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| User Info | Sound Banking: A Capitalist Imperative in forum [Ticker] | |||
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Genesis Posts: 71430 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/1487-S....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-10-05 12:58:06
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$lacker Posts: 27 Incept: 2009-08-10 
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Until I see someone prosecuted, I'll be laughing at the US, along with the rest of the world
2009-10-05 13:08:06
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Truthseeker Posts: 2016 Incept: 2007-10-07 
NW US
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Gonna start calling you professor! I think even my numbskull (PhD) brother will be able to understand that one. Great work---and good reminder that there's more than one way to skin this cat. States may be the way to get this train moving. ---------- "The real leech****s are not the welfare people, but the paper shufflers in privileged positions who are skimming the money flows." " ~ Bozonian
2009-10-05 13:09:08
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Jusa****ryboy Posts: 107 Incept: 2009-06-05 Athens,AL
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KD is...........George Bailey.Pass it on......
2009-10-05 13:15:12
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Bagbalm Posts: 979 Incept: 2009-03-19
Just North of Detroit
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Who is the go to person on this? State Attorneys General or state bank regulators?
2009-10-05 13:15:57
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Genesis Posts: 71430 Incept: 2007-06-26
KD^2
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State Attorneys General. This is STATE law and the acceptance of the deposit and license to operate as a foreign corporation is entirely at a STATE level. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-10-05 13:16:49
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Krzelune Posts: 2078 Incept: 2007-10-08
DFW
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Is there a list of states with similar laws somewhere? I wonder if somewhere in the thousands of pages of proposed regulation changes by Congress is a provision to usurp this state authority.
2009-10-05 13:25:39
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Abn0rmal Posts: 2320 Incept: 2009-01-10
DFW
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I found the applicable reference for Texas, but could not find any provisions like the one in the ticker. http://www.banking.state.tx.us/lg_manual.... Edit: But I did note some interesting entries in their FAQ. I wonder how long those have been there? Quote:Question: Are non sufficient funds (NSF) fees considered interest and subject to usury? Quote:Question: Can a bank pay checks that I’ve written in any order it chooses? Last modified:
2009-10-05 13:38:29 by jbyer
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Wearedoomed Posts: 904 Incept: 2009-01-14
Petra Online
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Was gonna ask the same as Krzelune. I tried to dig through the Indiana Code myself, but my search-fu is failing me in this instance.
---------- The shrewdest of the great generals in China's history once said that perfection in war lay in so sapping the opponent's will that he surrenders without fighting.
2009-10-05 13:42:39
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Marginnayan Posts: 10460 Incept: 2007-06-27
Dallas Forth Worth Metro, Texas
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Quote:A bank could also issue bonds and it can retain earnings; all three are actual hard cash. Okay. Bank can issues bonds but against what collateral to start with ? In the example that you have given, the leverage the bank is using is 1:1.. Is that correct ? You say that the banks (including Central Banks) do not print money ? So how is Ben doing QE ? ---------- "The whole purpose of this ****ing US Fed is to make Banksters richer and Midle Class Americans poorer with each passing day. No More. Abolish the US Fed right here, right now. - Me Last modified:
2009-10-05 13:46:10 by marginnayan
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Genesis Posts: 71430 Incept: 2007-06-26
KD^2
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Krz, look through Google. I found a half-dozen references without even trying hard, including Nevada's. Not all states have such a law, and some make it hard to search their legal code (****ers), but there are a surprising number of states that have had this law on the books for a long time, and many not only impose civil liability they define the conduct as felonious, which makes it particularly interesting. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-10-05 13:45:34
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Genesis Posts: 71430 Incept: 2007-06-26
KD^2
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Margin, no, the bank's leverage is expanding as it utilizes fractional reserves. As for bond collateral, whatever is left when and if the bank defaults. An asset can only be pledged once; if the bank is issuing secured debt then it has tied up that asset. Unsecured debt is just that: unsecured, with the only "pledge" being the preference in the case of liquidation. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-10-05 13:49:05
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Alchemista2 Posts: 61 Incept: 2008-09-25 DC
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Great ticker, well explained and builds understanding of what is really meant by a "credit crisis". I'd suggest adding a follow-on (or to the end) of how this applies to our current situation. That credit was allowed/encouraged to be over-extended, that losses were prevented from being borne by the investors (passed to the public), and that the issue is compounded by having over-valued assets on the balance sheet. Good 101 for leading into understanding of the issues.
2009-10-05 13:51:16
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Maurevel Posts: 69 Incept: 2009-06-14
Canada Online
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"The counter-argument - that one cannot quantify asset prices accurately and thus incursion of this rule will occur "accidentially" - is often raised. This is a chimera - the standard is that it may never happen, and it is the responsibility of bank management to decide how close they want to fly to the Sun!" When it comes to implementation, I do not think it is a chimera at all. - At some point, authorities have to step in and say "we are shutting you down, you are insolvent". Without a black and white test, don't you end up with drawn out court cases with a lot of political meddling? - Another issue is slow credit creep over decades inflating asset prices. Execs still collect bonuses along the way. William Black's agent fraud is possible without this black and white test. (I am not sure how a gold standard addresses the above however)
2009-10-05 13:51:41
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Jsylvert Posts: 14 Incept: 2008-12-22
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"This is false: The bank holds a piece of paper worth at least $9,000 and can sell it immediately into the market if necessary. As such it CAN pay both the car dealer and Joe should they both demand their money by disposing of the asset it holds in lieu of the other $9,000 - Jane's loan." Gen I love your blog but I respectfully disagree with you on Fractional Reserve Banking. The title to the car is NOT worth $9,000.....why would anyone buy a title to a car for more than its depreciated value. This is where I believe you're mistaken....same rules apply to Real Estate. Granted the banks may have title to the homes in foreclosure but they will never recoup the excessive losses particularly in a Real Estate bubble. Therefore, you can't have sound banking system when the underlying assets for secured debts were overvalued. This problem would never happen under a 100% reserve system. To conclude, if you believe that Fractional Reserve Banking is sound why not REMOVE the FDIC??? That's the only reason this Ponzi Scheme can continue because it gives the public a false sense of security. I'm pretty sure if we removed FDIC insurance all Fractional Reserve Banks would collapse because consumers would demand 100% Reserve system. FDIC creates a moral hazard which enables Banks to take excessive risk since they KNOW they will be bailed out. Last modified:
2009-10-05 13:58:28 by jsylvert
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Mortgageguymn Posts: 182 Incept: 2009-03-09
North Coast
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Wells & BoA better not hold any conventions in Vegas. Their officers might get grabbed like Roman Polansky.
