During the 1970s, John B. Tipton wrote an article, titled ‘Banks on the brink’, in the magazine PLAYBOY, issue February 1975. I cite John B. Tipton, p.85::
“America's banks are in trouble. Many of the largest and most powerful banks have been on a five year expansion binge, spurred by bankers convinced that bigger is better. In their pursuit of growth, they have jeopardized the safety of your money, not to mention the survival of the entire banking system. Americans, accustomed to entrusting their money to banks without the slightest worry, should begin to worry--now.”
John B. Tipton wrote, page 132- ::
“This is what the financial world calls leverage: It increases earnings, but it also introduces a major element of risk into the formerly riskless business of banking. The conservative banker would have had to see just under 17 per cent of his loans default before his capital would be wiped out; the go-go banker's capital is gone if just over 7 per cent of his loans go bad.”
‘When the leaders of any industry conclude that the old rules no longer apply, that they have discovered new ways to make money that escaped the notice of their less clever predecessors, one of two principles applies: Either it is not true at all or it may be true as long as the new system is practiced only by the brightest, strongest leaders, the true innovators. When everybody jumps on the the band wagon, watch out. In the words of a leading Wall Street bank analyst, "All the followers are trying to play the leaders' game--and they just don't have the ability." ’
“While the plummeting of conglomerate stock prices has few disasterous effects on the general economy, banks occupy a special position: Their problems are a source of worry not just for their shareholders but for everyone with a couple of hundred bucks in a special checking or saving account.”
“Another worrisome matter is "capital adequacy." A bank's capital is what would remain if it paid off all its outstanding liabilities--deposits held by individuals and corporations, money it has borrowed from other banks and money it has borrowed from agencies of the Federal Government. This remainder--capital--is what the bank's shareholders actually own, but it is of interest to more than just the shareholders. Capital provides the margin of safety that ensures the ability of a bank to survive, even in a depression.”
“Back in the 1960, the average U.S. commercial bank had liabilities that were only 11.3 times its capital. By 1970, this ratio had grown to 13 and by the end of 1973, to 14.5 times total capital. However, when we look only at the 30 largest banks, we find a still greater jump. At the end of 1973, their liabilities were 16.7 times their capital. For some of the very largest banks, the figures are still more lopsided: Bank of America, Bankers Trust of New York and Crocker National of San Francisco all had liabilities more than 30 times their capital, and the Union Bank of California and the Republic National of Dallas were very close to that level. This can have dangerous implications. Just before its serious troubles began, the now defunct Franklin National also had liabilities almost 30 times its capital. Even if it had had more capital, it would still have suffered the massive losses it did, but it might have been able to survive them.”
“The tripling of the price Italy had to pay for oil took it off the marginal list and put it on the critical list. But it is not the only financial basket case among the nations of the world; Greece, Mexico and Peru together have a total debt to the banking system that exceeds their reserves.”
“Andrew Brimmer (incidentally, the first black to serve on the board) ... the Fed already has the powers it isn't using and that new legislation alone wouldn't solve the problems.”
“6. Banks are required to maintain special funds to cover potential losses from defaulted loans. These are called loan-loss reserves. These reserves are computed by a method that does not accurately reflect what may be the true condition of a bank's loan portfolio. As an example, last year the First National City Bank had a 32 per cent increase in loans outstanding but only a .25 per cent increase in its provision for future loan losses. The Chase Manhattan from the beginning of 1972 to the middle of 1974 increased its loans outstanding 79 per cent but its loan-loss reserves only 10 per cent. These banks, and all others, are following the letter of the law on this matter, but the law should be changed to require that any increases in exposure to loan losses be matched by equal increases in reserves. Otherwise, banks are misleading the public about their profit ability and possibly even their soundness.”
John B. Tipton wrote in the last line of the article, titled ‘Banks on the brink’, in February 1975 PLAYBOY magazine::
As one banker put it: “It's a game of musical chairs. There are more asses than chairs and everyone wants to be sure he's seated when the music stops.”
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• James Galbraith ( James K. Galbraith )
•
• an essay Galbraith wrote in 2009 in the NEA Higher Education Journal, entitled "Who are these economists, anyway?"
