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Over 90% of the monetary supply consists of credit as opposed to money. If companies and people can't borrow money, the world economy freezes and banks control

by pcr0 8y ago

Over 90% of the monetary supply consists of credit as opposed to money. If companies and people can't borrow money, the world economy freezes and banks control credit unfortunately.

dageshi 8y ago
Certainly, you would think they ought to be regulated or constructed in such a fashion where taking down the entire world economy through their own greed should be impossible? As it stands, they reap the profit in the good times, they get bailed out in the bad (and still make a profit I expect). Essentially the taxpayer subsidises and protects one of the richest industries in the world from their own mistakes and greed.
- pcr0 8y ago
  That's the spirit of the current system, and it mostly works. The 2008 crisis was crazy because nobody anticipated the magnitude of moral hazard between insurers <=> (banks <=> rating agencies <=> pension funds) <=> mortgage lenders <=> homebuyers. Homebuyers thought they were in great financial shape because lenders kept pushing them easier loans, lenders were writing mortgages with their eyes closed because the banks buying the mortgages were making so much money packaging them into MBSes and selling them to pension funds, the pension funds were enjoying great returns on these products rated AAA by rating agencies asleep at the wheel, and meanwhile the banks offloaded their MBS risk by purchasing CDSes from insurers who were blindly making lots of money selling them. The whole thing was a self-reinforcing feedback loop that burst violently. I definitely blame the banks for being overly creative in coming up with perverse, complicated multi-party incentive structures that are hard to regulate while lobbying for deregulation. But at the same time, the mortgage lenders, insurers and rating agencies deserve some blame for being negligent at their jobs.
awinder 8y ago
Bingo, and to this point, GE had to go to a government program despite great credit ratings to fund short-term debt in 2008, because the financial lending market had seized up that badly: https://www.propublica.org/article/general-electric-tapped-fed-to-borrow-16-billion https://www.propublica.org/article/general-electric-tapped-f...

by pcr0 8y ago

Over 90% of the monetary supply consists of credit as opposed to money. If companies and people can't borrow money, the world economy freezes and banks control credit unfortunately.

dageshi 8y ago

Certainly, you would think they ought to be regulated or constructed in such a fashion where taking down the entire world economy through their own greed should be impossible? As it stands, they reap the profit in the good times, they get bailed out in the bad (and still make a profit I expect). Essentially the taxpayer subsidises and protects one of the richest industries in the world from their own mistakes and greed.

pcr0 8y ago
That's the spirit of the current system, and it mostly works. The 2008 crisis was crazy because nobody anticipated the magnitude of moral hazard between insurers <=> (banks <=> rating agencies <=> pension funds) <=> mortgage lenders <=> homebuyers. Homebuyers thought they were in great financial shape because lenders kept pushing them easier loans, lenders were writing mortgages with their eyes closed because the banks buying the mortgages were making so much money packaging them into MBSes and selling them to pension funds, the pension funds were enjoying great returns on these products rated AAA by rating agencies asleep at the wheel, and meanwhile the banks offloaded their MBS risk by purchasing CDSes from insurers who were blindly making lots of money selling them. The whole thing was a self-reinforcing feedback loop that burst violently. I definitely blame the banks for being overly creative in coming up with perverse, complicated multi-party incentive structures that are hard to regulate while lobbying for deregulation. But at the same time, the mortgage lenders, insurers and rating agencies deserve some blame for being negligent at their jobs.

awinder 8y ago

Bingo, and to this point, GE had to go to a government program despite great credit ratings to fund short-term debt in 2008, because the financial lending market had seized up that badly: https://www.propublica.org/article/general-electric-tapped-fed-to-borrow-16-billion https://www.propublica.org/article/general-electric-tapped-f...