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Greenspan "shocked" at credit system breakdown
- Thread starter Gringinho
- Start date
Quote from Landis82:
The proposal of a "transaction tax" came from Oregon House of Representative, Pete DeFazio, which another 12 Dems signed onto and sent to Pelosi. The logic behind it was to pay for the $700 Billion "bail-out".
http://www.defazio.house.gov/index.php?option=content&task=view&id=438
(scroll down to end of page)
This will never become law.
Let's hope. When crises like the current strike all logic goes out of the window, anything can happen.
They could easily pass a law to regulate derivatives that is aimed at let's say CDS, but futures could be included as "innocent bystanders" and the new law could have very adverse effect on us.
Quote from Random.Capital:
By chasing yield without worrying about the sanity or health of the banking institution offering that higher yield, you are Ground Zero of the "privatizing profits, socializing losses" problem.
So you invest for lower returns?
How many talking heads came on the air to say how some of these institutions were just fine and then a week later they had to be "saved"? Are you suggesting that individual investors that do not have access to all the available information and/or tools or ability to make such decisions as to whether an institution is healthy or not are somehow to blame for this? Not in my book. Everyone seems to be a genius after the fact. If I (or anyone else for that matter) "knew" that many of these institutions were going to be selling for pennies on the dollar, I wouldn't have bothered with CD's, I would have made a fortune instead (and congrats to those that did).
His point hadn't an iota to do with any of the topics discussed in your rant.
Let me slow things down for you.
Most fixed income investors-including "normal" folks- seek the safest, highest achievable return.
Logically a principal risk that's Federally insured combined with a higher yield than direct investment in T-Bills is the popular choice of credit market investors. Hence the primary method smaller banks use to raise capital is through the issuance of Certificates of Deposit.
When an investor evaluates Banks he pays little heed to the Bank's risk level. Why? Because the investors money is Federally insured no matter if the issuing banks becomes insolvent or not. Knowing that the "safe" component of decision making is guaranteed the only thing left for an investor to consider is the yield. Thus investors consciously lend money to riskier institutions based on the inducement of superior ROI and investors willfully ignore the risks posed to those institutions.
Consider these choices.
Bank A will return to you a 5% yield, FDIC guaranteed and there's virtually no chance they will fail.
Bank B will return to you a 15% yield, FDIC guaranteed and there's virtual certainty they will fail.
Most people would choose B. The FDIC provides depositors a free put in the pursuit of high yield.
Let me slow things down for you.
Most fixed income investors-including "normal" folks- seek the safest, highest achievable return.
Logically a principal risk that's Federally insured combined with a higher yield than direct investment in T-Bills is the popular choice of credit market investors. Hence the primary method smaller banks use to raise capital is through the issuance of Certificates of Deposit.
When an investor evaluates Banks he pays little heed to the Bank's risk level. Why? Because the investors money is Federally insured no matter if the issuing banks becomes insolvent or not. Knowing that the "safe" component of decision making is guaranteed the only thing left for an investor to consider is the yield. Thus investors consciously lend money to riskier institutions based on the inducement of superior ROI and investors willfully ignore the risks posed to those institutions.
Consider these choices.
Bank A will return to you a 5% yield, FDIC guaranteed and there's virtually no chance they will fail.
Bank B will return to you a 15% yield, FDIC guaranteed and there's virtual certainty they will fail.
Most people would choose B. The FDIC provides depositors a free put in the pursuit of high yield.
Quote from u21c3f6:
So you invest for lower returns?
How many talking heads came on the air to say how some of these institutions were just fine and then a week later they had to be "saved"? Are you suggesting that individual investors that do not have access to all the available information and/or tools or ability to make such decisions as to whether an institution is healthy or not are somehow to blame for this? Not in my book. Everyone seems to be a genius after the fact. If I (or anyone else for that matter) "knew" that many of these institutions were going to be selling for pennies on the dollar, I wouldn't have bothered with CD's, I would have made a fortune instead (and congrats to those that did).
Quote from Pa(b)st Prime:
His point hadn't an iota to do with any of the topics discussed in your rant.
Let me slow things down for you.
Most fixed income investors-including "normal" folks- seek the safest, highest achievable return.
Logically a principal risk that's Federally insured combined with a higher yield than direct investment in T-Bills is the popular choice of credit market investors. Hence the primary method smaller banks use to raise capital is through the issuance of Certificates of Deposit.
When an investor evaluates Banks he pays little heed to the Bank's risk level. Why? Because the investors money is Federally insured no matter if the issuing banks becomes insolvent or not. Knowing that the "safe" component of decision making is guaranteed the only thing left for an investor to consider is the yield. Thus investors consciously lend money to riskier institutions based on the inducement of superior ROI and investors willfully ignore the risks posed to those institutions.
Consider these choices.
Bank A will return to you a 5% yield, FDIC guaranteed and there's virtually no chance they will fail.
Bank B will return to you a 15% yield, FDIC guaranteed and there's virtual certainty they will fail.
Most people would choose B. The FDIC provides depositors a free put in the pursuit of high yield.
Rant?
Bear Stearns, beginning of the week, all is fine, leave your money in BS, end of the week, going out of business sale.
Your scenario makes the leap that you "know" which institutions are going to stay in business and which will not. Frankly, I do not have those smarts (but neither do most people whether they believe they do or not). I agree that the problem is the FDIC, but don't lay that blame at the feet of the investors. If you are going to insure something, make sure it is insurable.
Quote from u21c3f6:
If you are going to insure something, make sure it is insurable.
This works well in private industry, but even though bogus corporations like the Federal Reserve and the FDIC are private, their status as taxpayer-guaranteed allows them to function on a level of blank-check ineptitude and incompetence that only government agencies are allowed, even designed, to work under. Hence, common sense and general business practice of a firm in business for a profit, does not commute to either the Fed or the FDIC.
Quote from GermanTrader:
This works well in private industry, but even though bogus corporations like the Federal Reserve and the FDIC are private, their status as taxpayer-guaranteed allows them to function on a level of blank-check ineptitude and incompetence that only government agencies are allowed, even designed, to work under. Hence, common sense and general business practice of a firm in business for a profit, does not commute to either the Fed or the FDIC.
Agreed! What you wrote above is the ground zero that needs to be resolved IMO.
Bear Stearns was a depositor institution...
Quote from u21c3f6:
Rant?
Bear Stearns, beginning of the week, all is fine, leave your money in BS, end of the week, going out of business sale.
Your scenario makes the leap that you "know" which institutions are going to stay in business and which will not. Frankly, I do not have those smarts (but neither do most people whether they believe they do or not). I agree that the problem is the FDIC, but don't lay that blame at the feet of the investors. If you are going to insure something, make sure it is insurable.
Quote from u21c3f6:
Are you suggesting that individual investors that do not have access to all the available information...
First, I am commenting specifically on institutions taking FDIC-insured deposits.
I'm suggesting that people are ignoring common sense because they know there's a blanket government guarantee. Any depository institution offering luxurious yields should be viewed as waving a huge red flag - especially in the near-ZIRP regime we are currently living through.
Instead, people by and large view it as an "investment" opportunity and chase the yield. That is a big big problem, not just financially, but electorally, because such actions are simultaneously sending a very loud, very clear "pander to me" message to candidates campaigning for office.
Somewhere along the way, people have forgotten (or chosen to ignore) that a "deposit" in a fractional reserve banking system is in fact an investment in the institution. The FDIC backstop artificially dissociates the two - until times like now, when it can't.