• The End of Normal by James Galbraith
• https://www.kirkusreviews.com/book-reviews/james-k-galbraith/the-end-of-normal/
n • Following the crisis of 2008, economists scrambled to “explain” the financial meltdown, variously blaming the government, banks or income inequality for the most severe setback since the Great Depression. Almost all have offered prescriptions for restoring economic health; almost all presume as normal a growth rate that, but for a blip in the 1970s, has persisted since the end of World War II. Galbraith (Government/Business Relations/Univ. of Texas; Inequality and Instability: A Study of the World Economy Just Before the Great Crisis, 2012, etc.) dissents. Throughout his discussion, he slaps around economists from the left and right, chiding them for their insularity, their reluctance to widen their perspective and their unwillingness to concede that their theoretical models rest on radically transformed ground. We face a far different future, he insists, with the world economy no longer under the financial or military control of the United States and its allies, with energy markets costly and uncertain, new technologies destroying more jobs than they create and the private financial sector no longer supercharging growth. Under these new conditions, preserving post-WWII growth rates is impossible. Instead, the most we can hope for is an era of “slow growth,” engineering the economy “to grow at a low, stable, positive rate for a long time” and adjusting ourselves “materially and psychologically to that prospect.” Some of Galbraith’s remedies are likely to draw fire—increase social services, decrease the scale of the military, increase the minimum wage—but his forceful prose and admittedly provocative suggestions invite argument. General readers may find some of his discussion a bit too insider-y, but students of economics will enjoy the robust, fearless rebuke he delivers to some of the discipline’s giants.
• increase social services, decrease the scale of the military, increase the minimum wage
• http://seekingalpha.com/article/2717925-book-review-the-end-of-normal-by-james-k-galbraith
• Galbraith believes, instead, that slow growth will be a permanent state of affairs and therefore advocates a series of palliative measures to make the adjustment tolerable. If we want to use medical analogies, Galbraith is advocating a hospice, the modern Keynesians are advocating testosterone therapy, and [Ray] Dalio is advocating rehab. I find Dalio most persuasive, but I think that a shot of testosterone in the form of fiscal and monetary stimulus is needed as well.
• http://www.amazon.com/The-End-Normal-Crisis-Future/dp/1451644922
• head wind against economic growth: (1) the cost of energy resources, (2) military spending, (3) the impact of digital technology on employment, and (4) financial fraud
• (1) the cost of energy resources - ([ very low cost energy has been subsidizing the U.S. economic growth; of course, this growth has not been distribute evenly across the economy ]),
• (2) military spending - ([ military spending generate economic activities, however part of the military products and services is an economic blackhole, the spending could be diverted (redirected) to improving quality of life, lower costs of living, and set a baseline for standard of living to a majority sector of society ]),
• (3) the impact of digital technology on employment - ([ in general, technology displaced labour at a faster rate than creating new career track positions in the economy; the most dramatic example can been seen in food & animal growing industry in the United States ]), and
• (4) financial fraud ([ yes, this is true; the case is clear ])
• see [[Hyman Minsky]]
• debt accumulation or the expansion of credit in the financial sector, beyond a certain point, tends to encourage following type of borrowers:
• insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
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•
• Richard Koo
•
• Richard Koo - A "Balance Sheet Recession"
• https://www.youtube.com/watch?v=HaNxAzLKegU
• https://www.youtube.com/watch?v=HaNxAzLKegU
• Uploaded on Jun 8, 2010
• https://en.wikipedia.org/wiki/Balance_sheet_recession
• https://en.wikipedia.org/wiki/Kondratiev_wave
• old school : when current paradigm and mindset stop working : how would you know :
• Diagnosing the Causes of Economic Crises
• https://www.youtube.com/watch?v=E0sRFEOGDmc
• https://www.youtube.com/watch?v=E0sRFEOGDmc
• Published on Apr 10, 2013
• 33:36
• trauma toward debt, Japan is traumatize from spending
• if you tell a lies 100 times, then maybe, it might work
•
• debt Tue Sep 8, 2015 6:34am EDT
BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble said on Tuesday that central bank policy could do little to help the economy when people and states take on too much debt.
"Too much growth in credit does not solve any structural problems but leads to financial and debt crises. Central banks' monetary policy measures can do little to change this in the long run," Schaeuble told the German parliament.
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Charles Murray comment about the financial meltdown :
"In fact, I am so naïve about economics that I continue to think that we have a financial meltdown because the federal government, in its infinite wisdom, has for the last two administrations aggressively pushed policies that made it possible for clever people to get rich by lending money to people who were unlikely to pay it back."
http://www.hfcmn.org/userfiles/The%20Happiness%20of%20the%20People.pdf
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• http://www.amazon.com/Other-Peoples-Money-Business-Finance/dp/1610396030
• tax and regulatory arbitrage (eg. avoiding taxes on cash held overseas but still paying dividends)
• The two global banks with the largest derivatives exposures are J.P.Morgan and Deutsche Bank - the former is at around $70k billion and the latter at $55k billion. Most of these are hedged.
