Do You Support Bank Bail Outs?

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Carl Veritas's picture
Carl Veritas
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Do You Support Bank Bail Outs?

 

Just wondering what your position is on the matter.        

 

rowmat's picture
rowmat
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Re: Do You Support Bank Bail Outs?

http://hangabanker.com/

Thomas Hedin's picture
Thomas Hedin
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Re: Do You Support Bank Bail Outs?

In what manner do you wish to bailout the banks, or with what do you wish to bail them out with?

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V
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Re: Do You Support Bank Bail Outs?

I fully support bailing out the banks. If you remember the thirties were the golden age of bank robbers. John Dillinger, Pretty Boy Floyd, Bonnie and Clyde etc. if we let the banks fail what are the poor folks going to rob during this depression.

Am I missing something?

V

Thomas Hedin's picture
Thomas Hedin
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Re: Do You Support Bank Bail Outs?

Am I missing something?

Yes,

You're missing the fact that the only creators of money is the banks, and the only place we could get the money to bail them out is to go to those very banks and borrow the money from them and then gift that brand new money to the banks, and still owe the money back plus the interest.

Carl Veritas's picture
Carl Veritas
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Re: Do You Support Bank Bail Outs?

The only creators of money are banks?                 This is not true,  the Federal Reserve creates it when they buy government bonds(debt)   It's called monetizing the debt.        What you're missing is a little more information, but this could be fixed.

Chris Martenson has an article published by Seeking Alpha  regarding the current strategy of the Fed regarding monetizing the debt.    Please consult with him regarding this before you get really embarassed.

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Thomas Hedin
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Re: Do You Support Bank Bail Outs?

The only creators of money are banks?                 This is not true,  the Federal Reserve creates it when they buy government bonds(debt)   It's called monetizing the debt.

The Government agrees, The Federal Reserve Board of Govs agree, and the library of congress all agree with each other that the only creator of money is the banking system.  To create of manufacture the money, the bank simply make a book keeping entry.

Banks are the only creators of money today.

What part of the Federal Reserve is creating this money to buy the government bonds?  The Federal Reserve Board of Govs, or the federal reserve banks, or the member banks?  You're sort of using a blanket term here for Federal Reserve.  I think I'll go on an explain the process for you and everyone else.

 

 

For everyone still reading this is how the process works since all Carl can do is scream monetizing the debt here is how it all works step by step.  Carl could not explain the process.

Step 1.  Congress authorizes the Treasury to sell a bond (issues a promise to at interest) though aucstions held at the Federal Reserve Bank of New York.

Step 2. A Primary Bond Dealer buys the bond from the Treasury (accepts the Treasury promise to pay at interest).

Step 3. The Bond goes on the books of the Treasury as a Liability and goes on the books of the bond dealer as an asset.

Step 4. To pay for the bond, the PBD creates new checkbook money on its books by adding a new liabilty to its books.

step 5. PBD then transfers the new money to the Treasury where the new money goes onto the books of the Treasury as an asset.

Both parties incure a new asset and new liability, but the bank does not and cannot be forced to pay on its liabilties, nor does it have to pay interest on those liabilities, but the borrower does have to pay on his liabilities, and the only way he can pay on them is to have more money created (all of it is created as a debt) by the same basic process.

This process only creates a small fraction of the total money supply available in America.  The bulk of the rest of the money is created at your local private banks on your street corners every time someone goes in and gets a loan.  The private sector debt is several times greater than the public debt.

When a principle payment is made that money is removed from circulation and extinguished.

Carl the only debt that can be monetized in this process is bank liabilities. The Bonds are not monetized.  And yes Carl, the only creators of money is the banking system.  I cannot be more clear about this.  If someone else is creating money please let me know.

What "debt" are you talking about being monetized?  Who monetizes this debt, who gets the benifit, and where does this money come from to monetize this debt?

Do you understarnd that the Federal Reserve Banks are private banks and are not part of the government?

 

Thomas Hedin's picture
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Re: Do You Support Bank Bail Outs?

Carl I'll ask again, and rephrase it a little bit.

(orignial statement) In what manner do you wish to bailout the banks, or with what do you wish to bail them out with?

What did the banks loan (what physical properties does it consist of) that caused them to need a "bail out"?

