Two Cakes

By James Kwak

Eric Dash of DealBook reports on the latest stress tests conducted by the Federal Reserve, which apparently went swimmingly, at least for some of the healthier banks. I have no independent basis on which to assess the accuracy of those test results, so I won’t.

What I did notice is that JPMorgan Chase and Wells Fargo are using the green light from the Fed to start buying back stock: $15 billion for JPMorgan, 200 million shares (about $6 billion) for Wells. Does something seem wrong with this picture to you? Me, too.

Last summer, the argument from the big banks was that higher capital requirements were bad because they would reduce the amount of bank lending. The argument is pretty simple: Say you have a 5 percent capital requirement, $5 in capital, and $100 in assets, so you’re barely adequately capitalized. Then say your regulator increases your capital requirement to 10 percent. Now you either need to raise $5 more in capital or, since that could be difficult, you have to shrink your assets to $50 — which means you’re lending half as much money as before. The rules are much more complex than that, but that’s the basic concept. And, so the story goes, less lending means less economic growth means fewer jobs. Most infamously, the Institute of International Finance put out a “report” claiming that higher capital requirements would mean 9.7 million fewer jobs in the U.S., Japan, and Europe over five years.

But for this argument to even make sense, as many people pointed out at the time, bank lending would have to be constrained by capital at the margin. And the banks knew this was false at the time, because at the same time in other contexts they were saying that they were purposefully overcapitalized (e.g., Bob Diamond of Barclays saying his bank had 13 percent Tier 1 capital and almost 10 percent core capital). Now, this was not necessarily duplicitous at the time: the banks could plausibly say they were overcapitalized because of regulatory uncertainty — they didn’t know how high the capital regulations would turn out to be.

Well, now they know. To go back to our earlier example, it’s as if the banks had $15 in capital for $100 in assets because they weren’t sure how much the capital requirement would go up, and then the regulator said the capital requirement would be only 10 percent. So they have two options. They can expand the balance sheet up to $150 by borrowing $50 and lending it out (more lending = more growth = more jobs); or they can buy back stock. They’re buying back stock — that is, they’re taking $5 in cash from the asset side and using it to buy back $5 in stock from the liability side, leaving $95 in assets and $10 in capital – which is the same as saying, “we have more capital than we know what to do with.” Capital requirements could be 15 percent (in my simple example) and lending still wouldn’t be affected, because at the margin lending isn’t constrained by capital.

So it seems like the whole crusade against capital requirements was based on a fiction that’s been quietly dropped. I think that’s called eating your cake and having it too.

59 responses to “Two Cakes

  1. This is a well written piece and apt but… the demand for loans has been waning for many years. And so, what is a banker to do with all of that excess liquidity?

    The problem has much less to do with banking regulations than it does with wealth distribution and wage levels on global scale.

  2. “I think that’s called eating your cake and having it too.” Isn’t that what cheaters always do?

    I must say, James, I don’t know why we should expect private banks to serve a social purpose. Obviously, they don’t.

    And yet money has a very important social purpose as a medium of exchange and a vehicle for PRODUCTIVE investment. (No, I actually don’t believe that money exists to keep rich people rich.)

    So why not just get rid of the private banks? It’s obvious that they are so busy destroying the country that they don’t even realize what they’re doing. They’ve bought off everybody (including the American mind) so there’s virtually no check on what their rapacious and anti-social behavior.

    James, I’m not trying to ruin your career or anything, but I hope you will seriously consider this question.

  3. “No, I actually don’t believe that money exists to keep rich people rich.”

    Apparently you haven’t been paying attention to who doles out the money.

  4. The whole “lending” argument is misplaced, at least with regard to the mega banks. We don’t live in the Jimmy Stewart era anymore. The primary business of big banks is no longer taking in deposits and making loans. External equity capital is not a primary source of funding anymore. The banks want to go back to what they were doing pre-crisis: borrowing heavily in the short term repo and CP markets to support leveraged proprietary trading, and paying most of the proceeds out to their executives, traders, and salespeople.

  5. Over the years I could always tell when the banks had more capital than they knew what to do with — out here where I am retired on tobacco road, my mailbox became full of offers for credit cards and easy loans. They blossomed each time confidence in Wall Street was shaken — after the savings&loan scandal, after the recent bailouts.

