Could Credit Unions Be the Solution to Economic Stability?

[BilPrestonEsq]

"Investing has risks, risk is a choice." BilPrestonESq

"Everything you do in life has pros and cons, risks and rewards. Everything is a choice. Savings has risk - the risk, obviously, is loss of value due to inflation. "Russ Waters.

You seemed to miss my point again. Why should saving money be risky? Why would anyone accept inflation as being a necessary evil?

 

[BilPrestonEsq]

That top quote from me is taken out of context, that was not just a statement on it's own.
I was comparing investing to saving.

 

[BilPrestonEsq]

"I shouldn't have to invest in anything. No one should have to invest in order to save". ME

"It's a free country - no one "has to" do anything with their money. You can bury it in the backyard if you want! What the right course of action is depends on your needs/wants. For the vast majority of people, the primary goal for their largest chunk of cash is long-term saving for retirement and the best strategy to maximize return while minimizing risk is through investing most of it in the stock market." RUSS

Again, not sure why you pulled that out of context and missed the point as if it was a statement by itself. Again I was making a point about inflation, asking why I have to invest in order to avoid the depreciation of my savings.

"I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

"Well instead of a fighting chance, how about a guaranteed return like a government bond or CD? The only way for them to lose money is with a collapse of the US government - and if that happens, the value of your bonds will be the least of your worries! If you're that risk averse, that's the only way to go." RUSS

Of course if they run out of money they'll just print more! Do you see the irony here?
__________________

 

[russ_watters]

You seemed to miss my point again. Why should saving money be risky? Why would anyone accept inflation as being a necessary evil?

[shrug] Why should anyone accept gravity? You're arguing against reality here.

 

[WhoWee]

" "I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

The point I was trying to make about gold (attempt of humor aside) was that it has other uses. The find of a new gold mine might not devalue reserves - it might create manufacuring opportunities that would consume all of the new supply (none going into reserve).

 

[brainstorm]

You seemed to miss my point again. Why should saving money be risky? Why would anyone accept inflation as being a necessary evil?

It is not a necessary evil. It is the result of market activity that is supply-side friendly in the sense of allowing, fostering, and/or promoting conditions that allow producers (including workers) to maintain or raise their prices/wages. You could also ask why anyone would accept market fluctuations in the price of gold or other commodities as a necessary evil.

"I shouldn't have to invest in anything. No one should have to invest in order to save". ME

Saving currency (under your mattress if you like) is a diversified investment in all the commodities of a future dollar-economy (or whatever currency you're saving). I can't think of any form of saving that doesn't double as some form of investment.

"It's a free country - no one "has to" do anything with their money. You can bury it in the backyard if you want! What the right course of action is depends on your needs/wants. For the vast majority of people, the primary goal for their largest chunk of cash is long-term saving for retirement and the best strategy to maximize return while minimizing risk is through investing most of it in the stock market." RUSS

First of all, it's not that it's a free country or other demarcated region. It's that people are free prior to encounters with various forms of social control. Second, buying stocks or commodities does not minimize risk because these commodities have absolutely no guarantee on their prices. FDIC will at least attempt to insure your deposit. Who is going to attempt to insure that your gold, stocks, or other commodities hold value or appreciate?

Again, not sure why you pulled that out of context and missed the point as if it was a statement by itself. Again I was making a point about inflation, asking why I have to invest in order to avoid the depreciation of my savings.

Actually, the most effective way to increase the value of saved money is to reduce living expenses. Money is relative to one's cost of living. If one's cost of living is high, saved money vanishes more quickly than when cost of living is low.

"I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

No new gold has to be discovered for gold to boom/bust. If many people see the price of gold rising and buy into the trend, that causes the price to continue rising until people worry that the trend can't last forever and start selling to get the highest price. At that point, the price descends and if it descends below the price you bought in at, you either sell for a loss or hold your gold and wait for the price to re-appreciate above the level you bought it at, which could be years, centuries, or never.

Of course if they run out of money they'll just print more! Do you see the irony here?
__________________

If that's what they honestly believe is the best way to maintain the economy, then that's the only thing they can do to prevent the dollar from losing value. If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain. If you say the government could spend less and use other means to ensure that people get access to resources that allow them to be economically productive, I would agree from an idealistic perspective. However, if you recognize that in the absence of stimulus spending, people would become unproductive or even destructive, do you allow that to happen rather than print and spend stimulus money? My opinion is that there are paths to reducing spending while maintaining productivity, but they are not easy. They require diligence and discipline, and often people get spooked and react violently to the economic pressure of living with less, which increases the costs of restructuring.

 

[WhoWee]

Actually, the most effective way to increase the value of saved money is to reduce living expenses. Money is relative to one's cost of living. If one's cost of living is high, saved money vanishes more quickly than when cost of living is low.

It might be a good idea to calculate the level of income desired at a future date - factoring in comfort level expectations - and invest accordingly. The best hedge is to be diversified.

