The banking business reminds me of a "business" I'm more familiar with - Medicine. Banking fulfilled an important need, the provision of relatively small amounts of money to local homeowners and businesses. In aggregate, there was a very large amount of money in the system because there were so many businesses. This money, in turn, attracted predators who took over the banks and turned them into casinos. The result is chaos.
The same predators sensed money in Medicine and entered my business at about the same time, 40 years ago. The result is the same - chaos.
The solution is Glass-Steagall and Medicare for All who want it. Bring it, Bernie.
You can trace most of this to Nixon's decision to let the dollar float and to a Reagan/Bork the Dork philosophy that big companies were more efficient and refusal to enforce ant-trust laws. At the same time, there should have been no priority and tax benefit given to long term capital gains.
We have to be honest and clear about what this is and what the root problem is. The problem is the same as it has been since the founding of this country- Plutocrats (originally, a hand full of white, male, land and slave owners) that use their wealth to indirectly rule this country. To influence policy that benefits them. To perpetuate narratives that place the blame on someone other than themselves and keeps the majority distracted & divided and unable to use the power of their majority in this democracy. Bit by bit they bend the country and the people, to their will, until they take it too far and we revolt. Then they just give us some crumbs, allow us to forget about what happened and repeat- create another narrative/boogeyman that keeps the majority distracted and divided, while they bend the country (wealth, resources and power) to their will- in a way that continues to give them more wealth and power. As I study black history, I see the tactics used against former slaves being used against all Americans. Jim Crow used terrorism (threats and physical violence) to prevent blacks from exercising their rights, in addition, policy was established to keep them from from equal status (exercising their rights), and every time they succeeded against those odds, physical violence was used to erase their gains. Simultaneously, those in power changed the narrative (revised history) to blame black Americans for their own demise and to conceal the actions of those in power, that used their power to sabatoge and/or take away the gains of black americans. Tactics like States rights; succession, civil war; threats of violence against poll workers, school systems, polititians; cudita against the government; using policy to keep women, the lgbtq community, ppl of color, other religious views and/or no religion, those that are unable to use their wealth as power (political and otherwise), including MOST white men... collectively defined as THE MAJORITY, from equal status/power, are repeats of formerly successful tactics used against black Americans' fight for equality, political power and access to Democracy. Now they seek to, again, change those narratives (revise history) to conceal their efforts to sabatoge and/or take away the gains of the majority. Blaming the majority for being woke (knowledgeable of our true history and a desire to improve the lives of all people and this planet). Concealing those historical tactics so they can now be used against more than just black ppl! When you get to the root of our problems you will see the truth is that the money of a few, is being used to control the many. To prevent it, we have to stop falling for the distractions and following all the rabbit holes, and stop treating the symptoms, so we can focus on the root cause.
Well-said fyiurban. It explains why Republicans are so desperate to keep their little white kids from learning about our REAL history. If one only learns how precious white people were over the years and how they always happened to do the right thing except when a few outliers messed up, it will keep those little kiddies in line to follow after Daddy and perhaps Mommy to keep their racism and misogyny sharp and to work on their xenophobia, homo/transphobia and pseudo-Christianity so they can be as closed-minded, willing to blame everyone but themselves, and willing to pump up the wealth their parents are already planning to pass on to them if they behave as true rich white people in America should. Those kiddies can't be for stopping global warming, providing for poor people, promoting unions, instituting good effective regulations on industry and banks, working for equality under the law, and those other terrible things that white Republicans are supposed to be against these days. Public schools could break some of that whiteism, but Republicans don't want public schools either. How do we stop the nonsense in favor of truth?
Yes and yes again, fyiurban. I particularly agree with your demonstration of how tactics of oppression and division are practiced and perfected on the most vulnerable of the oppressed. Then they get rolled out to the rest of the population, while simultaneously stoking divisions to keep everyone outside of the power structure warring amongst themselves, all while they insulate the obscenely rich and well connected.
Professor Reich apologized in his essay in advance for continuing the discussion of this banking crisis but his apology is unnecessary. This discussion needs to continue. Banking is supposed to be stodgy and unexciting and I'd like it to return to that. Dr. Reich, and others, suggestion of a return to Glass-Steagall is a good start. This act made commercial savings banks unable to dabble in investment bank activities and speculation. That wall preventing investment of depositors funds in risky financial investment products protected depositors and the economy alike for decades. Removing it was a massive mistake by Clinton's second administration. Ever since it's removal, we've had multiple disastrous banking crises fueled by big bets placed by big banks that spectacularly went bad.
Osama bin Laden and his minions targeted WTC to strike at American financial might, cause panic in America's and the western world's economies and financial system to strike a blow against America and her allies. Little did he know that all he needed were a well paid team of lobbyists to keep pushing for financial deregulation as his weapon instead.
Vanyali, this comment came through. Whatever you did when you sent this post that comments weren't working for you, do again when posting all of your future comments. Good luck, welcome to the comment thread and I'm looking forward to what you'll share.
Michael, what was the common denominator in those two industries that became casinos, Reaganism and the desire to deregulate and give the rich predators everything they wanted with no strings attached. Well, it is, as you remind all of us, time to end this insanity. Glass-Steagal, or rather, a stronger Glass-Steagal, and universal healthcare.
Roll everything back to Rosevelt and it all works fine and companies made money. GM was first company ever to make a billion dollars in the 50's while paying living wages in the 50's
Oh yes, Reagan, the trickle down King. and here we are 50 years later and the “do nothing party “ still extols it’s virtues. The American, middle and lower class, including some of the lower upper class have absolutely no power or control over what happens. it’s time for reckoning.
Healthcare should not be a profit center. Police, public schools, fire department, libraries are all public goods and are not expected to make money. Healthcare should be the same. (Retired doc here)
That will never happen, and I'm sure they would figure a way to keep extracting our money. They would try to get everybody addicted to drugs, and then make big money trying to get them off the drugs. It appears they're well on their way now.
Specifically fentanyl, but meth is destroying lives too. Of course, our country's attempt to deal with them is still in the 1950s. The rehab industry is mostly a cynical money grab like everything else.
I've been watching a lot of old Westerns on tv as I eat my breakfast and drink my coffee, and it's funny how many of them have incorporated the banking system into the plot lines showing how unscrupulous bankers were in the 1860s-1900s and beyond. I never watched that type of movie much as a kid, but they are always focused on "Man's inhumanity to Man" which is a favorite theme in literature throughout. They portray the banking system to be chaotic and run by the greediest and most unscrupulous of characters. I knew from taking courses on banking in college that the system was constantly in chaos, and that's why the Federal Reserve was created which did help stabilize the system, but it appears that it's still attracting the same kind of greedy, fast buck kind of characters who fight tooth and nail against any sort of regulation today. I just wanted to point out that the predators you mentioned who entered the banking system 40 years ago have been damaging the banking system and therefore destabilizing the economy for since mankind invented banking. The more things change, the more they stay the same. 😣
Doctors will be /are hanging on just like teachers are now. They’ll do whatever the big health providers want. Remember they owe hundreds of thousands of dollars on their educations. The only thing left is for all of us to revolt. The time for all the talk Has ended. Wake up America.
There seems to be a consistency in Republican inconsistencies. They seem to express outrage over meltdowns resulting from their own policies, then blame regulatory agencies they would otherwise abolish for not moving quickly enough to remedy said meltdowns. Such is the case with East Palestine, OH with regard to the EPA. I fully expect that sometime soon, they'll begin to decry the OCC - or some equivalent, perhaps even the Treasury - as at fault for the current, or any subsequent bank meltdowns - just so long as Democrats and Democratic policies are ultimately denounced as responsible.
DZK, it reminds me of little kids who don't listen to Mommy or Daddy, but in frustration, they give up on trying to get little Johnny to do what he should. There is a big problem or injury because the kid didn't listen and did the wrong thing. The kid blames Mommy and Daddy for not making him do what they said he should do. That is so crazy, but very much like what some spoiled children do. One should not expect such bad behavior from adults, particularly adults who have been trusted to take care of the issues related to their constituents. Yep, Republicans have decided that acting like toddlers is a good strategy. So far, they have been right a lot.
The Repub propaganda machine is professional at manipulating the talking points so that whatever happens they can make it suit their fancy. When all you do is criticize the other side and deny everything that happens it's easy to come out looking good to your base. They've been doing this for decades.
A bit of a side observation. The RePubs said they believed in state's rights but that was only so long as they could use the states against the Feds. When they get a chance, they much prefer to pass national laws, like banning abortion, and to hell with state's rights. They said they believe in families, until they saw a chance to rip immigrant families apart. Then their vaunted respect for families went bye-bye. They said they love children, until the children are born, then no more. They said they hate big government, until they saw a chance to control the government. Then suddenly they love big government. Their only constants are money and power. Everything else can
be sacrificed to those. It makes me wonder - would they sacrifice power too if they could get hold of murder and mayhem? Which has more allure to Repubs in the last resort?
Deregulation impacted medicine, airlines, and banks. Our economy is a house of cards. At this point the control is in the hands of the companies involved. Make or break. Maybe the idea of banks collectively holding up First Republic was good. Maybe the precedent set this week is tinder for the fire.
You said it, not to mention the railroads - now with Amazon feeding them - which have become a monster. Healthcare is 20% GDP, banking, depending on how you factor it in, another 20%, transportation of all kinds add another 20%. So already the bulk of the economy is deregulated. Adam Smith is spinning in his grave.
We need more regulation, higher taxes on the wealthy, return of Glass-Steagall, more unionization, and we will begin to see the economy come back for most people, instead of just the top 0.1%. This is not socialism, it's enlightened capitalism.
The only politician who could conceivably do all this, while standing the Senate on its head, is, in my opinion, Bernie Sanders. An important statistic in support of this, is that 12% of the voting population who voted for Trump in 2016 would have voted for Sanders if Sanders had been the DNC nominee. Now that's 12% of total voters, which translates to 25% of Trump's voters. Think about that. Trump was 48% of the total, Hillary was 52%. Take away 25% of Trump's tally and Trump would have garnered 36% of the voters, Sanders would have garnered 64%. Unprecedented. There would have been a vast majority of Democrats in the Senate and the House, and we could have at last achieved a settled society, with universal healthcare, safe railroads, and a tamed banking system.
