tag:blogger.com,1999:blog-6948982521501107752.post4381839367153559880..comments2023-10-21T09:03:15.270-04:00Comments on Rogue Economist Rants: Some limits to bank printing 'out of thin air'Rogue Economisthttp://www.blogger.com/profile/03439817966760459091noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-6948982521501107752.post-15644477916939161462012-04-18T18:47:50.672-04:002012-04-18T18:47:50.672-04:00As I said in our MNE discussion, banks are not in ...As I said in our MNE discussion, banks are not in the business of owning property. They are in the business of extending loans, and they want to get paid back the loans and earn the interest rather than owning the property. Capital tied up in property is capital they cannot use to churn new loans, and any properties they end up with because of soured loans are immediately disposed of. These are all hits to bank capital. <br /><br />Basel, not oddly, is silent on real estate investments as rental properties because these have ever been considered appropriate bank assets. Mortgages backed by rental properties, yes, but not the property itself. That opens the bank to landlord risk, which I'm sure no regulator or bank risk manager knows how to manage.<br /><br />If this is happening in the US, this won't end well.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-25733537144658975462012-04-18T00:56:08.656-04:002012-04-18T00:56:08.656-04:00Rogue Economist,
What do you think of the idea th...Rogue Economist,<br /><br />What do you think of the idea that rental properties might share characteristics with financial assets (like loans)?<br /><br />Oddly, Basel capital requirements don't include real assets. Perhaps if they did then half the world's real estate would be owned by banks by now?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-86286406654391577092012-04-17T21:04:51.536-04:002012-04-17T21:04:51.536-04:00Rogue,
Read also Bill Black's article - The T...Rogue,<br /><br />Read also Bill Black's article - <a href="http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html" rel="nofollow">The Two Documents Everyone Should Read to Better Understand the Crisis</a> and <a href="http://democrats.oversight.house.gov/images/stories/Hearings/Committee_on_Oversight/Black_Testimony.pdf" rel="nofollow">his testimony</a> before the oversight committeeClonalhttps://www.blogger.com/profile/18290009954839887975noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-52973370354424601252012-04-17T18:27:54.635-04:002012-04-17T18:27:54.635-04:00Paul, very harsh feeling against the banks. But i...Paul, very harsh feeling against the banks. But if you're American, Irish, or Icelandic, I can't blame you. <br /><br />Anonymous, yes, it would appear that banks have greater leeway to keep crediting, even when insolvent, vs. regular folks and companies. The system relies a lot on the regulator, and particularly bank examiners, to keep it honest. There's enough regulation out there to keep things honest, as long as they're being followed. <br /><br />but what can you expect from banks who do <a href="http://www.bloomberg.com/news/2010-10-08/man-who-had-no-mortgage-faced-foreclosure-anyway-ann-woolner.html" rel="nofollow">this,</a><a href="http://rogueeconomistrants.blogspot.ca/2010/02/us-banks-are-not-capital-constrained.html" rel="nofollow">this,</a><a href="http://rogueeconomistrants.blogspot.ca/2011/03/us-banks-dont-need-borrowers-in-order.html" rel="nofollow">this,</a>or whatever else we still don't know about.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-79832147981617589882012-04-17T13:52:29.906-04:002012-04-17T13:52:29.906-04:00"a bank that has no earnings or no equity can..."a bank that has no earnings or no equity cannot continue spending just because it can create money out of thin air by crediting an account"<br /><br />I think this 'constraint', as Paul says, is probably much more flexible and fluid for a bank than it would be for anyone else. Technically insolvent banks often seem to be able to keep operating as normal, as if nothing is wrong.<br /><br />This aside, I agree with the point that even if a bank is 'creating money' to pay for real goods and services, ultimately that money has to 'come from somewhere', so it's different to the purchase of a financial asset in the form of a loan. <br /><br />However, loans are not the only financial assets out there, so I'm thinking that when banks purchase ANY kind of financial asset they can essentially do so with 'money they create themselves'. <br /><br />Real assets are more complicated perhaps, although if the asset is a rental property, for example, then maybe it's not so different overall?<br /> <br />I randomly came across this quote from a Cobden Centre article:<br /><br />"Banks only exist with entrenched legal and accountancy privilege."<br /><br />True datAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-38041196875251694872012-04-17T08:04:42.399-04:002012-04-17T08:04:42.399-04:00"…This is also why, I believe, a bank that ha..."…This is also why, I believe, a bank that has no earnings or no equity cannot continue spending just because it can create money out of thin air by crediting an account…"<br /><br />Of course it can't. That's not a constraint though.