RE: European bank failures
-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=jpmannual 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
Re: European bank failures
On Mon, Nov 24, 2008 at 11:15 AM, Dan M [EMAIL PROTECTED] wrote: 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. This attitude is typical of people who think they know better how to spend other people's money. They can't be bothered to provide even minimal justification for why they know how to spend other people's money better, then they try to change the subject. 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? And then they make things up and refuse to provide any supporting evidence. People who know better how to spend other people's money should not be questioned, just let them get on with the spending! I was pointing out that your original repeated statements were off by almost a factor of two. What original statements? Those are hard numbers to get, I spent about an hour looking on the net. Hard to get? But you lived through it, why don't you know them by heart? Sheesh! ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: European bank failures
On 11/24/2008 2:37:47 PM, John Williams ([EMAIL PROTECTED]) wrote: On Mon, Nov 24, 2008 at 11:15 AM, Dan M [EMAIL PROTECTED] wrote: 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. This attitude is typical of people who think they know better how to spend other people's money. They can't be bothered to provide even minimal justification for why they know how to spend other people's money better, then they try to change the subject. It ain't your money and it never was. It is our money and you just get a share of it. If you cannot deal with the consensus and that some aspects of life will be determined communally because you drank the kool-aid of the myths of individuality, then you will just have to live with the fact that people laugh at you. G xponent IAAMOAC (No Choice About It) Maru rob ___ http://www.mccmedia.com/mailman/listinfo/brin-l
RE: European bank failures
I've waited until I was able to get hard numbers on the ratio between total liabilities and deposits. If we make the assumption (as is true with all balance sheets) that total assets = total liabilities (equity is counted as a liability to get this balance...I guess that's why it's called a balance sheet), we can use the ratio of deposits to total assets to get the ratio of deposits to total assets. I found this for Chase before and after buying Washington Mutual at: http://investor.shareholder.com/jpmorganchase/press/releasedetail.cfm?Releas eID=337648 Before the purchase, deposits were 41% of total assets, and afterwards, they were 44%. But, at http://finance.yahoo.com/q/bs?s=jpmannual You have stated, from your experience that deposits are a much smaller fraction of total liabilities. With all due respect, either JPMorgan is deliberately falsifying information, or you make invalid assumptions concerning how one assumes long term debt must be commercial bonds. It is a fact that almost half of JP Morgan's assets are now deposits (unless they are lying of course). The balance sheet you referenced has total assets of nearly 2 trillion euros, and 422 billion euros of deposits under liabilities. As long as the losses on the assets do not exceed about 79% (loss of 1.6 trillion), then the depositors could get their money back. In this case, since Deutsche Bank is a mixed house,that could very well be true. You just brushed off the essential problem at the heart of bank runs with a it would just. I'm not talking about preventing bank runs. The issue I am addressing is whether the depositors would be able to get their money back in bankruptcy. If the depositors won't be able to get their money back eventually, then that is a more severe crisis than just an insolvent bank. Yes, but if checking accounts are worthless until the sweet bye and bye, then there is a giant problem. Further, as I've experienced in cases that only involve the hundreds of millions and you should know, the attempt to sell of trillions in assets all at once would decrease the value of the assets even further. 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. The process took years. In your scenario, you have people with checking accounts patiently waiting 2 years before they can write checks again. The results of what would happen are so clear to me, and are born out by recent data, I'm not clear what statements that meet approval but all but the small minority of uberlibertian economists that you think are stuff and nonsense. Some of these assumptions are: 1) Companies who find that they can't make payroll lay people off. 2) People who's checks are no longer good can't make their mortgage payments. 3) Failures within the financial system set off a cascade effect. 4) The failure of AIG immediately after the failure of Leeman Brothers indicates both the interconnectiveness and the inability of private insurance to handle this type of catastrophic failure of a AAA rated company. 5) Without some intervention _all_ of the US investment banking houses would go bankrupt. 6) In such a market, where giant AAA and AA rated companies default en mass, people are fearful and don't know who's a safe bet for a loan. 7) In such a case, credit starts to freeze. Let's, though, go back to Deutsche Bank. They are under water and there is a run on the bank (with their bad loans and the lower transparency in the EU than the US they may be hiding the fact that they are presently under water and hiding it). As a result, checks written on Deutsche Bank accounts are not honored. You ignored this question before, but what do you think would be the action of the people who can no longer pay their bills? What happens when major industries cannot pay their bills? I'd argue that they'd cut every cost possible, but still risk going into default. I'd argue there would be massive layoffs, and mortgages not met. I'd argue there would be a positive feedback loop. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: European bank failures