Democrats tend to think of Trumpers as incorrigible fools. This may be true for some, but a significant percentage of them are not - enough to give us a stable Republic.
Unfortunately, Bernie waited way too long to enter the fray. His time has just about passed. We can't depend on one single champion. "It takes a village," as someone once said. It really does. A leader who can rise to the task only comes once in a lifetime. Mine was JFK, and you see what they did to him. Before him, there was FDR. Who will be the younger generations?
Bernie won four states in a row, then that detestable Jim Clyburn of South Carolina singlehandedly derailed him by swinging SC to Hillary. I have hated Jim Clyburn since that day.
I'm a Bernie Bro, too, donated way more money to his campaign that I should have, but Biden has surprised me -- in a good way -- since taking office. (I vehemently disapprove of the Willow Project; Bernie would have never allowed that. But, granted, that was a complicated issue.)
I'm a little skeptical about straight M4A, though. If you poll Americans and ask the question "Do you approve of MFA?" 72% say yes. If you ask the follow-up question "Do realize this means you would also have Medicare?" then the support drops in half, to 36%. What we think is going on is that when Americans hear MFA they think "Universal healthcare," however many Americans are very happy with their commercial insurance that they get through their employer.
The other thing is that a lot of people over 65, who already have Medicare, are not happy that younger people may have access. So, if it's not packaged correctly, it could actually be a vote loser. Which is why I say "MFA Who Want It," and then make clear that if you are younger than 65, either you or your employer has to pay for it. In other words, employers should be mandated to provide a Medicare option, along with commercial insurance, to their employees. If you are self-employed you would be able to purchase it, as if it were an Obamacare plan.
Yes, companies must provide healthcare. All companies. Big and small. The people I know who are still covered by their company plan always seem to have solid coverage. As soon as that is over they are in the water without a boat. Insurance -plus ( Medicare-plus) plans are not great. They demoralize Medicare and cost the tax payer more in pretense of being Medicare. They are the “privatize” pirañas. Medicare must be a universal plan. Doctors must be able to get back to the job of being caring, competent care givers. Some who became doctors are finding the privatized plans draining to anything close to being a care giver.
The patient is now the one who does “ most of the work”. Computer contact is dreadful. Patient portals are nothing more than portal-potties. Everything thrown in the bowl and never once flushed for accuracy!
To me, the root cause of inflation is simple price gouging because the major players in monopoly capitalism hold all the trump cards. It’s a win-win; making absurd and unreasonable profits that automatically put huge pressure on Democrats in control of our government function.
Not only that, but inflation that is not tethered to the usual market forces provides a way to put Democrats on their back foot, despite all their successes in the first half of the Biden administration.
Greed is weaponized to further the GOP’s #RepubloFascist agenda. And if a few hundred banks have to pay the ultimate price, their donor’s money monopoly just gets stronger.
I keep sayin' -- goes back to 1973. Nixon let the dollar float. Saudis/OPEC declared economic war on the US. Trump and the Saudis did a deal to restrict oil production and price gougers added on.....
Weaponized to undermine the Biden administration. Blamed inflation on the victim.
Backing the dollar with gold was not a viable financial option. Letting the dollar”float l didn’t cause these problems. You seem to want to blame Nixon for this, but the culprit was the witless puppet Reagan. Tax cuts, government is the enemy, gutting unions, stupidly ignoring the threat of climate change because apparently all he could read was movie scripts. Took his info from his idiot astrology loving wife,and her fathers cronies.
Nixon was bad enough. Reagan was much worse. And every Republican since then, except GHW maybe had a clue about raising taxes. A lesson for all the Republican con artists after him.
Monopoly capitalism is in its morbidly obese, cancerous phase.
As to Nixon, he did not have authority to do it and he did it to benefit and coopt oil patch ex-LBJ allies, like the Hunts, who made a bundle - to the detriment of the rest of us. Coincided with the oil crisis. Saudis financed Murdoch to come to US to spread propaganda. Oil became the international commodity of choice. Petrodollars. It was like the Texas Railroad Commission (father of OPEC) took over this country.
He also set the stage for Reagan - southern strategy, dog whistles to racism.
Daniel, yes, Reagan was really into racism but nixon got the ball rolling on that one too. HW Bush was pretty racist himself with his Willie Horton ads and general attitude. Current Republicans have been studying those guys for their own anti-American practices. I don't know how we respond since their predecessors have been allowed to buy the media, force the nation's addiction to fossil fuels even when they knew it was wrecking our planet, ignore antitrust measures, even ignore or rewrite the Constitution, or at least re-interpret it to give rich white pseudo-Christian men and corporations whatever they want. Those Republo-Fascists own the courts too, or at least enough of them as to negate courts not already purchased. I am trying to be optimistic, but it gets harder all the time.
Where is your evidence the Saudis financed Murdoch? First I’ve heard of this.
Russia “financed” the Koch’s, via daddy’s work for Stalin. First I’ve heard of the Saudis and Murdoch. Looking at his history with small Australian newspapers, it didn’t seem to explain his absorption of media in the US.
gold standard would ruin the rest of the world. We can go on it but no one else and that would wipe out the rest of the world we don't want that. We would probably end up in a big war or get wiped out trying to swim in that current.
Maybe in present tense. Besides long lines at the gas station, US markets went into a swan dive. The fact is that not only were we on it many other countries relied on it. Started a ripple effect of defaults throughout the world. “Pegging” the price of gold, provided the basis for the international gold standard after World War II; in this postwar system most exchange rates were pegged either to the U.S. dollar or to gold. In 1958 a type of gold standard was reestablished in which the major European countries provided for the free convertibility of their currencies into gold and dollars for international payments.
What we have now is "fiat" currency.
In the 70's a lot of US investors went to the Swiss franc. Switzerland held on to the gold standard until 1999. Speculators traded "Eurodollars" and "petrodollars."
I was a victim when the Mexican government devalued the peso -- when it should have been pegged to the dollar.
It's definitely the wrong tool. This inflationary period is more complex than we've ever seen. The spending spree coming out of Covid, coupled with supply problems, jacked up gas prices, shortages, the Ukraine-Russia War have created a strain on the economy like we haven't seen in a long time, and the only way businesses know how to deal with it is to jack up prices, and they take full advantage of situations to maximize profits to make up for sales that are sporadic. But trying to control inflation by higher interest rates is the wrong approach, and it's dangerous, and as we see very destabilizing to the economy. We need to put the brakes on prices legislatively even if we must forbid price hikes by law. Business people hate that, but it may be necessary at this point if they will cooperate, and therein lies the problem.
Todd, you are right about the Republo-fascist agenda. The challenge, how do we fight that when our media insist on portraying that agenda as though it is as worthy of consideration as anything Democrats devise?
That’s kind of why I came up with the #RepubloFascist and #RepubloFascism hashtags a couple of decades ago when Bush invaded Iraq.
That wasn’t a war based on terror, it was a means to put in place the Iraqi Oil Production Sharing Agreement in their Parliament. Cheney and company used this war to introduce a means by which American interests could hold partial ownership in undeveloped Iraqi oil fields. Foreign ownership was not allowed under Saddam Hussein.
So for 20 years, I’ve been trying to link the strategies of the GOP to fascism through those hashtags because no one in the media, even MSNBC, would dare to make that crucial link.
So please use those hashtags if you will. Social media is the only practical way to spread that inherent truth. Everything from monopoly capitalism to voter disenfranchisement falls under those hashtags’ purview.
I like the title Republofascists because it describes what is going on with Republicans for the past few decades. They keep throwing up their anger when anyone points out their fascist tendencies, but they know full-well they are employing a lot of the same tactics used in 1930s Germany and Italy. I would like to hear more people using the term and not backing down from it.
The only reason governments rely on interest rate changes to control inflation is that they don't want to use tax rate changes instead. They ignore that tax rate changes would be more effective and equitable, and would pay down government debt. They do this because tax rates have been so weaponised that it near impossible to change them. And interest rate rises distress leveraged assett holders, creating attractive buying opportunities for wealthy donors. They are a way to rob the poor.
Please could you explain a bit more on how tax rate and inflation are linked? the tax rate is a Fiscal Side issue, and raising rates is Monetary issue -- to restrict credit and also money supply through changing the velocity of money in the credit system.
Are you saying that by raising taxes (individual or corporate?) you make less disposable income available to the people, and so they spend less, and thus demand falls , leading to inflation falling? Do you think taxes could also have perverse effects on the economy, and can have unintended consequences, like reducing savings and thus investments in the economy?
Monetary policy is being driven by a lack of performance by regulators. Congress has to legislate, reinstate Glass-Steagall, and use fiscal policy to ensure fairness. Claw back ill gotten gains, tax stock buybacks, and make banking boring again. Congress was a stooge in repealing Glass-Steagall. It worked as designed to protect the interests of Americans, not the oligarchs.
In a NYT op ed today an author argues that "by quietly shedding billions in assets, the Fed is making conditions tighter for banks, home buyers and investors."
It was news to me that "At its core, it involves reducing the more than $8 trillion — yes, trillion — in bonds and mortgage-backed securities held by the Fed, along with draining money from the financial system. All this shrinkage is part of the Fed’s efforts to quell inflation, which is running at 6 percent a year"
.Because interest rates and bond prices move in opposite directions, quantitative tightening has cut the value of bonds on bank balance sheets. Such losses were partly responsible for the collapse of Silicon Valley Bank, the biggest bank failure since 2008.
the logic is correct; I wrote today elsewhere that the Fed lowered rates to zero following 2008, and kept rates unnecessarily so low for 15 years, and drove investors to "yield seeking" bad assets. It is partly their fault (was there political pressure?) that rates were kept so low for so long, and then suddenly they are confronted with the problems of inflation.