 

[BilPrestonEsq]

[shrug] Why should anyone accept gravity? You're arguing against reality here.

INFLATION IS NOT NECESSARY! Comparing Inflation to gravity really shows excatly how much you don't know about the subject. Could your argument be any more nearsighted? So raising the reserve requirements would be like building an anti-gravity machine?

 

[BilPrestonEsq]

The point I was trying to make about gold (attempt of humor aside) was that it has other uses. The find of a new gold mine might not devalue reserves - it might create manufacuring opportunities that would consume all of the new supply (none going into reserve).

No I got you.

 

[BilPrestonEsq]

BRAINSTORM It is not a necessary evil. It is the result of market activity that is supply-side friendly in the sense of allowing, fostering, and/or promoting conditions that allow producers (including workers) to maintain or raise their prices/wages. You could also ask why anyone would accept market fluctuations in the price of gold or other commodities as a necessary evil.

Well put but I disagree. Inflation only hides it's true purpose behind this expaination.

Saving currency (under your mattress if you like) is a diversified investment in all the commodities of a future dollar-economy (or whatever currency you're saving). I can't think of any form of saving that doesn't double as some form of investment.

I hear what your saying that statement was meant to be taken in its most simple form though


First of all, it's not that it's a free country or other demarcated region. It's that people are free prior to encounters with various forms of social control. Second, buying stocks or commodities does not minimize risk because these commodities have absolutely no guarantee on their prices. FDIC will at least attempt to insure your deposit. Who is going to attempt to insure that your gold, stocks, or other commodities hold value or appreciate?


Actually, the most effective way to increase the value of saved money is to reduce living expenses. Money is relative to one's cost of living. If one's cost of living is high, saved money vanishes more quickly than when cost of living is low.

Agreed

"I used gold as an alternative to just leaving my money in savings knowing it's going to depreciate in value. I don't know which way gold is going to go. A huge goldmine could be discovered tommorow depreciating it's value. Atleast with gold I have a fighting chance." ME

No new gold has to be discovered for gold to boom/bust. If many people see the price of gold rising and buy into the trend, that causes the price to continue rising until people worry that the trend can't last forever and start selling to get the highest price. At that point, the price descends and if it descends below the price you bought in at, you either sell for a loss or hold your gold and wait for the price to re-appreciate above the level you bought it at, which could be years, centuries, or never.

True, but only when comparing it with the dollar, which I was. Gold on it's own would not fluctuate that way, not to such extremes.Meaning if our currency was gold and it was not manipulated. Just wanted to point that out.

Of course if they run out of money they'll just print more! Do you see the irony here?
Still funny to me

If that's what they honestly believe is the best way to maintain the economy, then that's the only thing they can do to prevent the dollar from losing value. If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain. If you say the government could spend less and use other means to ensure that people get access to resources that allow them to be economically productive, I would agree from an idealistic perspective. However, if you recognize that in the absence of stimulus spending, people would become unproductive or even destructive, do you allow that to happen rather than print and spend stimulus money? My opinion is that there are paths to reducing spending while maintaining productivity, but they are not easy. They require diligence and discipline, and often people get spooked and react violently to the economic pressure of living with less, which increases the costs of restructuring.[/QUOTE]

I think a whole new system of trade needs to be established because there IS no other way If there was no stimulus plan, then we wouldn't be doing so hot right now! The situation cannot be fixed any other way.What happens as the effect of this stimulus bill? A need for another stimulus bill in the future. It's like a runaway train. On the topic of government spending, yea we could start by cutting the deficit to 0! How do you spend money you don't have. Our govenment has the spending habits and the insight of an irresposible college student with a wallet full of fresh credit cards. How is this acceptable? The question you posed to me should be a new thread

If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain

 

[brainstorm]

True, but only when comparing it with the dollar, which I was. Gold on it's own would not fluctuate that way, not to such extremes.Meaning if our currency was gold and it was not manipulated. Just wanted to point that out.

Gold or any other commodity is not the basis for the pricing of that commodity but rather the market discourse and speculative-investment in the commodity that determines the price. You are making the same logical fallacy that people made when they believed that real estate was a "more solid" investment than IT after the dot-com market bust. It was precisely because so many people believed that real estate was "more solid" than IT that speculation increased and drove up property-values to the point of meltdown.

The same thing could happen with gold. If governments started buying up gold to create currency reserves, that would drive up the price of gold very high as investors would speculate on its appreciation due to large scale buying. This in turn would continue to push the price up until people would start deciding that gold had become overvalued as a result of the trend, at which point they would stop buying and start selling to get out before the crash. That would then cause the price of gold to depreciate until people stopped selling.

I think a whole new system of trade needs to be established because there IS no other way If there was no stimulus plan, then we wouldn't be doing so hot right now! The situation cannot be fixed any other way.

