are today's bankers always tight credit guys ???
"Financial sector lobbying plays an outsized role in tilting policy away from risk-and-loss-sharing arrangements and towards an alchemy of blood from turnips."
great line eh ??
correct thesis ??
randy ruminates in large loving looping ways but comes to a clear comclusion:
:
" We transformed them from nervous debtors into pure rentiers, who see a lot more upside in squeezing borrowers than in eliminating a crippling debt overhang. "
the key is of course outside money ie the fed's ability to keep the chosen banks
fully hydrated in a time of general credit drought
credit rationing and retrenchment "
whole story ??
randy :
" ... Banks, after all, are not only creditors. They are also the economy’s biggest debtors. "
so
" bank loyalties ought to be mixed."
" On the one hand, banks prefer deflationary, zero-forgiveness tight-money policies, to maximize the real value of their assets and of the lending spread from which they draw profits and bonuses. "
debt grid value max
"On the other hand, troubled banks are very happy to support loose money and expansionary policy, even at risk of inflation."
a troubled system is the key
systemic trouble ie " phase changes "
prompt changes in fed actions
" For bank managers and shareholders, it is bad to have the value of past loans eroded by inflation."
which shareholders ??
" it is much worse to lose their franchises entirely, to have their wealth, prestige, and freedom put at risk in the aftermath of an explicit bank failure. "
if the shareholders arte diversified one banks trouble hardly causes grief
systemic trouble that might block credit flows
is really a full economy danger
"When banks are in trouble, they are perfectly happy to support all manner of expansionary policy, as long as short-term interest rates are kept low. Even a broad-based inflation helps troubled banks twice over, by increasing borrowers incomes and by steepening the yield curve. "
"Increased incomes ensure that loans will be repaid in nominal terms, preventing insolvency due to credit losses. A steep yield curve permits banks to recapitalize themselves via maturity transformation, using deposits to purchase Treasury notes while the central bank promises to hold short rates low for a few years."
"But banks’ interests are aligned with those of debtors only to the degree that banks, like debtors, are at risk of real insolvency."
randy suggests banks that are imortalized by fed credit lines are different
one banks default dominos thru the busting of the curcuits of the payments grid
into other banks problems too
but if banks are effectively on limitless fed credit lines ....
-------------------------------------------------
thesis:
" When we committed to a policy of “no more Lehmans”, when we made clear via TARP and TGLP and the Fed’s alphabet soup that big banks would have funding on demand and on easy terms, when we modified accounting standards to eliminate the risk that bad loans on the books would translate to failures, when we funded their recapitalization on the sly, we changed banks."
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"And since banks are, shall we say, not entirely disenfranchised among policymakers, we increased the difficulty of making policy that includes accommodations between creditors and debtors, accommodations that permit the economy to move forward rather than stare back over its shoulder, nervously and greedily, at a gigantic pile of old debt."
Our problem is not that our banks are still weak, our financial system too fragile.
Our problem is that we have made our banks strong and cocky, so they needn’t care
about abstractions like lives disrupted, production foregone, human capacities undeveloped. "
We’d have better policy if banks themselves were at risk of foreclosure when Joe Sixpack still can’t find a job. We should work to put them in that position.
this suggests the fiscal route to recovery
and uncle's willing ness to bypass a troubled credit system full of disintegrating domino banks
to make good ass hole innocent "counter parties"
by soft loans not
make good payments
only after final work out would counter parties get the loan or part of the loan forgiven
