Search results matching tag 'banking'

How B.S. and Sophistry Rule

donaldmrembertsr — Tue, 17 Nov 2009 19:31:07 GMT

It is truly amazing how our congress has been able to deflect the financial turmoil onto our banking and financial systems, when they are directly responsible for creating the turmoil.

Their GSE's Freddie and Fannie; their created moral hazards of implied guarantees; their mindless regulatory schemes and their coersive mandates and dictates have so far escaped public scrutiny. Eventually one would hope that the bright light of truth will surface.

Given that congress has breached the moral trust conveyed to it by our citizens through our constitution, it may happen sooner than later.

The recently passed House Medical plan (with its 1900 unread pages) indicates to me that Congress is totally out of touch with American public opinion.

As we enter the next round of legislative antics, I can't wait to witness the public's push back.

As Von Mises observed, truth is truth even if no one is left to listen.

"Sound" banks?

nkumra — Wed, 28 Oct 2009 15:51:07 GMT

Had a question for anyone who could give a half-way descent answer to it -

If the idea of sound money is growing, then why aren't there (to my knowledge) any "sound" banks or credit unions? What I mean by this is, at a minimum, is banks who hold the value of money equal to deposits? Or banks that don't loan non-existent money? Or at least banks that back the money they have by an equal amount of gold? Or something along those lines. I guess it wouldn't be "sound money" by it's literal definition, but at least a bank who does not necessarily need to rely on FDIC to pay back money it has lost.

Would something like this even make sense? Or at least be a step in a right direction - to at least show the public that sound money can in fact actually work?

How did I do in this debate?

abskebabs — Thu, 22 Oct 2009 23:38:59 GMT

I think I've made what will be my final post on Economics at the Science Forums Network, as I'm increasingly under the impression that it is not worth any further time and effort, I've said what needs to be said...

In any case I was wondering what you guys think of how well I performed in the following debate. The guy on the pro-market side before me was Paranoia. The link is as follows:

http://www.scienceforums.net/forum/showthread.php?p=522344#post522344

Basic banking question

luftmensch — Sun, 18 Oct 2009 20:03:35 GMT

I've spent considerable time and effort to try and understand precisely how banks can currently create money. One issue that arises--if banks have such a good deal, why doesn't everyone with a few million dollars to invest go out and start one? I would appreciate it if those with intimate knowledge of how banks work, would blow holes in the following scenario.

Primary Question: Can a U.S. bank utilize fractional reserve banking to multiply it's own assets and then lend them to the government in the form of 30 year treasury bonds?

Secondary Question: If this is unfeasible for a single bank, could a cartel / keiretsu accomplish it as a group endeavor, or could it spontaneously happen systemically?

Scenario:

Apparently it’s a good time to start a bank (see http://online.wsj.com/article/SB123724564069748443.html) Let's say a group of investors pool their funds and create a holding investors called ABC Holdings. The Holding Company incorporates a new entity ABC Bank and capitalizes it with $10 million. StartABank.com is consulted, and eventually a federal bank charter is applied for and obtained from the Office of the Comptroller of the Currency (OCC).

ABC Holdings now creates 10 new entities, called ABC Investment Trust #1 thru #10. ABC Bank executes the following series of loans (If lending to controlled entities is a problem, then assume that they are affiliated interests that are structured in creative ways):

ABC Investment Trust #1 is loaned $9,000,000, which is deposited in the ABC Investment Trust #1 bank account with ABC Bank, increasing ABC Bank Capital to $19 million.

ABC Investment Trust #2 is loaned $8,100,000, which is deposited in the ABC Investment Trust #2 bank account with ABC Bank, increasing ABC Bank Capital to $20,100,000.

This pattern continues until all 10 investment trusts have been made loans. Total bank capital now stands at roughly $60 million. (Or 6x the original capitalization)

All investment trusts invests in 30 year treasury bonds, yielding on average 5% interest annually, or roughly $3 million. By lending the newly earned $3 million to the investment trusts in the same manner described above, total assets increase by $20 million to $80 million. Year 2 investments bring in $4 million, which enables $24 million in new loans to be made increasing total assets to about $104,000. Year 3 investments bring in about $5 million, which enables $30 million in new loans to be made, increasing total assets to about $134,000,000.

By year 3, the following situation exists:

Via fractional reserve banking about $124 million has been added to the money supply, under the control of private individuals, at virtually no cost to them.

This group has lent the funds it created to the federal government at 5% interest.

The holding company now generates $6.5 million in annual income, or 65% of the original $10 million investment.

Every new dollar in generated income can be turned into a free loan of 600% that can then be invested risk free with the U.S. Treasury at about 5% interest.

Re: Questions About Free Market Money

Cam Nedland — Sat, 10 Oct 2009 04:22:38 GMT

[quote user="limitgov"]

Q1: In essence Bank of America has its own notes as does chase and now markets have to pay for the overhead in maintaining such a number of different currencies and prices of goods have to be constantly changed per the currency you hold as in buying a can of beans may cost $1 BOA but perhaps $.75 chase, if you support Competing Currencies, how do you envision yourself managing your notes and from what bank and keeping track of such logistics?

[/quote]

In a free market, all (honest) money would be commodity-based, whether gold, silver, platinum, palladium, etc. So it wouldn't matter if your not comes from Chase or BOA, but their notes would be backed up by something, so the receiver of the note would probably accept any note as long as said bank was relatively close to them.

[quote user="limitgov"]

Q2: Does it matter if your Bank has a run and you lose your savings as they are not insured?

[/quote]

Hell yeah it matters! Why would you put your money there?!?!

[quote user="limitgov"]

Q3: Does it matter that many during hurricane Katrina had no bank transactions and the FED was able to guarantee transactions, this would not be the case in CC so an example would be, no home, no money in the bank?

