Investing in Precious Metals 101 Ad
  • Podcast

    Bartlett Naylor: The Banks Are Becoming Untouchable Again

    Regulations? We don't need no stinking regulations!
    by Adam Taggart

    Monday, June 4, 2018, 6:19 PM

When the dust settled after the Great Financial Crisis, we learned that the big banks had behaved in overtly criminal ways. Yet none of their executives would be held criminally accountable. 

And while legislation was passed in the aftermath to place restrictions on the 'Too Big To Jail/Fail' banks, it was heavily watered down and has been under attack by finanical system lobbyists ever since.

To talk with us today about the perpetual legislative warfare pitting citizens on one side and lobbyists (and many lawmakers) on the other, is Bartlett Naylor. Naylor is a veteran of the Wall Street wars. He spent a number of years as an aid to Senator William Proxmire at a time when Proxmire was head of the Senate Banking Committee. Naylor himself served as that committee's Chief of Investigations.

Sadly, Naylor sees the banks winning out here. More and more of the prudent restraints placed on the banking system are being dismantled, as further evidenced by the recent bill President Trump just signed:

The President signed S2155 last week. This bill has 40 or so provisions in it. The most troubling one reduces what’s known as enhanced supervision for a class of banks that are between $50 billion and $250 billion in assets.

Enhanced supervision means tighter capital controls. Capital is assets minus liabilities — the amount of net worth, if you will, of the particular bank. You think of banks of being very solid; but in fact, they're in hock. They are highly leveraged. 95% of their assets are financed by debt. They really don’t own that much. They mostly owe things.

Stress tests will be reduced. A stress test is to say, "All right bank. Let’s look at your portfolio and decide that of things are going to go bad in the economy—defaults will rise, unemployment will rise — what’s going to happen to your portfolio? And based on that, we will decide how much capital you should have." In other words, that gap between assets and liabilities, and how much dividends you can pay out, or in fact, executive bonuses, etc. Let’s say you fail. What will happen to all of your assets? Is there a way that this particular part of your bank can be sold to somebody?

So for example, with the failure of Lehman Brothers, they couldn’t sell it. They couldn’t resolve it quickly enough when it was failing. They tried to find buyers for all or parts of the bank. They came close with Mitsubishi, with Barclays, but in the end, there wasn’t a game plan to see how we could break up this bank and avoid a bankruptcy.

Living wills are supposed to help that. A living will exercise is reduced for this class of banks. That’s problematic, because this class of banks would have included Countrywide. Countrywide is now a division of Bank of America. It actually is even a larger class of banks than IndyMac, which was the biggest hit on the Deposit and Insurance Fund. That was only about a $30 billion bank.

Collectively, these are two dozen banks. So you’ve got 25 or the 38 largest banks took about $50 billion in TARP money. They’re not the Boy Scout banks either. We’re talking about all the misconduct at JP Morgan. About half of them have misconduct charges against them just in the last half decade. That’s the most troubling provision.

It also turns back the Volcker Rule. That’s the restriction on gambling within the bank, a general restriction. The regulators are expected to reduce those rules in a proposal due out tomorrow, on May 30th, I think. This new bill says that if you’ve only got $10 billion in assets, you’re free to gamble. We won’t restrict that other than it has to be about 5% of assets.

Again, I worked in the Senate Banking Committee during the savings and loan crisis where what seemed to be small tweaks in savings and loan law, essentially allowing developers to run banks, run savings and loans and loan to themselves, regardless of the promise of the particular project, leading to the inflation of real estate prices and so forth. So in other words, while the smaller banks (less than $10 billion) may not be gambling now, this could usher in a new class of banks. They’ll just say, "Hey, let’s use that deposit insurance money and gamble and start ourselves a $500 million hedge fund." And since capital is only 5% of a bank’s net worth, a good year can be profitable and a bad year can lead to the failure of the bank.

There are also a dozen or more consumer protection rollbacks. Redlining, which is where banks drew a line around a neighborhood, such as a neighborhood of color and basically said, "Make no loans there". The Home Mortgage Disclosure Act provided information to see if banks are making loans generally in their market area, including within those red lines.

We learned from the financial crash in 2008 that banks had a different kind of redlining. They were going into some neighborhoods and making predatory loans, high-cost loans even to people who could afford a prime loan. The new HMDA, Home Mortgage Disclosure Data, is supposed to ferret that out. This bill eliminates that new data for pretty much 85% of banks. And there are other anti-consumer provisions in this.

