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The Banker Who Said No

forbes.com

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Re: The Banker Who Said No

#11

Post by ggchappell »

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…

> 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?

You might have a point there. I guess the question (regarding whether my point was valid) is whether federal deposit insurance is underpriced. I suppose there is a good chance that it is.

Re: The Banker Who Said No

#12

Post by karl11 »

bilbo0s wrote: post #7

"To prepare bids he locked himself in his office to write a computer program with 50 variables (now 250), ranging from home price changes by neighborhood to interest rates to origination dates." - Forbes.com 2009 "Beware of geeks bearing formulas" - Warren Buffet 2008

On the other hand, Warren Buffett is equally contrarian, and is doing a lot of similar things with his money, though on a larger scale (writing massive loans to Goldman, Harley, GE etc for 10-15% interest rates). He also has the same complaint about the government. His AAA rated business pays much higher rates to borrow money than Citi, BoA or any of the now gov't sponsored entities.

In any case, everyone loves a good contrarian.

Re: The Banker Who Said No

#14

Post by numair »

> Beal shrank his bank's assets because he thought the loans were going to blow up. He cut his staff in half and killed time playing backgammon or racing cars.

I have always respected a man who drives his cars hard and plays a mean game of backgammon -- and actually makes money while doing it. Upvoted.

Re: The Banker Who Said No

#15

Post by kqr2 »

He's also behind the Beal Conjecture which offers a $100,000 prize for either the proof or counterexample:

http://www.math.unt.edu/~mauldin/beal.html

BEAL'S CONJECTURE: If A^x +B^y = C^z , where A, B, C, x, y and z are positive integers and x, y and z are all greater than 2, then A, B and C must have a common prime factor.

Re: The Banker Who Said No

#16

Post by byrneseyeview »

mynameishere wrote: post #8
jhancock wrote: post #3

Earlier quoted context omitted.

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…

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 deposit $100 with my local bank, I don't care whether the banker keeps it in cash, invests it in penny stocks, or spends it on whores -- no matter what, the government backs my deposit.

This is for other promises from companies. 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, balanced by government regulation, which gives them a secondary incentive to find clever ways to take big risks (which they do by hiring clever people who would otherwise do more socially useful stuff).

Re: The Banker Who Said No

#18

Post by Tangurena »

smanek wrote: post #9

Does anyone know if it's possible for an individual to buy a CDO? Supposedly everyone wants to get rid of these things and is desperate for cash, which makes it seem like a decent opportunity for buyers. If I had $10,000 I could afford to lose (and was willing to take a long shot with) is there some market where I can buy those sort of assets?

To start with, you have to be what is commonly called an "accredited investor." This is a requirement because almost none of the "investments" sold as CDOs are registered with the SEC. The accredited investor loop-hole is the one you'll need to invest in hedge funds and the like: it means something like you're a big boy now, and you don't need the feds protecting you from crooks. Alternatively, your organization will need to be qualified as an institutional investor.

http://en.wikipedia.org/wiki/Accredited_investor

http://en.wikipedia.org/wiki/Institutional_investor

Ask your broker if they've got any they want to unload.

Re: The Banker Who Said No

#19

Post by smanek »

Tangurena wrote: post #18
smanek wrote: post #9

Does anyone know if it's possible for an individual to buy a CDO? Supposedly everyone wants to get rid of these things and is desperate for cash, which makes it seem like a decent opportunity for buyers. If I had $10,000 I could afford to lose (and was willing to take a long shot with) is there some market where I can buy those sort of assets?

To start with, you have to be what is commonly called an "accredited investor." This is a requirement because almost none of the "investments" sold as CDOs are registered with the SEC. The accredited investor loop-hole is the one you'll need to invest in hedge funds and the like: it means something like you're a big boy now, and you don't need the feds protecting you from crooks . Alternatively, your organization wil…

I'm a bit short of the wealth requirements to be called an accredited investor ... (1M net worth + 200K/year income).

That just seems blatantly unfair to me. It's the government setting up a different set of rules for the rich.

Re: The Banker Who Said No

#20

Post by anamax »

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…

>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 is trustworthy.

BTW - It's curious that you seem to believe that better rules will help since you also seem to believe that "clever people" can always get around the rules.

As to whether a govt-run bank would do any better, feel free to point to the fraction of govt enterprises which are run as well as you'd require of govt run banks. Which states' DMV is "good enough"? How about the post office?

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