Monday, February 16, 2009

Banking as We know it

The sheep are all bleating, and the herd runs in a common direction, what could go wrong? The Corporations are braying, "No Profits’, while the old ewe banks blare, "Liquidity, Liquidity," while their udders bulge with Cash. Everyone has their Hand out, and the Herd blats, "Stimulus, Stimulus,’ in a sonorous roll of Sound through the entire trotting mass. Problem: Investment Bank after Investment Bank, Car company after Car company, Business after Business all roar, "Taxpayers must give Us Cash, or We will have to start massive Layoffs," but the herd is already ‘Skin and Bones’ when it comes to Employment; where they would functionally have to shut off Production under more Job Cuts. What is wrong with this Picture? Businesses want a replacement for the Consumer, Congresses and Parliaments satisfy every slush-fund lobbyist’s dream, and central banks ensure that all Taxpayers and Consumers face sufficient Currency devaluation to wipe out their efforts to Save for the future. Is it that Business leadership insists that Consumers cannot do anything except Consume, without the permission of themselves?

Here is a summation of Consumer Debt in the UK (note that it is a dated Post); a pattern description of the American Consumer would say the identical same! What is the exact result of Everyone borrowing at the same moment? It becomes a Currency issue, does it not? It is a functional replacement for actually printing Currency, especially easy when the majority of Cash is held as a series of ‘Opened or Closed’ on a machine. Suddenly, no one has to listen to the clatter of the Printing Presses, and billions and trillions can be created simply by hitting a Computer ‘Enter’ key. I may have missed something here, but aren’t markets supposed to determine the value of Products? Are markets and central bank in a War with each other? Someone is trying to deny Reality here, and I would rely on the stability of markets rather than the political whim of central bankers.

I have defied John Hampton’s desires by only scanning his entire Post, but what can Anyone do else under a Time constraint? I recommend the Post to the Reader because of its grasp of the essence of Banking. Solvency is in the Eye of the Beholder, and Bankers work hard to ensure only they see. The Reader should understand that what is discussed all falls between the amounts actually extended by Banks, and the expectation of total value under prompt and total repayment with the Interest generated. The Reader should know that Banks expect a large Return for any extension of Cash, and utilize market-to-market transactions to gain additional Cash to loan, at Profit to themselves. Legislators tend to become incensed about Bankers paying themselves huge bonuses for selling this debt, acting like the return of such bonuses would increase the solvency of the loan structure. It is not true, and legislators are simply mad that Bankers make more money than themselves; on the other hand, the presence of the bonus system increases the pressures to get value from market-to-market transactions. I can’t wait until Someone decides to invent a residual liability for the Debt used in market-to-market transactions. lgl

No comments: