patrick.net

# Malcolm Says:
I was happy to hear the news because it might indicate the economy (at least here) is back into a gear

That sounds dangerously close to a decoupling argument, which so far has not actually held up so well w.r.t. other economies.

what gear that is? Who knows.

Could still be R - sometimes that can feel like a forward gear if everyone else is going backwards faster. :-)

Malcolm Says:
No Peter, it is capitalism. If you own shares doesn’t that mean you own the bank? There is no corruption, cronyism, or excesses in private companies. How can you suggest a disconnect?

I am with Peter on this one - owning shares means diddley if you don't have control. I learned this lesson long ago when I had a 'share' in a tree-house, but my neighbor's kid had a controlling interest. :-)

Malcolm said:
There is credible theory that says firms invest less than the socially optimum level

That is more a matter of _risk_ tolerance than unwillingness to engage in such research. The short term thinking (in business decisions, institutional investors and executive compensation) is killing innovation from within the private sector. The other problem is that most companies are led by sales or finance types - it is difficult for them to trust some mad scientist who is working on a project with a four- or five-year payoff.

[btw, I don't mean to pick on you, but your comments were the ones I found the most interesting points to respond to.]

>> Seriously, how does one go about doing that? [starting a bank]

You should ask that famous Arizona woman, Francine Hardaway. Her applicaton for a bank charter got turned down. I feel relief.

Justme, here's a clue... ask yourself why UBS lost money in 2007 to require the investment from Singapore. You just might find that despite the more rigorous requirements of it's private deposit insurance, some very corrupt government supported cartels still managed to lead it astray.

You see, even though private insurance is better, it isn't necessarily perfect. So whatever you think you proved doesn't mean a thing. Free market practices are better for businesses and their clients, but they don't guarantee a successful business despite everything else. That's something the government would like to claim.

I'm probably doing your school assignment for you here, but worth it to just shut you up. This is by no means an exhaustive list:

United Kingdom. (Deposit Protection Fund, Banking Act of 1979 and 1987; Financial Services
Compensation Scheme) The fund in the UK was established in 1982. The system is government legislated
and privately administered and funded. The central bank made loans in the past but there is now no public
funding for the DIS. There is no permanent fund in place and membership is mandatory. Banks make expost
contributions when needed. Deposits of financial institutions are not covered by the system. The
coverage limits have evolved as follows over time: in 1982 compensation limit was 75% of first ₤10,000
which was raised to 75% of ₤20,000 in May 1987. In July 1995, the Scheme was amended by the Credit
Institutions Regulations and maximum payment was changed to 90% of ₤20,000 or EUR 20,000,
whichever is higher. The Financial Services Compensation Scheme came into existence in December 2001
and the scheme changed the coverage to 100% of the first ₤2,000 and 90% of the next ₤33,000. Currently,
deposits in all currencies are covered on a per depositor per institution basis.
Sources: Garcia (1999), IADI Survey: UK (2003), Kyei (1995).

Switzerland. (Deposit Guarantee Scheme) The deposit guarantee scheme in Switzerland was established in
1984. It is privately administered. The scheme is funded exclusively by the members. There is no
permanent fund in place. Banks make ex-post contributions when needed. Membership to the scheme is
voluntary. The coverage limit for savings deposits per depositor is currently at CHF 30,000 with no coinsurance.
Sources: Barth, Caprio, and Levine (2004), Garcia (1999), Kyei (1995).

France. (Fonds de Garantie des Depots) The DIS of France was established in 1980 and revised in 1986. It
is an unfunded scheme in which the banks contribute to the fund on demand. There are separate schemes
for commercial banks, and for mutual savings and cooperative banks. The system is privately administered
and jointly funded. Debt securities insured by institutions, deposits of the central government, insiders,
affiliated companies and money launderers are excluded from coverage. Initially, coverage was at 200,000
FF and after 1986 it was raised to 400,000 FF. In 1999, according to regulation 99-05, the limit was finally
set at EUR 70,000 per depositor per institution. Coverage extends to foreign deposits as well and there is no co-insurance.
Sources: Fonds de Garantie des Depots (1999), Garcia (1999).

