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How to cut megabanks down to size

nytimes.com

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Re: How to cut megabanks down to size

#81

Post by Bricejm »

snitko wrote: post #80
lwat wrote: post #78

Earlier quoted context omitted.

Well let me put it this way: If the USA kept the gold standard, I seriously doubt they'd be the number 1 economy in 2013.

But you're not explaining your claim. How can possibly printing money can make society as a whole richer? It can make certain individuals better off, for sure (the ones who receive the newly created money first while the prices are low). But how does it make the economy as a whole better off? No additional value gets created.

I think the point is inflation increases the money supply, while debt remains the same. Individuals make more money with less buying power, but can pay off debt easier.

Re: How to cut megabanks down to size

#82

Post by RockyMcNuts »

temphn wrote: post #58
RockyMcNuts wrote: post #53

Earlier quoted context omitted.

every well-informed person in the financial sector knows what I said is true. of course there are always some people who believe whatever they want to believe.

And how many of those people benefited directly from the bailouts? The idea that banks can't be allowed to fail is the fundamental fallacy that has underpinned the last five years. Of course they will argue that they "needed" their noses in the public trough.

all of them, I guess?

not sure what you're advocating...in the Great Depression banks failed, the depositors lost all their savings, triggering runs on other banks, etc., hence the name Great Depression. so that wasn't a very sound policy.

on the other hand a government backstop for a bunch of traders making giant risky bets with depositors' money so heads they win, tails we lose, is not a sound policy either.

somewhere there's a reasonable medium, collectively safeguard the payments system and bank deposits, without giving banks carte blanche to use depositors' money and government backup to make risky bets.

and don't let banks get so big that it's both an administrative nightmare to shut one down, and they have enough political power to thwart shutdowns and effective regulation.

Re: How to cut megabanks down to size

#83

Post by snitko »

Bricejm wrote: post #81
snitko wrote: post #80

Earlier quoted context omitted.

But you're not explaining your claim. How can possibly printing money can make society as a whole richer? It can make certain individuals better off, for sure (the ones who receive the newly created money first while the prices are low). But how does it make the economy as a whole better off? No additional value gets created.

I think the point is inflation increases the money supply, while debt remains the same. Individuals make more money with less buying power, but can pay off debt easier.

Well that's good for people with debts. It's bad for people without debts and those who loaned them money. Debtors are basically paying off their debts more easily at the expense of all the others (even those who are not involved in the deal of loaning).

Re: How to cut megabanks down to size

#84

Post by refurb »

MichaelApproved wrote: post #36
ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

" They know they will be protected by a taxpayer rescue should a large institution teeter. " This should be mitigated by the fact that shareholders will lose value, even in the event of a taxpayer rescue. Meaning, a bailout isn't a good insurance policy for a shareholder because they lose anyway. But that fear of a bailout doesn't seem to limit the risk appetite as I'd expect. I think it's because regulation and cont…

Didn't the shareholders lose out during the past crisis? Just look at the beating the stocks of the major banks took.

Re: How to cut megabanks down to size

#85

Post by richardw »

MichaelApproved wrote: post #36
ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

" They know they will be protected by a taxpayer rescue should a large institution teeter. " This should be mitigated by the fact that shareholders will lose value, even in the event of a taxpayer rescue. Meaning, a bailout isn't a good insurance policy for a shareholder because they lose anyway. But that fear of a bailout doesn't seem to limit the risk appetite as I'd expect. I think it's because regulation and cont…

Shareholders have very little power over the big banks. The bank managers and traders have perfected demonstrating the principal-agent problem (link below). For example, huge bonuses being paid out even as the banks were being torn apart around them. Managers and traders kept arguing that they need to retain "talent", to the detriment of the supposed owners of the business.

http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem

More simply:

Taxpayers are suckers

Lenders are suckers

Shareholders are suckers

Managers and traders, not suckers.

Re: How to cut megabanks down to size

#86

Post by alexqgb »

yummyfajitas wrote: post #65
alexqgb wrote: post #10

Earlier quoted context omitted.