The question is: Will this make America greater again? It’s not clear. We think it’s certainly a step in the wrong direction. I also think that the promise of the bill’s authors, that it’s going to facilitate economic growth, is going to be hard to defend. The banks already have robust loan portfolios and are making record or near record profits. And that’s at all sectors, not just the big banks, but the little banks, too. So this bill was an answer in search of a problem, and again, we think raises the question of whether it will make America greater again.

Click the play button below to listen to Chris' interview with Bartlett Naylor (55m:53s).

Related content
» More

21 Comments

  • Tue, Jun 05, 2018 - 6:16am

    #1
    kathyschutt11@gmail.com

    kathyschutt11@gmail.com

    Status Member (Offline)

    Joined: Apr 28 2017

    Posts: 0

    Great book on the rise and unlikely fall of big banks

    Don’t remember seeing this book on the PP list, but it may be there.  Robert Kuttner’s “Can Democracy Survive Global Capitalism?”  
    He outlines the U.S. and world financial and real economy economics and social/politics before the Great Depression and WWII and then after, leading up to the 1973 changes.  Although he points out that this period was an anomoly, in that it was the first time in history that hot money financials were put in a box for a while, it generally regains power after waiting for the chance events of history to line up for them.  He writes about how difficult it is to mount a movement against them when they are on top.  That history again needs to align with events that bring them down, and then hopefully societies can take action, if they are able, to go back to a “managed capitalism”.  
    There are other books on America’s cultural “nations” where the undying culture of laissez-faire is imbedded, the old south plantation culture and politics VS the New England “common good” approach.  These cultures live on and have additional variations in regions that emerged after colonial times.  
    Put the two sets of books together and you have an almost unstoppable conflict, that swings back and forth with a push from larger events in history and the world, and with a pull from to the cultural roots in certain parts of the country.  We are not a united nation unless we have to be to survive.  We never have been.  And even then it is excrutiatingly hard to come togehter, even for a while.  

    Login or Register to post comments

  • Tue, Jun 05, 2018 - 6:26am

    #2
    kathyschutt11@gmail.com

    kathyschutt11@gmail.com

    Status Member (Offline)

    Joined: Apr 28 2017

    Posts: 0

    Tell us more about the little banks in America

    Many of us live outside of large cities and bank in local, family-owned banks in towns of a population below 1000.  Many more use Cooperative S&L’s that are still independent of larger owners….I think.  
    So I have a request to Adam and Chris, to offer us a smaller scale look at the banking world in America and tell us what we can expect from them in a downturn or worse?  What can we expect in federal protection.  Are modest checking and savings accounts, say under $30k, safer with them, as they don’t gamble with the money.  
    Maybe an idea for a new article.  Not something most of the PP tribe are interested in, who use large to medium banks.  But, still may be good for them to know.  Thanks.

    Login or Register to post comments

  • Tue, Jun 05, 2018 - 7:09pm

    #3
    ziajoaquin14

    ziajoaquin14

    Status Member (Offline)

    Joined: Mar 14 2018

    Posts: 0

    Let them enjoy it while it

    Let them enjoy it while it lasts.  They wont get away with the big one.  This time they will be done.  It will take generations before people are this stupid again.  They will all hang.
    Zia
    Wedding DJ Fort Worth

    Login or Register to post comments

  • Tue, Jun 05, 2018 - 8:22pm

    #4
    pgp

    pgp

    Status Member (Offline)

    Joined: Mar 01 2014

    Posts: 164

    Welcome to the era of oligarchism

    The end result of a clientelist “democracy” is oligarchy.  US democracy began a couple of centuries ago with vote buying, where politicians would hand out favours or food for loyal votes and the country has struggled to break out of that political mind-set ever since. 
    Party based systems (like the Westminster) are better but we live in an era when big money is everywhere, cooercing politics through advertising, bribes or promises of economic prosperity (or perhaps just promises of survival)
    The only way to prevent this kind of corruption is to give the right to vote to people who can really see and understand what in the hell is going on. 
    Modern oligarchy works by leveraging the whims of the stupid or oblivious.  Disempower the stupid by demanding only qualified voters and the problem goes away.
     

    Login or Register to post comments

  • Wed, Jun 06, 2018 - 9:09am

    #5
    Uncletommy

    Uncletommy

    Status Bronze Member (Offline)

    Joined: May 03 2014

    Posts: 508

    Why governments can't fix the problem.

    Until there is a recognition by humans of a larger responsibility than that of a single lifetime, the following will be sure to play out:

    The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.