Germany. (Deposit Security Fund, Savings Bank Security Fund and Credit Cooperation Security Scheme,
Federal Association of German Banks) The first nation-wide joint fund operated by private banking sector
in Germany was established in 1966 by the Federal Association of German Banks. The fund protected
savings, salary, and pensioners’ accounts up to DM 10,000 and other sight and time deposits of natural
persons up to DM 20,000. In 1974, the coverage was enlarged to cover up to 30% of the equity capital per
depositor, which is still binding in terms of the private Fund. There are separate schemes by the German
Savings Bank, Giro Association, and credit cooperative banks (the latter dates back to 1930s to the
aftermath of the Great Depression). These guarantee funds aim at protecting the institutions themselves and
hence, provide indirect protection to depositors as a by-product. In 1994, a voluntary deposit protection
fund was established by the public-owned banks. In line with the transformation to EC Deposit Guarantee
Directive, the official binding statutory deposit protection has been limited to 90% of EUR 20,000 for
commercial banks, which co-exists with the voluntary funds by various banking associations. In the official
and voluntary deposit protection schemes, coverage amounts are calculated as per depositor.
Source: WOrld Bank (2005)

Spain. (Deposit Guarantee Fund, Royal Decree Law 4 & 18) Spain has separate deposit guarantee funds
for its commercial banks (established in 1977), savings banks (established in 1980), and credit cooperatives
(established in 1982). The system is government legislated and privately administered.
Sources: Garcia (1999), IADI Survey: Spain (2003), Institute of
International Bankers (1997), Kyei (1995).

Hungary. (National Deposit Insurance Fund, Act XXIV of 1993) The deposit insurance fund of Hungary
was established on 31st March, 1993. The system is government legislated and privately administered.
Members of the board of directors are, the president of the National Bank of Hungary, the administrative
secretary of the state of the Ministry of Finance, the president of inspections, two persons delegated by the interest-representing organizations of financial institutions, and the managing director of the DIF. Deposits of government, insiders, professional investors, money launderers, and other banks are excluded from coverage. The government can guarantee fund borrowing from the central bank or private markets if
requested. Membership to the Fund is compulsory. The coverage is mainly extended to savings accounts,
certificates of deposit and foreign currency deposits. However, only currencies denominated in EUR or
other OECD countries are insured. The coverage limit was initially HUF 1 million (approximately $3700),
which was raised to HUF 3,222,222 on January 1st, 2003 and to HUF 6,555,555 on May 1st, 2004. The
maximum coverage is calculated per depositor per institution.
Sources: Garcia (1999), IADI Survey: Hungary (2003), Kyei (1995), and
Ministry of Finance of Hungary (1993).

Netherlands. (Collective Guarantee Scheme) The scheme of Netherlands was established in 1978. There is
no permanently maintained fund. The banks make ex-post contributions when needed. Ex-post assessments
are made case-by-case based on several items of data reported to the central bank.
Sources: Garcia (1999), Garcia and Prast (2003), Institute of International Bankers (1996), Kyei (1995)

Norway. (Deposit Guarantee Fund) The scheme of Norway was established in 1961. There are separate
funds for commercial banks and savings banks. Both of these funds are privately administered and jointly
funded.
Sources: Garcia (1999), Gerdrup (2003), IADI Survey: Norway (2003),
Kyei (1995).

Peru. (Deposit Insurance Fund, Banking Law 1991) The scheme was established in 1991. It is government
legislated and privately administered.
Sources: IADI Survey: Peru (2003), Garcia (1999), Kyei (1995).

Brazil. (Fundo Garantidor de Creditos-FGC, Resolutions 2197, 3024) FGC commenced its operations in
November 1995. The scheme is privately administered. Membership to the system is mandatory. The banks
pay a premium of 0.3 % of the insured deposits. The system does not extend coverage to inter-bank
deposits and the coverage limit is set at Reais 20,000. The EDIS was revised in 2002 but the coverage was
left unchanged.
Sources: FGC (2004), Garcia (1999), Talley (1998).

Australia, Hong Kong, Israel, New Zealand, Singapore, UAE, China, Iran do not have explicit deposit insurance. Sources: World Bank (2005)

SP Says:
March 1st, 2009 at 11:25 am
Malcolm said:
"[btw, I don’t mean to pick on you, but your comments were the ones I found the most interesting points to respond to.]"

Definitely don't feel picked on, I'm flattered.

Specifically, even though all your points are right, even the total elimination of the constraints you mention still leaves a cap, which limits the projects the private sector undertakes. If government determines that the project is necessary due to compelling social need it may be optimal for a PPP to be formed. In such a case the partnership costs less than if government tries to tackle the need on its own. A relatively small infusion makes a project commercially viable when it wouldn't be otherwise.

Frank,, Frank, Frank. What can I say. You still have not backed up your claim. Pasting material from Wikepedia that actually CONTRADICTS your claim does not help. Just give up, will you?

"It was the fault of government regulation that the private insurance did not work".

