Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The Banker Who Said No

forbes.com

Post reply on HN
Print view View original

51–60 of 67 posts

Re: The Banker Who Said No

#51

Post by kragen »

jhancock wrote: post #3
ggchappell wrote: post #2

FTA: > "This is the opportunity of my lifetime," says Beal. "We are going to be a $30 billion bank without any help from the government." (A slight overstatement: He is quick to say he relies on federal deposit insurance.) And he pays for it, too (premiums, y'know). That's not "help" as we usually mean the word; that's a purchased service. Now, as for the bailouts -- which Beal is not getting -- that is "help".

It is a good read and he obviously is a "good" banker for not overextending his bank. But to say he doesn't rely on government help makes it sound like he runs a normal corporation. Banks are not normal corporations. Mine can't loan out money at 26 times my deposits. Can yours? Of course not, your not a bank. This is the rub with banks. They want to behave like private entities, but they leverage government backed cu…

You ask:

> Mine can't loan out money at 26 times my deposits. Can yours? Of course not; you're not a bank.

Actually, I think that if someone loans a hypothetical non-bank US corporation money, it can legally loan out 100% of that money, without retaining any of it as a reserve. This is probably not a good idea, since it means it won't be able to pay any of its bills next week, but it's not illegal.

What you wrote makes it sound as if, when depositors loan a bank $100 000, the bank can then loan out $2 600 000. That is not the way fractional-reserve banking works. The actual amount the bank can legally loan out in that case is more like $90 000. A non-bank corporation would be able to loan out a larger amount (up to $100 000) in that case, not a smaller amount, as your post suggests.

Re: The Banker Who Said No

#52

Post by TweedHeads »

Beal Bank? I am more interested in the story of how he started the bank. How can an individual with the government's blessing can start a bank like that. Don't they need huge funds and deposits and a million financial and security hurdles? Where did he get it all?

Re: The Banker Who Said No

#53

Post by TweedHeads »

TweedHeads wrote: post #52

Beal Bank? I am more interested in the story of how he started the bank. How can an individual with the government's blessing can start a bank like that. Don't they need huge funds and deposits and a million financial and security hurdles? Where did he get it all?

Furhtermore, I wouldn't trust my money to a bank where the owner spends millions playing poker and brags about it. WTF?

Re: The Banker Who Said No

#54

Post by nsrivast »

TweedHeads wrote: post #53
TweedHeads wrote: post #52

Beal Bank? I am more interested in the story of how he started the bank. How can an individual with the government's blessing can start a bank like that. Don't they need huge funds and deposits and a million financial and security hurdles? Where did he get it all?

Furhtermore, I wouldn't trust my money to a bank where the owner spends millions playing poker and brags about it. WTF?

Poker inculcates many of the skills needed for finance, and if you're good it can simply be a profitable investment.

Re: The Banker Who Said No

#55

Post by joeyo »

tlb wrote: post #47
joeyo wrote: post #46

Earlier quoted context omitted.

Other than excel having some floating-point arithmetic problems, what difference does it make what tool he uses? Most things are linear to a first approximation anyway.

Only because most first approximations are linear.

I can't prove it, but I will assert without much fear of a counterexample, that, for most if not all systems, linear models describe most of the variance with the fewest number of free parameters. This may be as much as 90% in some cases, but almost certainly more than 50%.

In other words you get the most bang for your buck. This is not to say that a linear approximation might not be very inaccurate on important parts of the problem domain, but the variance that a higher order model would describe would be less, perhaps much less, than the portion the linear part describes.

Re: The Banker Who Said No

#56

Post by Rod »

nsrivast wrote: post #54
TweedHeads wrote: post #53

Earlier quoted context omitted.

Furhtermore, I wouldn't trust my money to a bank where the owner spends millions playing poker and brags about it. WTF?

Poker inculcates many of the skills needed for finance, and if you're good it can simply be a profitable investment.

Exactly! When interviewing for hedge funds for a quantitative analyst / trader position one should expect to be asked about poker / blackjack / backgammon.

A classical interview question / challenge would be to invent a new card game and ask the interviewees to devise an optimal strategy for that game.

