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Reasons the banking crisis isn’t a repeat of 2008

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Re: Reasons the banking crisis isn’t a repeat of 2008

#41

Post by JumpCrisscross »

hanniabu wrote: post #37
perfecthjrjth wrote: post #27

Earlier quoted context omitted.

Loans create more money; in other words, according to your proposal, private banks shouldn't lend out more money than what they have (as customers' deposits).

How does a loan create money? A loan is just shifting funds from the lender to the borrower.

> How does a loan create money? A loan is just shifting funds from the lender to the borrower

Loans create deposits. (When you're approved for a loan, the bank makes the numbers in your account go up.) Banks don't lend out deposits.

See: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Re: Reasons the banking crisis isn’t a repeat of 2008

#42

Post by vkou »

majormajor wrote: post #30
perfecthjrjth wrote: post #27

Earlier quoted context omitted.

Loans create more money; in other words, according to your proposal, private banks shouldn't lend out more money than what they have (as customers' deposits).

I think that's what the commenter was getting at, but I think the fixation on banks as a way of "printing money" as a big problem is wildly overblown. "Money" is more of a fiction than that, and that's ok. Creating a successful company creates money. Crypto created money (while often pitched as ultimately being about the opposite).

> I think that's what the commenter was getting at, but I think the fixation on banks as a way of "printing money" as a big problem is wildly overblown.

Actually, most of this fixation is directed at grousing at the Fed for creating money, while ignoring the roles of retail banks issuing loans in creating money.

> Creating a successful company creates money.

No, it doesn't.

Creating a successful company creates value. Creating value often results in creating movement of money. The velocity of money in the economy is a loose proxy for the overall health of the economy.

> Crypto created money.

Yes, it did. One of the criticisms of it is that the amount of 'money' it created * the current value of that 'money' is significantly smaller than the amount of value it created.

Re: Reasons the banking crisis isn’t a repeat of 2008

#44

Post by klodolph »

dalbasal wrote: post #28
kiernanmcgowan wrote: post #8

Earlier quoted context omitted.

In the same way that you should take a software engineer's take on why a a SQL query is slow. They're probably the most knowledgeable person in the room but that doesn't always mean that they're right.

"A software engineer's take on why an SQL query is slow." isn't the correct analogy, IMO. First, this isn't a banker, it's a bank. A banking crisis isn't the equivalent of a script either. Should you trust meta about monopolism in the social media space, data ownership, child safety, the effects of new media on professional journalism, etc. etc. Big political questions intertwined with his companies' interests. In an…

I wonder how many HN conversations would be cut short if we simply accepted that analogies are imperfect yet useful. They provide a very limited amount of insight into any topic—so yes, let’s use them, and let’s stop arguing about whether an analogy is the “right analogy”. A analogy will have some element of truth that transfers from one situation to another, and in a good analogy, it will be easy for readers to discover that element of truth.

You’ll find ways in which the analogy is “wrong”, but that’s just noise.

Re: Reasons the banking crisis isn’t a repeat of 2008

#45

Post by DennisP »

ununoctium87 wrote: post #18
ipv6ipv4 wrote: post #13

Earlier quoted context omitted.

A software engineer usually doesn't have a financial incentive to lie to you.

Hey, some of us are passionate about paying rent and bills

Generally I think you'll find it easier to pay rent if you provide accurate reasons for slow sql queries.

Re: Reasons the banking crisis isn’t a repeat of 2008

#46

Post by smcin »

JumpCrisscross wrote: post #9
smcin wrote: post #7

Earlier quoted context omitted.

Well, their selective take is like a description of a mass shooting that only describes where the bodies ended up, but no discussion of who caused it, or even that bullets might have been involved, let alone which people actually did it: "Households had too much leverage in 2008 : Mortgage debt % potential GDP..." "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure lea…

Glass-Steagall’s repeal wasn’t proximate to any post-repeal banking crises. (Glass-Steagall wouldn’t have prevented mortgage CDOs.) It certainly wouldn’t have done anything for SVB or Signature.