I agree with you here, Lokhi. Unnecessarily prolonged dovish central bank policy, particularly the endless rounds of QE, long after the economy stabilized after the financial crisis, helped set the stage for all that we're seeing. I said to someone about 6 years ago that if you make and keep money cheap, investors will take it and keep chasing yield in increasingly careless and dangerous ways. Behold.
Professor Steve Hanke at John's Hopkins points out that the growth in the money supply predicts inflation, but now we have gouging by the quasi monopolies doubling it. Income tax is the only rational solution because it attacks discretionary spending and lowers the debt the FED is printing money to pay so China doesn't buy it and gain leverage. Interest rates from the FED is just a tax on borrowers.
There are boring banks who take deposits and give mortgages (short term liability versus long term assets), who never indulge in any non-boring activity -- but still they may go belly-up if the depositors suddenly want their money back -- because they see opportunities elsewhere. See the movie "It's a wonderful life"
Paul, yes, robbing the poor is one of the major activities of the rich in all facets of life. If it isn't the poor directly, it is programs that help poor people. The inflation, until the interest rate hikes, were felt mostly by poor and working-class people because the products whose prices were raised were necessities, which is why their prices were raised beyond any profit needs. The money the rich have must come from somewhere, and the poor and working-class are the perfect target because they don't have the wherewithal to fight back.
Raising interest rates to quell inflation is crazy. It only makes things worse for everyone. Historically, presidents could put "social" pressure on corporations to lower prices (and astronomical profits) via the use of SHAME. This technique must be revived.
Shame doesn't work anymore. Note George Santos, or whatever his name is. Only boycotts work. Too bad we can't boycott healthcare, food, and energy when they price gouge.
William, the problem with shame is that one must have a moral compass that shows the way toward doing the right thing to feel shame. Most corporations now don't seem to have a moral compass beyond, "We'll take what we want and just try to stop us!"
Let's try it and find out. I think it could be a win for an idiot media story. Not complicated; "X company has doubled prices in only 14 months" vs "Y company has only increased 20% in the same period" competition.
By now it should be obvious for all that stricter regulations, though important, won't solve anything. For decades they have tryied to put the monster in a cage, to put chains around it, to create fences upon fences. All in vain. It always manages to slip under the table and intensify the continuous assault on our livings. There's one only way, I think. Put the banking system, all of it, under public control, rendering it a public service like medicine or education in most civilized countries. Why should banksters and wild speculators be allowed to assault our pockets?
Unfortunately there was no wild speculators involved here. A regional bank takes lots of deposits, and has not enough loans. So, what does it do? It buys Govt Bonds -- hardly "wild speculation"! And then the Fed raises interest rates -- the Gove Bonds lose market value (although they will repay in full, if held to maturity) , and the Bank has to sell these Bonds taking a loss, when the depositors want their money back.
Too many columns have written in these pages of Glass Steagall etc -- the actual fact is the regional banks who are suffering are NOT investment Banks, have never taken advantage of Glass Steagall -- they are suffering because of the Fundamental Risk in Banking -- the Liquidity Risk, as maturities of deposits are short term and their assets - whether loans or Govt Bonds are Long Term. Not understanding this Fundamental Risk in the Banking System leads to lot of discussions on irrelevant points in the last few days
A bank takes short term deposits and gives 30 year mortgages --the Fundamental Mismatch of maturities is called the Liquidity Risk in the Banking system. This has been around for hundred years , and is a topic in discussion in 101 Banking And Finance courses.
So, I was quite surprised to see the "wolf whistle" being applied by Robert in these posts for the last few days about Glass Steagall. None of these regional small banks are in problem today due to Glass Steagall. Of course, GS could be repealed -- but that is another issue, and should not be confused with today's bank run.
As I mentioned in my separate comment -the problem today is from uneducated central bankers who has not understood how much they create a problem when they leave interest rates too low in the economy too long. The rise of interest rates today has hurt all those who did not have time to rebalance the asset portfolio. How does a bank adjust -- it can't get rid of its 30 year mortgages and call the loans as soon as Central Bank raises rates, or depositors want their money back to invest elsewhere!
The problem has existed over centuries and was partly solved by access to the Fed Window for Banks to draw on at a time of Liquidity problems. THis fundamental inherent problem in the Banking System of mismatch of deposits and loan maturities will always be there --- unless one wants to nationalise the banking system.
The Banks try to minimise this (and other risks) by Risk Management through the Value at Risk (VAR) methodology -- which is based on statistical analysis of how much over the years deposits had a run-off etc. But this is still a probabilistic approach and will never with "certainty" ie with zero probability remove all risk. If you read the Risk Manuals of Banks -- you will see the VAR is calculated with supposedly 99% confidence, or with only 1% possibility of things going wrong. But this is based on historic data -- and still in that 1% cases (as now) things can go shit.
I heard on MSNBC yesterday that if Glass-Steagall had still been operable, the SVB would still have failed for the reasons you stated. Should we rethink the whole banking system? Is it a service or a business? Why should the economy and the 99% be at the mercy of the banker class?
You could rephrase this as -- why be at the mercy of Central Bankers who misjudge the balance sheet of the economy?
But it is not the Banker Class! I am an ex-banker myself with a post graduate economics degree -- and I can assure that this class in these regional banks were at the mercy of the Fed when it started to rapidly raise the interest rates. What could a banker at the regional bank do when its "safest" investment in US Treasury sat at 1% for 10 years loses half the value when Fed raises its interest rates from 1/2 to 4%?
This is not the GS problem, this is not the sub-prime problem of 2008, this is not the criminal way the banking system created securitised assets (CLO and CDO) from absolutely rubbish assets of poor credit quality.
This is a problem of the BEST asset class (US Treasuries which are backed by the full faith of the US Government) losing market value (not value at maturity, if held to maturity) losing its Market Value (ie the resell value) when interest rates rise --- and there is no "evil goblin" or "evil banker class" at work here. It is simple Mathematics and is called the Net Present Value. Sorry to give this technical reply. People should understand that NPV (market value) falls as interest rates rise -- this is a simple mathematical calculation.
You don't even mention the derivatives issues which have caused much havoc - purely because of major banks making use of them to make money from basically nothing. But banks don't like to face up to the responsibility for their own mistakes, only misdirect any responsibility on to others.
We have bar codes, statistics, computers, and AI. Why are we depending on a 300 year old system to supply the money for our current system to thrive? Is it all about the money class? It is time to do better for the world.
Lokhi, thank you for the information. How is it the Fed thought constantly raising interest rates would help anyone? They should have known what it would do to the banks that were buying up Treasury Bonds which, as you say are secured by our government? Isd the Fed really so oblivious to what is going on? Or, were the banks hiding what they were doing even from the Fed?
You write: "None of these regional small banks are in problem today due to Glass Steagall. Of course, GS could be repealed -- but that is another issue, and should not be confused with today's bank run."
And you are quite mistaken. If Glass-Steagall were still in force none of these banks could "invest" depositors money in Bonds. Doing so is practicing "investment banking" which was illegal under Glass-Steagall.
Boring commercial bankers keep their excess deposits in the safest IOU available in the market -- viz the US Govt's own IOU which are called US Treasury. You can buy them also -- as many do -- from the 1st floor at Fed NY the Retail Division. You don't become an Investment Banker by doing this.But you, like the boring commercial bank, are taking a liquidity risk. If tomorrow you need the money for a hospital bill, the US Govt won't give the money back -- they will repay only at maturity which may be a long way off. But you can sell the bonds again at the same 1st floor at Fed NY at the current market price, which will be below Par if interest rates have gone up.
GS never stopped this. What else could the boring banker do with excess deposits ? Keep it under the mattress at the Branch?
Investment Banking is involved with the issuance and placing of Corporate bonds and equity --and making markets and trading these. Essentially what is referred to as Buy Side and Sell side of Corporate Funding. No retail banks have the contacts or set-up to do this. I think all this is easily available if one picks up a 101 Banking and Finance course book, for example Niall Ferguson's The Ascent of Money is readable
So it appears that part of the problem may be the lack of stress testing in these banks. However, what is a bank to do if it doesn’t pass a liquidity stress test?
A regional bank takes lots of deposits, and has not enough loans. So, what does it do? It buys Govt Bonds -- hardly "wild speculation"!
Yes, but the whole point of Glass-Steagall is that a bank should be a bank, not an investment house. Doesn't matter that SVB bought Govt bonds and not Crypto. It shouldn't have been buying anything.
See my reply to Mary Boudreau below. Should the bank keep the deposits in a Safe Deposit Box, and charge the depositors the fee for Safe Deposit? Why give deposits to a Safe deposit box service. Buy your own safe deposit box, or keep the money under a pillow. What do you think "a bank should be bank" entails --to be a safe deposit box? A bank takes deposits and lends them out -- the liability is short term, the loans (and they don't have to be loans to government -- which US Treasury represents - a IOU or a loan note of the govt) are long term (say mortgages to individuals, if that makes you happy). As long the maturity mismatch is there between the Liability (deposits) and Assets (loans/ mortgages) --- there is Liquidity Risk when depositors suddenly want their money back.
You're a banker, I'm not, so educate me. In the old days, didn't banks meet their payroll by charging a small fee on each transaction, without offering any financial shenanigans?
Yes I am an ex-banker, and also a retired Professor of Finance. But this thread is too short to talk about such a topic. I suggest you pick up an introduction to a 101 Banking and Finance course. Niall Ferguson's Ascent of Money is readable. Coming to ancient banking -- the Medicis used to loan out money at a Discount, ie you pay 100 at maturity when you are given only 90 in Cash. And that 90 was with Medici's own capital, or borrowed from another person, who is given 95 at maturity. It was possible to match the borrowing (deposit) with the Loan's maturities in those ancient days. But the credit risk was there on both sides --- and not Central Bank to bail you out if one side of the transaction failed.
Today, there is no matched deposit and loans. Can you think of a Bank which say has only current accounts, giving a mortgage which he the Banker can call any time ie the mortgage is up for repayment whenever the deposits are withdrawn from the deposit current accounts ?