O-kay, If the facts don't fit the terrain, just change the facts.

SP Says:
March 1st, 2009 at 11:03 am
Malcolm Says:
"“How do we join?”
Are there _other_ forms of depository institutions that are easier to start? I have been thinking this is a great time to start-up an ultra-conservative ‘bank’ that people could deposit their money into without worrying about whether the FDIC is broke."

You wouldn't be ther first, there are many small time banks across the country. It's possible to form a bank although I much prefer credit unions.

DennisN Says:
Ah….there’s a problem. Flying at .98 Mach is by definition not supersonic.

It says "you can traverse the United States at mach 0.98". That doesn't mean it cannot exceed mach 1 on a transatlantic flight. Doesn't the US have some kind of restriction on supersonic commercial flights over the mainland?

(having said that, it still seems like the marketing folks are way ahead of the product, as usual. :-) )

IMO, the problem right now is that vested private interests have seized control of government (public) policy. Therefore, it seems to me that arguing about the 'free market' and 'responsible government' kinda misses the point because we are dealing with neither of those ideals right now. Goldman Sachs is running policy now - it is no surprise that policy decisions are very different from what one would expect from an independent government.

SP (and Malcolm),

>>Therefore, it seems to me that arguing about the ‘free market’ and ‘responsible government’ kinda misses the point because we are dealing with neither of those ideals right now.

That's exactly right. Could not agree more.

And therefore, we should focus on de-corrupting the government and implementing correct and effective regulation.

The people must take back the government. It's a simple as that. Of the people, for the people, and not for the financial elite.

SP, couldn't agree more. I know my praises will get old here quicly, but that is the main reason I am happy Obama is running things. He is a real paradigm shift.

Malcolm,

I would like a bank that simply sits on the deposit money and does not lend it out to ANYONE. I'll pay them -0.01% fee/year just to do that. The deposit should be used for no purpose whatsoever. Not as reserves, not as collateral, NOTHING.

I suppose one might be able to talk a Trust Bank into doing this?

The idea behind this concept is to let your money go on STRIKE when the regular banks (and the FED) collude either to

1. speculate excessively with your money
2. refuse to pay you a fair interest rate

We could call it matressbank.com. I'll sign up to be the chairman, anyone else want to join?

Malcom is chief of propaganda in new administration ...

If he is, he is certainly working hard for our very small constituency. Kudos.

Kewp, I had mistaken you for a free market advocate. Oh well…

I am a free market advocate. However, unlike Internut Libertardians, I understand that for a market to be healthy fraud has to be controlled via stiff regulation by an unbiased third party. I.e., the government.

Eliminate government meddling and let the free market do it’s thing.

This is exactly what the Bush administration did! I guess the free market decided to take its own life?

The free market committed suicide...

PermaRenter Says:
March 1st, 2009 at 3:05 pm
"Malcom is chief of propaganda in new administration …"

That would be my dream job.

Kewp, you're hired.

As far as I know the Concorde never made a profit. In that particular case I don’t even care since that kind of development, one which propels society forward has a different value than just the money.

Why do you see the Concorde as an item "that propelled society forward?"

I saw it as a rich man's toy assembled from existing military technology. Such enhancement of the jet setters at taxpayers expense did nothing to help the rest of us.

I believe NASA's development of the Rogallo wing, which made hang gliding an affordable sport, did more to propel society forward.

Yep. Since rich men fly private jets Concorde was doomed.

Wars did propell the society forward though.

actually CONTRADICTS

What are you insane or just fucking stupid?

We could call it matressbank.com. I’ll sign up to be the chairman, anyone else want to join?

Whoa! Is this a ground floor for a Madoff/Stanford scheme? You are one up on these masters, since you do not even have to make phony statements showing well above average returns. I'm in, provided we only accept the personal savings from leaders of bailed out entities.

I am a free market advocate.

You wouldn't recognize a free market if it hit you upside your head.

This is exactly what the Bush administration did!

Duh. what do you call Fannie, Freddie, the Fed, the Central bank, SEC, the FDIC and the rating agencies then, free market entities?

Goldman Sachs is running policy now

I know of very few financial institutions that shouldn't be immediately dismantled along with every government sponsored entity, program or legislation that has any hand in the market.

I can only hope that the majority of you are below average intelligence, otherwise we truly are doomed as a nation.

If he ends up balancing the budget in 8 years there will be a lot of people eating crow.

Reminds me of Clinton, who balanced the budget in no small part by his support of NAFTA and GATT.