    John Kenneth Galbraith

    Login or Register to post comments

  • Wed, Jun 06, 2018 - 10:43am

    Reply to #5

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    single lifetime

    uncletommy-
    Eh, I think you are being optimistic.  🙂 

    Until there is a recognition by humans of a larger responsibility than that of a single lifetime, the following will be sure to play out:

    Humans can’t see beyond the current business cycle, much less a single lifetime.  The repeal of the weak Dodd-Frank reform is a prime example.
    In fact I’d argue that the business cycle is actually caused by the tendency of humans to forget everything up to a near-death experience after (perhaps) 6 years.  I have no evidence for this – except of course for the very existence of the business cycle, and for humans to continue to repeat the same mistakes again and again, after sufficient time has elapsed.  Presumably there is a biological explanation for this.  Again, no evidence other than observation.  We blame the central bankers, but I think its just a human biology/memory construct that the bankers take advantage of.  Repeatedly.
    The impact of the 2-year recession following 2008 just wasn’t strong enough to persist in enough of human memory past 2018.  Contrast that with the Great Depression.  The trauma of the Great Depression was so large that it persisted for 2 generations – through the 70s, certainly.  But the generation that had this experience has since died off, and so have their children, and all we have left from that time period are the words “Glass-Stegall” as well as the game Monopoly, which when interpreted through the lens of the Depression era, was poignant social commentary disguised in the form of a game.  Everyone who lived through that time got all the jokes, because they had lived through it.
    Humor, after all, seems to require an essential truth component in order for it to work.
    I’m sure our generation will get our dose of truth, and – almost certainly – we will retain our experience and pass it on to our descendants, fixing the problem for another two generations before it is forgotten once again…

    Login or Register to post comments

  • Thu, Jun 07, 2018 - 12:14am

    #6
    Dlumb77

    Dlumb77

    Status Member (Offline)

    Joined: May 25 2014

    Posts: 40

    Nice interview!

    One of the better pp interviews. Chris had great questions and the interviewee had a strong position to articulate. Excellent quality.

    Login or Register to post comments

  • Thu, Jun 07, 2018 - 6:09am

    Reply to #6

    cmartenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4469

    Thanks!

    Dlumb77 wrote:

    One of the better pp interviews. Chris had great questions and the interviewee had a strong position to articulate. Excellent quality.

    I always appreciate positive feedback.
    Bartlett really did know his stuff.  I told Adam right away that I’d like to have him back on to maybe drill into one of the many subjects we touched upon.

    Login or Register to post comments

  • Thu, Jun 07, 2018 - 6:46am

    #7

    Jim H

    Status Diamond Member (Offline)

    Joined: Jun 08 2009

    Posts: 1798

    Blame the victim...

    DaveF said,

    We blame the central bankers, but I think its just a human biology/memory construct that the bankers take advantage of.  Repeatedly.

    And… that’s why I don’t subscribe anymore.. there’s always that little voice in the background, invited inside every day, supporting the dollar (vs. Gold), supporting the meme that central banking ain’t all bad.  Whatever.  Not my website. 

    Login or Register to post comments

  • Thu, Jun 07, 2018 - 10:57pm

    Reply to #7

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    central banking

    Ah Jim!  Welcome back!
    You are right, I don’t think central banks – as originally constructed in 1914 – were evil.  The central bank of that time stood ready to buy high quality assets from troubled banks at a discount, in order to provide liquidity during a banking crisis.  That seems like a good idea to me.  At least, it was better than the chaos that came before.
    However, I do think the overall current structure of banking, education, drug production and sales, advertising, junk food production, pesticides, herbicides, and the forever-war foreign policy – that collection of forces does result in a whole lot of evil as things stand today.  Note that banking is only one part of the whole organization of evil – and the central bankers are not even the biggest part of that group.
    Our current central banking experiment will eventually end up destroying pensions in both Europe and the US.  It just remains to be seen how long it will take for this to play out.
    As for me “supporting” the dollar – I’m a longer-term dollar bull, that’s certainly true.  That’s because I’m a Euro bear, and from what I observe about the mechanics of the real world, money will come flooding into the buck just as soon as the Eurozone starts to really blow up.
    After all, that’s what the evidence is telling me.  If the evidence was telling me something else, then I’d be reporting that.
    Gold will have its day at some point, but it will only happen when confidence in government vanishes.  I’m definitely watching for signs of this happening, but so far, confidence in the system remains intact.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 2:16am