I don't know about that. What if there had been a "consolidation plan" instead of a "stimulus plan," whose mission was to soften the blows of recession and help people cope with bankruptcies or otherwise mitigate unpayable debts? In a way, I think that was actually the point of the various bailouts and stimulus activities, i.e. to help people continually refinance and slowly reduce their debts that way, but too many people maintain the expectation that stimulus is supposed to result in something other than consolidation of bills and continuous reductions in consumption and spending/expenses.

What happens as the effect of this stimulus bill? A need for another stimulus bill in the future. It's like a runaway train.

It wouldn't be a runaway train if people would use the stimulus as band-aids instead of a life-support system or rather a performance-enhancement drug for the economy. The problem is that too many people have experienced a boom economy as a positive thing and they think that economic boom should occur constantly. It's like a person who likes the feeling they get from the high salt, sugar, caffeine and fat content of fast food and thinks that eating that way all the time is healthy because it makes them feel "peppy."

On the topic of government spending, yea we could start by cutting the deficit to 0! How do you spend money you don't have. Our govenment has the spending habits and the insight of an irresposible college student with a wallet full of fresh credit cards. How is this acceptable? The question you posed to me should be a new thread

It's not, but people still do everything they can to make money in a deficit-driven economy. It's like having a bar in a college town where the students go out to bars a lot to spend their student loan money. The bars don't go into debt the way the students do, but they prosper from the spending of those loans. Then the students have to generate money to pay back the loans later, while the bar is just adding to its wealth.

If you think there's a better way to maintain the economy to ensure the value of future dollars, you should propose that and explain

I don't know if currency value can or should be maintained. If anything, I think it is a natural result of conservation and efficiency that more value gets produced with less labor and energy, which could result in more value per unit currency if some other path to inflation is not found and pursued by businesses and consumers.

You can basically look at any micro-level economic situation on a continuum from total dependency to total independence. A totally dependent situation requires high amounts of expenditures to even approach satisfaction. A totally independent situation, conversely, requires no expenditure to gain total satisfaction. Obviously, neither pole of this continuum is ever achieved in an absolute way. However, I believe the more specific economic situations and processes evolve toward relative independence, the less expenditures are needed to achieve economic results/(satisfaction of demand/needs/wants). So this is the best measure to resist inflation, imo.

 

[BilPrestonEsq]

I don't know if currency value can or should be maintained. If anything, I think it is a natural result of conservation and efficiency that more value gets produced with less labor and energy, which could result in more value per unit currency if some other path to inflation is not found and pursued by businesses and consumers.

I think we agree. You misunderstood me. In the first paragraph of your reply, that is still housing in relation to the dollar. I was saying gold on it's own finding it's 'own value' if you know what I mean and I think you do because the part I quoted above. Currency that's not manipulated will not fluctuate wildly. I was saying if gold was the currency, not manipulated.

 

[brainstorm]

Currency that's not manipulated will not fluctuate wildly. I was saying if gold was the currency, not manipulated.

I don't understand. If gold was the currency, wouldn't banks, including central banks, manipulate its value by buying to increase reserves or selling to decrease them? I suppose your point is that they can only sell so much before they run out. Then what happens? They have to get more through taxes. Oh, I see, so your point is that using gold as a currency forces to the government to run a surplus instead of a deficit? But how would you prevent people from bartering using other standards than gold? Businesses/banks could still run a deficit by producing a lot and giving it away on credit, no?

 

[BilPrestonEsq]

Imagine a world without central banks.Imagine a bank that you pay to keep your money safe. A bank that offers 5,10,20 year CDs, that way banks could loan out money without creating it. The idea that banks are only required to keep 10% of their reserves is insane. So no banks (government run or not) buying and selling to manipulate currency, just let the chips fall where they may. Let traders decide how much its worth. By traders I mean anyone involve in trade on any level, so anyone. Why would you need to stop people from bartering in other things beside gold or whatever the form of currency?

 

[brainstorm]

Imagine a world without central banks.Imagine a bank that you pay to keep your money safe. A bank that offers 5,10,20 year CDs, that way banks could loan out money without creating it. The idea that banks are only required to keep 10% of their reserves is insane. So no banks (government run or not) buying and selling to manipulate currency, just let the chips fall where they may. Let traders decide how much its worth. By traders I mean anyone involve in trade on any level, so anyone. Why would you need to stop people from bartering in other things beside gold or whatever the form of currency?

Probably some large corporations would figure out that they could get investment capital by offering interest on savings and the most powerful would act as central banks. Would you want to actively destabilize lenders that became that powerful?

 

[BilPrestonEsq]

Probably some large corporations would figure out that they could get investment capital by offering interest on savings and the most powerful would act as central banks. Would you want to actively destabilize lenders that became that powerful?