Re: The Banker Who Said No

#57

Post by byrneseyeview »

ilkhd2 wrote: post #43
anamax wrote: post #20

Earlier quoted context omitted.

>E.g. if I pay someone $100 now for $100 worth of lawn care over the next five years, I make damn sure I can trust that person. If I pay the bank $100 for a CD maturing in five years, I don't. > This gives all banks an incentive to take undue risk Actually, you've just demonstrated that FDIC insurance gives you an incentive to take undue risk. You'll deposit your money at any bank without regard for whether said bank…

Bank of North Dakota. A government run one..

There haven't been enough defaults in North Dakota for that to be a serious issue. Some places are able to have lots of state involvement without getting into lots of trouble, e.g. the Scandinavian socialist states, Singapore, etc. Most of the defaults were concentrated in the 'sand states' -- California, Florida, Arizona, and Nevada.

Re: The Banker Who Said No

#58

Post by mstoehr »

joeyo wrote: post #55
tlb wrote: post #47

Earlier quoted context omitted.

Only because most first approximations are linear.

I can't prove it, but I will assert without much fear of a counterexample, that, for most if not all systems, linear models describe most of the variance with the fewest number of free parameters. This may be as much as 90% in some cases, but almost certainly more than 50%. In other words you get the most bang for your buck. This is not to say that a linear approximation might not be very inaccurate on important part…

And even the most fancy statistical methods are generally about proving that some mild generalization of linear regression is sufficient to solve a particular problem. Non-linear models often result in a great increases in model complexity which leads to issues of overfitting, computational intractability, and instability.

Re: The Banker Who Said No

#59

Post by kragen »

byrneseyeview wrote: post #16
mynameishere wrote: post #8

Earlier quoted context omitted.

Lot of upmods for an extremely confused post. Mine can't loan out money at 26 times my deposits. Can yours? Of course not, your not a bank. ...oh kay. A class that recognized they are hybrid entities, and not the same as a typical private company Umm. You seem to be getting at GSEs, a standard corporate form. http://en.wikipedia.org/wiki/Government-owned_corporation Generally, this doesn't seem to work out too well w…

Is it really responsible for a bank to back 30-year loans with demand deposits, at 25-to-1 leverage? I really can't imagine that happening without government intervention, and if it only happens when the government makes it happen, there's a good reason to expect that it's irrational. Banks are hybrid companies in the sense that FDIC insurance means they are basically conduits for lending to the government. If I depo…

Not only is it not responsible to maintain a 4% reserve ratio, in the US it's illegal, and has been for decades. (The legal requirement is 10%.) That also means that it pretty much doesn't happen; banks are pretty tightly regulated. Until the repeal of Glass-Steagall, if I understand correctly, it was also illegal for your banker to invest your money in stocks, penny or otherwise.

The extent to which banks are conduits for lending to the government is independent of FDIC insurance. FDIC insurance is pretty much normal insurance, in that it is funded by premiums charged to policyholders, rather than, say, tax money. Banks are conduits for lending to the government in the sense that they maintain much of their reserves in US Treasury bonds.

Your comment gives the appearance of someone commenting vehemently on a topic about which they know very little. I mean, it's hard for me to remember that there are people in the world who know even less about banking than I do, but it sounds like you're a member of that elite group.

Re: The Banker Who Said No

#60

Post by kragen »

joeyo wrote: post #55
tlb wrote: post #47

Earlier quoted context omitted.

Only because most first approximations are linear.

I can't prove it, but I will assert without much fear of a counterexample, that, for most if not all systems, linear models describe most of the variance with the fewest number of free parameters. This may be as much as 90% in some cases, but almost certainly more than 50%. In other words you get the most bang for your buck. This is not to say that a linear approximation might not be very inaccurate on important part…

First you say, "linear models describe most of the variance with the fewest number of free parameters," and then later you say, "In other words ... the variance that a higher order model would describe would be less, perhaps much less, than the portion the linear part describes."

In my limited statistical experience, the problem with higher-order models is not that you get less bang, but that you need more buck: that is, there are too many free parameters. But in your second quote, you seem to be talking about higher-order models that have as few parameters as a linear model, i.e. one parameter, plus one per independent variable. What kind of higher-order models are you thinking of?

Post reply on HN