in the probability of success of the banker's investment. If you had a 100% lending reserve, if a venture failed and other depositors got worried and all rushed to get their money back, they would be able to do so as the bank would have all their money available. As soon as you lend out 2-3 times more money than you have in deposits, all the borrowers have ratcheted up the money supply. They increase the prices of assets. As long as they make money, you are fine because they can pay off their loans. But we have recognized, there are no gaurantees in business...no completely safe bets...further, risk is intertwined with reward. We lend out 9 dollars for every deposit we have! The only response to falling assets is flood banks with more liquidity...but the liquidity is not real...it is nominal. If you think about it, flooding the money supply in response to asset prices falling is a way to subsidize banks and asset owners. They benefit full time from that because it keeps the cost of credit low and supports new loans. Do you not agree that this is folly? Do you not see how this rewards one class of people? As soon as assets show weakness, we debase the money supply? Notice how we use the term 'debase' in history but have completely abandoned the term in modern times? We stopped using the verb that negatively connotes the actions that reduce purchasing power. ARDY, do you not see that inflation only reduces purchasing power for the people at the end of the line? As long as you are first in line, you have no reason to complain because YOU benefit...prices dont increase instantly. My friend, money supply tampering is a ponzi scheme. ARDY - if you did not have a central bank that regulated the money supply, market forces would be allowed to kill off bad investments. The natural restriction of spending would shrink the money supply leading to deflation. Labor deflation would make it cheaper to hire. Office deflation would make it cheaper to rent offices. However, the purchasing power of money would increase for every percentage that the prevailing prices fell making it much easier for Entrepreneurs to bootstrap new businesses. They could start new, more sound businesses in the rubble of failure. This would be natural capitalization. The economy would still have ups and downs. However, no one class of people would benefit from government intervention.
???? Didn't half of Wall Street just go bankrupt and of the ones that survived didn't most of the managers lose their jobs and stockholders get wiped out?????
Savings equal investment. To invent an electric car, for example, you need to use savings until your investment generates income. If a saver agrees to lend more than his savings in the hope of getting a higher return he is free to do so just as the investors are free to borrow such savings knowing that a recall or loan recall is more likely given the leverage. Without this process there is no investment or growth.
Good point. Countrywide, Bear Stearns, and Wachovia...that's three firms; not exactly half of wallstreet. They went down, why? Because of the leverage they extended. What caused the crash? Overinflated assets crashing in price...why? Borrowers could not repay their loans. Another person linked a history of economic crashes, it is always due to money supply inflation (either outright overprinting of notes to fund wars, coin debasement, or money multiplier effect). Question for you: Why didn't the entire banking industry collapse after practicing such bad underwriting practices? Answer: The US Government extended emergency loans, and then responded with fixed interest rates of historically low proportions. Never in US history had the Fed fixed the Fed Funds rate to 0% and now we hover between 0 and 0.5% - Previously Fed Fund rates were pegged between 1, 5, and 15%...we threw out those arbitrary numbers to pump as much money supply into the economy as we possibly could. Ted - would you like a 0% interest loan to buy a house? Probably would right? Why can't you acquire that 0% loan yet lenders can? Do you see now how the US government subversively subsidizes the banking industry now?
not really, banks always extend leverage. They went down because of bad leverage or bad loans but more importantly because of "connection and contagion". You can read book by that name. Dodd Frank attempted to address all 3 variables. Make sense?? - - - Updated - - - no please give best example
What was the weighted percentage of the total size of failures? I'm gonna guess Wachovia, Bear Stearns, and Countrywide represented at least 75% of the size of all bank failures at that time. Throw in AIG (and Citigroup?) and you probably have close to 90%. What did the government do for AIG? Stroked it a nice 'emergency' loan for a few billion. I gave you an example... Would you like a 0% interest loan to buy a house? The government provides 0% interest to bankers. This is a subsidy just for them. Not accessible to any other group of people. A benefit reserved for a special interest is a subsidy.
Do you understand that leverage increases risk? Do you think an economy that leverages 25% of its deposits exposes itself to the same risk as an economy that leverages 90% of its deposits? If you say yes to this, how would you refute that the money multiplier affect causes inflated asset prices leading to bubbles?
every banker for the last 3000 years has known that the more lending relative to deposits increases risk!!! And?????????????????????? - - - Updated - - - Most modern countries have central banks whose purpose is to prevent inflation and deflation. Do you understand?
I think you miss the point there were 100's including Merryl Lynchfor example that were acquired for pennies on the dollar wiping out shareholders. And the ones that survived like Bank of America are worth 1/3 of what they were. The free market "stoked" them a huge blow
Now you are in the area area of liberal stupid. Whats wrong with a loan that gets paid back and prevents a depression????? You are against a loan bail out that saves everyone's job but not against a continuous bailout to a failed individuals who contribute nothing and never pay back a penny in 50 years?? See why we say liberalism is based in pure ignorance? Oh, and the shareholders of AIG were wiped out and the company today is worth far less than 1% of what it was. Do you understand??
liberal stupid beyond words. Bank wholesale money so they want higher interest rates so they can make more on loans!!! Do you understand?????????????