Well it wouldn't really be like a savings account though (given my scenario) because you would have to be able to get your money out whenever you want. The reserve requirement would be 100% instead of 10% for all banks. Corporations couldn't have savings accounts or C.D.s to raise investment capital since they can't guarantee you'd get it back. Though you could invest still in companies at your own risk. 100%, crazy right, I mean what's the difference between loaning out 90% of the reserves and counterfeiting. The deal I have with my bank is that I put money in I take money out whenever I want. Suppose everyone tries to get there money out of the bank at once, out of bank of america?Game over, money turns to dust. I remember when this last meltdown happened and banks where being bought out and closing their doors and watching on the news people lining up outside their banks clueless to the consequences. So our economy relies on an illusion. You could say that a 100% reserve requirement would stunt growth but atleast the growth that did occur wouldn't be artificial.

 

[russ_watters]

If the reserve requirement were 100%, how could people ever buy houses? There wouldn't be enough credit available.

 

[brainstorm]

Well it wouldn't really be like a savings account though (given my scenario) because you would have to be able to get your money out whenever you want. The reserve requirement would be 100% instead of 10% for all banks. Corporations couldn't have savings accounts or C.D.s to raise investment capital since they can't guarantee you'd get it back. Though you could invest still in companies at your own risk. 100%, crazy right, I mean what's the difference between loaning out 90% of the reserves and counterfeiting. The deal I have with my bank is that I put money in I take money out whenever I want. Suppose everyone tries to get there money out of the bank at once, out of bank of america?Game over, money turns to dust. I remember when this last meltdown happened and banks where being bought out and closing their doors and watching on the news people lining up outside their banks clueless to the consequences. So our economy relies on an illusion. You could say that a 100% reserve requirement would stunt growth but atleast the growth that did occur wouldn't be artificial.

You seem to think there is some fundamental difference between a central bank and a large corporation that invents customer-friendly lending/saving policies to stimulate business. If a large bank diversified its investments over a wide spectrum of assets for a long period of time, why wouldn't it lend out 90% of its reserves? It would lend out as much as it believed would be repaid. If it believed default was likely (or that foreclosure wouldn't render a resale value sufficient to cover the lent amount), it would lend very little or none of its reserves, no?

If the reserve requirement were 100%, how could people ever buy houses? There wouldn't be enough credit available.

They could save or owners could finance an amount beyond an initial (down)payment.

 

[russ_watters]

They could save or owners could finance an amount beyond an initial (down)payment.

In other words, most people couldn't.

 

[BilPrestonEsq]

You seem to think there is some fundamental difference between a central bank and a large corporation that invents customer-friendly lending/saving policies to stimulate business. If a large bank diversified its investments over a wide spectrum of assets for a long period of time, why wouldn't it lend out 90% of its reserves? It would lend out as much as it believed would be repaid. If it believed default was likely (or that foreclosure wouldn't render a resale value sufficient to cover the lent amount), it would lend very little or none of its reserves, no?

Where are they getting this money from?

 

[BilPrestonEsq]

Well it wouldn't really be like a savings account though (given my scenario) because you would have to be able to get your money out whenever you want. The reserve requirement would be 100% instead of 10% for all banks. Corporations couldn't have savings accounts or C.D.s to raise investment capital since they can't guarantee you'd get it back. Though you could invest still in companies at your own risk. 100%, crazy right, I mean what's the difference between loaning out 90% of the reserves and counterfeiting. The deal I have with my bank is that I put money in I take money out whenever I want. Suppose everyone tries to get there money out of the bank at once, out of bank of america?Game over, money turns to dust. I remember when this last meltdown happened and banks where being bought out and closing their doors and watching on the news people lining up outside their banks clueless to the consequences. So our economy relies on an illusion. You could say that a 100% reserve requirement would stunt growth but atleast the growth that did occur wouldn't be artificial.

 

[BilPrestonEsq]

That's not to say a private company or bank can't loan out their money. They just can't loan out your money.

 

[brainstorm]

In other words, most people couldn't.

In a free market, prices are set at the intersection of supply and demand curves. So, one way or the other, houses would be traded in the absence of bank-financing.

Where are they getting this money from?

In your gold-standard economy, they're getting it wherever gold can be gotten. They either mine it out of the ground or offer labor in exchange for gold.

That's not to say a private company or bank can't loan out their money. They just can't loan out your money.

When you save your money at a bank by buying deposit certificates, the interest you're getting paid is compensation to lend out your money. When you want to withdraw money at any time without leaving a reserve, you use a checking account with no minimum balance. Those typically don't pay interest. To get interest, you agree to a minimum-balance savings account. To get higher interest, you agree to CDs with penalties for early withdrawal. These various bank products create incentives for people not to withdraw money. Banks with large numbers of deposits estimate the likelihood of withdrawals and debt-defaults and plan reserves and debt-collection policies accordingly.

Are you saying that FDIC does not really have a sound basis for insuring all deposits up to $100K or $250K or whatever it is these days? Do you think FDIC should lower the amount it insures? Do you think this would stimulate banks to keep higher percentages than 10% in reserve?

