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The Banker Who Said No

forbes.com

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Re: The Banker Who Said No

#61

Post by anamax »

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..

> Bank of North Dakota. A government run one..

Majority-Scandanavian states seem capable of lots of things that other states can't manage. Since the majority of US states are not majority-Scandanavian, we can't use the majority-Scandanavian ones as a model.

Re: The Banker Who Said No

#62

Post by anamax »

byrneseyeview wrote: post #31
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…

I have no clue what you are talking about. I'm an anarcho-capitalist. I was talking about how the FDIC creates bad incentives. I don't think I said anything about how new regulations would help, since the bit you quote is about how the difference between good regulations and bad regulations is in what kind of talent is misallocated. Edit: Perhaps the part about being 'balanced by regulations' threw you off. What I me…

> I was talking about how the FDIC creates bad incentives.

And I'm pointing out that the bad incentives affect depositor behavior. Thanks to FDIC, you have little incentive to find a trustworthy bank. Instead, you judge entirely on other criteria.

Re: The Banker Who Said No

#63

Post by joeyo »

kragen wrote: post #60
joeyo wrote: post #55

Earlier quoted context omitted.

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…

Sorry, I mistyped.

I meant that the additional amount of variance described by a more complex model beyond that described by a linear model is much less than that described by the linear model in the first place. Obviously the total amount will be more, or else your model is both complex and wrong. :-)

Consider:

  Model A - 1 degree of freedom - 60% of variance
  Model B - 2 degrees of freedom - 75% of variance
That extra DOF has gotten you 15% better description of the variance, but at the cost of complexity. Perhaps that is worth it, perhaps not. As has been noted above, that complexity has a real cost that can manifest itself as overfitting, instability, and lack of generalization. The curse of dimensionality is very real.

All that I meant was the linear model will probably capture the most variance per unit complexity. Which gets back to my original point that most (all?) problems are linear to a first approximation. It's not just that people are lazy.

Re: The Banker Who Said No

#64

Post by jhancock »

kragen wrote: post #51
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…

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 mak…

sorry, I was vastly oversimplifying the mechanism. I was speaking off-hand assuming most on this forum are well read on how these mechanisms work, it certainly sounds like you are.

To be more precise: The effect of banks, in aggregate, on the money supply results in a multiplier, which today runs at, in average, 26 times deposits.

Here are a few overviews: http://en.wikipedia.org/wiki/Fractional-reserve_banking http://en.wikipedia.org/wiki/Reserve_requirements http://economics.about.com/cs/money/a/reserve_ratio.htm

Re: The Banker Who Said No

#65

Post by jhancock »

jonknee wrote: post #5
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…

> Mine can't loan out money at 26 times my deposits. Can yours? Of course not, your not a bank. Does your corporation have to abide by all of the banking rules? Of course not, you're a regular corporation. If you want to be a bank, start one. It's a pain in the ass but can be lucrative.

Even very large companies, such as PayPal, find that its far easier to buy an existing licensed bank than to start a new one.

Re: The Banker Who Said No

#66

Post by jhancock »

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…

sorry, my language may be confusing as I certainly didn't want to write extensively on how money expansion works (I assume most here are read up), but I don't think I'm too confused in my head...maybe not, never know ;) For the record, I have written several large banking systems. I actually do know how transactions and liabilities get handled. And normal corps don't get to behave like this.

In my suggestion to recognize banks as something different than a normal private corp, I'm not thinking of GSEs as you link to. I'm thinking more about transparency and liability issues being different for banks than for a normal private corp.

If the gigantic banks that are currently the focus of such various problems would have had to have more open financial liabilities, the risk _should_ have spread less.

Re: The Banker Who Said No

#67

Post by ilkhd2 »

anamax wrote: post #61
ilkhd2 wrote: post #43

Earlier quoted context omitted.

Bank of North Dakota. A government run one..

> Bank of North Dakota. A government run one.. Majority-Scandanavian states seem capable of lots of things that other states can't manage. Since the majority of US states are not majority-Scandanavian, we can't use the majority-Scandanavian ones as a model.

Well, ND is a German majority state. I understand that it is tempting to say that it has something to deal with scandinavian personality, but look up a bit up north you'll see Canada, with very non-scandinavian in it's population makeup, however I'd think it is a lot like Northern Europe in its political and economical structure
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