patrick.net

Soooooo, indigenous, what is your explanation for the declining share of CRA loans made over the dozenish years prior to the peak Bubble era?

thunderlips11 says

Soooooo, indigenous, what is your explanation for the declining share of CRA loans made over the dozenish years prior to the peak Bubble era?

You are assuming that what I'm talking about and actual CRA loans made correlate.

indigenous says

You are assuming that what I'm talking about and actual CRA loans made correlate.

I get it. It makes total sense. What happened is:

The government FORCED banks to make loans that they didn't want to make. This caused them to not only make these few loans against their will, but then caused them to make many, many times more loans freely with no government rules at all.

It makes perfect sense. If your boss makes you work Saturday even though you had plans, you will naturally work not only the required Saturday, but will volunteer to work Saturdays for the rest of the year. That's how it works.

tatupu70 says

I get it.

No you don't. People follow their own interest, which means loan brokers are going to make as many loans as they can. The lower CRA standards were used to lower the standards across the board and with the government backstopping the loans the bubble mentality took off.

indigenous says

bob2356 says

I guess a lot of other people attend my church.

IOW it was reviewed on Mother Jones or NBC or similiar.

No reviewer would meet your approval that didn't agree with you. All the reviews I read said it was a great book but the chapters on the bubble and crisis were at best not convincing. Even the NY Times which called the book brilliant probably said it best.

If your goal is to understand the origins of the recent financial crisis, “Fragile by Design” is probably not the book to read.

bob2356 says

Even the NY Times which called the book brilliant probably said it best.

Even the NY Times, as if that were the most conservative publication, funny stuff...

bob2356 says

No, the name of the book rang a bell. I'm pretty sure it was the one I looked at and said this is bullshit. Since you are holding it up as the holy grail I looked up reviews to see what other people thought. They all thought it sucked also. I didn't see one positive review.

Now you're bullshitting Bob... A quick look at Amazon shows that the book had a 4 out of 5 star rating. Comon, at least admit the truth, no one can take you seriously when you constantly shyt yourself.

http://www.amazon.com/Fragile-Design-Political-Princeton-Economic/dp/0691155240/ref=sr_1_1?ie=UTF8&qid=1430551618&sr=8-1&keywords=Fragile+By+Design%3A

spydah_hh says

Now you're bullshitting Bob... A quick look at Amazon shows that the book had a 4 out of 5 star rating. Comon, at least admit the truth, no one can take you seriously when you constantly shyt yourself.

http://www.amazon.com/Fragile-Design-Political-Princeton-Economic/dp/0691155240/ref=sr_1_1?ie=UTF8&qid=1430551618&sr=8-1&keywords=Fragile+By+Design%3A

Reviewers agree it's a great history of banking, but the section on the housing bubble and crises is weak at best. I only looked at that section and decided not to buy. What bullshit did you find in that?

Gee, 4 stars, I wonder why the 5th is missing. There must be something that people didn't agree with. I wonder what section that could have been? Any guesses? Let's look at the customer reviews and see. Surprise, surprise, customer reviews say the exact same thing, the authors are full of shit when they try tie the CRA to the housing crisis. So professional reviewers and customer reviewers both agree with me. Thanks for your input but I think I'll just continue to shyt on myself.

bob2356 says

Gee, 4 stars, I wonder why the 5th is missing. There must be something that people didn't agree with. I wonder what section that could have been? Any guesses? Let's look at the customer reviews and see. Surprise, surprise, customer reviews say the exact same thing, the authors are full of shit when they try tie the CRA to the housing crisis.

I scanned the reviews, the one star reviews were from mutts, who often had a one word review and didn't like the book because it did not support their talking points.

indigenous says

bob2356 says

Gee, 4 stars, I wonder why the 5th is missing. There must be something that people didn't agree with. I wonder what section that could have been? Any guesses? Let's look at the customer reviews and see. Surprise, surprise, customer reviews say the exact same thing, the authors are full of shit when they try tie the CRA to the housing crisis.

I scanned the reviews, the one star reviews were from mutts, who often had a one word review and didn't like the book because it did not support their talking points.