 

[WhoWee]

Are you saying that FDIC does not really have a sound basis for insuring all deposits up to $100K or $250K or whatever it is these days? Do you think FDIC should lower the amount it insures? Do you think this would stimulate banks to keep higher percentages than 10% in reserve?

Was the printing press re-possessed?

 

[BilPrestonEsq]

To brainstorm: I made my response confusing, my bad. You posted this:

" You seem to think there is some fundamental difference between a central bank and a large corporation that invents customer-friendly lending/saving policies to stimulate business. If a large bank diversified its investments over a wide spectrum of assets for a long period of time, why wouldn't it lend out 90% of its reserves? It would lend out as much as it believed would be repaid. If it believed default was likely (or that foreclosure wouldn't render a resale value sufficient to cover the lent amount), it would lend very little or none of its reserves, no?"

I got confused with the part in bold then I read it again. Are you calling their investment capital, reserves? If this money that you called reserves was actually just their profit they can do whatever they like. If this money is reserves as in the money that people place in there checking acounts then that's not ok, because there would be the 100% requirement.
Basically if you have a checking account you and everyone else that's a customer of the bank has to be able to get their money out whenever they want. And that last part that I underlined, exactly, how are lenders going to create a destructive housing bubble in that case? It wouldn't happen, it would be a bad business choice to lend out money to people that can't pay it back. But you did use the word reserves which is what confused me. So there could still be private lenders that make loans for profit but they wouldn't be willing to make bad decisions. So banks can still exist and make money under these regulations they can still loan money too. You would just have to pay for the convenience of the things they can offer, keeping your money safe, managing your money, online transfers,etc. and they can use that money to make loans to make more money, they are not going to loan to just anybody though obviously because now they would have something to lose. The FDIC I think should still be in place incase the bank gets held up or some other unforeseen event. There could be a federal fund in place, created from budget surplus. So no new money could ever be created from nothing. Thats the bottom line. This would effect all kinds of things, for instance: the ability of countries to go to war with each other, because who would have the money for that!

 

[brainstorm]

If this money is reserves as in the money that people place in there checking acounts then that's not ok, because there would be the 100% requirement.

I'm not a banker, but I assume that when a large bank has many checking accounts from many different clients, it can bank on a certain amount of those accounts not being withdrawn over a given period of time. E.g. if someone has $5000 in a checking account, it would be unlikely for that person to take out more than, say, $2000 in the next week so $3000 can be used for low-risk activities. As I say, I really don't know this business but my impression was that banks minimize risks for individuals by spreading it out across a large number of accounts.

how are lenders going to create a destructive housing bubble in that case? It wouldn't happen, it would be a bad business choice to lend out money to people that can't pay it back.

I haven't yet bought into the explanation that a housing bubble can be avoided by not lending to borrowers considered to have a higher risk of default. The reason I think this is that the recent bubble was the result of this very risk-aversion that you are talking about. Specifically, property appreciated more for certain houses in certain areas because buyers saw these as "good neighborhoods" where they thought their investment would be insulated against depreciation. As a result, such properties appreciated faster and gained more value than they would have if lower-valued properties had not been kept so depressed. So the very fact of risk-aversion and real estate investment by location created the conditions for a bubble to develop simply by raising expectations of property values and rate of appreciation. These properties were and have been appreciating at an inflated rate for quite a while.

they are not going to loan to just anybody though obviously because now they would have something to lose.

No, they try to assess income stability and guarantee repayment by forecasting ability to repay of the term of the mortgage, but how can you predict that someone will hold a job in an economy where people can retrain for new jobs and undercut more experienced workers by taking entry-level salaries? What do you want to do, restrict people's ability to change careers? If so, talk to labor unionists - they might be for this as a means of job-protection. Personally, I think it would be stifling to freedom and creativity to have multiple careers in one's lifetime.

The FDIC I think should still be in place incase the bank gets held up or some other unforeseen event. There could be a federal fund in place, created from budget surplus. So no new money could ever be created from nothing. Thats the bottom line. This would effect all kinds of things, for instance: the ability of countries to go to war with each other, because who would have the money for that!

People can invest privately in militias and they can do so using other resources than money. No one seems to be able to understand that those with access to resources have the capacity to volunteer those resources for causes that they deem worthy. If the steel industry would want to collaborate with military engineers to produce weapons, and the volunteer labor was there to do so, they could make it happen, no? Isn't this exactly how the military industrial complex was launched during WWII?

Personally, I would rather see voluntary investment of resources and labor going toward less destructive activities than war, if such voluntarism emerged. Of course, war has the traditional function of generating debt and repayment, which replaces voluntary labor with obliged labor, which may be more secure economically in some ways, but why not attempt to prosper first without sacrificing freedom?

