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>Capitalism's periodic financial crises have been a way to solve perhaps fundamental imbalances. In theory (if you just leave the crisis to play out) that's wh

>Capitalism's periodic financial crises have been a way to solve perhaps fundamental imbalances. In theory (if you just leave the crisis to play out) that's what should happen, but in practice it rarely does. Not without the correct political response. The too-big-to-fails in the US could have been allowed to go bankrupt, but it would have caused a catastrophic economic bottleneck because they have so many counterparties. Following regular insolvency procedures for a small enterprise is complicated enough and can take years as the creditors fight it out among themselves over how to divvy up the remainders of liquidation. Imagine how much of a clusterfuck it would be if half the country was either a creditor or a debtor in some respect. Worse, you wouldn't know if half of the rest of the country was bankrupt or not until you resolved the clusterfuck. What could have happened was for a temporary nationalization so that the banks could have continued operating in a limited form so as to avoid the bottleneck and give time to tie up the loose ends. This is what Sweden did in the 90s. Their fundamental balance was resolved and they returned swiftly to growth. When the too-big-to-fails are too politically powerful, however, they just tell the government to make them solvent again and the government promptly does it. Spectacularly bad lending decisions then resume and the power of the heads of those banks increases even more as the cancerous organization grows even larger. The fundamental imbalance has worsened.

waps 12y ago
That's what always amazed me. Are the banks rich ? When inspecting their balance sheets, assuming (probably wrongly) that they're not hiding anything, I'm richer than they are percentually. Now what I mean by that is that if you take the ratio of assets + money I own and divide it by the money I owe, and even ignore things like the NPV of my business (unless I close it tonight, it's not zero, right ?), then that ratio is a lot bigger for me than it is for stuff like JP Morgan and so on (for one, it's significantly bigger than 1, somewhere between 1.3 and 1.5, hell if I'm optimistic on my house, maybe even 2, but I'm dreaming. JPM is nowhere near 1). That's how banks' capital works : lots of big loans. The majority of their capital does not even actually come from their shareholders, but from fractional reserve banking. Most banks have values that are below 1, which you would think makes them bankrupt, but I guess I'm seeing that wrong. Creating a new bank means you effectively get to multiply money, over time, by a factor of 20 to 50, depending, assuming you can make enough loans and deposits. Given that that's how that works, how can that possibly not be a crime ? The more I read about that, the more I'm inclined to go into finance and find a few more of those kinds of transactions I can do. So can you explain a stupid question to me ? Why can't I borrow the amounts these big banks do in my own company, skim off 2% for myself (they, on average, do about 4%, so 2% seems like a sweet deal), and be richer than Bill Gates (by a very nice factor) ? Sure I can't afford the lawyers necessary for doing that, but ...

waps 12y ago

That's what always amazed me. Are the banks rich ? When inspecting their balance sheets, assuming (probably wrongly) that they're not hiding anything, I'm richer than they are percentually. Now what I mean by that is that if you take the ratio of assets + money I own and divide it by the money I owe, and even ignore things like the NPV of my business (unless I close it tonight, it's not zero, right ?), then that ratio is a lot bigger for me than it is for stuff like JP Morgan and so on (for one, it's significantly bigger than 1, somewhere between 1.3 and 1.5, hell if I'm optimistic on my house, maybe even 2, but I'm dreaming. JPM is nowhere near 1). That's how banks' capital works : lots of big loans. The majority of their capital does not even actually come from their shareholders, but from fractional reserve banking. Most banks have values that are below 1, which you would think makes them bankrupt, but I guess I'm seeing that wrong. Creating a new bank means you effectively get to multiply money, over time, by a factor of 20 to 50, depending, assuming you can make enough loans and deposits. Given that that's how that works, how can that possibly not be a crime ? The more I read about that, the more I'm inclined to go into finance and find a few more of those kinds of transactions I can do. So can you explain a stupid question to me ? Why can't I borrow the amounts these big banks do in my own company, skim off 2% for myself (they, on average, do about 4%, so 2% seems like a sweet deal), and be richer than Bill Gates (by a very nice factor) ? Sure I can't afford the lawyers necessary for doing that, but ...