I didn't look at any of the 1 star reviews. But whatever. You and sqd can believe in unicorns, sugarplum fairies, and the CRA as much as you want. Just don't be upset when everyone else thinks you are an idiot. Banks gave out crappy loans because they were grabbing their fee then turfing them out to CDO's as fast as they were writing them. The banks that got caught out did a crappy job evaluating risk because they were too greedy to do it right. It's really that simple. No conspiracy needed.

bob2356 says

Just don't be upset when everyone else thinks you are an idiot.

No I know what I'm dealing with, but there are some people who haven't drank the Kool Aid who will say hmm he has a point.

You on the other hand are too far gone on the egalitarian meme...

indigenous says

bob2356 says

Just don't be upset when everyone else thinks you are an idiot.

No I know what I'm dealing with, but there are some people who haven't drank the Kool Aid who will say hmm he has a point.

You on the other hand are too far gone on the egalitarian meme...

Yep, the other one has chimed in already.

WTF is egalitarian about thinking that the banks screwed themselves rather than being the victim of some nefarious plot by the liberals that you can't even begin to document? It's the atmosphere, it's the meme, people had meetings, people went to different schools together, etc, etc, etc.. Your explanation is like listening to my 6 year old explain to me how the lamp broke itself. After listening to the CRA arguments the 9/11 truthers seem rational.

bob2356 says

WTF is egalitarian about thinking that the banks screwed themselves rather than being the victim of some nefarious plot by the liberals that you can't even begin to document?

The premise that you base all of your thinking on is that big evil business was caused all the trouble without seeing fault with economic policies. The very core of "Fragile by Design" talks about this, you however latch onto the first blurb uttered that reinforces your axiom so that you do not have to look at it.

indigenous says

bob2356 says

Who exactly do you think spent billions of dollars lobbying to get those very economic policies you complain about passed into law?

Sactly the cronys, which is what happens when you mix politics and banking, the point of "Fragile by Design.

Then you are saying business/capitalists ARE evil. They will use their money to buy political favors at the expense of the rest of the population. You avoided the question (surprise, surprise) of who spends billions every year in lobbying and campaign contributions trying to stack the deck. That's a constant throughout history since the first person sold a flint ax. Without populists to oppose them there would only be crony capitalism. Your sugar plum fairy world of free markets is a myth and always was. That's the basic flaw in libertarianism, it doesn't work in the real world where frequently the best use of capital with the best ROI is buying influence in the government.

indigenous says

bob2356 says

"Corporations are like satellites and small children. Without adult supervision they wander off and get into trouble"

Actually they go bankrupt if not for counting on being bailed out as was case with Buffet in the current thread in which they show he doubled down on being bailed out.

The quote wasn't about bankruptcy, it was about things like dumping toxins, abusing workers, trade practices, buying politicians, etc..

So who went hat in hand, actually with a huge stack of IOU's called campaign contributions in hand, for these bailouts? The government should have nationalized every bank that couldn't operate without a bailout. Break them up and sell the parts to responsible banks that didn't get into trouble.

You can't have it both ways. A world where business is free to buy government influence, which they always will if it is the cheapest way to increase profits, and a government that makes sure the free market operates without government influence is a contradiction in terms.

indigenous says

The lower CRA standards were used to lower the standards across the board and with the government backstopping the loans the bubble mentality took off.

You realize you're making an argument AGAINST deregulating markets, right?

bob2356 says

Then you are saying business/capitalists ARE evil. They will use their money to buy political favors at the expense of the rest of the population

Of course.

bob2356 says

You avoided the question (surprise, surprise) of who spends billions every year in lobbying and campaign contributions trying to stack the deck.

No doubt about it.

bob2356 says

That's the basic flaw in libertarianism, it doesn't work in the real world where frequently the best use of capital with the best ROI is buying influence in the government.

Government by definition uses force in reality it follows it's own interest, so you have a bunch of empire builders that operate under the cloak of "Public Service". This is why the least amount of government the better, as in anarcho capitalism.

bob2356 says

The quote wasn't about bankruptcy, it was about things like dumping toxins, abusing workers, trade practices, buying politicians, etc..