Bullshit. If you're talking about the American people, the political will is there in spades. But thanks to gerrymandering and the filibuster, their voices been successfully nullified. The GOP holds the House by a wide majority, even though their members in it received fewer votes than the "minority" in opposition. And while the GOP has a numerical minority in the Senate, they still control the chamber since it (alon…

Vote totals for the bailout: Aye: 171 D, 91 R. Nay: 63 D, 108 R. http://www.opencongress.org/bill/110-h1424/show Why are you complaining about the GOP holding the house? Based on their votes, they seem to be the party of letting banks pay for their mistakes.

Why are you citing a vote from 2008 in reference to the Congress that was just elected in 2012?

Re: How to cut megabanks down to size

#87

Post by yk »

snitko wrote: post #80
lwat wrote: post #78

Earlier quoted context omitted.

Well let me put it this way: If the USA kept the gold standard, I seriously doubt they'd be the number 1 economy in 2013.

But you're not explaining your claim. How can possibly printing money can make society as a whole richer? It can make certain individuals better off, for sure (the ones who receive the newly created money first while the prices are low). But how does it make the economy as a whole better off? No additional value gets created.

The well known part of Keynesian thinking is about the output gap. So if you give money to a formerly unemployed guy to dig a hole, you create the value of the hole in addition to all the other value the economy would create anyhow. This applies of course only if that guy is unemployed in the first place.

And as a rule of thump, every time I read a Austrian argument, I try to find the hidden assumption of markets working at full capacity. ( And every time I read a Keynesian argument I try to find the hidden assumption of an output gap.) Usually this is a nice way to understand the argument better.

Re: How to cut megabanks down to size

#88

Post by rgbrenner »

snitko wrote: post #83
Bricejm wrote: post #81

Earlier quoted context omitted.

I think the point is inflation increases the money supply, while debt remains the same. Individuals make more money with less buying power, but can pay off debt easier.

Well that's good for people with debts. It's bad for people without debts and those who loaned them money. Debtors are basically paying off their debts more easily at the expense of all the others (even those who are not involved in the deal of loaning).

as long as the inflation rate is expected, the inflation rate is always adjusted up/down to compensate for the inflation.

Re: How to cut megabanks down to size

#89

Post by azernik »

cynicalkane wrote: post #26
ataggart wrote: post #6

>small institutions must submit to the rigors of the free market. >market discipline has worked to keep smaller institutions on the straight and narrow, it has been ineffective with megabanks >market participants have proved [in]effective in monitoring risks at these [huge banks]. >They know they will be protected by a taxpayer rescue should a large institution teeter. How is this not obvious to everyone involved?

They are obvious and breaking up the banks is a popular topic of speculation in the finance industry. What's a mystery is why it is taking so long for mainstream econ and op-ed writers to catch on. Paul Krugman, for example, proposed that big banks like Citibank provide value by having a huge service network, and therefore he's skeptical of breaking up banks. Which is true--Citibank's size is the primary (and probabl…

An example of how large collections of assets and large service networks don't have to have a 1:1 correspondence:

I'm a member of a two-branch credit union, but I get to use a fairly extensive service network through the Credit Union Service Center system, where a large number of small institutions share the customer-service side of their operations. In the SF bay area, I get full service from any of the several dozen branches of Patelco and USE, plus several smaller CUs.

Re: How to cut megabanks down to size

#90

Post by mtgx »

Bricejm wrote: post #81
snitko wrote: post #80

Earlier quoted context omitted.

But you're not explaining your claim. How can possibly printing money can make society as a whole richer? It can make certain individuals better off, for sure (the ones who receive the newly created money first while the prices are low). But how does it make the economy as a whole better off? No additional value gets created.

I think the point is inflation increases the money supply, while debt remains the same. Individuals make more money with less buying power, but can pay off debt easier.

In the mean time the average real salary has been dropping since 1969, because of inflation, and because the government and companies didn't bother to increase the minimum and average wages to keep pace with the inflation.

So I really doubt most of the population benefits from inflation.

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