  6. 3-D, it’s easy to be cynical. Carla is asking real questions.

    Carla, money is a useful tool. Usury is a different beast. Can we separate them ?

  7. Herbert Wetherby

    Well, you can have your cheese, or you can have your cake, or you can have your cheesecake.

  8. . . another factor I never see mentioned here, raylove — people are aware of the strain we are putting on the earth, and wanting to consume less. Especially the younger generation. If this becomes a full-blown trend, what will that do to capitalism’s need for perpetual growth? What will happen if “excess liquidity” becomes a monster problem?

  9. @James — First, thank you for a mature and informative post — instead of an ideological rant.

    This whole definition of a capital requirement should be, as you implicitly point out, an implicit risk measure. But it also seems arbitrary and written in stone. Financial markets are anything but written in stone. Therefore can reserve or capital requirements be more a function of how much risk a bank might take on? Now admittedly measuring that risk is really hard — especially for extreme events.

  10. It’s true that for big money center banks, the Jimmy Stewart era is long gone. However, there are plenty of smaller and even local banks, all FDIC-protected, that still function to support local economies. The way we, as a society, get out from under this obscene behavior by the big banks is to help them become smaller, by moving our money to the local banks. For example:
    htpp://moveyourmoneyproject.org
    Ask yourselves: What service or benefit do I get from Bank of America or Citicorp or Chase that I couldn’t get as well (or perhaps better) from my local smaller bank? You’ll probably find that there is none.

  11. Also this (NY Times 3/19/11):
    “But others will be slower to part with their federal money. A number of institutions like Synovus Financial and Regions Financial are struggling to return to profitability. Relatively healthy banks like M&T and MB Financial are holding on to their emergency cash, while using the money to acquire other banks, make more loans and buy investments for their portfolios.”

    Looks like there is some regulatory slippage here. Taxpayers should not be underwriting acquisitions or investments, any more than stock buybacks.

  12. regulatory slippage — who woulda thought ?

  13. @ mollyrose

    “more like anal leakage,…?”

  14. mondo,

    Bubbles are concentrations of excess liquidity. So… one could argue that excess liquidity is already a “monster problem”. Think of the ‘Lost Decade[s]‘, the Dot. Com debacle, the GFC and its foreign inflows of recycled dollars, and excess liquidity is like monsters on the prowl.

    One could also argue though that excess liquidity is merely wealth being distributed stupidly.

    One can argue many things.

  15. A well balanced society of cultures is free. It also returns a profit in surplus goods and services as well. The potential surplus is how the rich get rich.

    James needs training in formal double-entry bookkeeping. I would love to read his formal definition of the important bookkeeping terms: ‘cash’, ‘capital’, ‘assets’, and ‘liability’. In his next to the last paragraph-summation he has them hopelessly butchered.

    In a formal double-entry book-keeping framework of rules the four name categories of computation that are kept in continuous four-way balance.

    Let’s hear your present definition of the four James.

  16. Mondo, I agree money is a useful tool and that usury is different, and yes, I would hope that we can separate them. I do wonder what James Kwak thinks about these and related matters.

    Thanks for coming to my defense re: 3-D’s remark, although I didn’t take it personally at all. Anyone who read my comment would comprehend that I am, actually, paying attention. So it’s my hunch that 3-D was being sarcastic in a rather general way.

  17. Dan Palanza, if what you just wrote has anything to do with “formal double-entry book-keeping” at all, then “formal double-entry book-keeping” makes absolutely no sense.

  18. “the demand for loans has been waning for many years . . .”

    I’m trying to sell my house via a short sale. I’m on my third contract in 6 months, all pre-qualified candidates who, suddenly, couldn’t get financing at the end.

    Why is that, do you suppose?

  19. Herbert Wetherby

    I agree, this is another profession that needs to be simplified, Of course a good flat tax would do the job, but then that’s is why he is here, to help provide the resistance needed to bolster the status quo.

  20. Hi Carla,
    I’m familiar with the question you raise, having spent 30 years in this business. You do believe, however, that the words ‘cash’, ‘capital’, ‘assets’, and ‘liability’ are words commonly used in both economic and accounting dialog. I also presume that as a reader of this blog — a topic that ought to be steeped in the book-keeper’s formal tradition — that you to use these four words often.