    Reply to #7

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 825

    I'm inclined to think it was evil from before 1914

    What I have seen of the history of the hansa league — which in my opinion has never completely disappeared — is that it would engage in spy-like practices to overthrow neighboring governments.
    What I have seen of the history of the German intelligence — and before that, the German illuminati — is the same. I’m referring to such things as exporting Lenin to Russia to overthrow the Bolshevik revolution and install marxism instead.
    What I have seen of British behavior also makes me think a lot of it is one with German behavior, both in the secret operations to overthrow neighboring governments, and in the behavior of its banks.
    Now, there is a LOT about our central bank system and our income tax amendment that evidence says was fraudulent — in other words, an overthrow by external forces. One source I will mention is the two – volume set “the Law that never was”, which my brother checked out and confnrmed its data to the best of his ability, before the guy was thrown in prison without an evidentiary trial. You almost definitely won’t be able to prove it any more; but I can confnrm that it is one example of fraud, and external overthrow.
    Now, there are claims that the man who got the Fed going was a German national, falsely claimed to be a US citizen. .. I haven’t checked that out yet. But it wouldn’t surprise me. I’m going to say I think the Fed was evil from the day it was concieved; and that if you want to view it as treason, or subversive overthrow of our government… it technically isn’t the first, but the second… but in the end, they are essentially the same.
    Not that those views will get you very far.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 5:19am

    Reply to #7
    Mohammed Mast

    Mohammed Mast

    Status Bronze Member (Offline)

    Joined: May 17 2017

    Posts: 112

    Spot On

    Michael_Rudmin wrote:

    What I have seen of the history of the hansa league — which in my opinion has never completely disappeared — is that it would engage in spy-like practices to overthrow neighboring governments. What I have seen of the history of the German intelligence — and before that, the German illuminati — is the same. I’m referring to such things as exporting Lenin to Russia to overthrow the Bolshevik revolution and install marxism instead. What I have seen of British behavior also makes me think a lot of it is one with German behavior, both in the secret operations to overthrow neighboring governments, and in the behavior of its banks. Now, there is a LOT about our central bank system and our income tax amendment that evidence says was fraudulent — in other words, an overthrow by external forces. One source I will mention is the two – volume set “the Law that never was”, which my brother checked out and confnrmed its data to the best of his ability, before the guy was thrown in prison without an evidentiary trial. You almost definitely won’t be able to prove it any more; but I can confnrm that it is one example of fraud, and external overthrow. Now, there are claims that the man who got the Fed going was a German national, falsely claimed to be a US citizen. .. I haven’t checked that out yet. But it wouldn’t surprise me. I’m going to say I think the Fed was evil from the day it was concieved; and that if you want to view it as treason, or subversive overthrow of our government… it technically isn’t the first, but the second… but in the end, they are essentially the same. Not that those views will get you very far.

    Precisely

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 8:06am

    Reply to #7

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    buyer of last resort

    I have no idea about who did what, who was a spy for the Germans, and so on.  If the whole institution was constructed and run by traitorous dogs in league with evil people from the old world that set out to secretly undermine the United States, then that would be bad.  I have no idea if this is true or not.
    What I do know is that the function provided by the Fed at the time was and is needed by the banking system.  Even if we don’t want to have elastic money, some organization needs to provide a backup for the banking system, because history tells us that lending will always get into trouble when the business cycle turns down.
    Maybe that organization isn’t the Fed.  Maybe its a branch of the Treasury.  But someone needs to be the buyer of last resort – of good collateral – during a banking crisis.
    And if you argue that the Fed causes the business cycle – well that’s not borne out by history.  We had business cycles long before the Fed came around.  The Fed might exacerbate the swings in economic activity, but it doesn’t cause the underlying cycle – any more than it causes the earth to orbit around the Sun.
    And if you are suggesting we outlaw lending – we might as well outlaw breathing.  Lending has been going on for all of human history, just like prostitution.  Outlawing something that humans want to do has never worked – all it does is bring a new revenue stream to the underworld, which already has way too many revenue streams as it is.
    So yeah.  Tell me you you want to appoint as the lender of last resort, because that’s a critical function to backstop the banking system when the economy turns down.  I don’t care who owns the function – but it definitely needs to exist.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 8:21am