And if I understand you, this time around bankers are feeling increased pressure because of the prevalence of fixed interest housing loans. Little guys like myself will not lose our homes. Hooray yippee hallelujah.
(I do hate what capitalism has done to the housing market, but that is another discussion)
Glass-Steagall was repealed decades ago. Lobbying destroyed a good law and made banking more risky. Hence the casino like atmosphere in banking. Putting other people’s money in long term bonds when it’s needed for cash flow makes no sense. Those guys deserved to be fired.
What would you do as a Banker, with lots of deposits. Are you a Safe Deposit Box, then? How do you pay salaries and costs? The assets of Banks by nature are long term -- do you have a Bank with lots of deposits which can be drawn down any time, and ALSO LOANS THAT CAN BE RECALLED ANY TIME? If the bank is not allowed to invest these deposits in mortgages or US Securities -- exactly what should it do? Why have a Bak at all? Why not buy a big security deposit box? If no one lends mortgages, then we are back to barter economy. We all hold cash under th pillow!
The distinction used to be that savings and loans banks were required to ONLY invest in mortgages. National banks (those insured by FDIC) were permitted other investments.
Banks were not devised to protect their employees, rather their customers. Like any other business need cash flow to pay for overhead. The protection is holding collateral. The rules to make sure that collateral is protected are set out in the Uniform Commercial Code.
Banking became risky when "bankers" became active stock and bond traders.
I heard Sarbanes Oxley Dodd Frank whistleblower cases. Some of the whistleblowers were CFOs of some banks.
José, I do not agree that much regulation has been instituted recently, and a lot of the regulations have been removed or simply ignored. Tax cuts to the rich as under Trump had no purpose beyond giving the donors more money so they would donate more, and they did, but not much more. They didn't have to, just enough to keep stringing legislators along in the effort to get power for the anti-regulationists. I am pretty sure making banks public wouldn't work. However making payment for federal elections public would be worth a try. States could do that too. Then, maybe regulations to save our economy and nation would work better.
The roots of this are in the greed of the banks, which have resented being regulated ever since the Glass-Steagall Act of 1933. They managed to get the Gramm-Leach-Bliley Act of 1999 passed, with the enthusiastic support of Alan Greenspan, Larry Summers, Robert Rubin, and Bill Clinton, who said "The banks don't need to be regulated, they can regulate themselves!" - Makes me wonder how much they all got paid, one way and another, for taking the leash off of the banks that prevented them from combining commercial and investment banking., which is what Glass-Steagal specifically prevented since it was part of the Crash of 1929, Black Friday.
This loosening of the regulation led to the 2008 financial meltdown that greeted Obama when he took office. Bottom lines, the banks don't care what happens to anyone who puts their trust in them, because they hold all the cards and even after the 2008 disaster, not one single banker went to jail. Not one. Not one bank was taken over by the U.S. government in spite of the very good example in Sweden in similar circumstances. I saw one brief report that Obama had early on directed Timothy Geithner, his Treasury Secretary (who had previously been head of the New York Federal Reserve) to investigate CitiGroup, but that Geithner had ignored his directive. I never saw any confirmation of it, but then again, not one banker went to jail, and no banks got taken over, either.
This is what happens when the levers of power are given freely to the uber-wealthy .01% and there are no legal remedies readily available, while Citizens United has made the money buying political influence untouchable. To be clear, this is not just the Republicans whose only interest is in tax breaks to feed the fantasy that 'trickle-down economics' actually works for anyone but the very wealthy and corporations, no matter what diversions they use to distract the masses. The Democrats also surreptitiously are bought and paid for by the same big money donors, and have protection of their money sources as a first priority. Both parties lie about their full agendas, and the corridors of power are set in stone in the Capital Building.
The worst part of this whole mess is that so many ordinary citizens believe in the lies and half-truths told by politicians in both parties, including Trump but not limited to him. It is all a distraction from the truths of who's behind the curtain. It ain't the Wizard of Oz.
Regulation has become a dirty word for the greedy. When it comes to safe guarding customer's money, health, property, our country has slowly stripped away the protections needed for the last 40 years. The average American working hard to save for retirement are at the mercy of unscrupulous CEOs, boards, that are making money off of their losses. This crap has to stop NOW.
Looks like a con game to me, where guardrails have been removed and quick fixes applied like band aids, while criminal activity continues, and regulations are avoided.
Bankers seek to make 'bank' no matter the circumstance, no matter the ethic, no matter the morals, Bankers make 'bank.' I remember when 'derivative' instruments started showing up in mainstream retirement funds. I had a financial advisor, she was very young in comparison to other advisors in banks, informed me that derivatives are basically placing a bet on the future asset, I would actually not hold anything, not like owning a few shares of mutual fund. This seemed to me like the stock market wed the casino, and I know the 'bank' wins. 2008 proved to America that their homes were tokens in the game, it did not matter if you lost your home, some financial phenom would make out buying your home together with others in a package, flipping them to the rental market and jacking up rents in the area. Money makers do what money makers do. Regulation is just a game of whack a mole, and regulators are behind.
Let them fail, enough with the bailouts for the rich. I have my own personal bank failure monthly, about the third week after my social security check comes. Do I get a bailout, no. The wealth class has taken complete control of our economy and have driven it over a cliff. I know a couple of fat rich bankers I will be having for lunch if this continues, not as a guest mind you.
Quite right. Banking is a confidence trick. Deregulation has surely been a disaster, the thin end if the wedge, the start of the slippery slope to global financial meltdown. In the UK, the idiotic Truss budget showed how weak the pension funds were, depending on gilts for survival.
Part of today's problem is that Central Banks left interest rates too low for a longer time than was necessary. The crisis of 2008 os now 15 years old; there were many bailouts. There was no need to leave interest rates well lower than equilibrium rates for so long. It was the most foolish decision. It led to "search for yields" and bad investments, which suffer as interest rates rise. The dramatic rise of interest rates compares to 1980-81 [Volcker]; the rapidity of movement in the rates did not allow for investors to balance their portfolio quick enough. So, I would blame a lot the Central Bank for creating this mess. One does not need to be a go-go bank, with sub-prime mortgages to be hurt. A bank with simple bank deposits invested in Longer term government bonds with little credit risk is still vulnerable when rates move up rapidly --as the Govt Bonds lose market value and if liquidated will lead to loss. So, this is not a result of Glass Steagall etc discussed the last few days in these columns -- today's crisis was home made by Central Bankers who have not understood the markets or the balance sheet of the small regional banks -- it is the latter who suffer, not the big banks (unless confidence is eroded in the Banking System)
GS does not stop banks from keeping their excess deposits in US Treasury -- in fact, that is how reserves are meant to be kept in boring banking. US Treasury is the IOU of the US Government.
Investment Banking is managing the Buy Side of Corporate issues, like helping a General Motors to issue a Bond or Equity and the Sell Side of Corporate issues, ie placing such Bond/equity of corporates for a Fee. Many Investment Banks make a "market" on these Bonds and Equity -- and these trading activities and the issuance under their own name the securitisation of Corporate Bonds -- is what has made Investment Banking risky.
Boring commercial bakers -- when they have excess deposits compared to loans like mortgages -- keep their deposits invested in the safest IOU or loan they can get -- the IOU of the US Government. That is not Investment Banking! You can open an account with the Fed NY and yourself buy primary issues of the US Government Bonds -- as many do. They send you regular quarterly statements. You are not becoming an Investment Banker by doing this.
Inflation vs Havoc? Is that our only choice? Tampering down our own need to greedily hoard permeates our culture. More more more. How can we reset to want less? Can we stop glorifying the billionaires of the world? The world of advertising has done so much damage, selling the concept of acquiring material goods the ideal, not the problem it actually is. Greed is the most prevalent sin in our culture. How do we change that? I so appreciate the education RR provides and the intelligent comments his articles spark. The subject of how can America reset it's greedy "the business of America is business" philosophy is one I am most interested in.
Universal healthcare, right to housing, universal basic income, free school lunch for all children without the indignity of sorting into social classes would limit the extent of predation on vulnerable populations. I think it is reasonable and appropriate to create a floor for quality of life rather than allow the rich to rule and enjoy unlimited wealth and power.
The banking business reminds me of a "business" I'm more familiar with - Medicine. Banking fulfilled an important need, the provision of relatively small amounts of money to local homeowners and businesses. In aggregate, there was a very large amount of money in the system because there were so many businesses. This money, in turn, attracted predators who took over the banks and turned them into casinos. The result is chaos.
The same predators sensed money in Medicine and entered my business at about the same time, 40 years ago. The result is the same - chaos.
The solution is Glass-Steagall and Medicare for All who want it. Bring it, Bernie.
You can trace most of this to Nixon's decision to let the dollar float and to a Reagan/Bork the Dork philosophy that big companies were more efficient and refusal to enforce ant-trust laws. At the same time, there should have been no priority and tax benefit given to long term capital gains.
We have to be honest and clear about what this is and what the root problem is. The problem is the same as it has been since the founding of this country- Plutocrats (originally, a hand full of white, male, land and slave owners) that use their wealth to indirectly rule this country. To influence policy that benefits them. To perpetuate narratives that place the blame on someone other than themselves and keeps the majority distracted & divided and unable to use the power of their majority in this democracy. Bit by bit they bend the country and the people, to their will, until they take it too far and we revolt. Then they just give us some crumbs, allow us to forget about what happened and repeat- create another narrative/boogeyman that keeps the majority distracted and divided, while they bend the country (wealth, resources and power) to their will- in a way that continues to give them more wealth and power. As I study black history, I see the tactics used against former slaves being used against all Americans. Jim Crow used terrorism (threats and physical violence) to prevent blacks from exercising their rights, in addition, policy was established to keep them from from equal status (exercising their rights), and every time they succeeded against those odds, physical violence was used to erase their gains. Simultaneously, those in power changed the narrative (revised history) to blame black Americans for their own demise and to conceal the actions of those in power, that used their power to sabatoge and/or take away the gains of black americans. Tactics like States rights; succession, civil war; threats of violence against poll workers, school systems, polititians; cudita against the government; using policy to keep women, the lgbtq community, ppl of color, other religious views and/or no religion, those that are unable to use their wealth as power (political and otherwise), including MOST white men... collectively defined as THE MAJORITY, from equal status/power, are repeats of formerly successful tactics used against black Americans' fight for equality, political power and access to Democracy. Now they seek to, again, change those narratives (revise history) to conceal their efforts to sabatoge and/or take away the gains of the majority. Blaming the majority for being woke (knowledgeable of our true history and a desire to improve the lives of all people and this planet). Concealing those historical tactics so they can now be used against more than just black ppl! When you get to the root of our problems you will see the truth is that the money of a few, is being used to control the many. To prevent it, we have to stop falling for the distractions and following all the rabbit holes, and stop treating the symptoms, so we can focus on the root cause.