Can you answer either one of these questions?

 

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Re: Do You Support Bank Bail Outs?

Hi carl

Just to throw my hat in the ring, no I don't think the banks should have been bailed out.

Instead of the liabilities being taken onto public books (ultimately the tax-payer) I can't see why bank bond-holders shouldn't shoulder the losses. Or rather the system should perhaps be changed so that in future they do?

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Re: Do You Support Bank Bail Outs?

The real question is why should money be created as a liability to anybody in the first place?  Shouldn't money at the very least just be final payment?

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Re: Do You Support Bank Bail Outs?

The real question is why should money be created as a liability to anybody in the first place?

I guess the simple answer is to allow people to buy stuff they don't yet have the money for which, if you think about it, does allow more flexibility in the economy. For example I may have just started my first job and a car would be really handy (it could make it cheaper and quicker to get to and from work) but I don't have the savings for it yet. As long as the job produces enough income to comfortably pay down the loan then buying the car on credit can make a lot of sense as opposed to waiting until I have accumulated enough savings.

Similar for houses - buying a house with a mortgage can, under the right circumstances, be cheaper and make more sense in the long-term than renting.

Also it seems reasonable that some interest should be charged by the lender to compensate for the risk of default. The lender doesn't have to be a bank even, it could be the person buying the item simply gives the seller a promisary note to pay them back over time. As long as this is acceptable to the seller then in principle it is no different to going through a bank. And if the private promissary note is acceptable to others in the economy then it has the same effect on the money supply as bank notes will.

I don't think the problem is debt per se but the huge amount that has been racked up in the last decade by people who cannot reasonably be expected to pay it back. A consequence of central bank mispricing of risk and inadequate/innapropriate regulation. Hence the credit bubble and its inevitable consequences.

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Re: Do You Support Bank Bail Outs?

No, should not have been bailed out.....big load of crap.....smelly smelly poo

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Re: Do You Support Bank Bail Outs?

No, I don't support Robinhood in reverse. I don't enjoy getting shook down by the bankster mafia.

Thomas Hedin's picture
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Re: Do You Support Bank Bail Outs?

piquod12,

I guess the simple answer is to allow people to buy stuff they don't yet have the money for which, if you think about it, does allow more flexibility in the economy.

Lets really try to think about this because I know this can be hard for the mind to wrap itself around.  Can you accept that there is zero money in circulation until somebody, somewhere, goes to the bank and gets an interest bearing loan?

How can the people ever save up to buy anything when the only money out there is borrowed money?

Also it seems reasonable that some interest should be charged by the lender to compensate for the risk of default.

What risk does the lender have when all he loans anybody is a promise to pay?

Wouldn't it be true that if all you ever loaned was a promise to pay and you got somebody's real production/property that you would get everything for free?

 

Carl Veritas's picture
Carl Veritas
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Re: Do You Support Bank Bail Outs?

Thomas,

Ask Chris Martenson what monetizing the debt mean so your knowledge of the monetary system would be complete.

Here are a few easy  to read info I found just by googling.   

http://prudentinvestor.blogspot.com/2009/05/monetizing-debt-explanation-...

This one is in a Q & A format, very easy to understand ---

http://en.allexperts.com/q/Economics-2301/Monitizing-Debt.htm

This one is from Chris Martenson-----

http://seekingalpha.com/article/158330-how-the-federal-reserve-is-moneti...

And more ----

http://www.investopedia.com/articles/economics/09/debt-monetization.asp

http://useconomy.about.com/od/monetarypolicy/f/fed_monetizing_debt.htm

http://answers.yahoo.com/question/index?qid=20090524060910AAGAgZH

 

 

 

 

 

 

Carl Veritas's picture
Carl Veritas
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Re: Do You Support Bank Bail Outs?

Thomas,

The New York branch of the Federal Reserve system conducts  what is called  open market operations .    (research this if you don't know) 

 This branch executes the actual purchases of Treasury bonds from  the commercial banks and the US Treasury.

 

 

piquod12's picture
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Re: Do You Support Bank Bail Outs?

Hi Thomas,

Can you accept that there is zero money in circulation until somebody, somewhere, goes to the bank and gets an interest bearing loan?