    Reply to #7

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 825

    Okay, please explain why..e

    … there must be a lender of last resort, other than the last person who is freely willing and able to lend.
    It is by no means obvious to me that there always should be lending. Nor is lending the only way to accomplish things.
    Yes, we have always had lending, for as long as we have had ownership and investment. Yes, there have always been business cycles… because needs are neither continuous nor constant, and neither are supplies.
    Whereas in the past, we had fraud and bank failure, with creditors being hosed, now that process has been streamlined, and is much more efficient and risk free for the fraudsters.
    I might note that as long as we have had property and value, we have also had theft and fraud; that history justifies neither.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 8:49am

    Reply to #7

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    lending

    Ok, so you are questioning why lending exists.  Are you suggesting we outlaw lending?  The Church tried that way back when.  That’s why the moneylenders appeared.  I’ll say it again – if you try to outlaw something that’s a basic human desire, that function will appear all on its own, as an “illegal enterprise.”  The free market will see to that.
    You can question lending all you like, but lending always appears as an emergent property of the human condition, just as do drugs, alcohol, prostitution, trading, contracts, marriage, and divorce.
    Good luck getting rid of any of the things on that list.
    Once we decide there is lending, and commerce, and outsourcing of the wealth-guarding function, we have depositors and lenders, and presto, you have banking.  Scale up, and add in a business cycle, and you have banking crises and the need for a lender of last resort – in order to make sure that the damage from a downturn isn’t too severe – for the same reason that insurance emerges: to insulate an otherwise viable business from an unlucky event that would otherwise take it out.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 9:41am

    Reply to #7

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 825

    No, not lending. I get THAT. Lender of LastResort

    Dave, you are incredibly intelligent… but with that intelligence comes (sometimes) skip-reading. Perhaps that is what happened here. Or maybe I am simply unclear.
    MR: “… there must be a lender of last resort, other than the last person who is freely willing and able to lend. It is by no means obvious to me that there always should be lending. Nor is lending the only way to accomplish things.”
    DF: “Okay, you are questioning why lending exists”.
    Not correct. I know why lending exists. However, I don’t find that lending must be forced. That first sentence “… other than the last person who is freely willing and able to lend” doesn’t mean that I question why lending would happen.
    Let me take your last (most recent) paragraph and try again. I don’t see why you should define some level of damage that is too severe. Too severe for what? Businesses that are viable go out of business all the time for various reasons. A construction company in SW Virginia went out of business about ten years ago, because the owner was watching 4th of july fireworks, and his boat went over a dam, killing him and his wife. The project manager was apparently heartbroken enough that he quit working for several years (I found out, when he applied for work with us, and then researched the news).
    Other construction companies popped up. It wasn’t that big a deal, economically, for the region.
    But when you define a level of damage that is too severe, then you make innocents bear the cost of what turned out to be bad decision making. You’re taking money from those who *didn’t* make bad decisions, and using it to uphold those who *did*. I’d say you’re going to get more and worse decisions, therefore.
    Again, I don’t question that lending will happen. I question why there must be a lender of last resort.
    Let me add to this… if businesses were allowed to crash, even for no reason, it would create a definite demand for startups, which would eliminate the necessity of an impoverished class that stays impoverished. Which is what we have right now, and what we got once we hadea lender of last resort. No. Even more… it would completely destroy the economy of towns that enacted lots of rules and laws to outlaw startups… which is also what we have here.
    The lender of last resort’s greatest function is to suck hope out of the poor. But that’s completely in line with my viewpoint that the central banks were evil from the start.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 10:16am

    Reply to #7

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    hmm

    Ok, here’s what I saw:

    It is by no means obvious to me that there always should be lending.

    I saw that – surprising – remark, and combined it with your past religious posts, and concluded you wanted to get rid of lending, just as the Church did many centuries ago.  It now seems as though I was wrong.  Now I hear that you are perfectly fine with lending.  I stand corrected. 🙂
    Insurance emerged because of a demand by businesses to keep them from going as a result of unlucky events.  This wasn’t imposed from the outside – it was an emergent demand from business itself.  Insurance  allowed the businesses to take more risks, while providing income to the insurers in exchange with using their stored capital to help cushion the bumps for said business.
    Again, this was not imposed by some central planner – it was an emergent demand from business itself.  Economies that provided business insurance performed better than those which did not.  Insurance was a competitive advantange.
    I claim the same thing is true for the banking system and the lender of last resort.  I argue that an economy that has a lender of last resort will outperform economies that do not, over the long haul.  Certainly, we as a society could choose not provide such “banking system” insurance, but our economy will get very badly hosed during the next banking crisis, and as a result, we as a society will be out-competed by those who do provide such “basic banking insurance.”

    Your lender of last resort’s greatest function is to suck hope out of the poor.