Well-said fyiurban. It explains why Republicans are so desperate to keep their little white kids from learning about our REAL history. If one only learns how precious white people were over the years and how they always happened to do the right thing except when a few outliers messed up, it will keep those little kiddies in line to follow after Daddy and perhaps Mommy to keep their racism and misogyny sharp and to work on their xenophobia, homo/transphobia and pseudo-Christianity so they can be as closed-minded, willing to blame everyone but themselves, and willing to pump up the wealth their parents are already planning to pass on to them if they behave as true rich white people in America should. Those kiddies can't be for stopping global warming, providing for poor people, promoting unions, instituting good effective regulations on industry and banks, working for equality under the law, and those other terrible things that white Republicans are supposed to be against these days. Public schools could break some of that whiteism, but Republicans don't want public schools either. How do we stop the nonsense in favor of truth?
Yes and yes again, fyiurban. I particularly agree with your demonstration of how tactics of oppression and division are practiced and perfected on the most vulnerable of the oppressed. Then they get rolled out to the rest of the population, while simultaneously stoking divisions to keep everyone outside of the power structure warring amongst themselves, all while they insulate the obscenely rich and well connected.
Professor Reich apologized in his essay in advance for continuing the discussion of this banking crisis but his apology is unnecessary. This discussion needs to continue. Banking is supposed to be stodgy and unexciting and I'd like it to return to that. Dr. Reich, and others, suggestion of a return to Glass-Steagall is a good start. This act made commercial savings banks unable to dabble in investment bank activities and speculation. That wall preventing investment of depositors funds in risky financial investment products protected depositors and the economy alike for decades. Removing it was a massive mistake by Clinton's second administration. Ever since it's removal, we've had multiple disastrous banking crises fueled by big bets placed by big banks that spectacularly went bad.
Osama bin Laden and his minions targeted WTC to strike at American financial might, cause panic in America's and the western world's economies and financial system to strike a blow against America and her allies. Little did he know that all he needed were a well paid team of lobbyists to keep pushing for financial deregulation as his weapon instead.
Vanyali, this comment came through. Whatever you did when you sent this post that comments weren't working for you, do again when posting all of your future comments. Good luck, welcome to the comment thread and I'm looking forward to what you'll share.
Thanks, turns out I needed to download the app. Substack didn’t like my browser.
Michael, what was the common denominator in those two industries that became casinos, Reaganism and the desire to deregulate and give the rich predators everything they wanted with no strings attached. Well, it is, as you remind all of us, time to end this insanity. Glass-Steagal, or rather, a stronger Glass-Steagal, and universal healthcare.
Roll everything back to Rosevelt and it all works fine and companies made money. GM was first company ever to make a billion dollars in the 50's while paying living wages in the 50's
Oh yes, Reagan, the trickle down King. and here we are 50 years later and the “do nothing party “ still extols it’s virtues. The American, middle and lower class, including some of the lower upper class have absolutely no power or control over what happens. it’s time for reckoning.
I thought you were going to say we are still waiting for the trickle down
Thank you Michael.
The only people who understand this better even than our Doctors are our patience. Health care isn’t.... Big Business is!😱 My patience is running low!
"What's wrong with this picture?" The so-called "healthcare" industry's worst nightmare is a healthy population. No money to be made there!
Healthcare should not be a profit center. Police, public schools, fire department, libraries are all public goods and are not expected to make money. Healthcare should be the same. (Retired doc here)
Yes Susan and thank you for your past !!
Sounds as if you know something about my background :- )
I read about you on your personal comments. Where you identify yourself. Thank you again and again!!!!!
That will never happen, and I'm sure they would figure a way to keep extracting our money. They would try to get everybody addicted to drugs, and then make big money trying to get them off the drugs. It appears they're well on their way now.
Opioids are that drug And millions of Americans are addicted to them.
Specifically fentanyl, but meth is destroying lives too. Of course, our country's attempt to deal with them is still in the 1950s. The rehab industry is mostly a cynical money grab like everything else.
I am sending apologies to all patients whose name was spelled wrong.... that’s what happens when I lose my patience!🤪
Michael Hutchinson
I've been watching a lot of old Westerns on tv as I eat my breakfast and drink my coffee, and it's funny how many of them have incorporated the banking system into the plot lines showing how unscrupulous bankers were in the 1860s-1900s and beyond. I never watched that type of movie much as a kid, but they are always focused on "Man's inhumanity to Man" which is a favorite theme in literature throughout. They portray the banking system to be chaotic and run by the greediest and most unscrupulous of characters. I knew from taking courses on banking in college that the system was constantly in chaos, and that's why the Federal Reserve was created which did help stabilize the system, but it appears that it's still attracting the same kind of greedy, fast buck kind of characters who fight tooth and nail against any sort of regulation today. I just wanted to point out that the predators you mentioned who entered the banking system 40 years ago have been damaging the banking system and therefore destabilizing the economy for since mankind invented banking. The more things change, the more they stay the same. 😣
It still amazes me that physicians allowed these reptiles to control them. One of the reasons I left the AMA.
Doctors will be /are hanging on just like teachers are now. They’ll do whatever the big health providers want. Remember they owe hundreds of thousands of dollars on their educations. The only thing left is for all of us to revolt. The time for all the talk Has ended. Wake up America.
There seems to be a consistency in Republican inconsistencies. They seem to express outrage over meltdowns resulting from their own policies, then blame regulatory agencies they would otherwise abolish for not moving quickly enough to remedy said meltdowns. Such is the case with East Palestine, OH with regard to the EPA. I fully expect that sometime soon, they'll begin to decry the OCC - or some equivalent, perhaps even the Treasury - as at fault for the current, or any subsequent bank meltdowns - just so long as Democrats and Democratic policies are ultimately denounced as responsible.
DZK, it reminds me of little kids who don't listen to Mommy or Daddy, but in frustration, they give up on trying to get little Johnny to do what he should. There is a big problem or injury because the kid didn't listen and did the wrong thing. The kid blames Mommy and Daddy for not making him do what they said he should do. That is so crazy, but very much like what some spoiled children do. One should not expect such bad behavior from adults, particularly adults who have been trusted to take care of the issues related to their constituents. Yep, Republicans have decided that acting like toddlers is a good strategy. So far, they have been right a lot.
The LIKE button ain't workin'.
DZk
The Repub propaganda machine is professional at manipulating the talking points so that whatever happens they can make it suit their fancy. When all you do is criticize the other side and deny everything that happens it's easy to come out looking good to your base. They've been doing this for decades.
The LIKE button doesn't work. (I'm seeing a pattern here.)
Definitely a pattern, but the like button works for me.
Hey, you broke the spell! It just worked for me on your comment. Keep up the white magic.
That's what it takes and plenty of it, too.
Thanks for the info. And here I thought Republicans believed government should keep their hands off of the private sector!
(This system won't allow me to hit the LIKE heart, so let me write it out: Agree, they are confused, stupid, devious, or hypocrites.)
You may appreciate: https://youtu.be/KhN_kml4jfE
A bit of a side observation. The RePubs said they believed in state's rights but that was only so long as they could use the states against the Feds. When they get a chance, they much prefer to pass national laws, like banning abortion, and to hell with state's rights. They said they believe in families, until they saw a chance to rip immigrant families apart. Then their vaunted respect for families went bye-bye. They said they love children, until the children are born, then no more. They said they hate big government, until they saw a chance to control the government. Then suddenly they love big government. Their only constants are money and power. Everything else can
be sacrificed to those. It makes me wonder - would they sacrifice power too if they could get hold of murder and mayhem? Which has more allure to Repubs in the last resort?
Deregulation impacted medicine, airlines, and banks. Our economy is a house of cards. At this point the control is in the hands of the companies involved. Make or break. Maybe the idea of banks collectively holding up First Republic was good. Maybe the precedent set this week is tinder for the fire.
You said it, not to mention the railroads - now with Amazon feeding them - which have become a monster. Healthcare is 20% GDP, banking, depending on how you factor it in, another 20%, transportation of all kinds add another 20%. So already the bulk of the economy is deregulated. Adam Smith is spinning in his grave.
We need more regulation, higher taxes on the wealthy, return of Glass-Steagall, more unionization, and we will begin to see the economy come back for most people, instead of just the top 0.1%. This is not socialism, it's enlightened capitalism.
The only politician who could conceivably do all this, while standing the Senate on its head, is, in my opinion, Bernie Sanders. An important statistic in support of this, is that 12% of the voting population who voted for Trump in 2016 would have voted for Sanders if Sanders had been the DNC nominee. Now that's 12% of total voters, which translates to 25% of Trump's voters. Think about that. Trump was 48% of the total, Hillary was 52%. Take away 25% of Trump's tally and Trump would have garnered 36% of the voters, Sanders would have garnered 64%. Unprecedented. There would have been a vast majority of Democrats in the Senate and the House, and we could have at last achieved a settled society, with universal healthcare, safe railroads, and a tamed banking system.
Democrats tend to think of Trumpers as incorrigible fools. This may be true for some, but a significant percentage of them are not - enough to give us a stable Republic.
Unfortunately, Bernie waited way too long to enter the fray. His time has just about passed. We can't depend on one single champion. "It takes a village," as someone once said. It really does. A leader who can rise to the task only comes once in a lifetime. Mine was JFK, and you see what they did to him. Before him, there was FDR. Who will be the younger generations?
