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From Savers to deadbeats


By FortWayne   Follow   Tue, 25 Oct 2011, 9:06am PDT   10,351 views   97 comments   Watch (4)   Share   Quote   Permalink   Like   Dislike  

http://online.wsj.com/article/SB10001424052970204777904576651400580509200.html?mod=markets_newsreel#articleTabs%3Darticle

The government's latest move to bolster housing marks yet another transfer from savers to borrowers.

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corntrollio   befriend   ignore   Wed, 26 Oct 2011, 9:33am PDT   Share   Quote   Like   Dislike (2)     Comment 58

Gentleshinobi says

If the banks could lend out only a fraction of their deposits from savers and the average savings is $1000 then how the hell did banks lend out Trillions of loans for mortgages on the past 5 years.

Was it really trillions?

http://www.bmocm.com/aboutus/aboutbmocm/images/Top_25_North_American_Commercial_Banks_by_Assets.pdf

Perhaps, it was.

Securitization is one way. Also, the bank must keep the fraction of deposits as reserves (which also I guess means they lend out a fraction). For an example of how $1000 can turn into $5000 through fractional reserve and creation of commercial bank money, look at the Wikipedia article under money creation for a succinct example (don't usually quote Wikipedia -- but htis is a good example).

I'm also not sure if that $1000 figure you gave is right -- where'd you get that?

uomo_senza_nome   befriend   ignore   Wed, 26 Oct 2011, 9:54am PDT   Share   Quote   Like   Dislike (2)     Comment 59

Patrick says

But I admit that our widely-accepted fiat money gives America an advantage over all other countries. We sell them debt denominated in a currency that we can and do inflate away. And we buy oil and manufactured goods with that paper too.

it also makes the dollar the slowest dying of all fiat currencies, everybody holds dollars. Inflating dollars is difficult because there's so much of it already.

¥   befriend   ignore   Wed, 26 Oct 2011, 10:07am PDT   Share   Quote   Like   Dislike (2)     Comment 60

Gentleshinobi says

So banks lend out money from the fed which is created out of thin air, which in turn creates more money out of thin air. Again like I said in my first post. Think about it. If the banks could lend out only a fraction of their deposits from savers and the average savings is $1000 then how the hell did banks lend out Trillions of loans for mortgages on the past 5 years.

yes, this is how small increases in the Federal Reserve's balance sheet can expand to trillions in the economy.

But the problem now is that lending is rather stalled due to everyone blowing themselves up 2007-2009.

http://research.stlouisfed.org/fred2/graph/?g=313

shows that net mortgage lending has only increased $600B over the past 5 years, compared to $4T+ the previous 5 years:

http://research.stlouisfed.org/fred2/graph/?g=314

But since 2006 the Fed has doubled its balance sheet:

http://research.stlouisfed.org/fred2/series/FDHBFRBN

but the lending is still going down.

Things are a bit more complicated than your current understanding allows.

¥   befriend   ignore   Wed, 26 Oct 2011, 10:11am PDT   Share   Quote   Like   Dislike (2)     Comment 61

Patrick says

But I admit that our widely-accepted fiat money gives America an advantage over all other countries.

This is a two-edged sword for us. "America" certainly has an advantage, but this mainly accrues to its owners.

People who have to compete with third-world labor aren't seeing any advantage now.

http://research.stlouisfed.org/fred2/series/USGOOD?cid=32307

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 10:13am PDT   Share   Quote   Like   Dislike (1)     Comment 62

Yes it is in the trillions! Look at the following link: the value of the homes bought with debt has lost Trillions! According to this article am calculating total home loans is around 30 trillion!
http://articles.businessinsider.com/2011-02-09/markets/29954161_1_peak-zillow-total-loss
Average American savings:
http://www.heritage.org/Research/Reports/2003/03/Why-Reforming-Social-Security-Is-Not-About-Saving-the-Trust-Fund

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 10:17am PDT   Share   Quote   Like   Dislike (1)     Comment 63

Total deposits of savings accounts:
http://research.stlouisfed.org/fred2/series/SAVINGS
So out of 6 billion they lent out 30 trillion. Do the math.

¥   befriend   ignore   Wed, 26 Oct 2011, 10:21am PDT   Share   Quote   Like   Dislike (1)     Comment 64

corntrollio says

'm also not sure if that $1000 figure you gave is right -- where'd you get that?

The whole point of securitization was to get banks out of the retail lending business.

Chinese bought massive amounts of agency debt:

(UK, Luxembourg, and Cayman Islands is probably oil money coming back as loans to us)

The "Saving Glut" of the early 2000s was really a money glut -- the rich were getting so much more money coming to them they didn't have any place to put it . . . so CDOs and stuff were expanded to give people a place to park their loot.

