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Are The Banks Broke?
- Thread starter Aaron Copland
- Start date
Yes they are broke.
But the Fed has "turned on the presses" in order to save the banks. Bernanke was smart enough to realize that lowering the fed funds rate was not going to be enough to recapitalize the banks. He also didn't want to appear to not care about the $ and inflation. So instead the Fed has created a back door lending desk where they will give new money at 0.3% in trade for collateral that is likely to be worthless.
With money that cheap, banks would be silly not to load up as much as they can.
Why can't we, the average american, get loans from the Fed for that rate? Because it's all a racket. A dirty scheme developed by crooks, for crooks. The Fed prints money for the banks who loan it to us. The banks automatically earn the spread. Very dirty stuff.
But the Fed has "turned on the presses" in order to save the banks. Bernanke was smart enough to realize that lowering the fed funds rate was not going to be enough to recapitalize the banks. He also didn't want to appear to not care about the $ and inflation. So instead the Fed has created a back door lending desk where they will give new money at 0.3% in trade for collateral that is likely to be worthless.
With money that cheap, banks would be silly not to load up as much as they can.
Why can't we, the average american, get loans from the Fed for that rate? Because it's all a racket. A dirty scheme developed by crooks, for crooks. The Fed prints money for the banks who loan it to us. The banks automatically earn the spread. Very dirty stuff.
Quote from skellington:
Yes they are broke.
But the Fed has "turned on the presses" in order to save the banks. Bernanke was smart enough to realize that lowering the fed funds rate was not going to be enough to recapitalize the banks. He also didn't want to appear to not care about the $ and inflation. So instead the Fed has created a back door lending desk where they will give new money at 0.3% in trade for collateral that is likely to be worthless.
With money that cheap, banks would be silly not to load up as much as they can.
Why can't we, the average american, get loans from the Fed for that rate? Because it's all a racket. A dirty scheme developed by crooks, for crooks. The Fed prints money for the banks who loan it to us. The banks automatically earn the spread. Very dirty stuff.
I do get offers from alot of my credit companies for 1.9% some even 0 % for 6 months. They do charge me a fee but it is capped at $100.00.
If you have good releation with some banks they will pass along some of this money, they do for me, but I'm the exception.
Any bank under a fractional reserve banking system is inherently broke/bankrupt. Period. Fed figures and stats have nothing to do with this fact.
It's amazing how few people manage to understand money & banking, even if you point them in the right direction.
It's amazing how few people manage to understand money & banking, even if you point them in the right direction.
I think most of us here on ET know how a fractional reserve bank works.
The problem is not 'fractional reserve' as even private banks based on the gold standard could be 'fractional reserve' in return for interest on deposits. The depositors then understanding that there is risk involved in their deposits and that risk would be disclosed. (It would be an 'investment' bank.)
People who wanted zero cash/gold loss risk would deposit into non-fractional reserve banks which would pay no interest but instead charge fees for service.
The problem now is that the highly leveraged fractional reserve banks use the FDIC (and implicitly the Fed) as insurance companies (they do pay insurance premiums to the FDIC) but risk is not market priced. The lack of market feedback on risk is what lets banks do what they do today.
Do you not agree?
The problem is not 'fractional reserve' as even private banks based on the gold standard could be 'fractional reserve' in return for interest on deposits. The depositors then understanding that there is risk involved in their deposits and that risk would be disclosed. (It would be an 'investment' bank.)
People who wanted zero cash/gold loss risk would deposit into non-fractional reserve banks which would pay no interest but instead charge fees for service.
The problem now is that the highly leveraged fractional reserve banks use the FDIC (and implicitly the Fed) as insurance companies (they do pay insurance premiums to the FDIC) but risk is not market priced. The lack of market feedback on risk is what lets banks do what they do today.
Do you not agree?
Excellent Commentary All
..............................................................................
Let us take this one step further by examining a very simple case....
Bank A makes a business loan for $1,000,000 at 7% for 5 years to be paid monthly....
The loan is personally guaranteed by the person's certificates of deposits....
If the loan were resold when interest rates went to 12%, what would the loan be sold for ?
What would the value be at 5% ?