Bernie is a beginning.
Bernie won four states in a row, then that detestable Jim Clyburn of South Carolina singlehandedly derailed him by swinging SC to Hillary. I have hated Jim Clyburn since that day.
I'm a Bernie Bro, too, donated way more money to his campaign that I should have, but Biden has surprised me -- in a good way -- since taking office. (I vehemently disapprove of the Willow Project; Bernie would have never allowed that. But, granted, that was a complicated issue.)
Your last sentence hits the nail on its proverbial head... now WHERE is the hammer?
As a fellow physician (now retired) I agree: bring on Glass Steagall and M4A
I'm a little skeptical about straight M4A, though. If you poll Americans and ask the question "Do you approve of MFA?" 72% say yes. If you ask the follow-up question "Do realize this means you would also have Medicare?" then the support drops in half, to 36%. What we think is going on is that when Americans hear MFA they think "Universal healthcare," however many Americans are very happy with their commercial insurance that they get through their employer.
The other thing is that a lot of people over 65, who already have Medicare, are not happy that younger people may have access. So, if it's not packaged correctly, it could actually be a vote loser. Which is why I say "MFA Who Want It," and then make clear that if you are younger than 65, either you or your employer has to pay for it. In other words, employers should be mandated to provide a Medicare option, along with commercial insurance, to their employees. If you are self-employed you would be able to purchase it, as if it were an Obamacare plan.
Yes, companies must provide healthcare. All companies. Big and small. The people I know who are still covered by their company plan always seem to have solid coverage. As soon as that is over they are in the water without a boat. Insurance -plus ( Medicare-plus) plans are not great. They demoralize Medicare and cost the tax payer more in pretense of being Medicare. They are the “privatize” pirañas. Medicare must be a universal plan. Doctors must be able to get back to the job of being caring, competent care givers. Some who became doctors are finding the privatized plans draining to anything close to being a care giver.
The patient is now the one who does “ most of the work”. Computer contact is dreadful. Patient portals are nothing more than portal-potties. Everything thrown in the bowl and never once flushed for accuracy!
Help!
The patient portal is the only thing I like about healthcare.
I want to see if I can at least reply to a comment since I can’t make a top-level comment. And there is no way to tell anyone about it.
With regards to Medicine, there is another way........the road less traveled!
Maybe we can have a sensible discussion about that one day, you appear to be what I would call a sensible man!
To me, the root cause of inflation is simple price gouging because the major players in monopoly capitalism hold all the trump cards. It’s a win-win; making absurd and unreasonable profits that automatically put huge pressure on Democrats in control of our government function.
Not only that, but inflation that is not tethered to the usual market forces provides a way to put Democrats on their back foot, despite all their successes in the first half of the Biden administration.
Greed is weaponized to further the GOP’s #RepubloFascist agenda. And if a few hundred banks have to pay the ultimate price, their donor’s money monopoly just gets stronger.
Yes, interest rate hikes are not the answer to price gauging. The FED is 40 years behind in their processes.
It's as if Republicans wanted inflation.
I keep sayin' -- goes back to 1973. Nixon let the dollar float. Saudis/OPEC declared economic war on the US. Trump and the Saudis did a deal to restrict oil production and price gougers added on.....
Weaponized to undermine the Biden administration. Blamed inflation on the victim.
Backing the dollar with gold was not a viable financial option. Letting the dollar”float l didn’t cause these problems. You seem to want to blame Nixon for this, but the culprit was the witless puppet Reagan. Tax cuts, government is the enemy, gutting unions, stupidly ignoring the threat of climate change because apparently all he could read was movie scripts. Took his info from his idiot astrology loving wife,and her fathers cronies.
Nixon was bad enough. Reagan was much worse. And every Republican since then, except GHW maybe had a clue about raising taxes. A lesson for all the Republican con artists after him.
Monopoly capitalism is in its morbidly obese, cancerous phase.
As to Reagan -- true.
As to Nixon, he did not have authority to do it and he did it to benefit and coopt oil patch ex-LBJ allies, like the Hunts, who made a bundle - to the detriment of the rest of us. Coincided with the oil crisis. Saudis financed Murdoch to come to US to spread propaganda. Oil became the international commodity of choice. Petrodollars. It was like the Texas Railroad Commission (father of OPEC) took over this country.
He also set the stage for Reagan - southern strategy, dog whistles to racism.
Daniel, yes, Reagan was really into racism but nixon got the ball rolling on that one too. HW Bush was pretty racist himself with his Willie Horton ads and general attitude. Current Republicans have been studying those guys for their own anti-American practices. I don't know how we respond since their predecessors have been allowed to buy the media, force the nation's addiction to fossil fuels even when they knew it was wrecking our planet, ignore antitrust measures, even ignore or rewrite the Constitution, or at least re-interpret it to give rich white pseudo-Christian men and corporations whatever they want. Those Republo-Fascists own the courts too, or at least enough of them as to negate courts not already purchased. I am trying to be optimistic, but it gets harder all the time.
Where is your evidence the Saudis financed Murdoch? First I’ve heard of this.
Russia “financed” the Koch’s, via daddy’s work for Stalin. First I’ve heard of the Saudis and Murdoch. Looking at his history with small Australian newspapers, it didn’t seem to explain his absorption of media in the US.
The Murdoch/Saud arrangement was common knowledge. The original funding came from the Saudi royal family.
From about 1980 to 2017 Prince Alwaleed bin Talal was Murdoch's number 1 backer in the US.
Had to sell of his shares in 2017. https://www.abc.net.au/news/2017-11-08/key-murdoch-ally-saudi-prince-sells-shares-in-21st-century-fox/9129470
Well said, Jen!
sorry I did not read this before my post or I would not have posted
gold standard would ruin the rest of the world. We can go on it but no one else and that would wipe out the rest of the world we don't want that. We would probably end up in a big war or get wiped out trying to swim in that current.
Maybe in present tense. Besides long lines at the gas station, US markets went into a swan dive. The fact is that not only were we on it many other countries relied on it. Started a ripple effect of defaults throughout the world. “Pegging” the price of gold, provided the basis for the international gold standard after World War II; in this postwar system most exchange rates were pegged either to the U.S. dollar or to gold. In 1958 a type of gold standard was reestablished in which the major European countries provided for the free convertibility of their currencies into gold and dollars for international payments.
What we have now is "fiat" currency.
In the 70's a lot of US investors went to the Swiss franc. Switzerland held on to the gold standard until 1999. Speculators traded "Eurodollars" and "petrodollars."
I was a victim when the Mexican government devalued the peso -- when it should have been pegged to the dollar.
It's definitely the wrong tool. This inflationary period is more complex than we've ever seen. The spending spree coming out of Covid, coupled with supply problems, jacked up gas prices, shortages, the Ukraine-Russia War have created a strain on the economy like we haven't seen in a long time, and the only way businesses know how to deal with it is to jack up prices, and they take full advantage of situations to maximize profits to make up for sales that are sporadic. But trying to control inflation by higher interest rates is the wrong approach, and it's dangerous, and as we see very destabilizing to the economy. We need to put the brakes on prices legislatively even if we must forbid price hikes by law. Business people hate that, but it may be necessary at this point if they will cooperate, and therein lies the problem.
Todd, you are right about the Republo-fascist agenda. The challenge, how do we fight that when our media insist on portraying that agenda as though it is as worthy of consideration as anything Democrats devise?
That’s kind of why I came up with the #RepubloFascist and #RepubloFascism hashtags a couple of decades ago when Bush invaded Iraq.
That wasn’t a war based on terror, it was a means to put in place the Iraqi Oil Production Sharing Agreement in their Parliament. Cheney and company used this war to introduce a means by which American interests could hold partial ownership in undeveloped Iraqi oil fields. Foreign ownership was not allowed under Saddam Hussein.
So for 20 years, I’ve been trying to link the strategies of the GOP to fascism through those hashtags because no one in the media, even MSNBC, would dare to make that crucial link.
So please use those hashtags if you will. Social media is the only practical way to spread that inherent truth. Everything from monopoly capitalism to voter disenfranchisement falls under those hashtags’ purview.
I like the title Republofascists because it describes what is going on with Republicans for the past few decades. They keep throwing up their anger when anyone points out their fascist tendencies, but they know full-well they are employing a lot of the same tactics used in 1930s Germany and Italy. I would like to hear more people using the term and not backing down from it.
Ok!!! I am in!
Todd,
I shall use those hashtags. Thank you for a gem of information!!
The only reason governments rely on interest rate changes to control inflation is that they don't want to use tax rate changes instead. They ignore that tax rate changes would be more effective and equitable, and would pay down government debt. They do this because tax rates have been so weaponised that it near impossible to change them. And interest rate rises distress leveraged assett holders, creating attractive buying opportunities for wealthy donors. They are a way to rob the poor.
Please could you explain a bit more on how tax rate and inflation are linked? the tax rate is a Fiscal Side issue, and raising rates is Monetary issue -- to restrict credit and also money supply through changing the velocity of money in the credit system.
Are you saying that by raising taxes (individual or corporate?) you make less disposable income available to the people, and so they spend less, and thus demand falls , leading to inflation falling? Do you think taxes could also have perverse effects on the economy, and can have unintended consequences, like reducing savings and thus investments in the economy?
Appreciate a clarification.
Monetary policy is being driven by a lack of performance by regulators. Congress has to legislate, reinstate Glass-Steagall, and use fiscal policy to ensure fairness. Claw back ill gotten gains, tax stock buybacks, and make banking boring again. Congress was a stooge in repealing Glass-Steagall. It worked as designed to protect the interests of Americans, not the oligarchs.
In a NYT op ed today an author argues that "by quietly shedding billions in assets, the Fed is making conditions tighter for banks, home buyers and investors."
