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So Where Is The Money


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HOLA441
The huge buildings owned by the bank are not where the money is. They had to pay architects and builders for them - they took that money... and, while some will have been sent abroad by foreign employees, the rest will have been spent in the British economy... many times over.

That's money spent. Gone.

no, thats wealth, as I stated. Money is a cypher for wealth. Interest transfers your wealth into the hands of the lender.

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HOLA442
I think we're basically in agreement but I'd like to explore this point further, if you have time. What circumstances do you have in mind for the contracting pension-fund example?

I don't think we've massively different ideas. I probably don't have time, but the entire subject area is my most recent obsessive hobby... so I'm easily distracted in this direction. :)

Examples of contracting pension fund... OK... When researching CDO exposure, it came to my attention that AXA (Europe's largest pension and life insurance company) owns a large proportion of US subprime equity-grade CDOs. Until recently this will have been included in customers' pension savings balances. Real money paid from wages by real people were used to buy this rather dubious investment. I suggest that as even senior tranches of US subprime are heavily impaired, the equity grade's value is a distant memory. This means that the holders of pensions with AXA will have a smaller grand total available on which to retire than would have been the case if the equity grade CDOs hadn't been transformed to have the value of used toilet paper by the downturn in the US economy.

One might assume that the wealth has been "stolen" by the naughty borrowers in the US who can't pay their mortgages... but there is nothing to recover. You can't get blood out of a stone - they're far from victorious criminals. Their homes are worthless now the subprime occupants have been evicted on foreclosure... and recovery is unlikely now confidence is battered and entire neighbourhoods are wrecked by disaffected vandals. Wealth has disappeared - and it won't ever be repaid to the current creditors.

The situation isn't all that different to a war... WW2 destroyed most of the world's money - which lead to Bretton Woods where the winners decided how to restore credit and rebuild economies. On a philosophical note, we just might be seeing "World War 3" at its outset... rather different to what was expected during the cold war or by those who think Iraq or Afghanistan or Vietnam are the world's biggest problems. Maybe World War 3 has no nations, armies, guns, bombs or allies - I can't see it turning violent... but one never really knows.

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HOLA443
no, thats wealth, as I stated. Money is a cypher for wealth. Interest transfers your wealth into the hands of the lender.

It is only wealth if the buildings are especially valuable - i.e. someone wants to buy them, and can afford to pay. They are assets - the value of which is, at best, subjective.

Edited by A.steve
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HOLA444
I don't think we've massively different ideas. I probably don't have time, but the entire subject area is my most recent obsessive hobby... so I'm easily distracted in this direction. :)

Examples of contracting pension fund... OK... When researching CDO exposure, it came to my attention that AXA (Europe's largest pension and life insurance company) owns a large proportion of US subprime equity-grade CDOs. Until recently this will have been included in customers' pension savings balances. Real money paid from wages by real people were used to buy this rather dubious investment. I suggest that as even senior tranches of US subprime are heavily impaired, the equity grade's value is a distant memory. This means that the holders of pensions with AXA will have a smaller grand total available on which to retire than would have been the case if the equity grade CDOs hadn't been transformed to have the value of used toilet paper by the downturn in the US economy.

One might assume that the wealth has been "stolen" by the naughty borrowers in the US who can't pay their mortgages... but there is nothing to recover. You can't get blood out of a stone - they're far from victorious criminals. Their homes are worthless now the subprime occupants have been evicted on foreclosure... and recovery is unlikely now confidence is battered and entire neighbourhoods are wrecked by disaffected vandals. Wealth has disappeared - and it won't ever be repaid to the current creditors.

The situation isn't all that different to a war... WW2 destroyed most of the world's money - which lead to Bretton Woods where the winners decided how to restore credit and rebuild economies. On a philosophical note, we just might be seeing "World War 3" at its outset... rather different to what was expected during the cold war or by those who think Iraq or Afghanistan or Vietnam are the world's biggest problems. Maybe World War 3 has no nations, armies, guns, bombs or allies - I can't see it turning violent... but one never really knows.

Dont worry Steve, the CDOs are insured by the monoline insurers.

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HOLA445
Bad debt gets written off where? Maybe to the profits I guess as share prices of banks falling for a while.

Doesn't a positive feedback appear as lending gets reigned in to cover bad debts ? (provision increases)

As for the off balance sheet vehicles coming home they need to be financed. Not sure if that's any of the missing money. Seem to remember reading that they used commercial paper to finance themselves but is that market still frozen ?

Debt gets written-off on by accountants as they draw up the next balance sheet. It is the point at which everyone (is forced to) accept(s) that some value no-longer exists... rather than continuing to insist in the existence of fictional value. It is an attempt to make banks more credit worthy.... a bit like when the adviser sits the halfwitted-fashion-credit-card-junkie down on "Bank of Mum and Dad" on TV and writes up an accurate list of what they owe and what they own. It's going to be painful - but it is essential if the future is going to look brighter than the present.

On positive feedback - you mean a "vicious circle" - as a corollary to the "virtuous cycle" where bigger mortgages made houses more valuable and vice-versa? Yes. It is a vicious circle which central bankers are desperate to break before our economies are decimated and material wealth is set back by generations. It is a real pity they didn't think to break the virtuous cycle.

The off-balance-sheet accounting is essentially dishonest accounting... it would be accounting fraud - but no-one thought to make it illegal. Assets coming back on balance sheets is about banks being up-front and reporting their liabilities accurately. Until we establish trust, the vicious circle is on the agenda... and open honesty seems an essential first step in that direction.

Edited by A.steve
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HOLA446
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HOLA447
One might assume that the wealth has been "stolen" by the naughty borrowers in the US who can't pay their mortgages... but there is nothing to recover. You can't get blood out of a stone - they're far from victorious criminals. Their homes are worthless now the subprime occupants have been evicted on foreclosure... and recovery is unlikely now confidence is battered and entire neighbourhoods are wrecked by disaffected vandals. Wealth has disappeared - and it won't ever be repaid to the current creditors.

I would suggest the wealth has largely been stolen by naughty land-speculators, builders, real-estate agents, mortgage-brokers and bankers :(

The situation isn't all that different to a war... WW2 destroyed most of the world's money - which lead to Bretton Woods where the winners decided how to restore credit and rebuild economies. On a philosophical note, we just might be seeing "World War 3" at its outset... rather different to what was expected during the cold war or by those who think Iraq or Afghanistan or Vietnam are the world's biggest problems. Maybe World War 3 has no nations, armies, guns, bombs or allies - I can't see it turning violent... but one never really knows.

Good points.

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HOLA448
I would suggest the wealth has largely been stolen by naughty land-speculators, builders, real-estate agents, mortgage-brokers and bankers :(

I'd argue that it has only really been stolen if they also have the money - and I don't think they do... This is why I see a house price crash and a recession... we're ready for the next cycle.

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