 

[BilPrestonEsq]

I'm not a banker, but I assume that when a large bank has many checking accounts from many different clients, it can bank on a certain amount of those accounts not being withdrawn over a given period of time. E.g. if someone has $5000 in a checking account, it would be unlikely for that person to take out more than, say, $2000 in the next week so $3000 can be used for low-risk activities. As I say, I really don't know this business but my impression was that banks minimize risks for individuals by spreading it out across a large number of accounts.

You really need to think about this again. I understand the logic of what you are saying, but really think about this one. If the customers of a bank for whatever reason lose confidence in their bank think about the consequences. Also realize that this is inflationary. Not to mention dishonest. This is not their money to risk. The only way this works is through disception. I bet your next idea would be that if I bank experiences a bank run they could just borrow the money from another bank. Again incredibly deceptive. What's funny to me and sad is that this has already happened, and these ideas are not mine, this is how it used to be at one point in time. I didn't even realize how difficult this is to understand without a historical perspective.

I haven't yet bought into the explanation that a housing bubble can be avoided by not lending to borrowers considered to have a higher risk of default. The reason I think this is that the recent bubble was the result of this very risk-aversion that you are talking about. Specifically, property appreciated more for certain houses in certain areas because buyers saw these as "good neighborhoods" where they thought their investment would be insulated against depreciation. As a result, such properties appreciated faster and gained more value than they would have if lower-valued properties had not been kept so depressed. So the very fact of risk-aversion and real estate investment by location created the conditions for a bubble to develop simply by raising expectations of property values and rate of appreciation. These properties were and have been appreciating at an inflated rate for quite a while.

Interesting observation. A combination of the two perhaps. The housing bubble was more complicated than irresponsible lending but it is a major factor. That is just another topic though at the same time it is directly related to what I am talking about. It's kind of overwhelming to bring the details of that into the mix.

No, they try to assess income stability and guarantee repayment by forecasting ability to repay of the term of the mortgage, but how can you predict that someone will hold a job in an economy where people can retrain for new jobs and undercut more experienced workers by taking entry-level salaries? What do you want to do, restrict people's ability to change careers? If so, talk to labor unionists - they might be for this as a means of job-protection. Personally, I think it would be stifling to freedom and creativity to have multiple careers in one's lifetime.

Stifling to freedom and creativity to have multiple careers in one's lifetime? It seems like your making the opposite point there? Why would you not be able to switch careers? Why can't a company hire whoever will do the best for them? Forgive me if I am not making the connection between what your saying and lending to people who can't repay their loans.
If you have the ability to pay a loan in its conception what is stopping you from making the right decisions necessary to change careers and still pay your loan?

People can invest privately in militias and they can do so using other resources than money. No one seems to be able to understand that those with access to resources have the capacity to volunteer those resources for causes that they deem worthy. If the steel industry would want to collaborate with military engineers to produce weapons, and the volunteer labor was there to do so, they could make it happen, no? Isn't this exactly how the military industrial complex was launched during WWII? Personally, I would rather see voluntary investment of resources and labor going toward less destructive activities than war, if such voluntarism emerged. Of course, war has the traditional function of generating debt and repayment, which replaces voluntary labor with obliged labor, which may be more secure economically in some ways, but why not attempt to prosper first without sacrificing freedom?

The military industrial complex has been around for as long as central banks. This is not a new thing. War profiteering is only possible when you have a government that can pay for a war. Now where are they getting all this money from? Borrow it? War bonds? The money still have to be paid back with interest. So where does that money come from? Raising taxes? Well now your paying for the war with interest. What does anyone stand to gain in a war monetarily? What incentive would tax payers have to stand behind such an effort?

 

[brainstorm]

You really need to think about this again. I understand the logic of what you are saying, but really think about this one. If the customers of a bank for whatever reason lose confidence in their bank think about the consequences. Also realize that this is inflationary. Not to mention dishonest. This is not their money to risk. The only way this works is through disception. I bet your next idea would be that if I bank experiences a bank run they could just borrow the money from another bank. Again incredibly deceptive. What's funny to me and sad is that this has already happened, and these ideas are not mine, this is how it used to be at one point in time. I didn't even realize how difficult this is to understand without a historical perspective.

It's ironic that I am personally disenchanted with a deficit funded consumption economy, and I personally don't like being in debt nor do I think others should be saddled with it either, since it is basically a form of indentured servitude to creditors. Yet I don't know how much reserves are reasonably needed to ensure withdrawal. I suppose you're right that checking accounts can't be lent out, except maybe in the time it takes to cash them. Lending out savings should require accepting that your deposit could eventually be paid off in collateral, in the event there is widespread default on loans. That way, you could lose your savings but take someone else's collateral (foreclosed house or repossessed vehicle, for example) in lieu of your (lost) money.

