Week 24
Prior 2008 how did speculative bank credit creation went unnoticed?
Securitization and shadow banking
Where Does Money Come From? by Collins: "Prior to the financial crisis, banks discovered a means to circumvent the Basel regulations on capital adequacy. This new method allowed them to preserve their capital adequacy and maintain liquidity whilst continuing to expand credit creation and is known as ‘securitisation’. Securitisation is the process of selling on a loan, or a package of loans, and passing the risk and reward onto someone else in exchange for cash. By taking loans off the bank’s balance sheet, it can create capacity for new lending while staying within the required capital ratios [..]
The ‘shadow banking system’ is a loose term used to cover the proliferation of financial activities undertaken by banks off their balance sheets, largely beyond the reach of regulation. No solid definition yet exists, but it conventionally includes non-depository money market funds and the use of securitisation and credit derivatives by many institutions as well as private repo transactions.
What all these have in common, aside from their extraordinary expansion over the last decade, is the creation of forms of creditthat have no relationship to traditional banking. As discussed previously, it is quite possible for banks to create money and credit out of nothing. In a myriad of ways, the shadow banking system hugely extends that principle. For example, securitised collateral, typically in the form of loans repackaged to receive AAA grade ratings, could be used in a repo transaction. The asset would be sold to another institution, with an agreement to buy back at a later date, at a higher price. The seller would, in effect, be ‘borrowing’ the money, with the difference in price being equivalent to the interest rate. Repo transactions have therefore been called another type of privately created money and form a crucial part of the shadow banking system.
By virtue of its nature, estimating the size of the shadow system can be difficult, although it is now likely to be somewhat larger than conventional banking. As of early 2007, Timothy Geithner, then President of the Federal Reserve Bank of New York* suggested the US shadow banking system had assets under management to the value of $10.5 trillion – about $500 billion larger than the US deposit banking system at the time."
So it's not like a representative from ACME Speculator I'll Burn Your Money If You Give It To Me Co shows up at the bank and asks for credit. The financial system found myriad of ways to print itself into crisis.
Question
Why was shadow banking not regulated properly?
It was
Until it wasn't... From link - "Prior to the Great Depression in the 1930s, commercial banks were blamed for getting very speculative and greedy, since they were not only investing their assets, but also buying new issues for resale to the public. This led to a collapse of the banking system, which slowly became irresponsible and chaotic. One of the functional reforms that came in the form of banking regulations was called the Glass-Steagall Act, and it clearly outlined the objective of the banks".
Question
What caused the Great Depression?
See above
Summary: speculative credit creation.
Question
What is the reason for recent crises'?
Guess what?
USA 1920s (Margin Loans): speculative credit creation
Scandinavia in the 1980s: speculative credit creation
Japan in the 1980s: speculative credit creation
Asian Crisis, 1990s: speculative credit creation
UK property bubble until 2007: speculative credit creation
US property bubble until 2006: speculative credit creation
Irish property bubble until 2007: speculative credit creation
Spanish property bubble until 2007: speculative credit creation
Wikipedia
Over time the amount of media merging has increased and the number of media outlets has increased. As a result, fewer companies now own more media outlets, increasing the concentration of ownership. In 1983, 90% of US media was controlled by 50 companies; as of 2011, 90% was controlled by just 6 companies and in 2017 the number was 5
Question
Does trade deficit effect a country's exchange rate?
It can
A persistent deficit has to be balanced somewhere. The entire balance, balance of payments, has to be zero. CA + KA + FA + RES = 0, CA – current account (which includes the trade balance), KA – capital account, FA – financial account, RES – reserves.
This balance is actually a great way of looking at a country's state. For example here is Greece (xls sheet with formulas, based on this lecture). See balancing item is very small, near zero. I guess we can all see the persistent negative value in the current account, a persistent trade deficit, all the way until 2010's when crisis hit.
So the negatives, as in current account, needs to be balanced, that can be through FDI, or bond purchases, stock market inflows, balancing the demand on the local currency. Japanese person imports coconut oil, pays back in Yen, foreigners take that Yen (they have to do something with it and most likely in Japan), and invest it in the Japanese stock market. But that can introduce build-up of skittish money, when things go sour, this money can choose to leave in a hurry, selling the local currency. In Greece's case money in/out flows were mostly on Euro, but other countries can feel wild gyrations in their currency values.