    How about supplying your own definition of ‘cash’, ‘capital’, ‘assets’, and ‘liability’ as you believe that they apply in formal economic control language? It might lead to an interesting and informative debate. Our economic times are indeed getting more desperate for so many of us by the month. It gets more difficult by the day to know where truth lies. Book-keeping can help.

  21. I kinda thought 3-D was just being general too. Just wanted to get some real discussion happening, and you raise interesting questions . .

  22. mondo, how do you think usury could be separated from capital?
    Has it ever been done in any culture?

  23. Dan,

    If what you say is true:”The potential surplus is how the rich get rich”, then how does a society that consumes far more than it produces (USA), also have the wealthiest upper-class in the world? There is no “surplus” here, so is the USA usurping surplus?

  24. The banks are hiding 1/3 of their losses, so capital needs are less. Also, note that the loan book is shrinking. For every $1 in new loans, $2 run off or default. The banking system is de-levering very rapidly. Spells disaster for housing, economy in 2011-2012. When we see 12 down months in HPI, think people will pay attention?

    Chris

  25. For those of use not well versed in the arcane language of finance, would it be possible to explain key concepts in more detail, e.g. “at the margin lending isn’t constrained by capital.” I am not sure what this means nor am I sure what its significance is. Some of us read here to learn and we need a little more help.

  26. Goes for me too.

    I got interested just a few years ago when I inherited a fund invested in Wachovia, and in my race to get it liquified before Wachovia melted down, I spoke with two financial experts (in a major Kansas bank and an investment management company) who told me frankly they did not understand what was going on over their heads. As a sociologist/political scientist, that sparked my interest.

    I picked up Simon’s name in the newspapers, and have been trying to learn about economics since that time. I am trying to see the underlying realities without getting lost in the arcane language and practices of the financiers — the bizarre inventions of those who accumulate vast wealth without making any productive contribution to society.

    I would guess “at the margin lending” refers to the credit card game.

  27. anandopadooda

    Maybe the lending companies are playing a new game, “pre-qualifying” people just to prevent them from going to some other company, then getting picky when it is time to actually make the loan. If that is happening, it should be illegal.

  28. Want to know more? Here it is. There are only three things that affect the price of anything (including money). Supply, demand and politics. Just when you think you have your thumb on it, one of these variables kicks in and you have to go back to square one and start over.

  29. Timothy Catlett

    While I am certainly no expert, I think I can help here on “marginal lending”. “marginal” is an economics term that comes up alot – “marginal utility” is the byword of microeconomics, just to name one. “Marginal X” refers to what happens when you make the next step in something. If you made 100 purchases of X, what happens when you make purchase 101? Marginal utility, for example, is how much utility, or usefulness, you get out of purchase 101,compared to the purchases before (owning one car is incredibly useful, but buying a second car, while useful, is not as useful as the first buy, and buying car 101 probably isnt very useful at all)

    Lending at the margin refers to “why do I make my next loan?” or “Ive made 100 loans, why do I make (or not make) loan 101?” James’ point is that, when a bank is considering putting out a loan, they *aren’t* thinking “oh, do I have enough capital for this loan?” – they have so much capital it isn’t relevant. Sometimes it IS relevant, but in today’s banking world, it isn’t. As such, making them hold more capital wont hurt investments, since the banks don’t think about capital when they make investments. I also apologize if I am totally wrong, im sure someone can shoot us straight if I am.

    Oh, and also, great post James, as always. Its tragic that the economic world is so enamoured with real business cycle theories that they refuse to believe that the problem could be demand for goods (as in the ability to afford them), not supply on the investment side. Otherwise they’d realize the banks don’t need help – consumers do.

  30. All,

    “at the margin lending isn’t constrained by capital” simply means the banks are not turning down business due to a lack of available funds. In fact, this business about reserves is mostly just talk for the tourists. Banks never turn down business for a lack of funding because they can always borrow to lend.

