ext_90803 (![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png)
badlydrawnjeff.livejournal.com) wrote in ![[community profile]](https://www.dreamwidth.org/img/silk/identity/community.png)
politicartoons2014-04-18 07:54 am
badlydrawnjeff.livejournal.com) wrote in politicartoons2014-04-18 07:54 am
badlydrawnjeff.livejournal.com) wrote in politicartoons2014-04-18 07:54 am
no subject
"Let's go back to the Great Depression. In the Pecora Report, the authors noted that up to 2/3rds of banks in one section of the country (I could look it up in the report, if you need) went insolvent because of loans made to officers in the banks. Unsecured loans. Loans made specifically to invest in speculative ventures. This went on for years. When the crash came, the borrowers were (of course) unable to pay back those loans, leading to the insolvency of their hiring bank. In many cases, also according to the report, borrowing officers were still employed by the surviving banks, even after their personal defaults."
1) Unsecured does not mean "loans made with no reserves to accompany them" it means that they did not acquire collateral for the loans.
2) Bank insolvency has nothing to do with whether or not banks can lend in excess of the statutory limit.
The question of whether or not the money supply is endogenous is amazingly simple. Can banks borrow in excess of their reserves multiplied by the statutory limit?
A: No they cannot
If they are prevented from making a loan because they do not have the requisite reserves how can they acquire the reserves?
A: They need cash
How do they get the cash
A: They get a loan
Does the person they're borrowing from have to have reserves?
A: Yes.
OK if that is the case, how can they get the money
A: The loan must prevent someone else from getting a loan or the fed must create more money
If the first then then the situation is a wash there is no increased cash (because +1 loan -1 Loan = net 0 loans). If its the second then the fed must choose to create more money.
"Ahh but they can just use assets" you say. Yes but assets are similarly limited.
no subject
(I know, I know, Krugman won a Fauxbel and therefore is higher on the scrotum pole than Keen, so why do I bother? Because Keen's theories better describe the empirical reality. That's all. Darn that heterodoxy and its reality-based bias!)
To Keen, with a focus on a rebuttal to your first question:
The grace period given the banks is (according to what I remember from Keen's book) two weeks from over-draw of reserves to requirement to make reserves (or borrow them).
Yes but assets are similarly limited.
Assets are used to back lending, you'll agree? They may be limited in the bank's allowed ratio of cash to non-cash assets, but they are used. My point in pointing out assets was to note the uselessness of assets not tethered to actual value, not to deny that they are but a part of a bank's reserves.
That's why I mentioned the unsecured loans from the bank employees. I did it not to seemingly fail to see that these were loans made without collateral requirements as you seem to imply (duh), but to note that the assets were in reality quite empty of real value when the crash came. Likewise, derivatives are great as long as no event (or, more likely, chain of events) shows many derivatives to be just empty promises of money, not legally-binding stores of value as everyone hoped.
I point these things out to note that non-cash assets on the balance sheets allow banks to lend real money in (as Keen points out) their endogenous manner: ". . . 'endogenous money': bank lending creates deposits, so the decisions of banks to provide loans determine the level of money, and reserves are largely irrelevant." That word "largely" might help you save some face in this disagreement, since eventually the reserve requirements might make the bank slow spurious lending down a tad, especially if the Fed gets a bit uppity.
Exogenous seems to imply that a central authority holds the leash. I disagree. Right now, from everything I see the banks doing and the Fed doing, it looks quite clear that the Fed is but the banksters' bitch.
I have a question: Yes, you are pursuing an advanced degree in econ, and you seem quite well versed in its dogma. Given your insistence on being right here, have you considered a non-econ perspective, perhaps by taking a course in actual finance?
no subject
"I did it not to seemingly fail to see that these were loans made without collateral requirements as you seem to imply (duh), but to note that the assets were in reality quite empty of real value when the crash came."
No, you failed to realize that "no collateral" is "not relevant"
Loans are not assets qualified to be reserves for banks even though, yes, they are assets. You should know this if you've taken any finance or accounting classes (or worked in any finance or accounting firm)
The quality of the loans that bank make (unsecured, poor return, high risk) doesn't matter when discussing the endogeneity/exogeneity of money. That was my point. Stability of banks? Doesn't matter. Talking about crashes? Doesn't matter. Not with regards to the endogeneity/exogeneity of money.
All that matters is whether or not banks are constrained by their reserve requirements (and they are)
We even have pretty clear evidence of this. If it is the case that money supply is endogenous then we should see that the money supply is pro cyclical. That is, money supply follows the business cycle. This is because when things are good banks loan more and leverage higher and when things are bad, banks loan less and leverage lower. But when the fed is taking action the money supply is counter-cyclical. That cannot happen under endogenous money.
That isn't to say that there haven't been times when money supply is endogenous(Free Banking Period) or when monetary policy had been pro cyclical (the Great Depression is a good example) but neither of these mean that money supply is now endogenous.
Talking about Keen (and where he goes wrong from Minksy) is a whole other discussion. I don't want to get into it because I've had this discussion with you already. I know its not productive
no subject
No. I. Didn't. Now you're just putting words in my mouth to make claims with no standing.
Waaay up in this thread, I said that I make the distinction between assets and speculation. Assets are things of value that can produce value of themselves; speculative purchases depend upon the market for that commodity rising for their value.
An unsecured loan has no collateral. Duh. However, when a bank issues an unsecured loan to an unqualified borrower because that borrower happens to work at the bank and has an investment idea that has worked for other investors in the past, the loan is doomed to failure once the speculative asset loses its price momentum. I was not referring to reserve assets there, I was referring to the purchase being an asset that could, if collapse came, be liquidated by the borrower to help pay the loan. This type of loan would be a Ponzi type in Minski's three tiered quality index, the lowest type.
Talking about Keen (and where he goes wrong from Minksy) is a whole other discussion. I don't want to get into it because I've had this discussion with you already. I know its not productive.
I would have to agree, if only because every time I link to a specific Keen quote with a specific refutation of something you say, you ignore it entirely rather than point out what you feel to be the failings in his argument. That way, I learn nothing new, you consider nothing new, and no one gets to progress one inch beyond his own preconceptions. Progress!
Given that the last time you dismissed Keen, rather than type one word (as you state above) about "where he goes wrong from Minsky"—which you never did, by the way—you railed on about his lack of an ooga-booga prize and his ickiness in general, so I'm going to close here and assume more of the same.
It's been fun. Until next time.
no subject