There is a certain level of base money in the economy (M0). If memory serves this is now only about 3% of the total (compared to closer to 50% a few decades ago) so I would agree that to a first approximation broad money aggregates are primarily debt based.

How can the people ever save up to buy anything when the only money out there is borrowed money?

By working, earning and not spending all of their income. I know this is true because I've done it myself on occasion - no difficult mind-wrapping required ;-)

What risk does the lender have when all he loans anybody is a promise to pay?

Can you clarify this pleae? I assume you are talking about banks in which case they run the very real risk (ask anyone who has held shares in them over the last couple of years!)  that loans are defaulted on and they become unable to meet their liabilities. If it's an individual loaning some money then they run the risk of not getting the money back.

Or are you alluding to something else?

Thomas Hedin's picture
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Re: Do You Support Bank Bail Outs?

There is a certain level of base money in the economy (M0).

M0 never circulates in the economy.

 

By working, earning and not spending all of their income. I know this is true because I've done it myself on occasion - no difficult mind-wrapping required ;-)

Can you please calarify how all that money was put into circulation?

 

Can you clarify this pleae?

What does the bank actually loan someone when they make a loan?  What physical properties does it consist of?  What does the bank actually loan someone?

I assume you are talking about banks in which case they run the very real risk (ask anyone who has held shares in them over the last couple of years!)  that loans are defaulted on and they become unable to meet their liabilities.

As soon as you answer the questions just above this we'll chat about what you said here because I really do want to get into what you've said.

 

P.S.  And I am talking about banks lending money not indivduals.

piquod12's picture
piquod12
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Re: Do You Support Bank Bail Outs?

M0 never circulates in the economy

M0 comprises notes and coins in circulation and in bank vaults;

http://en.wikipedia.org/wiki/M0_(economics)#M0

Can you please calarify how all that money was put into circulation?

Which is a different question to the one you asked about how does one save money.

Yes, as I agreed before, the majority of money in the economy originated as debt according to the fractional reserve banking system.

What does the bank actually loan someone when they make a loan?  What physical properties does it consist of?  What does the bank actually loan someone?

New commercial bank money is created when a loan is made.

Are you sure you are asking the right questions - what is it you actually want an answer to?

Thomas Hedin's picture
Thomas Hedin
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Re: Do You Support Bank Bail Outs?

Which is a different question to the one you asked about how does one save money.

Yes, as I agreed before, the majority of money in the economy originated as debt according to the fractional reserve banking system.

Where does this money come from that is not originated as a debt?

Are you sure you are asking the right questions - what is it you actually want an answer to?

Try to read the question as it's written and take awhile to think about it.  Does the bank actually loan any Thing?  You'll see where I'm going with this when you figure it out.  It's about risk.

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piquod12
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Re: Do You Support Bank Bail Outs?

Where does this money come from that is not originated as a debt?

As I understand it base money is that which is issued by the central bank and is currency plus deposits of banks and other institutions at the central bank. It's the only money that can satisfy the reserve requirements of commercial banks.

If you want a more detailed explanation than that I suspect you will need to get it from someone directly involved in banking which I'm happy to say I'm not.

Does the bank actually loan any Thing?  You'll see where I'm going with this when you figure it out.  It's about risk.

The bank creates a liability (the deposit in the sellers account) and an asset (the IOU from the borrower/purchaser) simultaneously with the aim of generating earnings from the difference in interest between the two. Yes there are risks which are to do with solvency (primarily the risk of default on the part of the borrower) and liquidity (in part a consequence of lending long and borrowing short).

Or did you have a different sort of risk in mind?

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Really,   Hat’s off. Well done, as we know that “hard work always pays off”, after a long struggle with sincere effort it’s done.  This action proof to be a win, win situation. This is a true art
work, which will be a success story.There’s usually a good bunch of talent nominated- they just don’t usually win.
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Really,   Hat’s off. Well done, as we know that “hard work always pays off”, after a long struggle with sincere effort it’s done.  This action proof to be a winit could be the person buying the item simply gives the seller a promisary note to pay them back over time. As long as this is acceptable to the seller then in principle it is no different to going through a bank. And if the private promissary note is acceptable to others in the economy then it has the same effect on the money supply as bank notes will., win situation. This is a true art work, which will be a success story.There’s usually a good bunch of talent nominated- they just don’t usually win.
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