It was news to me that "At its core, it involves reducing the more than $8 trillion — yes, trillion — in bonds and mortgage-backed securities held by the Fed, along with draining money from the financial system. All this shrinkage is part of the Fed’s efforts to quell inflation, which is running at 6 percent a year"
.Because interest rates and bond prices move in opposite directions, quantitative tightening has cut the value of bonds on bank balance sheets. Such losses were partly responsible for the collapse of Silicon Valley Bank, the biggest bank failure since 2008.
https://www.nytimes.com/2023/03/17/business/federal-reserve-markets-mortgages-inflation-interest-rates.html
the logic is correct; I wrote today elsewhere that the Fed lowered rates to zero following 2008, and kept rates unnecessarily so low for 15 years, and drove investors to "yield seeking" bad assets. It is partly their fault (was there political pressure?) that rates were kept so low for so long, and then suddenly they are confronted with the problems of inflation.
I agree with you here, Lokhi. Unnecessarily prolonged dovish central bank policy, particularly the endless rounds of QE, long after the economy stabilized after the financial crisis, helped set the stage for all that we're seeing. I said to someone about 6 years ago that if you make and keep money cheap, investors will take it and keep chasing yield in increasingly careless and dangerous ways. Behold.
Professor Steve Hanke at John's Hopkins points out that the growth in the money supply predicts inflation, but now we have gouging by the quasi monopolies doubling it. Income tax is the only rational solution because it attacks discretionary spending and lowers the debt the FED is printing money to pay so China doesn't buy it and gain leverage. Interest rates from the FED is just a tax on borrowers.
There are boring banks who take deposits and give mortgages (short term liability versus long term assets), who never indulge in any non-boring activity -- but still they may go belly-up if the depositors suddenly want their money back -- because they see opportunities elsewhere. See the movie "It's a wonderful life"
Paul, yes, robbing the poor is one of the major activities of the rich in all facets of life. If it isn't the poor directly, it is programs that help poor people. The inflation, until the interest rate hikes, were felt mostly by poor and working-class people because the products whose prices were raised were necessities, which is why their prices were raised beyond any profit needs. The money the rich have must come from somewhere, and the poor and working-class are the perfect target because they don't have the wherewithal to fight back.
Great insight, Paul! That’s an angle I hadn’t delved into before.
Raising interest rates to quell inflation is crazy. It only makes things worse for everyone. Historically, presidents could put "social" pressure on corporations to lower prices (and astronomical profits) via the use of SHAME. This technique must be revived.
Shame doesn't work anymore. Note George Santos, or whatever his name is. Only boycotts work. Too bad we can't boycott healthcare, food, and energy when they price gouge.
William, the problem with shame is that one must have a moral compass that shows the way toward doing the right thing to feel shame. Most corporations now don't seem to have a moral compass beyond, "We'll take what we want and just try to stop us!"
Let's try it and find out. I think it could be a win for an idiot media story. Not complicated; "X company has doubled prices in only 14 months" vs "Y company has only increased 20% in the same period" competition.
The 1929 Crash Mr. Reich mentioned, aka Black Tuesday, was a major American stock market crash that occurred in the autumn of 1929.
The "Roaring Twenties", the decade following World War I that led to the crash, was a time of WEALTH AND EXCESS!!
Sounds Familiar
By now it should be obvious for all that stricter regulations, though important, won't solve anything. For decades they have tryied to put the monster in a cage, to put chains around it, to create fences upon fences. All in vain. It always manages to slip under the table and intensify the continuous assault on our livings. There's one only way, I think. Put the banking system, all of it, under public control, rendering it a public service like medicine or education in most civilized countries. Why should banksters and wild speculators be allowed to assault our pockets?
Unfortunately there was no wild speculators involved here. A regional bank takes lots of deposits, and has not enough loans. So, what does it do? It buys Govt Bonds -- hardly "wild speculation"! And then the Fed raises interest rates -- the Gove Bonds lose market value (although they will repay in full, if held to maturity) , and the Bank has to sell these Bonds taking a loss, when the depositors want their money back.
Too many columns have written in these pages of Glass Steagall etc -- the actual fact is the regional banks who are suffering are NOT investment Banks, have never taken advantage of Glass Steagall -- they are suffering because of the Fundamental Risk in Banking -- the Liquidity Risk, as maturities of deposits are short term and their assets - whether loans or Govt Bonds are Long Term. Not understanding this Fundamental Risk in the Banking System leads to lot of discussions on irrelevant points in the last few days
Sure, but what solution do you recomend?
A bank takes short term deposits and gives 30 year mortgages --the Fundamental Mismatch of maturities is called the Liquidity Risk in the Banking system. This has been around for hundred years , and is a topic in discussion in 101 Banking And Finance courses.
So, I was quite surprised to see the "wolf whistle" being applied by Robert in these posts for the last few days about Glass Steagall. None of these regional small banks are in problem today due to Glass Steagall. Of course, GS could be repealed -- but that is another issue, and should not be confused with today's bank run.
As I mentioned in my separate comment -the problem today is from uneducated central bankers who has not understood how much they create a problem when they leave interest rates too low in the economy too long. The rise of interest rates today has hurt all those who did not have time to rebalance the asset portfolio. How does a bank adjust -- it can't get rid of its 30 year mortgages and call the loans as soon as Central Bank raises rates, or depositors want their money back to invest elsewhere!
The problem has existed over centuries and was partly solved by access to the Fed Window for Banks to draw on at a time of Liquidity problems. THis fundamental inherent problem in the Banking System of mismatch of deposits and loan maturities will always be there --- unless one wants to nationalise the banking system.
The Banks try to minimise this (and other risks) by Risk Management through the Value at Risk (VAR) methodology -- which is based on statistical analysis of how much over the years deposits had a run-off etc. But this is still a probabilistic approach and will never with "certainty" ie with zero probability remove all risk. If you read the Risk Manuals of Banks -- you will see the VAR is calculated with supposedly 99% confidence, or with only 1% possibility of things going wrong. But this is based on historic data -- and still in that 1% cases (as now) things can go shit.
I heard on MSNBC yesterday that if Glass-Steagall had still been operable, the SVB would still have failed for the reasons you stated. Should we rethink the whole banking system? Is it a service or a business? Why should the economy and the 99% be at the mercy of the banker class?
You could rephrase this as -- why be at the mercy of Central Bankers who misjudge the balance sheet of the economy?
But it is not the Banker Class! I am an ex-banker myself with a post graduate economics degree -- and I can assure that this class in these regional banks were at the mercy of the Fed when it started to rapidly raise the interest rates. What could a banker at the regional bank do when its "safest" investment in US Treasury sat at 1% for 10 years loses half the value when Fed raises its interest rates from 1/2 to 4%?
This is not the GS problem, this is not the sub-prime problem of 2008, this is not the criminal way the banking system created securitised assets (CLO and CDO) from absolutely rubbish assets of poor credit quality.
This is a problem of the BEST asset class (US Treasuries which are backed by the full faith of the US Government) losing market value (not value at maturity, if held to maturity) losing its Market Value (ie the resell value) when interest rates rise --- and there is no "evil goblin" or "evil banker class" at work here. It is simple Mathematics and is called the Net Present Value. Sorry to give this technical reply. People should understand that NPV (market value) falls as interest rates rise -- this is a simple mathematical calculation.
You don't even mention the derivatives issues which have caused much havoc - purely because of major banks making use of them to make money from basically nothing. But banks don't like to face up to the responsibility for their own mistakes, only misdirect any responsibility on to others.
We have bar codes, statistics, computers, and AI. Why are we depending on a 300 year old system to supply the money for our current system to thrive? Is it all about the money class? It is time to do better for the world.
Lokhi, thank you for the information. How is it the Fed thought constantly raising interest rates would help anyone? They should have known what it would do to the banks that were buying up Treasury Bonds which, as you say are secured by our government? Isd the Fed really so oblivious to what is going on? Or, were the banks hiding what they were doing even from the Fed?
You write: "None of these regional small banks are in problem today due to Glass Steagall. Of course, GS could be repealed -- but that is another issue, and should not be confused with today's bank run."
And you are quite mistaken. If Glass-Steagall were still in force none of these banks could "invest" depositors money in Bonds. Doing so is practicing "investment banking" which was illegal under Glass-Steagall.
You are wrong.
Boring commercial bankers keep their excess deposits in the safest IOU available in the market -- viz the US Govt's own IOU which are called US Treasury. You can buy them also -- as many do -- from the 1st floor at Fed NY the Retail Division. You don't become an Investment Banker by doing this.But you, like the boring commercial bank, are taking a liquidity risk. If tomorrow you need the money for a hospital bill, the US Govt won't give the money back -- they will repay only at maturity which may be a long way off. But you can sell the bonds again at the same 1st floor at Fed NY at the current market price, which will be below Par if interest rates have gone up.
GS never stopped this. What else could the boring banker do with excess deposits ? Keep it under the mattress at the Branch?
Investment Banking is involved with the issuance and placing of Corporate bonds and equity --and making markets and trading these. Essentially what is referred to as Buy Side and Sell side of Corporate Funding. No retail banks have the contacts or set-up to do this. I think all this is easily available if one picks up a 101 Banking and Finance course book, for example Niall Ferguson's The Ascent of Money is readable
So it appears that part of the problem may be the lack of stress testing in these banks. However, what is a bank to do if it doesn’t pass a liquidity stress test?
A regional bank takes lots of deposits, and has not enough loans. So, what does it do? It buys Govt Bonds -- hardly "wild speculation"!
Yes, but the whole point of Glass-Steagall is that a bank should be a bank, not an investment house. Doesn't matter that SVB bought Govt bonds and not Crypto. It shouldn't have been buying anything.
See my reply to Mary Boudreau below. Should the bank keep the deposits in a Safe Deposit Box, and charge the depositors the fee for Safe Deposit? Why give deposits to a Safe deposit box service. Buy your own safe deposit box, or keep the money under a pillow. What do you think "a bank should be bank" entails --to be a safe deposit box? A bank takes deposits and lends them out -- the liability is short term, the loans (and they don't have to be loans to government -- which US Treasury represents - a IOU or a loan note of the govt) are long term (say mortgages to individuals, if that makes you happy). As long the maturity mismatch is there between the Liability (deposits) and Assets (loans/ mortgages) --- there is Liquidity Risk when depositors suddenly want their money back.
