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America’s banks are missing hundreds of billions of dollars

economist.com

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Re: America’s banks are missing hundreds of billions of dollars

#261

Post by bluecalm »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

I don't think there is any basis to say too much money printing caused inflation. There were many countries with even lower rates for many years and no inflation to speak of to the point of it becaming problematic.

What caused this wave of inflation was supply taking a hit. Fallout from COVID and then war in Ukraine. It was difficult to get many good which normally were easily available. It's not rocket science either: inflation is about always caused by falling demand. It doesn't matter how much the government prints. When bread is hard to get people will exchange a lot to get a loaf.

If anything it seems like overreaction by the feds to raise the rates so much. It's not like them reducing access to capital magically makes goods appear on the shelves.

Re: America’s banks are missing hundreds of billions of dollars

#262

Post by boomerango »

nugget wrote: post #61
harry8 wrote: post #56

Earlier quoted context omitted.

> Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday. Big call. Huge. Got some data or similar to back it? Edit: If there's clear picking of winners, or even plausibly so it's gonna look pretty bad. [1] [1] https://www.theguardian.com/business/2021/jan/01/janet-yelle...

Watch the exchange between Sen Lankford and Sec Yellen yourself: https://www.youtube.com/watch?v=Bcvl104tyRY Yellen says unsecured depositors at TBTF banks will always be bailed out, but those at smaller banks are on their own. It's one of the most incredible moments I've witnessed. I'm not sure if there's some hidden agenda being pursued, or if Yellen is just so far removed from the real world that she doesn't under…

As I understand it, the piece you are missing is that she legally/procedurally cannot guarantee depositors prior to a bankruptcy - that would require an act of congress. The congressman know this as well, so it’s just grandstanding.

Re: America’s banks are missing hundreds of billions of dollars

#263

Post by baremetal »

BurningFrog wrote: post #251
_0w8t wrote: post #191

Earlier quoted context omitted.

There is an observation that the real salaries stagnated since seventies for an average American because all the growth went into financial industries. Those rose in the last 50 years from few percents to close to a quarter of economy essentially resulting in a hidden tax paid by everyone to bankers.

Those calculations are very tricky in conflict with the obvious huge increase in living standards since the 70s.

>Those calculations are very tricky in conflict with the obvious huge increase in living standards since the 70s.

People used to be able to buy a house and raise a family on one salary. Tell me where exactly the standard of living went up since the 70s.

Sounds nice though.

Re: America’s banks are missing hundreds of billions of dollars

#264

Post by boomerango »

theteapot wrote: post #142
nugget wrote: post #61

Earlier quoted context omitted.

Watch the exchange between Sen Lankford and Sec Yellen yourself: https://www.youtube.com/watch?v=Bcvl104tyRY Yellen says unsecured depositors at TBTF banks will always be bailed out, but those at smaller banks are on their own. It's one of the most incredible moments I've witnessed. I'm not sure if there's some hidden agenda being pursued, or if Yellen is just so far removed from the real world that she doesn't under…

> Yellen says unsecured depositors at TBTF banks will always be bailed out, but those at smaller banks are on their own. I agree SVB and Signature uninsured deposits shouldn't have been guaranteed, but that's not quite what Yellen said. The $250K guarantee applies to deposits at all insured banks. Having clarified that, Yellen said: > A bank only gets that treatment [guaranteeing all deposits] if a [super] majority o…

Exactly. The subtext to this clip is that she cannot do what the congressman is acting without an act of congress, and he should know that. It’s well executed grandstanding.

Re: America’s banks are missing hundreds of billions of dollars

#265

Post by hgomersall »

ClumsyPilot wrote: post #246
hgomersall wrote: post #229

Earlier quoted context omitted.

That's like saying the purpose of a supermarket is to convert investment into grocery sales. It might be true at some level, but isn't what people describe as the purpose of a supermarket. Banks are entities for making loans. They are heavily regulated in how they do that, and part of that does come with capitalization requirements, but the purpose of a bank is to make loans.

