Wednesday, Jun 09, 2010
It's a communism (communism for the rich, that is)
Greg Pytel: Comment to: To the Chancellor: UK ain't Canada
A three point comment that present concisely how we, the taxpayers, are being shafted and risk being shafted even more. And a pretty good, reasonable, suggestion what the Chancellor should do. It does not take much of scratching the surface to realise how bad it is.
Posted by ant @ 10:12 AM (782 views) Add Comment
15 Comments
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1. rumble said...
"Strong signs are that the liquidity hole still exists and may be absolutely massive (possibly even going into quadrillions of dollars globally, and the UK share of it may be huge)."
-- I ask about this to no avail, as if nothing ever happened. Stumbling around in the dark, claiming everything's fine is faith - unfounded, irrational, determined belief.
"theism of"
I'm starting to wonder if I'm subconsciously basing my comments on the captcha words.
2. ant said...
@rumble: if you had read Pytel's blog understanding you would have easily realised by now:
1. According to BIS in Basel the value of outstanding derivatives is in quadrillions of dollars.
2. HM Treasury does not know the size of liquidity hole (they officially admitted that) that still may need to be plugged.
3. The costs of plugging the liquidity thus far has been £860 bn (with £70 bn possible only to recover from the "assets" taken under control).
4. Lending with loan to deposit ratio greater than 100% existed and still exist created a massive money multiplier (at least 40, in reality much, much more).
If you do not understand the above as strong signs of the existing liquidity hole and that the next liquidity crisis is likely, I cannot help.
3. rumble said...
Ant, thanks, I do understand, it seems there are others who refuse to.
4. ant said...
@rumble: sorry, apparently I misunderstood the sense of your comment:-)
5. This comment has been removed as it was found to be in breach of our Blog Policies.
6. rumble said...
-- I should have included this bit:
"We do not know (and indeed HM Treasury does not know) whether the bailout support the banks got, £850 billion, plugged the liquidity whole."
7. the number cruncher said...
I like reading Pytel as he points out the big Elephants in the room. And a lot of what he has to say is of a moral rather than a purely economic analysis.
He is right in much of what he bloggs, in that all us middle income earners are vastly subsidising the rich. The complex mechanisms by which that is achieved are not thought of or discussed in the mainstream media or political circles.
The common objective of many on this site is how can we get these concepts to be adopted in the mainstream, as then and only then will house prices be affordable and we can all enjoy a better standard of living for our families. Pytel is trying his best to do that and I think he should be applauded, as should all, who are trying to understand the complexities and social impacts of our complex banking system and the subsequent fallout it causes such as house price bubbles and busts.
8. rumble said...
"The banks should be broken up into business units of a size that NONE of them is too big to fail."
-- I'd rather a culture of proactive citizens. In the tech world, people show an interest and vote with their feet - people got fed up with Microsoft, getting upset with Google, and Facebook, they'll move on, but elsewhere people just moan.
9. ant said...
@the number cruncher: Pytel pure economic analysis (which is on the blog) is as follows (which he proved mathematically):
1. If banks lend with loan to deposit ratio greater than 100% then the money multiplier is unbounded and grows to infinity and exponential pace.
2. The growth of money multiplier to infinity precipitates the collapse of the value of assets (i.e. they reach 0, or are unsaleable in a finite time).
3. Both high money multiplier (i.e. how many dollars of liabilities on the banks' books are served by one dollar cash) directly and a collapse of assets value to zero guarantees liquidity collapse (which last time round was prevented by a massive government cash injections or guarantees).
4. Technically, by definition of a pyramid scheme, lending with loan to deposit ratio greater than 100% is a pyramid scheme that was a sufficient condition to ensure the current liquidity crisis.
This is rally what's mathematically on Pytel's blog. The are comments like pyramid schemes are crimes hence bankers are criminals. However this is not ideology or moral comment but something that law enforcement agencies should investigate.
10. greenmind said...
Vince Cable gets Pytel's message (according to Pytel's blog at least), so a number of questions arise: what might he be able to do about it? Will he be able to do it? or is it in the 'too hard' basket?
Any thoughts?
11. ant said...
@greenmind: why not contact Vince Cable on his e-mail address: info@vincentcable.org.uk say on behalf of HPC readers and ask him these questions and inviting him to comment on this blog?
I am pretty sure that he would respond. And I am also pretty sure that the blog Editors would place his response prominently.
12. refusetobuy said...
"If banks lend with loan to deposit ratio greater than 100%"
But they don't! If they could I'd go out and start a bank tomorrow and print some money.
Ant, I know you are going to point to earlier pytel posts. Before you do, try re-reading considering a bank as just another person. A bank does not have any abilities different to you or me (ignoring the central bank).
There is no such thing as a 'liquidity' hole as liquidity is the speed you can sell an asset. 'Debt' hole may be a more appropriate phrase.
13. refusetobuy said...
"If banks lend with loan to deposit ratio greater than 100%"
But they don't! If they could I'd go out and start a bank tomorrow and print some money.
Ant, I know you are going to point to earlier pytel posts. Before you do, try re-reading considering a bank as just another person. A bank does not have any abilities different to you or me (ignoring the central bank).
There is no such thing as a 'liquidity' hole as liquidity is the speed you can sell an asset. 'Debt' hole may be a more appropriate phrase.
14. nickb said...
refuse
It's a bit more involved than that. There are reams and reams of regulations stopping just anyone setting up a bank, and more regulating how they operate. A prof of banking told me that if you printed it all out it would have taken up the entire corridor and more. And whilst they can create money to lend to others they can't just, straightforwardly, stuff their own accounts full of credit. But in the following sense it appears to be true. Such reserve requirements as there are (and they are minimal) can be met either by lending out a fraction of deposits received, or by lending out a multiple. e.g. suppose there were a fractional reserve requirement of 1:9. You could meet that by lending out 90p in the £1 or by keeping the entire £1 and lending out £9 of number money. As I understand it there is nothing in the modern regulatory apparatus to ensure the former rather than the latter.
15. ant said...
@refusetobuy:
1. Many banks do lend with loan to deposit ratio greater than 100%. It is a fact. Just look up official records. The way they have been doing is by clearing banks' cash reserves and substituting them with banks papers that you called "assets". See also a comment below. (Our abilities are different than banks: banks can issue their papers and trade them we cannot. The scam was that these papers were considered - risk adjusted - as good as cash. And this was wrong as it allowed a pyramid to grow. Once the pyramid collapsed, they are simply junk, or as you call them "assets" that banks cannot sell quickly, which is the same thing.)
2. What do you call assets? Banks papers that no one wants to buy more than my half empty dry paint tin?