    What I said above about the demand for loans waning for years was a bit lazy, I should have explained that loan demand began tanking more than 10 years ago. Early in this period some of this lacking demand was hidden by an upsurge in 2nd mortgages and etc. Then came the infamous ‘innovations’ that hid the waning demand even more. The point being that growth has been constrained by the lack of demand for loans for at least a decade if one looks past the tricks. This is the result of an economy which depends too heavily on financial services as opposed to goods production. What this means then is that ‘reserves’ are beside the point. Growth depends on an ever increasing volume of lending and capital can be created ex nihilo (out of thin air), so… the money multiplier is meaningless because the pace of growth is dictating how much risk must be allowed to keep the system from failing. But the ‘system’ is failing systemically, too little risk = too few jobs… too much risk = bubbles (excess liquidity).

    Welcome to the future!

  31. @ Dan Palanza

    “Cash, Capital, Assets, and Liabilities” ( ie. hopelessly butchered in a four-way?)

    The Pride of the Fed’s, “Transparent/ Translucent[?] Book’s….Feast-a-thon?
    Quotes:
    The Greatest Part of an Allotment: “The Lion’s Share”; from an “Aesop’s Fable” (part two[?])!

    “I [lion] one of them his companions were a heifer, a goat, and a sheep;
    at the outset the four agreed to share the catch equally. They caught a stag. The lion divided it in four parts.
    Aesop continues…
    “Taking the best piece for himself, he said, This is mine of course, as I am the Lion;
    taking another portion he added, ‘This too is mine by right – the right, if you must know, I am the strongest, ‘Further, putting aside the third piece, ‘That’s for the most valiant, said he;
    “and as for the remaining part, touch it if you dare.”

    PS. In James defense; The “Sword of Damocles” is within your grasp,…[Dan?]!

    Thankyou James and Simon

  32. anandopadooda

    According to Wikipedia, margin lending is borrowing money in order to lend it to someone else.

  33. @mollyrose: I know you were asking mondo and not me, but may I address something that I think is a major issue?

    O.K., I’ll assume I have your assent.

    I think was wrong for Congress, which under the Constitution has the sole power to create money, to have given (or traded, as the case may be) that power to the private banking industry with the Federal Reserve Act in, I believe, 1913.

    What is really nutso about this, is that the United States of America, which is sovereign monetarily, PAYS INTEREST ON ITS OWN MONEY TO THE PRIVATE BANKING INDUSTRY.

    Please forgive me for “shouting,” but I don’t know how else to emphasize the absurdity of this and my frustration over it.

    I’m willing to let private banks charge interest on money they lend (usury) as long as that money is fully backed by real assets the banks own. Of course under our system it’s not at all.

    But for them to charge the U.S. Treasury for the use of the country’s own money? And for everyone to act as if this is somehow normal?

    Nope. That makes no sense whatsoever to me. But I can see that it’s a really great deal for the banks.

    And the pyramid scheme of fractional reserve banking is a subject for another day.

  34. Rayllove you are correct that there is no present surplus.

    My point is that there is a sweet spot in the production of goods and services that when tossed out of balance, as ours is today, there is trouble ahead.

    A proper book-keeping, as control language, tells those of us who would live and let live, when that balance is off. Without a proper book-keeping even those among us who do not want to act in ways that would damage the economic balance become powerless.

    Those who believe that consumption that increases the GNP at the expense of a sustainable planet is a good thing, are equally confused. Following a proper book-keeping framework of rules will guide us back to a state of applied common sense.

  35. Dan,

    Well said.

  36. well ain’t that special that the preacher man is acting all buddy buddy with the person who

    KNOWS, exprientially,

    enough about financial history and math to have shared the very interesting background on Baseline Scenario of how the laws of thermodynamics were discovered thanks to

    NON FRAUDULENT BOOKEEPING

    Keep it flowing, eh Preacher?

    RIchard Haas and Admiral Muellen keep saying that the greatest threat to NATIONAL SECURITY – that would be USA’s national security (sad it has to be stated, not obvious anymore when Billionaires have placed their bets against the American people) –

    *is the economy*

    while one civilization – a bona fide civilization, not a bunch of tribes – is struggling with a worst case scenario

    whassup with USA as far as “balancing economies” goes…? Blow stuff up in the ME to balance things out?

    The Dogs of War are to be kept on a very short leash…But that’s the ReThugs for ya – heck, they watched Poland go under two insane “isms”, nice to know the “policy” has changed about who deserves to be saved in the “end times”….