On Fri, Nov 21, 2008 at 11:24 AM, Dan M [EMAIL PROTECTED] wrote: I've waited until I was able to get hard numbers on the ratio between total liabilities and deposits. If we make the assumption (as is true with all balance sheets) that total assets = total liabilities (equity is counted as a liability to get this balance...I guess that's why it's called a balance sheet), we can use the ratio of deposits to total assets to get the ratio of deposits to total assets. 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. I found this for Chase before and after buying Washington Mutual at: http://investor.shareholder.com/jpmorganchase/press/releasedetail.cfm?Releas 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. But, at http://finance.yahoo.com/q/bs?s=jpmannual You have stated, from your experience that deposits are a much smaller fraction of total liabilities. Much smaller than what? Please quote me where I made the statement you are refuting. Also, if you are interested in JPM's balance sheet, why don't you look at their most recent 10Q filing with the SEC? http://www.sec.gov/Archives/edgar/data/19617/95012308014621/y72204e10vq.htm#104 Deposits are $970B and total assets are $2251B, so 43% (you said 44% above, but the dates are slightly different so no problem). In other words, JPM's assets would need to fall by 57% before they could not cover deposits. If you are really interested, you could go line-by-line on the assets to try and see what can easily be converted to cash and what is likely to take a hit. But my point remains, that the assets would have to take a huge hit in order to be unable to cover deposits. It is a fact that almost half of JP Morgan's assets are now deposits (unless they are lying of course). 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'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? 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. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
European bank failures
John Williams wrote Dan wrote: I assume you were referring to subordinate debt. No, I was referring to all debt, subordinate to senior. OK. Let me pull up a couple of different types of balance sheets for Deutsche Bank to illustrate what I mean. The first one is given at http://annualreport.deutsche-bank.com/2008/q2/consolidatedfinancialstatement s/balancesheet.html http://tinyurl.com/5effsm Now, I realize that the Germans don't use the same categories I'm use to but their accounts payable are at 200 billion euros, and their total current liabilities exceeds one trillion euros. Their assents, as you see are mostly long term investments. Thus, a run on the bank would result in folks not getting the money they thought safe. Even though, at first, Europeans were laughing at the US's sub-prime mortgage lending as irresponsible, http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3260052/Eu rope-on-the-brink-of-currency-crisis-meltdown.html http://preview.tinyurl.com/5btrw5 shows, there is a lot of exposure to bad loans by European bank. There is a complicated set of rules that determines who gets paid and who doesn't, but generally customers (depositors) get paid first and equity holders last. Usually it goes something like customers, creditors, senior debt, subordinated debt, preferred shareholders, common shareholders. As you say, it is likely that the short term assets are not enough to cover a run on the bank. But in every balance sheet I am familiar with, the senior debt on down is more than enough to cover the depositors and creditors. Well, I looked on this balance sheet, and didn't see that. Further, isn't senior debt a debt, not an asset? What I think you mean is that it's big enough to absorb all the loss involved in liquidating assets. So, to look at that, I looked up deutsche bank senior debt and got http://annualreport.deutsche-bank.com/2008/q2/notes/informationonthebalances heetunaudited/long-termdebt.html http://tinyurl.com/62cgfg We see that subordinate + senior debt is less than 200 billion Euros. It would just take some time to get them their money (or to arrange a takeover of the viable portions of the bank). It would just? ROTFLMAO. You just brushed off the essential problem at the heart of bank runs with a it would just. Let's say a company kept payroll money at the bank. I don't know about you, but my dad, from the time I was little, was paid by check, not cash. The check would be no good. He wouldn't get any pay until the problem was fixed. Multiply that by tens of millions and you will see one aspect of the problem. Second, when