...............................................................................................
Now let's say the bank makes a $1,000,000 loan at 7% for 5 years not personally guaranteed....
Ok so now what is the loan worth as interest rates move from 5 to 12% ?
.........................................................................................
In any case, the bank is a public bank, and has a 50% market share of its regional presence. The bank's value is thereby capitalized by stock....which in turn is nonobligatory noninterest and is stock not debt....
The stock sells for $100 when interest rates are at 7%....
.................................................................................................
The bank takes on loans representing 30% of its portfolio, which declines by 90% when marked to market, although the debt interest rate is 3 points higher than its other loans....
The net valuation of the bank becomes negative because it had levered its asset base by a 20 to 1 basis....
................................................................................................
The government steps in and now makes the value 100% for all its loans, but uses printed money to do so....The amount of the newly printed dollars represents a high percentage of the money previously in circulation....
...............................................................................................
Most of the loan money was for foreign firms.....
...............................................................................................
So now the game is whose money has more value now....the initial borrower's.....or the foreign firm's currency ?
...............................................................................................
The point being is that the Central Banks have risen to the occasion....there is no doubt about this....
Now....the participating currencies have to find their true value....
....................................................................................................
Now back to the question....are the banks broke ?.....well yes they were.....but they are not now....not while the Central Banks are not allowing it.....
However on their own....broke is a reasonable assumption.....
But it is hard to see through muddy water.....Right now most financial frims want the water as muddy as possible....
Multi-Trillions in bad debt render the vast majority of banks broke by default ....versus known debt outstanding....
However....to be sure....the Central Banks will not be picking up 100% of the tab.....
Thus muddy water.....can be very very risky....as some will really lose....
..............................................................................
Let us take this one step further by examining a very simple case....
Bank A makes a business loan for $1,000,000 at 7% for 5 years to be paid monthly....
The loan is personally guaranteed by the person's certificates of deposits....
If the loan were resold when interest rates went to 12%, what would the loan be sold for ?
What would the value be at 5% ?
...............................................................................................
Now let's say the bank makes a $1,000,000 loan at 7% for 5 years not personally guaranteed....
Ok so now what is the loan worth as interest rates move from 5 to 12% ?
.........................................................................................
In any case, the bank is a public bank, and has a 50% market share of its regional presence. The bank's value is thereby capitalized by stock....which in turn is nonobligatory noninterest and is stock not debt....
The stock sells for $100 when interest rates are at 7%....
.................................................................................................
The bank takes on loans representing 30% of its portfolio, which declines by 90% when marked to market, although the debt interest rate is 3 points higher than its other loans....
The net valuation of the bank becomes negative because it had levered its asset base by a 20 to 1 basis....
................................................................................................
The government steps in and now makes the value 100% for all its loans, but uses printed money to do so....The amount of the newly printed dollars represents a high percentage of the money previously in circulation....
...............................................................................................
Most of the loan money was for foreign firms.....
...............................................................................................
So now the game is whose money has more value now....the initial borrower's.....or the foreign firm's currency ?
...............................................................................................
The point being is that the Central Banks have risen to the occasion....there is no doubt about this....
Now....the participating currencies have to find their true value....
....................................................................................................
Now back to the question....are the banks broke ?.....well yes they were.....but they are not now....not while the Central Banks are not allowing it.....
However on their own....broke is a reasonable assumption.....
But it is hard to see through muddy water.....Right now most financial frims want the water as muddy as possible....
Multi-Trillions in bad debt render the vast majority of banks broke by default ....versus known debt outstanding....
However....to be sure....the Central Banks will not be picking up 100% of the tab.....
Thus muddy water.....can be very very risky....as some will really lose....
Quote from skellington:
I think most of us here on ET know how a fractional reserve bank works.
Uhm no, quite the opposite.
The rest of your post supports my original statement. I honestly just don't care to explain the scheme, it's quite simple, really, but it requires the ability TO THINK. There is plenty of information available out there anyway.
Better yet, just learn history of money & banking. At its core, it is very simple. Back in the day, when you lent out your depositors' assets, (usually gold or grain) and you got caught, you went to jail. Something to marinade on.