---------- "Neither a borrower nor a lender be." - Harold Hecuba
2009-10-05 13:54:28
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Genesis Posts: 71430 Incept: 2007-06-26
KD^2
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Quote:- At some point, authorities have to step in and say "we are shutting you down, you are insolvent". Without a black and white test, don't you end up with drawn out court cases with a lot of political meddling? On the contrary. The risk you run from flying too close to the sun is that you wind up on the wrong end of a felony indictment. Right now virtually ALL of the big banks are in this position that hold underwater paper. The BLACK AND WHITE TEST is that the amount of lending out that exceeds collateral value IS UNSECURED. If you do not have, dollar for dollar, CASH against that - you're in violation. If this law was actually ENFORCED it would have forced banks to start selling assets and de-leveraging in 2006 - and this mess would have been avoided. The over-leverage collapses in 2007 and 2008 WOULD NOT HAVE HAPPENED. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-10-05 13:54:36
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Abn0rmal Posts: 2320 Incept: 2009-01-10
DFW
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Quote:The title to the car is NOT worth $9,000.....why would anyone buy a title to a car for more than its depreciated value.The title is for an $18,000 car purchased with a 50% down payment. Quote:Let's, for the sake of argument, agree that Jane paid half cash for the car and that it is worth far more than the $9,000 she borrowed (this becomes important in a minute.) Last modified:
2009-10-05 14:02:19 by jbyer
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Jsylvert Posts: 14 Incept: 2008-12-22
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My mistake....but who really puts down 50% for a car??? That's a little excessive don't you think.
2009-10-05 14:00:53
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Genesis Posts: 71430 Incept: 2007-06-26
KD^2
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Quote:Gen I love your blog but I respectfully disagree with you on Fractional Reserve Banking. The title to the car is NOT worth $9,000.....why would anyone buy a title to a car for more than its depreciated value. This is where I believe you're mistaken....same rules apply to Real Estate. Sure it is - if the car was bought for $20,000. Banks are free to write 100% financing if they want to, but they must hold dollar-for-dollar excess reserves against the unsecured part of the note. If you write 100% financing on a new car it depreciates ~20% when you drive it off the lot - so you need to hold 20% in cash as excess reserves against that loan. If you require 20% down then you need to hold no excess reserve. A house has a minimum impairment on foreclosure of about 8% (6% realtors commission + recording fees, doc stamps and the like); more typically it is 10-12%. If you want to write 100% financing you can, but you need to hold the excess capital. Further, you're at risk of a capital call in a declining market. If you require 20% down the risk of a capital call is much reduced, and if you write 50% financing it is near zero, even in a seriously declining market. A bank is entitled to decide how close to the Sun it wants to operate. However, the closer it runs to the line the greater the risk of forced asset sales, capital calls and, if it is unable to do the above, liquidation. If it tries to cover up the fact that it does not have excess capital to cover its unsecured lines then the entirety of the staff from branch manager on up goes to the big house. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-10-05 14:04:30
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Pabloescobar Posts: 5325 Incept: 2008-04-23
Pacific Northwest Online
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If it is felonius, could someone make a citizen's arrest?
---------- “Science is built up with facts, as a house is with stones. But a collection of facts is no more a science than a heap of stones is a house.” - Jules Henri Poincare
2009-10-05 14:06:02
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Nemo2342 Posts: 81 Incept: 2007-06-27
Mammoth Lakes, CA
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Jsylvert wrote..
If Jane is current on her payments, then the bank can just sell the loan to another bank to get their $9k back, right? The new bank gets a loan that is generating cash flow, while the original bank gets the cash it needs to pay off its creditors. ---------- Picture it now, see just how The lies and deceit gained a little more power - Depeche Mode, "Everything Counts"
2009-10-05 14:08:26
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Genesis Posts: 71430 Incept: 2007-06-26
KD^2
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Nemo, correct. However - the fact remains that the "value" of any loan beyond its collateral is not actual value, it is speculative, as there is no collateral to seize as a matter of contract in the event of a default. You're free to speculate with all of your own money that you'd like to put at risk. But when you make a loan and present a balance sheet you're required to present actual value, not speculative amounts that may or may not be realized. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2009-10-05 14:10:49 by genesis
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Ssg263 Posts: 100 Incept: 2009-01-07
NY
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regarding fractional reserve banking. True that the banks don't necessarily create the money, but can we say they indirectly do so by being members of the Federal Reserve System, which IS responsible for creating the money?
2009-10-05 14:15:39
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Stepbystep Posts: 23 Incept: 2009-09-02 Piedmont Virginia
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Genesis wrote..The BLACK AND WHITE TEST is that the amount of lending out that exceeds collateral value IS UNSECURED. Are banks required to re-assess collateral value periodically? Typos: "accidentially", "loans that exceed it's excess capital"
2009-10-05 14:16:05
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