[/quote]

I don't really understand this question, could you rephrase it? What is CC?

[quote user="limitgov"]

Q4: in ref to Q2 and Q3 - I know an answer might be, individual responsibility but what about the economic consequences that domino from such monetary instability?

[/quote]

The consequences would be that the irresponsible ones would fail and die off, and the responsible ones would be successful and fruitful.

Elementary Econ. Questions

Savannah Liston — Sat, 03 Oct 2009 23:17:41 GMT

I just finished the lecture course by Peter Klein and Joe Salerno, the Causal-Realist Approach to Economics, and the last lecture on banking and the business cycle was very fascinating. However, I was confused when Mr. Salerno said that the costs go up in the capital goods industry. Firstly, bank reserves go up, interest rates go down, investments increase in the capital goods industry, prices and therefore profits go up, the industry expands, demand for labor goes up, wages go up, capital goods increase and then costs start going up, profits are lost, etc...and I was wondering why the costs start going up. After the wages are increased, workers leave the consumer good industry, but they spend their wages in the consumer good industry still. The only thing I could figure was that costs (not prices) rise in the capital goods industry because of the higher wages. Is that correct?

And also, in the consumer good industry, as workers leave leave and join the capital goods industry, prices go up and profits fall in the consumer good industry...can you perhaps elaborate on the connection between the labor falling, prices rising, and profits decreasing?

Re: Pro's and Con's of abolishing the Federal Reserve

Cam Nedland — Thu, 13 Aug 2009 20:32:57 GMT

[quote user="TelfordUS"]

But once those banks die, wouldn't others take its place?

[/quote]

Exactly. There is no reason not to abolish the Federal Reserve.

Re: Fractional Reserve Banking

Wade — Wed, 05 Aug 2009 14:34:32 GMT

[quote user="JackCuyler"]

I tend to define insolvent as having a negative balance. Am I wrong? If not, it is impossible for a 100% reserve bank to become insolvent. If all deposits are simply stored, and all loans are made from real savings, as 100% reserve implies, the absolute worst possible scenario, barring a bank robbery, is a 0.00 balance. Every account could be closed and every single loan defaulted without a single payment, and the bank would still not have a negative balance. It would lose its savings, but not its customers' money.

I'm also not sure how you would think competition would help keep FRB banks solvent. As loans are spent by the borrowers, the money will invariably be deposited in other banks, which will demand the funds from the loaning bank. The lower the reserve, the greater the chance of insolvency.

I'm not arguing against FRB from an ethical standpoint (though I do question whether or not it's fraud to enter into multiple contracts without the ability to fufill them all) but rather on practical grounds. If banking were truely free, I think 100% reserve banks would do better on the market, due to their ability to weather bank runs. I don't doubt there would still be some FRB, but I doubt those with consistenly lower reserves than their competitors would not be in business very long.

[/quote]

I think you make some good points here about the banking industry and how it would operate in a free market, as you said, from a practical standpoint. However, from a traditional Austrian School perspective we wouldn't be focused on the specific operations of particular industries. From a traditional Austrian School perspective, we would be focused on the consequences of not allowing all industries to operate freely.

If we start to get into the specific business practices in a particular industry, then it is hard to stay away from making an ethical argument. Even worse, we might stray from the traditional Austrian School approach and start suggesting the there are specific business practices that can be followed that all people should follow. This is a lot different from the traditional Austrian School approach of sticking to a value-free analysis.

Transition to sound money in country with zero gold in treasury

David Doctor — Sat, 01 Aug 2009 02:15:46 GMT

My questions deals with transitioning away from a fiat currency in a country with zero gold in its treasury. Rothbard, in The Case Against the Fed, states the U.S. can transition away from fiat currency by dividing the amount of dollars by the gold stored in the treasury. For the sake of discussion, allow me to present an easy equation: If there are 30 trillion dollars in circulation, and there are 30 trillioin ounces of gold in the U.S. treasury each dollar would be exchanged for an ounce of gold.

What can be done if a country does not have any gold and wants to stop using its currency and allow a free market in money? Before answering, I need to add that for taxes, the country might accept a few types of money to avoid favoring one type of money. For the sake of this discussion, I will assume the country's currency unit is called the peso.

To make the transition to a free market in money, I believe the country would need to do the following:

Value the fiat currency unit based on a recent actual value of the currency unit (one peso equals 1/1000 barrel of oil). The currency's value could be based on a date many months or even years prior to passing legislation enacting this plan to avoid a suddent interest in the currency, which could distort its value. I chose oil because gold will be accepted as payment in a later step and this may radically increase gold's valuation.
Mutiply the value of the unit of currency by the quantity of outstanding currency to arrive at a total value for the outstanding currency (1 billion pesos x 1/1000 barrel of oil = 1 million barrels of oil)
Sell enough government property or land to raise amount equal to the total value of the currency (5 million acres of land + oil exploration rights in three regions = 1 billion barrels of oil = 1,000 pounds of gold + 100,000 pounds of silver). The government would accept both gold and silver to avoid favoring one type of money..
Exchange the gold and silver for the currency (1 peso = 1 gram of silver and 1/10 ounce of silver)
Stop using the currency
Accept gold and a few other forms of money for tax payments

The citizens of the country will likely protest the selling of government land and natural resources, but peso holders, who will mostly be citizens, would protest if the peso was suddenly deemed worthless.

The country will need to sell less land and natural resources as the sale of land and natural resources progresses, because buyers will need to obtain gold and silver to make purchases, and this will drive up the value of gold and silver, and the more valuable gold and silver will be equal to more oil barrels; less gold and silver will be needed to equal the fixed amount of oil barrels calculated in step 2.

I welcome your thoughts on this topic.