You're a banker, I'm not, so educate me. In the old days, didn't banks meet their payroll by charging a small fee on each transaction, without offering any financial shenanigans?
Yes I am an ex-banker, and also a retired Professor of Finance. But this thread is too short to talk about such a topic. I suggest you pick up an introduction to a 101 Banking and Finance course. Niall Ferguson's Ascent of Money is readable. Coming to ancient banking -- the Medicis used to loan out money at a Discount, ie you pay 100 at maturity when you are given only 90 in Cash. And that 90 was with Medici's own capital, or borrowed from another person, who is given 95 at maturity. It was possible to match the borrowing (deposit) with the Loan's maturities in those ancient days. But the credit risk was there on both sides --- and not Central Bank to bail you out if one side of the transaction failed.
Today, there is no matched deposit and loans. Can you think of a Bank which say has only current accounts, giving a mortgage which he the Banker can call any time ie the mortgage is up for repayment whenever the deposits are withdrawn from the deposit current accounts ?
And if I understand you, this time around bankers are feeling increased pressure because of the prevalence of fixed interest housing loans. Little guys like myself will not lose our homes. Hooray yippee hallelujah.
(I do hate what capitalism has done to the housing market, but that is another discussion)
Glass-Steagall was repealed decades ago. Lobbying destroyed a good law and made banking more risky. Hence the casino like atmosphere in banking. Putting other people’s money in long term bonds when it’s needed for cash flow makes no sense. Those guys deserved to be fired.
What would you do as a Banker, with lots of deposits. Are you a Safe Deposit Box, then? How do you pay salaries and costs? The assets of Banks by nature are long term -- do you have a Bank with lots of deposits which can be drawn down any time, and ALSO LOANS THAT CAN BE RECALLED ANY TIME? If the bank is not allowed to invest these deposits in mortgages or US Securities -- exactly what should it do? Why have a Bak at all? Why not buy a big security deposit box? If no one lends mortgages, then we are back to barter economy. We all hold cash under th pillow!
The distinction used to be that savings and loans banks were required to ONLY invest in mortgages. National banks (those insured by FDIC) were permitted other investments.
Banks were not devised to protect their employees, rather their customers. Like any other business need cash flow to pay for overhead. The protection is holding collateral. The rules to make sure that collateral is protected are set out in the Uniform Commercial Code.
Banking became risky when "bankers" became active stock and bond traders.
I heard Sarbanes Oxley Dodd Frank whistleblower cases. Some of the whistleblowers were CFOs of some banks.
Unfortunately, I have to report that some of these cases are miscarriages of justice. https://casetext.com/case/welch-v-cardinal-bankshares-corporation-2
Interest rates vs taxes? False:
https://youtu.be/4zpLe4AKssk
José, I do not agree that much regulation has been instituted recently, and a lot of the regulations have been removed or simply ignored. Tax cuts to the rich as under Trump had no purpose beyond giving the donors more money so they would donate more, and they did, but not much more. They didn't have to, just enough to keep stringing legislators along in the effort to get power for the anti-regulationists. I am pretty sure making banks public wouldn't work. However making payment for federal elections public would be worth a try. States could do that too. Then, maybe regulations to save our economy and nation would work better.
Right you are!!!!
The roots of this are in the greed of the banks, which have resented being regulated ever since the Glass-Steagall Act of 1933. They managed to get the Gramm-Leach-Bliley Act of 1999 passed, with the enthusiastic support of Alan Greenspan, Larry Summers, Robert Rubin, and Bill Clinton, who said "The banks don't need to be regulated, they can regulate themselves!" - Makes me wonder how much they all got paid, one way and another, for taking the leash off of the banks that prevented them from combining commercial and investment banking., which is what Glass-Steagal specifically prevented since it was part of the Crash of 1929, Black Friday.
This loosening of the regulation led to the 2008 financial meltdown that greeted Obama when he took office. Bottom lines, the banks don't care what happens to anyone who puts their trust in them, because they hold all the cards and even after the 2008 disaster, not one single banker went to jail. Not one. Not one bank was taken over by the U.S. government in spite of the very good example in Sweden in similar circumstances. I saw one brief report that Obama had early on directed Timothy Geithner, his Treasury Secretary (who had previously been head of the New York Federal Reserve) to investigate CitiGroup, but that Geithner had ignored his directive. I never saw any confirmation of it, but then again, not one banker went to jail, and no banks got taken over, either.
This is what happens when the levers of power are given freely to the uber-wealthy .01% and there are no legal remedies readily available, while Citizens United has made the money buying political influence untouchable. To be clear, this is not just the Republicans whose only interest is in tax breaks to feed the fantasy that 'trickle-down economics' actually works for anyone but the very wealthy and corporations, no matter what diversions they use to distract the masses. The Democrats also surreptitiously are bought and paid for by the same big money donors, and have protection of their money sources as a first priority. Both parties lie about their full agendas, and the corridors of power are set in stone in the Capital Building.
The worst part of this whole mess is that so many ordinary citizens believe in the lies and half-truths told by politicians in both parties, including Trump but not limited to him. It is all a distraction from the truths of who's behind the curtain. It ain't the Wizard of Oz.
Regulation has become a dirty word for the greedy. When it comes to safe guarding customer's money, health, property, our country has slowly stripped away the protections needed for the last 40 years. The average American working hard to save for retirement are at the mercy of unscrupulous CEOs, boards, that are making money off of their losses. This crap has to stop NOW.
Looks like a con game to me, where guardrails have been removed and quick fixes applied like band aids, while criminal activity continues, and regulations are avoided.
Bankers seek to make 'bank' no matter the circumstance, no matter the ethic, no matter the morals, Bankers make 'bank.' I remember when 'derivative' instruments started showing up in mainstream retirement funds. I had a financial advisor, she was very young in comparison to other advisors in banks, informed me that derivatives are basically placing a bet on the future asset, I would actually not hold anything, not like owning a few shares of mutual fund. This seemed to me like the stock market wed the casino, and I know the 'bank' wins. 2008 proved to America that their homes were tokens in the game, it did not matter if you lost your home, some financial phenom would make out buying your home together with others in a package, flipping them to the rental market and jacking up rents in the area. Money makers do what money makers do. Regulation is just a game of whack a mole, and regulators are behind.
IMHO the only winners are brokers who take a commission on every trade.
Some investors know a butterfly straddle when they see one. Everyone else can crap out.
https://optionalpha.com/podcast/short-straddle-or-short-iron-butterfly#:~:text=Short%20straddles%20have%20a%20much,at%2066.8%25%20of%20the%20time.
Let them fail, enough with the bailouts for the rich. I have my own personal bank failure monthly, about the third week after my social security check comes. Do I get a bailout, no. The wealth class has taken complete control of our economy and have driven it over a cliff. I know a couple of fat rich bankers I will be having for lunch if this continues, not as a guest mind you.
Quite right. Banking is a confidence trick. Deregulation has surely been a disaster, the thin end if the wedge, the start of the slippery slope to global financial meltdown. In the UK, the idiotic Truss budget showed how weak the pension funds were, depending on gilts for survival.
What is clearly known and understood about the unfolding crisis: NOTHING.
Part of today's problem is that Central Banks left interest rates too low for a longer time than was necessary. The crisis of 2008 os now 15 years old; there were many bailouts. There was no need to leave interest rates well lower than equilibrium rates for so long. It was the most foolish decision. It led to "search for yields" and bad investments, which suffer as interest rates rise. The dramatic rise of interest rates compares to 1980-81 [Volcker]; the rapidity of movement in the rates did not allow for investors to balance their portfolio quick enough. So, I would blame a lot the Central Bank for creating this mess. One does not need to be a go-go bank, with sub-prime mortgages to be hurt. A bank with simple bank deposits invested in Longer term government bonds with little credit risk is still vulnerable when rates move up rapidly --as the Govt Bonds lose market value and if liquidated will lead to loss. So, this is not a result of Glass Steagall etc discussed the last few days in these columns -- today's crisis was home made by Central Bankers who have not understood the markets or the balance sheet of the small regional banks -- it is the latter who suffer, not the big banks (unless confidence is eroded in the Banking System)
You are wrong.
GS does not stop banks from keeping their excess deposits in US Treasury -- in fact, that is how reserves are meant to be kept in boring banking. US Treasury is the IOU of the US Government.
Investment Banking is managing the Buy Side of Corporate issues, like helping a General Motors to issue a Bond or Equity and the Sell Side of Corporate issues, ie placing such Bond/equity of corporates for a Fee. Many Investment Banks make a "market" on these Bonds and Equity -- and these trading activities and the issuance under their own name the securitisation of Corporate Bonds -- is what has made Investment Banking risky.
Boring commercial bakers -- when they have excess deposits compared to loans like mortgages -- keep their deposits invested in the safest IOU or loan they can get -- the IOU of the US Government. That is not Investment Banking! You can open an account with the Fed NY and yourself buy primary issues of the US Government Bonds -- as many do. They send you regular quarterly statements. You are not becoming an Investment Banker by doing this.
Inflation vs Havoc? Is that our only choice? Tampering down our own need to greedily hoard permeates our culture. More more more. How can we reset to want less? Can we stop glorifying the billionaires of the world? The world of advertising has done so much damage, selling the concept of acquiring material goods the ideal, not the problem it actually is. Greed is the most prevalent sin in our culture. How do we change that? I so appreciate the education RR provides and the intelligent comments his articles spark. The subject of how can America reset it's greedy "the business of America is business" philosophy is one I am most interested in.
Universal healthcare, right to housing, universal basic income, free school lunch for all children without the indignity of sorting into social classes would limit the extent of predation on vulnerable populations. I think it is reasonable and appropriate to create a floor for quality of life rather than allow the rich to rule and enjoy unlimited wealth and power.
The business of America should be litigation. E.G. California s suing Amazon for price gouging.