Re Glass-Steagall and 2008 crisis, Robert Reich and Elizabeth Warren disagree with you [https://robertreich.org/post/124114229225]. According to you, which legislation prevented the conflict-of-interest in banks writing trillions in subprime mortgages decades prior to 1999? or securities firms selling CDOs backed by subprime MBS? IIUC, the issue in 2008 was never "preventing mortgage CDOs" outright, but preventing the inflated valuations on junk tranches of subprime, i.e. mortgage lenders allowing securities sellers to intentionally create and sell junk with their assets.

(and I clearly didn't say Glass-Steagall would have done anything for SVB or Signature; I was saying banks like Chase's selective edit of the chain of events around 2008 was a whitewash because it omitted mention of key events.)

Re: Reasons the banking crisis isn’t a repeat of 2008

#47

Post by drexlspivey »

JumpCrisscross wrote: post #16
maxbond wrote: post #11

Earlier quoted context omitted.

Why is that?

Our equity markets have always been weird, but they’ve gotten weirder in recent years. For most businesses, that volatility is fine. Customers of e.g. Nike aren’t checking its stock price before buying sneakers, and it mostly has enough cash on hand to conduct business if creditors get spooked. Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This…

> Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in.

You have the cause & effect wrong, the stocks tanks because the bank is failing. Tons of banks that are not publicly traded fail too.

Re: Reasons the banking crisis isn’t a repeat of 2008

#48

Post by [deleted] »

hanniabu wrote: post #37
perfecthjrjth wrote: post #27

Earlier quoted context omitted.

Loans create more money; in other words, according to your proposal, private banks shouldn't lend out more money than what they have (as customers' deposits).

How does a loan create money? A loan is just shifting funds from the lender to the borrower.

[deleted]

Re: Reasons the banking crisis isn’t a repeat of 2008

#49

Post by hammock »

kiernanmcgowan wrote: post #8
pnemonic wrote: post #2

Serious question: Is it a good idea (ever) to trust a bank's take on a financial crisis?

In the same way that you should take a software engineer's take on why a a SQL query is slow. They're probably the most knowledgeable person in the room but that doesn't always mean that they're right.

More like, in the same way that Burisma should take Hunter Biden’s advisement on the oil and gas industry.

You put your money with the bank, but only out of necessity, and usually it works out, and they have you by the balls the whole time

Re: Reasons the banking crisis isn’t a repeat of 2008

#50

Post by majormajor »

vkou wrote: post #42
majormajor wrote: post #30

Earlier quoted context omitted.

I think that's what the commenter was getting at, but I think the fixation on banks as a way of "printing money" as a big problem is wildly overblown. "Money" is more of a fiction than that, and that's ok. Creating a successful company creates money. Crypto created money (while often pitched as ultimately being about the opposite).

> I think that's what the commenter was getting at, but I think the fixation on banks as a way of "printing money" as a big problem is wildly overblown. Actually, most of this fixation is directed at grousing at the Fed for creating money, while ignoring the roles of retail banks issuing loans in creating money. > Creating a successful company creates money. No, it doesn't. Creating a successful company creates value…

There's a pretty common complaint about "traditional" finance and the banking system from the pro-crypto crowd that it lets "special" private parties "create money" in addition to central banks. The sort who will say things like "why do banks get to create money, why can't I??" That's the specific bit I thought was being hinted at.

> Creating a successful company creates value. Creating value often results in creating movement of money. The velocity of money in the economy is a loose proxy for the overall health of the economy.

It creates money in the same way a loan does. There are no new dollar bills printed, and yet people behave as if those dollars are in more places at once. People pull forward future (expected) company revenue to put a current value number on the company and then they exchange money for parts of that company, and adjust their spending habits based on that present value. Like how in a loan they pull forward a future value of the sum of their expected payments on the loan, in order to increase the velocity of those dollars that were loaned out vs them sitting in a mattress.

I suppose my quibble is that the concepts of "creating value" vs "creating money" distinction is largely meaningless in a world where we have so many mechanisms for exchanging money for the expectations of future money or value. Or even for the derivatives of those expectations!

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