So we don't have enough regulation already?

bob2356 says

So who went hat in hand, actually with a huge stack of IOU's called campaign contributions in hand, for these bailouts? The government should have nationalized every bank that couldn't operate without a bailout. Break them up and sell the parts to responsible banks that didn't get into trouble.

Nope standard bankruptcy would be fine.

bob2356 says

You can't have it both ways. A world where business is free to buy government influence, which they always will if it is the cheapest way to increase profits, and a government that makes sure the free market operates without government influence is a contradiction in terms.

Like I said the least amount of government is better.

thunderlips11 says

indigenous says

The lower CRA standards were used to lower the standards across the board and with the government backstopping the loans the bubble mentality took off.

You realize you're making an argument AGAINST deregulating markets, right?

It gets back to the tyranny of the majority idea, which is why you need a republic. Charles Calomiris makes the point that since the mid 1800s the US has had IIRC 18 banking crises to Canada's zero in the same time period. The difference was in that the regulation of the banks was overseen by people who were independent of politics.

Along that line of thinking I wonder what the framers would have thought about the Fed chairman being controlled by the President? He sure is not like the SCOTUS in that regard and much subject to hubris and adulation.

indigenous says

It gets back to the tyranny of the majority idea, which is why you need a republic. Charles Calomiris makes the point that since the mid 1800s the US has had IIRC 18 banking crises to Canada's zero in the same time period. The difference was in that the regulation of the banks was overseen by people who were independent of politics.

So between this and your CRA assertion about lowering standards, you're therefore in favor of regulation now.

thunderlips11 says

So between this and your CRA assertion about lowering standards, you're therefore in favor of regulation now.

You talk as though this is a binary, it tain't

Doublethink, aka Cognitive Dissonance.

The position held by most not on the extreme ends of the horseshoe is that some bank regulation is necessary. Only Pure Marxists and Pure Anarcho-Capitalists believe in "no" regulation; the first because they wouldn't allow banks in the first place, the latter because they believe in "Wildcat Banking".

Central banking is actually a very Marxist idea. In Karl Marx' "Communist Manifesto" of 1848, central banking was explicitly advocated in Plank 5 of the 10 planks proposed by the manifesto.

All free marketeers believe the banks should abide by contract laws just like all other businesses. "Regulations" specifically and uniquely apply to banking tend to given privileges to existing banks either by granting them rights that would be illegal for any other business or individual (for example, "bank holiday" unilateral abrogation of contract) or by restricting competition.

"Wildcat banking" referred to state chartered banking. The US has had state chartered banking through most of its history. From the mid 1930 ' s to the early 1990's, it wasn't even legal for a bank to span multiple states; big banks like Citi had to have different correspondent banks in different states operating under the same logo but different corporations.

indigenous says

But because a bank is in a special situation, of lending money, it is unique. E.G. the reserve rate, of course it would solve a lot of problems if the rate was 100%.

Just curious---have you even considered what a 100% reserve rate actually means? My guess is that you haven't....

tatupu70 says

Just curious---have you even considered what a 100% reserve rate actually means? My guess is that you haven't....

Bad guess...

indigenous says

Bad guess...

OK great--so learn me what it would do to lending. How much could banks lend out?

For example, if a bank had $20MM in deposits, how much could it lend out?

tatupu70 says

OK great--so learn me what it would do to lending. How much could banks lend out?

As much as they want, if they have the money to lend out, but no more.

indigenous says

As much as they want, if they have the money to lend out, but no more.

lol--consider it some more.

Here's a hint. After a bank lends money, it no longer has that money. So it doesn't count toward the reserve requirement.

Tutu, your description is not correct. 100% reserve requirement refers to credit created to reserve ratio. If a bank has $20 million deposit, it can lend out $20 million under such a system. The 10% reserve requirement system would allow $200 million loans to be made based on the same $20 million deposit.