    Wonder how many “cities” in USA are carrying absurd infrastructure debt for new municiple water works? Curious if all global corporate manufacturing is shipped out of those cities first…?

    The mortgage mess will make the USA one of the last countries anyone CIVILIZED will want to invest in – they’ll join in the full-tilt global kleptocracy, a vicious pack of yapping hyenas, but “invest”?

    “Deconstruction” – not a part of thermodynamics, is it, Dan? Or kleptocracy…?

  37. @ mollyrose & Carla

    The Ant Hill that became a Sand Castle morphs into the Great Pyramid of Giza[?], N.Y.?

    Ref: “The Creature from Jekyll Island: The Federal Reserve”*
    *(Please note that interest made from Fed lending is paid back, and put into the Reserve’s coffers!)
    http://www.bigeye.com/griffin.htm

  38. One really has to question the fetishization of financial capital in general. Businesses consistently tell us that it’s the very last thing on their list of business constraints.

    And 2003-2008, the S&P paid out every penny of profits ($2.4 trillion) in dividends ($.9 trillion) and stock buybacks ($1.7 trillion), plus another $.2 trillion–seven percent more than they earned. Where’d they get it? Cheap credit, aka money-printing by banks.

    http://norris.blogs.nytimes.com/2008/12/10/shareholder-value/

  39. @ mollyrose & Carla

    Correction: Interest paid back is all given back to the US Treasury; *accept – partial payment to Fed for administrative cost (2 year lag in reporting data to public…not quite sure if Dodd-Frank Act made changes because of Sen.{(I)(Vt.)} Bernie Sander’s rider?)

    Ref. “Does the federal reserve loan money to the U.S. government with interest or just print the money?”

    http://www.answers.yahoo.com/question/index?qid=20071211142045AAjANMu

    Note: Link is a fair enough answer/explanation.

  40. I hope all you bank-bashing naysayers and prophets of gloom read the Wall Street Journal today and saw that JPM Chase announced a $20 billion loan package!

    Granted, the loan is to AT&T apparently to help finance the T-Mobile acquisition which doubtless will cost thousands of American jobs, raise prices to consumers, decrease competition and cost that drop-dead gorgeous T-Mobile TV spokewoman her commercial gig, but hey, it’s a loan, right?

    So, there. The big banks are lending again, ok? Now shut up and sit down.

  41. Herbert Wetherby

    And that reminds me of a story of the first exodition across Todays America, here it is. Enjoy.

    Hernando de Soto
    de Soto was born about the year 1500 in Extremadura, Spain. As a very young man he participated in the conquest of Panama and Nicaragua, and later he played a major role in the conquest of the Incas in Peru, where he became immensely wealthy. Not content with mere riches, De Soto wanted to be socially elevated to a marquis, the equal of the Spanish conquistador Francisco Pizarro. He returned to Spain, and in 1537 Charles V granted him the right to explore and conquer La Florida, a territory whose only known borders at that time were the lower Atlantic coast and peninsular Florida. The nature and extent of the interior (present-day North America) were completely unknown at the time.

    De Soto’s fleet sighted the western coast of Florida near Tampa Bay on May 25, 1539. He landed about 600 men and about 220 horses, and from there he proceeded northward to present-day Tallahassee, where he and his men spent the winter of 1539-40 in the territory of the chiefdom of Apalachee.

    On March 3, 1540, De Soto and his army departed from Apalachee and by day’s end had reached just inside the southern border of what is now Georgia, a few miles south of present-day Cairo. When they reached the Flint River, they built a crude boat and ferried everyone to the western side of the river. From there they proceeded to the Chickasawhatchee Swamp, where they came to the chiefdom of Capachequi.

    After spending six days in Capachequi, they resumed traveling northeast, proceeding up the western side of the Flint River to near present-day Montezuma, where they crossed to the eastern side of the river and came to the chiefdom of Toa on March 23. After a short stay, they continued on to the northeast until they came to the Ocmulgee River. On an island in this river they found an abandoned village, where meat had been left roasting on a barbacoa, a wooden frame suspended over a wood fire—the first recorded instance of barbecue in Georgia. They proceeded upstream a few miles until they came to the chiefdom of Ichisi, whose main town is thought to have been at the Lamar mound site at present-day Macon. Because the people of Ichisi met them peacefully, De Soto ordered that a wooden cross be set atop a mound in the town, and De Soto and his men tried to explain its significance to the Indians.