    “My” lender of last resort just has that one single function.  Don’t pile onto that one single function all the crap the Fed does today.  These things are all on a spectrum.  Catastrophic banking system insurance is a good idea.  Not having such insurance results in good banks (and their depositors) being taken out right along with the bad ones.  Unnecessary casualties – loss of good businesses due to poor structural support – results in lower overall economic performance for the society that allows such things to occur.  Such societies will end up losing to those who put structure in place to prevent such unfortunate outcomes.
    Remember: lender of last resort lends money on good collateral only.  It doesn’t lend money on crappy junk bonds that are going to fail, like the Fed did in 2008.  The Fed is deep into overreach right now.  Again – things are on a spectrum, and the pendulum has swung way, way too far in one direction.
    But the answer isn’t to rip the pendulum out of the clock and throw it away in a fit of pique.
    What I’m suggesting is we go back to the 5% of the function of a central bank that actually makes sense and improves the overall performance of the economy, and discard the 95% of the crap that we now attribute to “central banking” but is really just politburo-style central planning and/or socialism for the big banking institutions.
     

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 10:48am

    Reply to #7

    Michael_Rudmin

    Status Gold Member (Offline)

    Joined: Jun 25 2014

    Posts: 825

    Okay, then a valid lender of last resort is voluntarily hired

    Just as with insurance, I see no reason why there MUST be a lender of last resort. The moment that you require participation, is the moment that you wave a flag to all scam artists, “come here! Free money!”
    As long as lenders hire their own LOLRs, then it is up to them to bail when they realize that all of their compatriots are being stupid, and going to cost them money.
    Also, just as with insurance, I don’t see why there HAS to be lending. Ideally, you get lending when it makes sense from both ends (lender and borrower); ideally, you get insurance when it makes sense from both ends (insured and insurer). When it DOESN’T make sense, is when it shouldn’t happen. Right now, in Hawaii is being highlighted that the insurance companies had refused to insure volcano risk at the Kilauea-destroyed sites, so the state had required insurers to form an “insurer of last resort”, and insure it anyways. So now that wrong requirement that there must always be insurance, has magnified the damage. In the same way, if you posit that we must ALWAYS have lending, you’re going to do lots of damage. Sometimes loans aren’t the way to go; sometimes equity is better, or bonds, or family investment, or co-ops.
    So my problem isn’t with there being some lender of last resort; it is with the requirement that there be a lender of last resort. There’s a huge difference there. But when the government does it, somehow it always ends up as a requirement.

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 1:23pm

    #8

    Mark_BC

    Status Bronze Member (Offline)

    Joined: Apr 30 2010

    Posts: 275

    My biggest beef with

    My biggest beef with discussions on economics is that people can debate on terms without defining what they mean and agreeing on the definition. What do we mean by “lending”. This could range from one extreme, today, where all money is actually created out of lending, all the way to the other end of the spectrum of a hard gold standard with no money creation from lending. In this case, a loan would in effect be a chunk of gold. 
    IMO lending is NOT necessary. I see no fundamental need for a lender of last resort  we only think we need one today because the world is a grotesquely over extended Ponzi scheme just waiting to explode from a pin prick if we don’t have this “lender of last resort to swoop in to the rescue, as long as the “lender of last resort” retains credibility. 
     

    Login or Register to post comments

  • Fri, Jun 08, 2018 - 4:59pm

    Reply to #7

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3082

    private lender of last resort

    MR-

    As long as lenders hire their own LOLRs, then it is up to them to bail when they realize that all of their compatriots are being stupid, and going to cost them money.

    My understanding is, that’s what the banks did, voluntarily, back in 1914.  The banks got together, created the lender of last resort, and called it the Federal Reserve, mainly because they realized they had this recurring problem, and they thought this would solve it.  Fast forward 100 years and here we are, with thing having grown like topsy.
    As for me positing “we must always have lending” – that’s like me positing “we must always have prostitution.”  Whether or not I posit it, there will always be demand to borrow money.  The demand for borrowed money is an emergent property of the human condition.
    Of course a lender of last resort isn’t a MUST.  However, kind of like seat belts, history has shown it is probably a good idea if you happen to have a banking system.
     

    Login or Register to post comments

  • Sat, Jun 09, 2018 - 5:29am

    #9
    steve velez

    steve velez

    Status Member (Offline)

    Joined: Aug 15 2015

    Posts: 0

    a riveting documentary: the crime link between the DOJ and banks

    Login or Register to post comments

Login or Register to post comments