Cash money does not have to leave the bank at all unless the clients want cash. Most transactions are carried out as account entries.

Reality says

Tutu, your description is not correct. 100% reserve requirement refers to credit created to reserve ratio. If a bank has $20 million deposit, it can lend out $20 million under such a system. The 10% reserve requirement system would allow $200 million loans to be made based on the same $20 million deposit.

No, it doesn't. The $200MM loans is what is created after many, many banks loan the same $20MM. If a bank lent out the entire $20MM, it would have a 0% reserve. 10% reserve means a bank can lend out $18MM of a $20MM deposit.

Reality says

Cash money does not have to leave the bank at all unless the clients want cash. Most transactions are carried out as account entries.

That's irrelevant to the reserve requirement.

tatupu70 says

No, it doesn't. The $200MM loans is what is created after many, many banks loan the same $20MM. If a bank lent out the entire $20MM, it would have a 0% reserve. 10% reserve means a bank can lend out $18MM of a $20MM deposit.

Correct, except it doesn't have to be many banks. Could be one bank. That is $20MM deposits, lend out $18MM, borrower buys building, seller of building deposits $18MM in same bank, now bank has $38MM deposits with reserve requirement of $3.8MM, has already lent $18MM, so $16.2MM available to lend. Lends another $16.2MM, seller deposits $16.2MM, total bank deposits are $54.2MM, reserve requirement $5.42MM, already lent 34.2MM, so $14.58MM available.

And so on.

At the federal level, the maximum theorectical money supply is 10x (FRN+reverse repos). 10X (FRN+RR) minus money supply is excess reserves.

control point says

Correct, except it doesn't have to be many banks. Could be one bank. That is $20MM deposits, lend out $18MM, borrower buys building, seller of building deposits $18MM in same bank, now bank has $38MM deposits with reserve requirement of $3.8MM, has already lent $18MM, so $16.2MM available to lend. Lends another $16.2MM, seller deposits $16.2MM, total bank deposits are $54.2MM, reserve requirement $5.42MM, already lent 34.2MM, so $14.58MM available.

Is there a point here? Leverage is leverage. Why is lending and redeposting somehow different than if someone had just put in 54.2M in the first place. There would still be 5.42 in reserve and 48.8 to lend. It doesn't make any difference at all how many banks are involved. If you ran this back and forth between 2 banks the end numbers would be the same.

indigenous says

tatupu70 says

OK great--so learn me what it would do to lending. How much could banks lend out?

As much as they want, if they have the money to lend out, but no more.

That would be a 0% reserve rate and lending leverage would be infinite. Congratulatons, you've just created history's largest credit bubble.

Or are you saying banks have to check each and every deposit to make sure none of the money was borrowed from another bank. That's certainly a workable system. Not.

Control Point beat me to the punch explaining how the math works with depositing into the same bank.

Also, reserve requirement is for on-demand deposits. The requirement does not apply to timed deposits. So the idea that 100% reserve requirement would stop baking is not valid. It would not stop banking, but would stop fraud: promising on-demand that can not possibly be cashed out when even as little as more than 1 in 10 want the on-demand money cashed out. Bank panic is the direct result of such a fraudulent promise.

Reality says

Control Point beat me to the punch explaining how the math works with depositing into the same bank

lol--was there someone besides Indig (and you) who didn't understand that?

Obviously you did not understand the real multiplication factor. Nor did you understand that reserve requirement does not apply to time deposit.

Frankly, demand deposit as it is carried out in fractional reserve banking is classic commercial fraud: pyramid scheme. Under 100% reserve requiremrnt, banking can continue by paying interest on term deposit, while charging storage fee on demand deposit. Voila, run on the bank is avoided.

Reality says

Obviously you did not understand the real multiplication factor. Nor did you understand that reserve requirement does not apply to time deposit.

Nope, I understood them both, as my previous post illustrated.

Reality says

Frankly, demand deposit as it is carried out in fractional reserve banking is classic commercial fraud: pyramid scheme

When did people stop understanding what a pyramid or Ponzi scheme is? It's misused so often now that it's almost lost its meaning.