    From Ichisi they proceeded northeast to the Oconee River, where they found the chiefdoms of Altamaha, Ocute, and Patofa, with the chiefdom of Ocute being paramount. From Ocute they continued eastward, crossing the Savannah River several miles north of where Augusta now lies. They continued through present-day South Carolina and North Carolina before turning northward to cross the Appalachian mountains, entering the Tennessee Valley east of what is now Newport, Tennessee.

    Then,
    Hernando de Soto and Crew
    proceeding westward down the Tennessee Valley, they entered Georgia for the second time around July 15, 1540. On July 16 they came to the principal town of the chiefdom of Coosa at the Little Egypt archaeological site, now submerged beneath Carters Lake. Like the chief of Ocute, the chief of Coosa was a particularly powerful one, with influence over chiefdoms to the northeast as far as present-day Knoxville and Newport, Tennessee, and to the southwest as far as about Childersburg, Alabama. When De Soto and his army approached the capital town, the chief of Coosa was carried out on a palanquin borne upon the shoulders of his retainers, while other retainers walked along singing and playing flutes.

    On August 20, 1540, De Soto and his army departed from the main town of Coosa and traveled to the south, crossing the Etowah River at the town of Itaba—the Etowah Mound site—and proceeding on to the chiefdom of Ulibahali at present-day Rome. They continued down the Coosa River to another town, perhaps Apica, possibly located at the King site in Foster’s Bend. On September 5, 1540, they crossed into what is now the state of Alabama.

    The expedition continued westward for another three years. During this time about half of the original army were killed by Indians or died of various causes, as did De Soto himself.

    Elsa A. Nystrom, Kennesaw State University

    Published 11/11/2005

    Printable Version

    •Lamar Period

    •Georgia Info: De Soto in Georgia Historical Marker
    •Spanish Exploration and Conquest of Native America: De Soto’s Georgia Trails

    The NGE is not responsible for the content of external
    Web sites.

  42. Herbert Wetherby

    That was expodition.

  43. @ Steve Judd

    Yup…and think of all the money they’ll make on both sides? The deregulation of FX (foreign exchange) currency derivative markets from Title VII is going to get the “Green Light”! That is to say, exemption from the U.S. Treasury. Another “Gigantic Blow-Hole” for Wall Street Whales…pathetic!
    After all…it’s a “Global` Gobble-Up` Market” our Federal Reserve /US Treasury lives in?

    PS. Has anybody seen Elizabeth?

  44. Check out “The Master Switch: the Rise and Fall of Information Empires” by Tim Wu.

    Monopoly, monopoly, monopoly.

    Oligarchy, oligarchy, oligarchy.

    Serfdom, serfdom, serfdom.

  45. Just wrote a related post, although I focused more on the restored dividends than on the buybacks, but they are effectively the same thing, lowering capital and returning cash to shareholders. If you are interested you can read it here:

    http://www.zacks.com/stock/news/49537/Big+Bank+Dividends+a+Bad+Idea

  46. Funny, Steve Judd.

  47. anandopadooda

    Solidarity solidarity solidarity

    When we are willing to form one union of all workers instead of trying to climb on the backs of burger flippers and cleaners, together we can demand our fair share of wealth and rewrite laws accordingly. If we are not willing, if we choose to seek our competitive advantages over others, then we deserve to be at the mercy of the master predators.

    When we watched people massing in the streets of Egypt, we were seeing people who were not at their usual occupations. We feel helpless because we live in such a complex world, but that very complexity can work for us. Unlike two hundred years ago, a general strike can bring the whole system to a stop. Even the military depends on food producers.

  48. Annie, I am curious. What drives your incessant nastiness?

    Like you, I think the country is in grave trouble. I think I may know at least some of the reasons, and probably agree with you on many points, but I must say, your anger and unrelenting sarcasm have started to make me recoil from your posts.

    I mean, I thought I was angry but Wow, girl, you blow me right out of the water.

    That’s okay. It’s not a competition and I never wanted the moniker of angriest commenter on Baseline Scenario anyway (what’s the point and who would?)