Stifling to freedom and creativity to have multiple careers in one's lifetime? It seems like your making the opposite point there? Why would you not be able to switch careers? Why can't a company hire whoever will do the best for them? Forgive me if I am not making the connection between what your saying and lending to people who can't repay their loans.
If you have the ability to pay a loan in its conception what is stopping you from making the right decisions necessary to change careers and still pay your loan?

You misunderstood my point. I said that when a bank lends money by estimating ability to repay based on prospective income security, they're assuming that you won't get laid off in 5 years. My point was that this is a bad assumption because it is cheaper for companies to hire someone new at a lower wage and layoff an older employee to save money. So, yes, people can change careers but there's no guarantee of what their income will do in the coming 30 years or so that they are paying off a mortgage.

The military industrial complex has been around for as long as central banks. This is not a new thing. War profiteering is only possible when you have a government that can pay for a war. Now where are they getting all this money from? Borrow it? War bonds? The money still have to be paid back with interest. So where does that money come from? Raising taxes? Well now your paying for the war with interest. What does anyone stand to gain in a war monetarily? What incentive would tax payers have to stand behind such an effort?

War bonds are a concrete example. What it comes down to is that when people want to put labor and materials into an enterprise where there is no existing money to invest, they can simply barter for shares of the profits by recording their contribution to the effort. Imagine you are a Roman military commander who invests his legions in conquering some province. Once you bring the enemy to submission, you can take all their land (resources), and take the people as slaves (the proverbial "rape and pillaging"). In contemporary culture, this kind of imperialism is frowned upon so it is done more subtly, by slowly pushing people to the point of accepting loans and working for you to repay them. That way, the only intimidation is by threat of bankruptcy or other consequences of failing to repay debts.

 

[WhoWee]

You misunderstood my point. I said that when a bank lends money by estimating ability to repay based on prospective income security, they're assuming that you won't get laid off in 5 years. My point was that this is a bad assumption because it is cheaper for companies to hire someone new at a lower wage and layoff an older employee to save money. So, yes, people can change careers but there's no guarantee of what their income will do in the coming 30 years or so that they are paying off a mortgage.

One strategy to guard against uncertainty is to arrange payment over a longer period of time than necessary. This provides for the lowest payment possible for times of unemployment, lay offs, or job change. Then, during normal times make additional principal payments to retire the debt early.

http://www.realestatebuysellexchange.com/calcadditionalpay.html

 

[BilPrestonEsq]

It's ironic that I am personally disenchanted with a deficit funded consumption economy, and I personally don't like being in debt nor do I think others should be saddled with it either, since it is basically a form of indentured servitude to creditors. Yet I don't know how much reserves are reasonably needed to ensure withdrawal. I suppose you're right that checking accounts can't be lent out, except maybe in the time it takes to cash them. Lending out savings should require accepting that your deposit could eventually be paid off in collateral, in the event there is widespread default on loans. That way, you could lose your savings but take someone else's collateral (foreclosed house or repossessed vehicle, for example) in lieu of your (lost) money.

Wow, ever try to write something on here and then it logs you out and you lose everything.
Let me try again:

Personally I would rather the bank deals with that part(dealing with defaults) and I'll keep my cash. Even if the requirement is 75% and they loan out 25% it is still inflationary. There is still money being created out of thin air. If there is 10 people all with $100 dollars in there account($1000 in total) and the bank loans someone $250 when that loan is paid back there will be $1250 now in total. This will devalue everyone else's $100 dollar deposit. The bank will make money and the person who receives the $250 will make money and everyone else gets screwed. That's how it is now except on a MUCH bigger scale obviously. And please if I am missing something let me know because my disenchantment has turned to sickness.

You misunderstood my point...it is cheaper for companies to hire someone new at a lower wage and layoff an older employee to save money. So, yes, people can change careers but there's no guarantee of what their income will do in the coming 30 years or so that they are paying off a mortgage.

It could be argued that a lot of companies value that kind of experience. But we are talking about the ability to get loans. Either way the possibility of losing your job is higher in this real world(as opposed to the hypothetical we are talking about) considering lack of credit effects our consumer economy. Just keep spending, buy stuff you don't need and it will all be ok(pats you on the head)

War bonds are a concrete example. What it comes down to is that when people want to put labor and materials into an enterprise where there is no existing money to invest, they can simply barter for shares of the profits by recording their contribution to the effort. Imagine you are a Roman military commander who invests his legions in conquering some province. Once you bring the enemy to submission, you can take all their land (resources), and take the people as slaves (the proverbial "rape and pillaging"). In contemporary culture, this kind of imperialism is frowned upon so it is done more subtly, by slowly pushing people to the point of accepting loans and working for you to repay them. That way, the only intimidation is by threat of bankruptcy or other consequences of failing to repay debts.