How did you square your definition with the fact that some banks make no loans at all? You don't need to be a bank to make a loan, I can lend money. Me and you are regulated more than the banks are, because we are not allowed to do things banks do. Legally the 'bank' means you have a banking licence. That is all. This licence allows you to create money. This is a huge superpower, but there are terms and conditions at…

They also provide payment services in the modern world, and it's not intended to be definitional.

You can create money, you just can't pass that around the monetary framework. That's what the license is really about. It doesn't feel we disagree. What you wrote I totally agree with.

Re: America’s banks are missing hundreds of billions of dollars

#266

Post by losvedir »

beermonster wrote: post #235

Can anyone recommend some good blog articles or books (aimed at lay people) on how the global economy works, bank interactions with other banks, and government management of inflation and interest rates? I'd like to understand a bit about both the previous crash and the current banking crisis, but feel I need to do some background reading first.

Be careful out there reading blogs. Maybe I'm biased because I have a degree in Econ from MIT, but I'd highly recommend starting out with the "orthodox" treatment of the subject, as you'd learn at a university. To that end Core Econ[0] is a very solid, free, engaging, easy to read book that covers it. Chapter 10, "Banks, money, and the credit market", is particularly what you're asking about. You can take a look at the authors and editorial board[1] and you'll see they're a bunch of professors and professional economists at banks, that sort of thing.

I've had some thought provoking fun reading, e.g. unorthodox "Austrian School" economics by Mises, but you should be wary of reading blogs, as lots of incorrect things in Econ can sound convincing if you don't have the right background.

[0] https://www.core-econ.org/the-economy/book/text/0-3-contents... [1] https://www.core-econ.org/meet-core/

Re: America’s banks are missing hundreds of billions of dollars

#267

Post by netcan »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

I disagree with everything but the conclusion.

I'm dubious that the "Fed's money printer" had much of an effect on inflation. It certainly didn't cause the SVB or other banks to go under. The rate increases did that... in this case.

I don't think the particular path matters much. People tend to moralize banking, and post failure we tend to hunt for moral culprits. But... the historical fact is that banks fail sometimes, under all possible regulatory and commercial regimes. We have hundreds of years worth of evidence.

Banks have failure scenarios. The concept of a bank which takes deposits and invests them while maintaining 0% risk to depositors does not, and has never existed. We need to decide if money in the bank proverbial gold, or is it more like shares in a company? We just can't have both.

Re: America’s banks are missing hundreds of billions of dollars

#268

Post by nemo44x »

csomar wrote: post #53
nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in te…

Except that interest rates aren’t the market. They are controlled by the Fed who decides. The Fed was guiding for no raises in interest rates up until they decided to start jacking them at the fastest rate in decades.

This would not have been an issue if the Fed raised rates gradually over years and kept the bonds more or less even because of time value. But they panicked and very possibly because they have been politicized. They should have started raising rates in 2021 but with the election and the Fed seat up for appointment they sat on their hands.

There’s blame to spread around but there’s a reason 100s of banks are in this situation right now. They were all following the Feds regulations and guidance. And now they’re holding all these lousy bonds and the deposits that back them want to be moved into high interest accounts now. Whoops.

Had they guided for this then banks would have went shorter term.

Re: America’s banks are missing hundreds of billions of dollars

#269

Post by systemvoltage »

quonn wrote: post #259
systemvoltage wrote: post #194

Earlier quoted context omitted.

I think the blame squarly lies on 2). Sweden and Florida didn't follow the Science™ and instead followed reason, rationale and logic. The rest of the country was obessesed over lockdowns, especially those on the political left. It was a religion of HN. These are policy failures on all fronts - from monetary to public health.

Sweden failed miserably as is now commonly accepted.

Depends on how you define failure. If the goal is set for zero Covid policy then yes, Swedes failed. But so did everyone else in addition to drastic measures such as recommending vax for 3 year olds.

Re: America’s banks are missing hundreds of billions of dollars

#270

Post by api »

csomar wrote: post #53
nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in te…

I thought we would be trapped at near zero interest rates for even longer, possibly forever, and that the future was in general like Japan. I’m a bit surprised.

Of course I could still be right. These higher interest rates could be a blip.

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