I would love to see Bush's deficit cut in half in four years as Obama claims, and then balanced in 8 years as you claim. However, his policies so far seem more likely to double Bush's deficit. If you are correct, and we see a balanced budget by 2016, I will lead the charge to amend the Constitution to permit Obama's 3rd term. But I fear that no one will be eating crow, we will all be eating sh*t.

Here are a few ways I believe Obama's policies will result in a net gain on the money being spent. We can agree or disagree whether they are proper uses of public funds but these could very well pay off in the future.

1. As I discussed with someone before, the money going in as an equity position in these large banks has already increased in value. Banks that were on the verge of folding now have healthier balance sheets with the removal of the bad loans. The banks not closing saves taxpayers billions in deposit guarantees. Also, instead of paying the insurance claim the government has purchased real assets. By stabalizing falling prices (at some reasonable fundamental) all of a sudden banks are able to conduct business again.
2. Related but seperate, as the banks are lending again, a lot of economic activity, which was on hold, is happening again. Patrick's favorite people (realtors) are back to work, off unemployment and paying taxes.
3. Realtors are flashy spenders, plenty of taxes will be raised from incomes. Also, investment properties selling again raises more capital gains taxes.
4. Taxing the top 2% is a lot of tax money.
5. Reducing taxes on the bottom 98% seems like a loss, but through multipliers these people cause even more taxes and jobs because they spend the money. Even if they pay debt, that frees money to lend, even more economic activity and taxes.
6. Infrastructure improvements, these create high paying jobs for Americans. This strengthens the lower and middle classes, helps businesses with less traffic and more options. Despite what some say, it is actually pretty hard for government to waste money on infrastructue investment unless they build something that is counterproductive, and they have gotten much better IMO. I never hear anyone complain about what a bad investment the freeway system was.
7. Energy grants and subsidies. Help the economy spur new innovations and propel us to maintain our leadership position. Also reduces dependence on foreign oil and reduces competition for global resources. Hence, less wars, less money spent, so it is saved. Ex. Give someone who wouldn't do it otherwise $10,000 to install soloar or other renewable energy. A sale is made that wouldn't happen, the owners of the business create interesting jobs, and with income tax on the profits and payroll the grant is almost paid back before additional multipliers through their spending of their money, and again, they are no longer on unemployment.
8. The benefits to California mean that we no longer are in a budget crises. Less handouts to the states, more money stays in the Fed, the deficit shrinks.

If people here are below average in intelligence then I feel very good about our society. I don't think that is the case.

HeadSet Says:
March 1st, 2009 at 6:54 pm
"Why do you see the Concorde as an item “that propelled society forward?”

For the first time, ordinary people could travel faster than the speed of sound. Arguably not a pressing social need, which is why the Concorde would fail in my test if I had to make the decision to fund it with public funds. There is a history there that makes judging those decisions to harshly, for one thing the embargo causing fuel prices to rise.

Even though I would not have made the decision to fund the Concorde, I am glad they did. Seeing a couple fly in my life was enriching.

too harshly.

frank, you wouldn't be able to tell the difference.

Headset,

No, actually it was halfway serious. It could be a useful and profitable experiment. But I like your version also, for other reasons :-).

What is the problem with banks? They take your money, supposedly keeping it safe, but then instead they leverage it and lend it out in all kind of crazy schemes and sometimes lose lots of it, all the while giving you crappy interest rates (and even crappier interest after the Fed starts bailing them out by forcing interest down).

What are the alternatives to bank deposits? Well, you could invest in assets, but given the bubble economy, no asset is safe.

The problem is that there is no alternative to banks and assets. What we need is a bank that will safe-keep your cash for a small fee, while promising to keep it out of any sort of circulation such as lending or as capital.

If enough savers simply pulled their cash from circulation, interest rates would be forced upward, and speculation would be curtailed. Of course this assumes that the Fed does not provide "liquidity" on demand for the banks.

Think of it as one necessary component of a free market in interest rates. In the present world, savers have no way of expressing their non-confidence in all markets at the same time. You always have to park your cash somewhere, and the banks and brokers will use your own deposits to screw you.

Mattressbank.com is just like your mattress, only safer, for a small fee.

You can also think of it as a method for fixing the asymmetric power of depositor and deposit-taker in the current system.

It's not so much about the asset prices as the debt.

Stock bubbles are pretty harmless so longs as they are not fueled by debt, like pre-1929 where 1x10 leverage was allowed. Had there been no debt, there would be no long lasting fallout.

When the music stopped from the 20's stock bubble, some people were deeply in debt, and the "lucky" ones were filthy rich, since they were the ones owed that debt. Just like today.

--Karl Marx