Yes. It's called monetary policy. Who controls it? The Government. Aren't you a conservative? Yet you support the government controlling interest rates? Why don't you address the entire argument? Monetary policy is a form of government control that rewards bankers. It consists of infusing the economy with money in order to keep asset prices inflated. Bankers benefit because low interest rates foster loan transactions in size and volume. Banks are subsidized through cheap credit provided by the US Fed. The money multiplier affect inflates asset prices. Leverage exposes the economy to tremendous risk. All of this is due to a system of monetary control.
Economic crises on a nation-wide scale? Not likely unless there is a disaster that destroys all production. It's government that creates asset bubbles that take down economies. It's government that meddles in the money supply and banking and creates recessions and depressions.
if so why did 100 go bankrupt and survivors like BofA and AIG worth a fraction of what they were???? Thats a reward??????????????? Dodd Frank is a reward?????????? - - - Updated - - - actually the mandate is no inflation or deflation. 1+1=2 - - - Updated - - - Bank stocks go up not down with higher interest rates!!!!! Jamie Diamond came out yesterday to call for higher rates. Look it up!!!!!.
They gave them access to 0 percent interest rate loans for 6 years... What is the point in responding and ignoring the premises of my argument...
we haven't had a Depression in almost 100 years!!!!!!!!!!!!!!!!!!!!!!!! and we have lots of leverage. Get it??? Yes leverage is a risk and so is the lack of it. Do you understand? - - - Updated - - - what is the premise of your argument?? - - - Updated - - - yes and???????????????????
yes, when Ron Paul asked Bernanke why he does not switch to a gold standard he replied, "we run the fed as if we were on a gold standard". If you have a better system to reinvent the wheel why not tell us what it is?
If we were on a gold standard we would have little to no inflation at all. Bernanke was thus lying (gasp!). A better system is to get the government out of the money business and let the people decide.
Utterly meaningless since there are 1000 ways to have a gold standard like the one we had when the Great Depression started and prices fell 35%. How stupid to be worried about inflation anyway when the Fed is printing trillions and still cant meet its inflation targets. Please think harder.
Utterly meaningless since that is so vague as to be meaningless. Are the people going to print money? regulate banks? determine exchange rates, ship gold abroad, the people through congress set interest rates? In the end the Fed is the perfect vehicle for monetary policy, although the dual mandate should be a single mandate.
No, it wasn't vague or meaningless, you're just a panicked socialist who can't understand economics. You don't need to have a centrally planned economy. You don't need to have some central authority that has all the answers. Your concerns are silly and non-arguments. If I said that shoes should be made by private firms you'd start asking what colors will they be? What sizes, what styles? How will people get them, what materials will they be made of? And if I didn't have every last detail you'd declare the market a failure and proclaim the necessity of central planning. You are following Alinsky's Rules for Radicals and I know exactly what you are doing. We don't need central planning in money any more than we do in shoes. People can try whatever form of money they like, and generally what works best will become the most common. Some might like gold and silver, others bitcoin, others paper notes. Just like how we have 1000 types of toothpaste we can have 1000 types of money. Just like how all 1000 types of toothpaste generally do the same thing, all 1000 types of money would generally do the same thing. And just like how having 1000 types of toothpaste hasn't lead to chaos and a crisis in tooth health, neither would 1000 types of money lead to any such thing in the economy. One thing is clear: the Fed is a failure. The dollar has lost most of its value and continues to do so. The government cannot be trusted with the money.
if it has lost its value how can I buy a state of the art Iphone with it and why do Americans use it to buy more stuff than any other people in the history of the world??????? you make no sense. Do you understand?? - - - Updated - - - dear, we tried that in the 19th century. There were about 2230 different currencies in the USA. Do you understand??
What are you, simple? I said the dollar lost most of its value, not all. If you can't even understand basic English, what hope do you have for understanding economics? And thanks for the anecdote about the 2000+ currencies during the greatest economic expansion in the history of the world. You've proven my point.
You expect Ben Bernanke to say anything else? No one in any industry indicts their own business. Cigarette companies testified in court that cigarettes did not cause cancer. Bernanke is going to say what ever he wants to legitimize his position in the eyes of the public. I don't have a better system. I am saying that the old system was shut down for politically expedient purposes and now we have created an inflation based economy that rewards bankers. My suggestion is not that drastic, fix the money supply to a valuable commodity, such as gold, and remove any ability for the government to change the money supply.