bank failures have happened in the US, it's been a big bank taking over a smaller bank with the US government eating the bad assets as part of the deal. But, as the Iceland problem shows, it can grow to such a large size that even the government itself isn't big enough to make this type of arrangement. Checks from in-state banks which always cleared overnight took eight days to clear. When we closed on our house, the buyers had to reconfirm that they had the loan the day of the closing Oh, the horrors! No, as before, the measurement. It appears from the pattern of your writing that you don't like measurements inconsistent with your theories. I guess, as an experimental physicist, I have a different bias: towards data when discussing empirical phenomena. I'll go back to another example of this: the fact that the spread between interest on A and AA paper jumped up to almost 5% as the bailout was being passed, and is now dropping as it is being implemented. If it were the actions of someone playing the odds rationally, that would mean that all the companies with A paper have about a 5% higher chance of default than those with AA paper. But, since the default rate over the last 25 years have been a small fraction of a percent, and no one had presented data that indicates a hundred fold increase in short term defaults, one takes this as a measure of general fear: the mirror image of the irrational exuberance of the folks who made loans that would only be rational if housing prices would continue to spiral up with no ceiling. To me, that is a measure of the credit market freezing. So, to go back to my point: if the main European banks have runs on them like the Iceland bank did, the world financial system is in a lot of trouble, with no clear solution on the horizon. Dan M. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: European bank failures
On Sat, Nov 8, 2008 at 9:53 AM, Dan M [EMAIL PROTECTED] wrote: Well, I looked on this balance sheet, and didn't see that. Further, isn't senior debt a debt, not an asset? What I think you mean is that it's big enough to absorb all the loss involved in liquidating assets. So, to look at that, I looked up deutsche bank senior debt and got http://annualreport.deutsche-bank.com/2008/q2/notes/informationonthebalances heetunaudited/long-termdebt.html http://tinyurl.com/62cgfg We see that subordinate + senior debt is less than 200 billion Euros. Sorry, I assumed from the way you were speaking that you had a decent understanding of the balance sheets of banks, so I was speaking loosely. I'll be a bit more precise now. A bank's balance sheet may be divided into assets and liabilities. Assets can be loans, mortgage backed securities, cash, etc. The liabilities include deposits, REPO's, long-term debt, etc. It is an accounting identity that assets = liabilities + equity (that is the balance part of the name). If the assets lose value (for example, bad MBS's) then the balance is maintained by reducing the equity. If the equity becomes negative, the firm is insolvent. I'm not familiar with the bankruptcy laws in Europe, but if they are anything like the US then all the debt holders will lose their money before the depositors. Basically there is an ordering of the liabilities, with the depositors near the top, and in bankruptcy, after all assets have been liquidated, the depositors are paid off first, then the next creditor on down the line until the money runs out. The balance sheet you referenced has total assets of nearly 2 trillion euros, and 422 billion euros of deposits under liabilities. As long as the losses on the assets do not exceed about 79% (loss of 1.6 trillion), then the depositors could get their money back. You just brushed off the essential problem at the heart of bank runs with a it would just. I'm not talking about preventing bank runs. The issue I am addressing is whether the depositors would be able to get their money back in bankruptcy. If the depositors won't be able to get their money back eventually, then that is a more severe crisis than just an insolvent bank. Second, when bank failures have happened in the US, it's been a big bank taking over a smaller bank with the US government eating the bad assets as part of the deal. That is a gross oversimplification. But there are two huge mistakes that the government can make that contribute greatly to the problem: 1) Bailing out the bondholders. If banks find it harder to borrow, then they will have a more difficult time reaching excessive leverage. But if the government bails out the bondholders, then the bondholders will be eager to lend to the banks even if they have excessive leverage. 2) Not charging high enough premiums for insurance. One thing that is obvious from the past year is that the government considers some financial institutions too big to fail. If that was the case, the government should have been charging much higher insurance premiums (in some cases, higher than zero) for insuring these institutions. Big mistake. Government excels at big mistakes. I'll go back to another example of this: the fact that the spread between interest on A and AA paper jumped up to almost 5% as the bailout was being passed, and is now dropping as it is being implemented. Do you make these things up, are you just remarkably ignorant, or are you just going on blind faith in government? If none of the above, please list how the $700B bailout slush fund has been spent so far. ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: European bank failures
