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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

#241

Post by BurningFrog »

sneed-oil wrote: post #157
jzymbaluk wrote: post #100

Earlier quoted context omitted.

Of all the "evil" things one could do with gargantuan wads of cash, having it sit in a bank account is just about the most innocuous thing I can think of to do with it. It seems like a wise, cautious move actually, and it seems like it'd be bad to punish businesses for being cautious with their money

Their money is being used to make investments and they're getting paid interest for it. If their deposit was above the amount insured by the FDIC then they knew it could all be lost if the bank collapsed. I wouldn't call lending more than 250k to a bank "cautious" (that's what you do when you "deposit" your money in a bank), they could have bought Treasury bonds instead. But maybe they were smart and had guessed that…

Accounting for inflation, the interest paid is several percent negative.

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

#242

Post by paganel »

safety1st wrote: post #175
vlovich123 wrote: post #160

Earlier quoted context omitted.

> A market of 350 million high income people (by global standards) under one regulatory framework China almost has the same number of millionaires. Per capita it’s not as good, but in terms of volume. And I’d say they’re closer to a single regulatory framework than the US which has all sorts of conflicting state laws which get in the way of interstate commerce (despite the commerce clause). Sure there are a lot of ad…

For sure China has a ton of people and a huge economy. Fair point that the regulatory framework there may be more homogenous, but it's also weaker. And it lacks all the other inbuilt advantages I mentioned. Remember, the USA can ship goods back and forth between itself and what... 90% of the ex-US global economy? With very little geopolitical interference. This is largely a function of geography, plop a cargo ship in…

I think this is a skewed perspective. In case of a war the Chinese leaders won't care about the fact that they won't be able to sell their plasticky stuff to Europe or the US, they'll only care to have enough food for their population and enough raw materials for their Army (it takes lots of iron and access to cheap energy to make lots of artillery shells). Lack of enough food for their population was what brought the Germans down in WW1, partial lack of raw materials helped bring down the same Germans in WW2.

By itself China won't be able to feed its people in case of a US naval blockade, but that's where the alliance with Russia comes into place. Transporting grains by rail instead of by sea is not as cost effective but will do the trick, and Russia has lots of grains. The same Russia has also lots of raw minerals.

That's why throwing Russia into China's open arms is such a geo-strategic stupid thing to do from the West's point of view, really, really stupid.

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

#243

Post by riffraff »

wodenokoto wrote: post #234
riffraff wrote: post #180

Earlier quoted context omitted.

You missed one massive advantage: the US has a good and reliable legal system. It can not be overstated how good this is for an economy, and it's something emerging markets struggle with, and even some of the advanced economics. It'll always be easier to start and run a business where you can rely on tribunals to solve problems quickly and somewhat fairly.

Who are we calling an "advanced economy", but also considering having an unreliable legal system? Contenders, in my mind: - China, second largest economy, but generally still considered developing, so I don't think it counts as "advanced" - Russia? They've been a big player in the world economy long enough it is hard to call it a developing country.

Italy for example (second exporter in Europe, tenth by GDP in the world) has notorious issues with its legal system (for a variety of reasons) where trial may take many years to be concluded.

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

#244

Post by dalbasal »

bcrosby95 wrote: post #68
klodolph wrote: post #44

Earlier quoted context omitted.

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 disc…

Analogies are like children. If its your own they're a brilliant, cute, funny, unique individual. If they're other people's they're loud, annoying, stinky little pests and oh god they're swarming you.

Actually they're more like teenagers.

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

#245

Post by cm2187 »

drexlspivey wrote: post #47
JumpCrisscross wrote: post #16

Earlier quoted context omitted.

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.

Credit Suisse had a 14% CET1 ratio, higher than JPMorgan. The stock price was depressed because it wasn't turning a profit but it was nowhere near a level of losses where it would be a concern from a creditor point of view.

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

#246

Post by gitfan86 »

LoveMortuus wrote: post #225
fyzix wrote: post #23

History never repeats itself, but it does often rhyme. We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008. There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next…

If the inflation does reach (although in EU it already is) double digits, could that be a big of a hit to destabilize the US dollar and pave the way to the next global reserve currency? I'm asking because I've had these thoughts on my mind ever since Ray Dalio uploaded his video Principles for Dealing with the Changing World Order [0]. [0] (Video length: 43:43) https://youtu.be/xguam0TKMw8

The USD is the least worst option. That could change some day. Maybe India becomes a much bigger economy or the US govt gets overtaken by socialists who print like crazy and create hyperinflation. But for now there is no better option.

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

#247

Post by kevinfat »

fyzix wrote: post #23

History never repeats itself, but it does often rhyme. We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008. There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next…

I often hear the interest rates yielded this result of massive inflation or massive recession. But I'm not sure I believe that. I'm not convinced that the 0% interest rates lead to the massive inflation. So a non-mainstream economist Richard D. Wolff asked the elephant in the room question which no one seems to be asking which is to point out that we don't know how much of the price increases is simply due to companies just wanting to make more profit. And his point is how do you rule out that companies increased prices just for more profit irregardless of what the interest rates are?

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

#248

Post by cm2187 »

I'd argue a big difference between 2008 and now is that in 2008 we mostly saw an institutional run on the bank after Lehman, i.e. money market funds and other banks not trusting banks and refusing to lend longer term than overnight.

What we are seeing now is a retail run on the bank, the electronic equivalent of people hearing rumours on the street and queuing in front of branches (except now with twitter and their banking app). In some cases for good reason, others not so good.

I think the difference is that retail depositors don't look at financial ratios (and shouldn't be expected to be able to understand them). So how do you convince them?

One thing that is certain is that contrary to what the article says, none of the regulations introduced in response of the financial crisis helped. Higher capital ratios? Credit Suisse had 14% CET1 ratio and there was still a run. Higher liquidity requirement? Credit Suisse had over 200% LCR and there was still a run. Bailin? The swiss regulator judged that doing a full bailin of a large financial institution would be too disruptive to financial markets so only bailed in a small tranche of the CS capital stack (AT1). So what tools exactly are available to regulators that weren't in 2008?

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

#249

Post by Dylan16807 »

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.

The normal definition of money includes bank balances.

If you deposit $1000 of cash at a bank, and they loan it to someone else, you still have $1000 of money but now that other person also has $1000 of money.

But the abstract (and more accurate) version is even more interesting. Let's assume the person getting the loan deposits the money at the bank. Now we don't even need to touch cash. Giving out a loan is just adding 1000 to someone's account balance, in exchange for their contract to repay $1000+interest later.

A bank can do this over and over, and each time it creates $1000 of money. And when the loan is repaid, the money disappears.

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