• "The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else's goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people's own money." (From Brandeis' Other People's Money and How the Bankers Use It, 1914)
• on Pages 259-260, noting that the complexity of modern finance "has been designed, and has operated, principally to benefit financial intermediaries rather than the users of financial services."
• Epilogue, "The Emperor's Guard's New Clothes."
• http://www.nytimes.com/2015/10/11/books/review/other-peoples-money-by-john-kay.html?_r=0
• John Kay: “exchanging bits of paper cannot make profits for everyone,” it is very likely that much of finance’s profit “represents not the creation of new wealth but the sector’s appropriation of wealth created elsewhere in the economy.”
• http://www.johnkay.com/2015/06/15/other-peoples-money-introduction
• http://www.oregonlive.com/opinion/index.ssf/2015/11/dangers_of_other_peoples_money.html
• The right way forward, he argues, is to interrupt the flow of subsidy. Do that, and market forces will start to nudge finance in the right direction. This sounds straightforward enough but it has radical implications. It isn't just a matter, for instance, of requiring banks to hold more capital -- though that would be a good place to start. The problem is that, in Kay's view, the amount of capital needed to make banks safe, and hence to deny them the implicit subsidy of government protection, is probably beyond the market's capacity to provide.
• "[The] perpetual flow of information [is] part of a game that traders play which has no wider relevance, the excessive hours worked by many employees a tournament in which individuals compete to display their alpha qualities in return for large prizes. The traditional bank manager's culture of long lunches and afternoons on the golf course may have yielded more information about business than the Bloomberg terminal."
• John Kay: "Other People's Money" | Talks at Google
• https://www.youtube.com/watch?v=rkhxMdilxJE
• https://www.youtube.com/watch?v=rkhxMdilxJE
• financialization - people trading asset with each other
• 28:27
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Nassim Nicholas Taleb, Fooled by Randomness, 2nd edition, hardcover, 2004 [ ]
p.54
The blow up, I will repeat, is different from merely incurring a monetary loss; it is losing money when one does not believe that such fact is possible at all.
p.54
Characteristically, blown-up traders think that they knew enough about the world to reject the possibility of the adverse event taking place: There was no courage in their taking such risks, just ignorance. I have noticed plenty of analogies between those who blew up in the stock market crash of 1987, those who blew up in the Japan meltdown of 1990, those who blew up in the bond market débâcle of 1994, those who blew up in Russia in 1998, and those who blew up shorting Nasdaq stocks.
p.54
They all made claims to the effect that “these times are different” or that “their market was different”, and offered seemingly well-constructed, intellectual arguments (of an economic nature) to justify their claims; they were unable to accept that the experience of others were out there, in the open, freely available to all, with books detailing crashes in every bookstore.
p.54
Aside from these generalized systemic blow ups, I have seen hundreds of option traders forced to leave the business after blowing up in a stupid manner, in spite of warnings by the veterans, similar to a child's touching the stove. This I find to resemble my own personal attitude with respect to the detection and prevention of the variety of ailments I may be subjected to. Every man believes himself to be quite different, a matter that amplified the “why me?” shock upon a diagnosis.
(Taleb, Nassim (2004)., Fooled by Randomness, 2nd edition, hardcover)
(Fooled by Randomness: the hidden role of chance in life and in the markets / Nassim Nicholas Taleb, 1. investments, 2. chance, 3. random variables, 123.3 Taleb, )
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•♥• Colin J. Campbell is a geologist. He is known for writing and speaking on peak oil phenomenon, and the New Energy Era.
Colin Campbell (geologist)
"But this peak has no real great significance, it is the perception and the vision of the long decline that comes into sight on the other side of the peak. That's really what matters." (speaking on the peak oil phenomenon, from End of Oil (2005))
"It's quite a simple theory and one that any beer drinker understands. The glass starts full and ends empty and the faster you drink it the quicker it's gone." (on peak oil, in 2007) [7]
"Banks had been lending more than they had on deposit assuming that tomorrow's growth was collateral for today's debt but failing to see that growth depends on growing, cheap, oil-based energy...So in short, Peak Oil means that debt goes bad." (speaking on the 2008 crash at the New Energy Era Form, 8 May 2012)
http://en.wikipedia.org/wiki/Colin_J._Campbell
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(Ackoff's best : his classic writings on management, Russell L. Ackoff., © 1999, hardcover, John Wiley & Sons, Inc., p.139)
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