> -----Original Message----- > From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On > Behalf Of John Williams > Sent: Friday, November 21, 2008 2:16 PM > To: Killer Bs (David Brin et al) Discussion > Subject: Re: European bank failures > > > Actually, no. What balances on the balance sheet is assets with "total > liabilities and stockholders' equity". Liabilities do not include > equity, but liabilities and equity are added together on the balance > sheet. As I wrote previously.
OK, I learned about balance sheets from the "old school" You know, back before computers, when there was a big sheet of accounting paper, with one side labeled assets and the other liabilities. But, now that it's easy to have forms preset, you are probably right. I was just taught old schhol. > > I found this for Chase before and after buying Washington Mutual at: > > > > > http://investor.shareholder.com/jpmorganchase/press/releasedetail.cfm?Rele > as > > eID=337648 > > > > Before the purchase, deposits were 41% of total assets, and afterwards, > they > > were 44%. > > The title of your link is "JPMorgan Chase Acquires the Deposits, > Assets and Certain Liabilities of Washington Mutual's Banking > Operations". It seems WM was not in any danger of not having > sufficient assets to cover deposits, since JPM acquired WM's assets > and deposits, and still was in good shape. The chart in your link puts > WM's assets (presumably already marked down to some extent) at $310B > and deposits at $182B. So WM's assets would need to lose an additional > 41.3% to be unable to cover depositors. I'll concede the point that depositors would usually get their money in the sweet bye and bye...as long as there isn't a deflationary spiral like their was a panic, like their was in the thirties. I'm starting to believe that where we differ is that you think that, absent governmental interference, 2 trillion in assets can be sold overnight, whereas I look at history, and see that selling even tens of billions of assets of unknown value can take years. > > But, at > > > > http://finance.yahoo.com/q/bs?s=jpm&annual > > > > You have stated, from your experience that deposits are a much smaller > > fraction of total liabilities. > > Much smaller than what? The 40%-45% I saw for two large banks. >Please quote me where I made the statement you are refuting. Ah, I'm very tired of me doing virtually all the leg work in this discussion. I try hard to look up data, you typically list articles (with little more data that I provide personally) of libertarian economists. That's why I wanted to talk about technique, and I suppose why you aren't interested in it. You know you have stated many times, that deposits at banks are typically in the 20%-30% range. Might I suggest you remember what you repeat? > > Heh, very funny. How about we round the other way and say that almost > three-fifths of JPM's asset value would have to disappear before > assets would be unable to cover deposits. I was pointing out that your original repeated statements were off by almost a factor of two. > > I've lived through the crash of '86 in Houston, where banks got no more > than > > 30 cents on the dollar for many foreclosed properties. > > Impressive credentials you have there. Would you mind sharing the > asset mix of those banks you refer to? Specifically, what percentage > of their assets were made up of loans that liquidated for 30 cents on > the dollar. Or, if you prefer, what was the liquidation value of TOTAL > bank assets as a percentage of book value? Those are hard numbers to get, I spent about an hour looking on the net. But, I saw some numbers that allowed one to get a feel for the situation. 1) Residential real estate values shrunk _on average_ 21% between 85 and 88. 2) The drop in value was extremely neighborhood specific. I, for example, bought in '85 and sold early in '89, and lost only a few percent. Some houses fell a factor of two. It depended a great deal on the number of foreclosures in the neighborhood, the type of loan one had, etc. Further, if you look at bank failures during that time period (I did, but on another computer and it I think it would be a good pedantic exercise for you) you will see that it was commercial real estate loans that were the riskiest, not houses. The overall vacancy rate for offices in Houston rose to 31% in the late 80s. There was a great deal of variance in this, as any reasonable person would expect. > > The process took > > years. In your scenario, you have people with checking accounts > patiently > > waiting 2 years before they can write checks again. > > The government is certainly wasteful, inept, and slow when it gets > involved in markets. Ah, your mantra once again. Do you even care what the facts were? The government was involved insofar that it covered the losses of depositors (and sometimes bond holders). It was also involved in that there are laws on the books that require some time to foreclose on a house (a bank can't forclose if you are one day late with your mortgage payment). But, this wasn't the critical part of real estate that was foreclosed staying on the market. It was the imbalance between supply and demand. Out of curiosity, do you think that we know so little about economics that we are just playing pretend when we think that, in the face of inelastic supply and falling demand that has minimal price sensitivity that there can be great market volatility. That's Econ 101, but maybe you don't believe in that. Me, I think the run up and then the precipitous fall of the price of oil is a classic example of this. The drop in real estate prices available for foreclosed commercial real estate is another. I also think that when it is difficult to impossible to assess the intrinsic value of something for sale, the tendency is, when there is an oversupply, to see market prices drop a great deal. So, let me state the point of contention. I am arguing that, if there was a run on one of the major banks in Europe, and there was no cash to honor checks, then several things will happen. 1) A large amount of cash would have to be generated (hundreds of billions of dollars). 2) This need to quickly sell assets would decrease the value of the assets, since there are not a lot of buyers with a half a trillion in cash in their back pockets. Indeed, we can see from the credit freeze, the unprecedented drop in the T-bill rates as the US government is stating that it will increase its debt very significantly over the next two years, and the rise in the dollar vs. the Euro, that those with cash are fleeing to quality. (again, this is Econ 101, but I know that many libertarians think Econ 101 is socialistic propaganda...even though most businessmen are saying this too). 3) After payrolls are missed, and mortgages are missed, then companies tighten their belts, cutting workers, and previously good sound mortgages are in default. This is called a positive feedback cycle. All of this is market economics. But, since there is no economy with zero governmental involvement, I know you can (and probably will) blame the government for every woe, because, after all, markets are magic. I also noted that you ignored most of my points. I have been trying my hardest to engage in a fact and analysis based discussion with someone with a different vantage point. Your pattern of postings are consistent with patterns I've seen before (e.g. folks who don't believe in global warming or evolution). While that doesn't prove anything, engagement might be nice. I actually learned a great deal look up and talking with sources on this. I'll make a general post later on some of the things I learned (which I'm sure you will consider socialistic fantasies). I just consider it sad when people hold views concerning the empirical that they are not willing to engaged shared analysis with someone who has a different perspective. What's especially ironic, is that, before you were here, I was the main defender of markets and businesses vs. government control. I'm not an absolutist like your posts make you out to be. I think there are times/areas where we need to let the market work, and there are times/areas where the government should be involved. I would love a discussion of when/where between a number of folks with different vantage points on this. Alas, I rarely see this; with polemics tending to be the preferred means of communication today. Dan M. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