Question
Is trade deficit bad for US?
Depends
Theoretically US can simply print dollars to close its deficit, $ is the reserve currency, there is always demand for dollars, people can hold them in reserve, use it for oil, etc., so debt can be financed without inflationary side-effects... But excessive imbalances are still not good. "Yeah but Triffin dilemma says US has to be in deficit so it can provide the world with reserve currency", what ultimately follows though is having to defend that currency with military. The problem here is that the Americans really are not too comfortable with that kind of empire. All recent Presidents ran on non-interventionism: Clinton, Bush, Bam. They lost their way becoming captive to the establishment. We all saw the examples; they had Clinton sign the Iraq Liberation Act, which Dubya would later use as (another) justification for war (what are u yellin at me for, the law says I have to liberate these funkers), Bam as we all saw effed it all up in Libya, so they became interventionist, but at first campaigned on non-interventionism.
Book (The Great Rebalancing)
There have been after all many well-recorded financial crises in history, dating at least from the Roman real estate crisis of AD 33, which shared many if not most characteristics of the 2007 crisis.
Funny
Yes, that crisis appears to be real-estate related causing a credit-crunch, it caused some unrest in the empire.
Here is something interesting: Jesus was killed by Romans somewhere between AD 30-33, I wonder if these two events are connected. There'd be unrest, the need to quell the unrest, the authority caused bunch of mayhem and a poor carpenter dies .. Maybe that's the material religions are made of.
Comment
There has been a disconnect between productivity and typical worker's compensation since 70s
Interesting
I did not double check this graph. But it is likely that it is true.
Question
Did Supreme Court make the right call on the baker case?
Yes
The story was a baker refused to make a (custom) cake for same-sex couple due to his religious beliefs. The case went to SC and baker won.
That was a tricky one. But Scotus is right, this is not a case of providing / not providing essential items, or providing employment (if that were the case I guarantee the judgement would have been different). This is abt creating art in many ways, so if forced it'd be like the society telling the baker, on top of the discomfort he feels about mores around him, "bitch dance for me". That would be trampling on his freedom. He cannot be forced to joyfully to create art.
US justice system, when it is not ruined by bought politicians, can actually make some good calls. While in college I remember a few of my friends studying law would share interesting cases they learned at school. One had to do with a car accident - a driver crashes into another car (that itself also made some funky moves) while driving hastily. A radio station organized some sort of scavenger hunt, he was trying to get somewhere fast to retrieve some item... Who's at fault? Driver #1, or #2? The court found the radio station guilty - because they organized the scavenger hunt creating a situation which caused the driver #1 to drive carelessly and crash. So they considered the psychology of the situation, how ppl can be effected by these things, assigned certain amount of responsibility on the station which has a public role when it comes to certain acts.. I thought it was a good call.
Who came up with the Canadian single-payer healthcare? It was surely the current prime minister's father Trudeau?
No
It was Tommy Douglas - who oddly enough ran against the father Trudeau and lost because he did not provide enough "good TV". It was the 60s. I remembered that tidbit when the son Trudeau disappointed environmentalists lately by supporting fossil fuel production. Maybe we should bar ppl who are "too presentable" from running for office?
Question
I don't want to work with Excel files, can you give me markdown and csv files for Greece current account?
Sure
The opioid crisis began in the 1990s, when doctors became increasingly aware of the burdens of chronic pain. Pharmaceutical companies saw an opportunity, and pushed doctors — with misleading marketing about the safety and efficacy of the drugs — to prescribe opioids to treat all sorts of pain.
Doctors, many exhausted by dealing with difficult-to-treat pain patients, complied — in some states, writing enough prescriptions to fill a bottle of pills for each resident. The drugs proliferated, landing in the hands of not just patients but also teens rummaging through their parents’ medicine cabinets, other family members, friends of patients, and the black market.
Wait
So are they saying big pharma is complicit in creating this crisis? They killed more ppl annually than the Vietnam War? Dude!
Russiagate After One Year. Aaron Mate Interview #TYT #Matte #Halper
#RussiaRussiaRussia
Frank : "Trump won because Clinton and the Democrats dismissed the concerns of working people"