On Sat, Nov 8, 2008 at 5:56 PM, [EMAIL PROTECTED] wrote: Hopefully these things are not made up An expert's expert! :-) ___ http://www.mccmedia.com/mailman/listinfo/brin-l
Re: European bank failures
Do you make these things up, are you just remarkably ignorant, or are you just going on blind faith in government? If none of the above, please list how the $700B bailout slush fund has been spent so far. Hopefully “these things” are not made up and the generation of youth including these on this board will be in tune with the difference between the banking balance and personal or micro-economic balance sheets. The basic difference is that the personal balance sheet tend to measure the creation of wealth and that of the bank tend to measure the creation of money. Money is not wealth but the means to transfer wealth. Money have various functions among these are a measure to count value, a store of wealth, medium of exchange. It is the varying functions which might create confusion in the general public and lend to the ease in which money is used as a tool of theft by inflation and the collapses of banks like the colossal failures which the world is using to transfer the wealth of nations back to the capitalist, socialist moguls or what ever you wish to call them. The difference between the personal balance sheet and the bank balance sheet is based upon what these sheets measure. In the case where the balance sheet analyze wealth we discover an asset to be real property, commodities, inventories, money on hand [only in a short time period call the current period] ect the bank balance sheet evaluate these things in retrospect [deposites loaned out to purchase personal assets]. In this view present evaluations use money to count the assets. It may be considered ignorant to miss this point but yet a person might be smarter than a fifth grader and yet have problem with this sharp different. Accounting FASB allow accountants to differ widely in these evaluations while the banking institutions must use more strict measure like interest [prime lending rates] to structure their asset evaluations. Ultimately bank assets drive the expansion of money between member banks and the Federal Reserve Banks. General Assets create contractions by absorbing money. We might see these facts in the various segments of accounting i.e. general as apposed to financial accounting. Again even the experts tend to differ but a good president should be smarter than a fifth grader and grasp these sharp differences and if he/she is not then hold your jockey strap you are in for a ruff ride. A=L+E now become two different monsters. The A in the general accounting term need L/E to measure the debt equity ratio and determine the production of wealth. This formula is a key to understanding the problem which America faces when wealth occurs and very little E is in the hands of a few private citizens. The source of E is the existence of real income which is the difference between gross income and the cost to produce this income divided by inflation in t1 against an index bread basket cost. The private American suffer because the tools for producing wealth [capital, labor, the mix] keep slipping from his grasp. The plantation economy in America pooled wealth in the hands of a few gentlemen planters. The Washington’s and Jefferson’s were not the only creators of wealth because houses up north were being built by slave labor and the expansions of industry was fuel by the very genius which wished to break away yet be a part of the slave system creating the wealth. The duality of early American wealth evolve from the slave freemen bureaucracy. In some spheres free men contributed to the creations wealth which they claimed as their possessions. The slave holders gained the advantages from the triangle of trade which drove the industries of Europe and transferred 87 years unchallenged wealth to the Founders and their kind. The industries of steel and oil came to be molded after the images of Fulton, Stevenson, AJ McCoy, Grandville T. Woods and many men of various hue and tint. These men again struggle to compete for their own intellectual wealth as they fueled the Civil War. The new politics for the wage slave rose from these new enterprise. The nations first order of business after the 13th, 14th, and 15th, amendments was the 16th amendment. This income tax act tied the A of the private citizen to ownership by those in control of the government. Although we wish to say representative government again an advantage was given to some citizens over others. The break away republic was fashioned well before the 16th amendment because a new world order had taken place and the politics of the time needed to catch up. Money and banking grew by leaps and bounds during this period and the wealth of America was measured by the expansion of the AP systems which opposed the gentleman planters and Masons. So the perfect person to lead the nation was Abe Lincoln not because of his love for the slave or his desire to see him free but because he was a railroad lawyer turn congressman who could cool the