This was the magic of the housing bubble -- it was a direct injection of TRILLIONS of cold hard (borrowed) cash right into the middle class, 2002-2007.

It was fake and fraudulent as hell but it's what the system could do to keep itself in power for the 2004 election cycle, especially after its Iraq adventure started going south in late 2003.

¥   befriend   ignore   Wed, 26 Oct 2011, 10:26am PDT   Share   Quote   Like   Dislike (1)     Comment 65

Gentleshinobi says

According to this article am calculating total home loans is around 30 trillion!

No, that's total home valuation. 1/3 of homes are paid off.

Total mortgage debt is no mystery:

http://research.stlouisfed.org/fred2/series/HHMSDODNS?cid=32256

As for your $1000/household savings, there are two problems.

One is the actual number:

"After subtracting the debts they owe, the average American family has savings of only about $1,000"

Secondly, retail banking doesn't profit from the vast masses' savings (because there aren't any). Home mortgages are funded from rich people buying GNMA, and the massive flows into agency debt from corporations and countries looking for a place to park their spare cash.

The Credit Union fund & hold business model is a real sideline these days.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 10:32am PDT   Share   Quote   Like (1)   Dislike     Comment 66

Bill you are just stating what I said earlier. Lending is down even with all the liquidity the fed has pumped check my previous post. So you are just saying what I said earlier. I clearly showed how the banks lend out money not by deposits by savers but by money created out of thin air by the fed and the fractional reserve banking system. Which you dont have a counter for so you are trying to change the subject matter. Btw I'm not entirely against the ideas of the fractional system as I do see a need to expand the money supply during time of " real" economic growth but it should be a lot stricter.
And no the problem isn't that there isn't more lending, that's what caused the problem in the first place. The problem is that all this money creation is money we don't have and debt is owed. Debt has to be cleared before we can recover and start real growth, not more lending of money created out of thin air. That means pain before recovery. Creating more money and lending will only kick the can down the street. The market will correct itself with or without our assistance.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 10:37am PDT   Share   Quote   Like   Dislike (1)     Comment 67

Bill they are going by income! They are misusing their monthly payment not the total of outstaning debt vs outstanding savings. You are saying the average person had enough savings to outright pay for the house and have $1000 left. If thats the case why do they even need a loan. I'm sorry bill your not thinking straight.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 10:43am PDT   Share   Quote   Like   Dislike (2)     Comment 68

Bill countries like china and Japan park the majority of their cash in tresuries. You have basic misconceptions of how the global economy and banking system works. And yes countries and investment banks bought MBS's but that still does not change the fact of how the money lent for the initial loan to buy a home was created or originated.

bgamall4   befriend   ignore   Wed, 26 Oct 2011, 10:54am PDT   Share   Quote   Like   Dislike (1)     Comment 69

Patrick says

I think hard currency is definitely the answer to inflation and bank bailouts. It gives the little guy more power.

Hi Patrick, here is a chart that shows big inflation in the teens of the 20th century. Hard money ruled and didn't stop inflation which was the worst decade of the century. Bankers can do what they want no matter what system rules.

http://inflationdata.com/inflation/Inflation/DecadeInflation.asp

bgamall4   befriend   ignore   Wed, 26 Oct 2011, 10:57am PDT   Share   Quote   Like   Dislike (1)     Comment 70

corntrollio says

Securitization is one way. Also, the bank must keep the fraction of deposits as reserves (which also I guess means they lend out a fraction). For an example of how $1000 can turn into $5000 through fractional reserve and creation of commercial bank money, look at the Wikipedia article under money creation for a succinct example (don't usually quote Wikipedia -- but htis is a good example).

I know how they did it. First, they got reserve requirements lowered. Then they got the hedge funds to fund the SIV's that went to shadow bank lending. And that was off balance sheet as approved at Basel 2 in 1998. That also circumvented seemingly high reserve requirements. It was a SCAM.

Ban securitization.

corntrollio   befriend   ignore   Wed, 26 Oct 2011, 11:07am PDT   Share   Quote   Like   Dislike (1)     Comment 71

bgamall4 says

Ban securitization.

Careful. Banning securitization outright probably wouldn't be a good thing. Securitization has been around for a while and when done prudently, it is a very valuable method of finance. When it has predictable default rates, good underwriting standards, and interests are properly perfected, there's nothing really wrong with securitization. It's when you let the banksters run rampant that shit happens.