    But when I think about what your motivation might be, I am left with, as the King of Siam said in a famous Rogers & Hammerstein song “A Puzzlement.”

  49. Herbert Wetherby

    I wouldn’t concern myself with Annies motives, occasionally we need to throw the possi off track. So they carry on in a different direction wandering the country aimlessly harming only themselves.

  50. Too bad you never stopped for a moment to consider your motives for “recoiling” from “unrelenting sarcasm” and ending up in a perpetual personal state of puzzelment.

    And aren’t you getting PERSONAL, Lady? Did I ask you for your don’t-know’-the-woman and no one asked me but I BELIEVE I can be pointlessly judgemental because the “country is in trouble”?

    So when writers sit around creating characters in their heads for their novels – are they “angry” when the character is “angry”? And the problem isn’t “anger”, is it? Perfectly normal emotion and worked well to keep psychos in check, and still does. Think about it, say I WAS really the angriest poster on the “economy” and now I think you crossed a boundary of propriety with your psychobabble outburst – what do you have to protect yourself with against my hatred and revenge? More psychobabble?

    Not the way to lead a “cause”, Carla….was it the thermodynamics thingy? Too much…?

  51. @ Annie

    Ah yes…I too feel an “Angry Dad” episode about when I read or hear nothing but “America at War”!!!
    For God’s sake Bart Simpson could roll them with reality?

    :-))

  52. @ Dirk

    -0’0- :-)) Thankyou

  53. Carla, I have born the brunt of Annie’s rage before, and I think Herbert has a wise view on the Annie problem. ;-)

    Having been a counsellor for many years (in a halfway house for released inmates), I’d guess she is mentally disturbed or, in Jung’s terms, consumed by a raging animus. I don’t think she is a mere troll. She deserves our compassion– but not our reaction. I skip over all of her comments now.

  54. Desi Girl - Doing Gods Work

    Kwak, are you for real? “(more lending = more growth = more jobs)” Ha Ha.

    Like Elizabeth Warren and other ‘academic experts’ you are still learning about the financial services industry.

    Since you are still learning, here is something basic we learned over the past 5 years:

    More Lending = Subprime Crisis
    More Borrowing = Subprime Crisis
    Responsible Lending = Prosperity;
    Rsponsible Borrowing = Prosperity;

    When banks forecast than there is no more place to lend, they buy back stock. When it is time to lend, they will raise capital. very simple.

  55. Herbert Wetherby

    As I said before, anyone can act on the behalf of a clown, and be handsomely paid. The same holds true for becoming a clown, you can not hold others accountable to something YOU have not yet achieved. Including collecting large sums of money. Annie and my problem stems from people contributing gold in the beginning and then sending in the irresponsible ones to manage it in the end. Irresponsibility breeds irresponsibility, along with greed, through in aliite corruption and this is what you get from a stolen $5 bill in 1968.

  56. How about supplying your own definition of ‘cash’, ‘capital’, ‘assets’, and ‘liability’ as you believe that they apply in formal economic control language? It might lead to an interesting and informative debate. Our economic times are indeed getting more desperate for so many of us by the month. It gets more difficult by the day to know where truth lies. Book-keeping can help.
    Dan Palanza

    I would certainly appreciate getting to the truth through the method you propose…I have more questions than definitions because the $$$ is “fiat” – so when is it cash, capital, asset or a liability?! Does it all depend on where $$$ is in the “process” – when it’s on the street it’s “cash”, when it’s off the street it’s “capital”, when it’s not moving it’s an “asset” and when it’s not producing work it’s a “liability”?

    Cynical thermodynamics for dummies :-))

    The First Law says you can’t win.
    The Second Law says the best you can do is to break even.
    The Third Law says you can only break even at absolute zero.

  57. oh shut up mondo before I toss you in the volcano just to stop the incessant war drums…

    did I get close enough to the imaginary world you inhabit – that as a legend in your own mind…?

  58. And when they come with imaginary papers to foreclose on a house – ask them, “what house? I don’t see no house…it’s just barbeque wood…”

  59. As we all know, a bank’s lending is ultimately limited by the amount of its own capital. Your post is informative. The two options you presented are possible to determine how high the capital regulations would be.