<br /><br />If a bank can't generate earnings from printing money out of thin air it doesn't deserve to succeed and should be shut down or bought out.<br /><br />What banks do is like shooting fish in a barrel. Further, if they don't compete well they get bought out by more successful banks and the pricipals walk away with a pile of money for being incompetent.<br /><br />Banking is a scam disguised as a public good.paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-28407078374057155612012-04-17T07:40:13.834-04:002012-04-17T07:40:13.834-04:00Well there you go. What's illegal elsewhere is...Well there you go. What's illegal elsewhere is legal in the US. Although many countries don't also divide between commercial and investment banking activities.<br /><br />However, and it's been almost a decade since I last looked at some Basel rules, if it's a bank affiliate that invests in investment banking or in real estate properties, all their capital will need to be bank capital. Basel rules limit what banks can lend to affiliates as a percentage of their total portfolio, and any loan amount above that percentage gets deducted from the bank's calculation of its capital. No way around using crediting ability to make unlimited purchases. Maybe different in the US?Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-3582177025620866702012-04-17T00:50:26.941-04:002012-04-17T00:50:26.941-04:00Rogue,
Banks also trade for their own accounts - ...Rogue,<br /><br />Banks also trade for their own accounts - <a href="http://www.washingtonpost.com/opinions/fix-income-inequality-with-10-million-loans-for-everyone/2012/04/13/gIQATUQAFT_story.html" rel="nofollow">Sheila Bair</a><br /><br />Quote:<br /><i>“For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.” </i><br /><br />Warren comments that<br />Quote:<br /><i>You’d think the former chief bank regulator would know the banks they regulate and supervise aren’t allowed to do this, and that it’s up to the FDIC to see they don’t</i><br /><br />The repeal of Glass Steagal in the USA allowed banks to get into businesses, including betting against their own clients - which would previously have been illegal, and is always unethical.Clonalhttps://www.blogger.com/profile/18290009954839887975noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-84384077207456633832012-04-16T22:57:05.682-04:002012-04-16T22:57:05.682-04:00Matt
Is that $350,000 just on ATM fees? Wow!
In ...Matt<br /><br />Is that $350,000 just on ATM fees? Wow!<br /><br />In your area, is it common for the bank to own the commercial area and be the landlord? How prevalent is it? Because in that case, then yes, owning property will be considered income generating for the bank. It would likely result in higher property bubbles if banks are given unlimited leeway to bid for these commercial properties.<br /><br />Yes, this should not be allowed. I thought Basel rules disallowed it, in that property assets are given 100% risk weight, meaning all property purchases should be funded wholly with bank equity capital. I guess the US hasn't been following Basel rules if they're doing this on a major scale there.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-56019369789186648712012-04-16T22:27:17.460-04:002012-04-16T22:27:17.460-04:00Rogue,
"Then when a bank buys property for a...Rogue,<br /><br />"Then when a bank buys property for a branch, or a computer printer, there's usually no income assumption, as they’re an expense outlay for the bank."<br /><br />A friend of mine worked for a small comm bank in Key West some years ago and they had one of the only ATMs right in the combat zone there for some years while she was there, she said they took in $350,000 per year just off their ATM. (pretty sweet)<br /><br />And then of course anyone needs a place to do business. So they get a branch and put a loan officer in there and have a conference room, etc... and start to do Equity Loans, mortgages, etc... we all need a 'storefront' to do business and they have a tremendous advantage over non-banks in sucking up all of the prime locations as like you say they only have to offset the purchase price with like 8% equity (or less) and the rest at deposit rates which now are near zero.<br /><br />And this is just for bank branch operations. In my area some are getting involved directly in property via wholly owned Real Estate Divisions of the banks... <br /><br />Another thing you see is a commercial strip with like say 6 storefronts and one will be the bank branch, the other 5 are a Nail Salon, subway, used to be video rental now vacant, pizza joint, dunkins', maybe post office. Perhaps some even have offices on a second floor (medical, etc...)<br /><br />I bet that since the "branch" is under the same roof (loophole), they can build out and operate this 6+ storefront project by crediting bank accounts of the contractors just like it was a stand-alone branch.... no way a non-bank developer can compete with them as you have to put 20% down and pay loan interest on the other 80% if you can get financed at all.<br /><br />Just drive around and you will probably notice the same type of set up...<br /><br />This should not be allowed imo.<br /><br />Resp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.com