Securitization makes sense for other kinds of loans too, again, if done properly. If you screw it up, yeah, sure, you can really screw things up, as banksters did. Of course, banksters also committed lots of fraud, often by not making certain disclosures, although not even people have been prosecuted for this. However, the bondholders also screwed up -- you're only now seeing some parties pushing loans that didn't meet underwriting standards back onto banksters.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 11:48am PDT   Share   Quote   Like   Dislike (2)     Comment 72

The reason why there was inflation starting from 1913. The federal reserve act of 1913.
http://www.the-privateer.com/paper.html
Now inflation can happen without money supply change. If the money supply is static but there is a change in demand, supply or both of a given commodity you can still have price inflation. Example let's say a new study comes out and they say eating an apple a day will increase your life span and real demand goes up and supply stays the same the price will go up( inflation) even if money supply stays the same until demand goes back down or growers increase supply. That's what I call real or price inflation. So we have to make the difference between real inflation and monetary inflation (assets prices go up because of money supply expansion).

bgamall4   befriend   ignore   Wed, 26 Oct 2011, 12:24pm PDT   Share   Quote   Like   Dislike (1)     Comment 73

corntrollio says

Securitization makes sense for other kinds of loans too, again, if done properly.

Oh, you mean like student loans? Ha.

No, if you allow securitization it is almost always accompanied by easy money. It is a scam, a fraud.

¥   befriend   ignore   Wed, 26 Oct 2011, 12:51pm PDT   Share   Quote   Like   Dislike (2)     Comment 74

bgamall4 says

here is a chart that shows big inflation in the teens of the 20th century

I'm no economic historian, but I think this inflation was WW I-related.

American industry was making money hand over fist supply the war needs in Europe, but this was a quadruple whammy -- more money flowing into the country, more goods (especially foodstuffs) going out, more people making money, and diversion of production from consumer to war needs. Hello inflation!

There was 2% inflation 1913-1915, 26% between 1915-1917, 35% between 1917-1919, and 3% between 1919-1921.

There was actually 4% deflation between 1921-1929.

Oh noes teh Feds r da debbil.

cc0   befriend   ignore   Wed, 26 Oct 2011, 12:54pm PDT   Share   Quote   Like   Dislike (1)     Comment 75

bgamall4 says

First, there has been leverage in hard currency. [...]

I never argued otherwise. Your statement could have been interpreted as Ron Paul contradicting himself. I'm simply pointing out that an action taken under one particular system may not be applicable under another.

I don't think hard currency is the answer because it makes lending too tight.

bgamall4 says

No, if you allow securitization it is almost always accompanied by easy money. It is a scam, a fraud.

These two statements are confusing. There's nothing inherently 'wrong' with easy money - securitized debt isn't substantially different from issuing shares in a corporation or participating in prosper.com. This is just a way to raise money.

The problems come in when the fascists let corporations write legislation; when investors get government guarantees against their losses; when those losses result in the destruction of the nation's wealth.

These are each independent, albeit now closely related, issues. Hard money plus securitization minus leverage may even dismantle this destructive system (I haven't fully considered it).

austrian_man says

it also makes the dollar the slowest dying of all fiat currencies,

Do you have any historical reference for this? We've only been dealing with a fiat dollar since 1971 (happy 40th birthdays, fiat bank note, (August 9) and War on Drugs (June 17)).

¥   befriend   ignore   Wed, 26 Oct 2011, 1:01pm PDT   Share   Quote   Like   Dislike (2)     Comment 76

Gentleshinobi says

I clearly showed how the banks lend out money not by deposits by savers but by money created out of thin air by the fed and the fractional reserve banking system

You still don't understand anything about fractional reserve lending.

A CD requires ZERO reserve, but this does not inflate the (bank) money supply since people understand they can't spend the money in a CD. One person's savings is another persons loan proceeds. This is how a "hard money" lending system works. Once money is lent out it can't be spent until it is repaid.

Checking accounts is where the money supply gets expanded 9:1 for every dollar of Fed input. Here one person's checking account is multiplied up to 9 times across the system.

The problem is that all this money creation is money we don't have and debt is owed.

Again, you are uttterly wrong here.

As of Q211 households held $49.4T in financial assets vs. $13.8T in liabilities.

Plus another $20T+ in RE/property.

Unfortunately, a big chunk of the "assets" -- $4T -- is debt issued by other components of the system $1.1T is held in treasuries and agency debt, another $1T in municipal bond issues, etc.

http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf

B.100 Balance Sheet of Households and Nonprofit Organizations

That means pain before recovery. Creating more money and lending will only kick the can down the street.

Sure, I agree with this. Pain all around. You first.

¥   befriend   ignore   Wed, 26 Oct 2011, 1:03pm PDT   Share   Quote   Like   Dislike (1)     Comment 77

cc0 says

securitized debt isn't substantially different from issuing shares in a corporation

Ah, but one of these is a savings vehicle and the other is an investment vehicle.

Securitized debt was getting AAA ratings until it all fell apart.

¥   befriend   ignore   Wed, 26 Oct 2011, 1:05pm PDT   Share   Quote   Like   Dislike (1)     Comment 78

Gentleshinobi says

You have basic misconceptions of how the global economy and banking system works.

LOL you're big on blanket assertions but low on facts, and what facts you do post are incorrect. Welcome to ignore, you have a lot of pals there.

cc0   befriend   ignore   Wed, 26 Oct 2011, 1:11pm PDT   Share   Quote   Like   Dislike (2)     Comment 79

Bellingham Bill says

Ah, but one of these is a savings vehicle and the other is an investment vehicle.

Huh? Only because you say it is. I say it's the opposite of whatever you assert, and we can both be right. I use my car as my investment vehicle and my mattress as my savings. Doesn't mean either is better. What are your goals?

Bellingham Bill says

Securitized debt was getting AAA ratings until it all fell apart.

Yeah, that was part of the fraud. Revoke their charters before that's deemed a violation of their 8th amendment rights.

bgamall4   befriend   ignore   Wed, 26 Oct 2011, 1:45pm PDT   Share   Quote   Like   Dislike (2)     Comment 80

cc0 says

There's nothing inherently 'wrong' with easy money - securitized debt isn't substantially different from issuing shares in a corporation or participating in prosper.com. This is just a way to raise money.

Massive securitization was made possible because of the repeal of Glass-Steagall. That securitization was fraud. Before that there was very little securitization. Either put back Glass-Steagall or ban securitization. Simple as that.

bgamall4   befriend   ignore   Wed, 26 Oct 2011, 1:46pm PDT   Share   Quote   Like   Dislike (1)     Comment 81

Bellingham Bill says

I'm no economic historian, but I think this inflation was WW I-related.

That is likely true. We have had fewer and less damaging wars since fiat money. An argument that hard money and war are frequent is a real problem for the Austrians.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 2:03pm PDT   Share   Quote   Like   Dislike (1)     Comment 82

Wow bill I have made clear and concise arguments. You simply can't cope with the facts.

cc0   befriend   ignore   Wed, 26 Oct 2011, 2:04pm PDT   Share   Quote   Like   Dislike (1)     Comment 83

bgamall4 says

We have had fewer and less damaging wars since fiat money.

Ok, this I have to take exception to. Humanity has far and away become much more peaceful with the passage of time. To attribute this to fiat currency, however, is sorely sorely mistaken.

To the contrary, WWI and WWII were both funded by bonds. In order to pay for the war the government had to convince the people to buy war bonds to keep the fighting going. With fiat currency there is no longer any need to have the people on your side because you can just borrow the money from the central bank.

When was the last time someone asked you to buy a war bond? And yet, we've been at constant war on multiple fronts for the last decade. With hard money, war is truly a mandate of the people; with fiat currency, the president doesn't even bother to get congress involved.

The U.S. sat out of WWII for a very long time. While Europe was fighting, Ford and IBM and numerous other U.S. companies were supplying them with armaments. Even with a very vocal segment of the population urging the president to engage, he did not do so until Pearl Harbor (cue related conspiracy theories).

War is a complex subject and to attribute hard money - alone or in part - to its formation is beyond folly. And if anyone is going to point fingers at Wilson related to this, point them towards the creation of the League of Nations.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 2:14pm PDT   Share   Quote   Like   Dislike (2)     Comment 84

Less damaging wars? Really? The two wars we are engaged in now have brought the USA on the brink of bankruptcy. The two wars have cost us over 3 trillion, we spend something like 10 million dollars an hour on the wars. And that's just hard costs. From an economic stand point world war 2 was highly beneficial for the USA. Not for the reasons you might think. It was beneficial because we weren't involved for most of the war and firing that time all of europe became indebted to us and because our infrastructure was not damaged we were the ones that could produce goods which made us rich and because we won we got to dictate the terms of surrender and the dollar became the world reserve currency. After the war the USA owned 60% of the world gold.

Gentleshinobi   befriend   ignore   Wed, 26 Oct 2011, 2:17pm PDT   Share   Quote   Like (1)   Dislike (1)     Comment 85

Fricken autocorrect driving me nuts.

bg   befriend   ignore   Wed, 26 Oct 2011, 2:35pm PDT   Share   Quote   Like   Dislike (1)