You know this really deserves it's own thread because when I wrote what I wrote I was thinking about the ways you could possibly profit off of war(the raping and pillaging part) but I wonder how that affects the 'winner' later down the road.(thats why I didn't include those examples) If you take all of your enemy's resources and kill them all, you would ruin the businesses in your own country supplying those same resources in repayment for the war bonds you purchased.(whether or not those resources where sold and cash was given out instead) Just an example but worthy of a new thread definitely. It seems the that the laws of conservation apply to economics as well.

 

[WhoWee]

You know this really deserves it's own thread because when I wrote what I wrote I was thinking about the ways you could possibly profit off of war(the raping and pillaging part) but I wonder how that affects the 'winner' later down the road.(thats why I didn't include those examples) If you take all of your enemy's resources and kill them all, you would ruin the businesses in your own country supplying those same resources in repayment for the war bonds you purchased.(whether or not those resources where sold and cash was given out instead) Just an example but worthy of a new thread definitely. It seems the that the laws of conservation apply to economics as well.

"Raping and pillaging" aside, it's not unreasonable to (at minimum) want to recover expenses after winning a war. Unfortunately, it never seems to work that way - except for select private contractors (see all of the posts on PF regarding Iraq).

 

[jsgruszynski]

The book value of a company is made clear in the accounts which can usually be inspected and are often published.

Ah. Marxist Economics. Should have known.

 

[WhoWee]

Ah. Marxist Economics. Should have known.

The main problem with the OP is it would remove all incentives.

 

[TheodoreLogan]

If trading in company capital on the open market was banned, there could be no more boom and bust cycles caused by dramatic changes in fickle confidence, while an investor could still sell his shares in a company, but only for their real, book value and not for a fictional market price. If banks were no longer run for profit, there could be no more catastrophies caused by reckless profiteering in the banking community. If interest on loans, which is a major deterrent to enterprise and produces nothing of value, was banned, business would receive a huge boost. Finally, if a common global currency was established, the benefits to international trade would be enormous.

The only barrier to such changes is the popular delusion that trading in money can somehow make more money, when in fact such a trade is a rapacious parasite which feeds on the flesh of the real wealth-creating world of work and, by its nature, resists all efforts to treat or control it.

Trading in company capital does not create boom and bust cycles on their own. The banking system does indeed create a boom and bust cycle by ways of deflationary and inflationary influence from the Fed. Interest would not be so much of a problem if the money lent out by banks was their own. If banks are allowed to loan out money that is held by depositors, then in the face of massive defaults brought on by deflationary pressures, the bank then loses the depositors money, not theirs. This is a problem. Banks must then be bailed out by the taxpayer. This leads to inflation. So basically the money needed to bail out banks "too big to fail" comes from the depositors and the rest of the taxpayers, and leads to the devaluation of currency through inflation brought on by the bailout. The banks always win. The taxpayers always lose. It would seem that taxpaying citizens work for the banks, not the other way around. Also considering that on say a $200,000 fixed rate 30 year mortgage at 5% interest, you end up paying $186,000 in interest alone. This interest wouldn't seem as bad if the money that was loaned to you belonged to the banks and not the depositors. There is very little risk in banking considering if you are a banker you are loaning other people's money, and if you make loans that default and you go bankrupt, the taxpayers will bail you out. So interest does not create anything of value, unless the money you loan out is yours. Then you are supplying a service, through your own capital. If you loan out your money, well, there is risk involved, so making a profit off such a commodity(money) would be very reasonable. When you loan out other people's money that is a different story.
The stock market on the other hand is a risky venture and it is known when investing that you may not get your money back. The stock market is a great thing IMO. The idea that anyone may choose a company or companies that show the most promise to make the most profit in their eyes, and then invest in that company is a great idea! The stock market is not a parasite, I would agree that the banking system is a parasite, because it provide's nothing at all to the taxpayers or it's customers, and is just plain deceptive in 'it's' claims.
The stock market by itself is a great way for businesses to get investment capital. It is also a good way for someone with a knowledge of business to make some money by providing a necessary commodity to growing businesses(money).

 

[WhoWee]

Trading in company capital does not create boom and bust cycles on their own. The banking system does indeed create a boom and bust cycle by ways of deflationary and inflationary influence from the Fed. Interest would not be so much of a problem if the money lent out by banks was their own. If banks are allowed to loan out money that is held by depositors, then in the face of massive defaults brought on by deflationary pressures, the bank then loses the depositors money, not theirs. This is a problem. Banks must then be bailed out by the taxpayer. This leads to inflation. So basically the money needed to bail out banks "too big to fail" comes from the depositors and the rest of the taxpayers, and leads to the devaluation of currency through inflation brought on by the bailout. The banks always win. The taxpayers always lose. It would seem that taxpaying citizens work for the banks, not the other way around. Also considering that on say a $200,000 fixed rate 30 year mortgage at 5% interest, you end up paying $186,000 in interest alone. This interest wouldn't seem as bad if the money that was loaned to you belonged to the banks and not the depositors. There is very little risk in banking considering if you are a banker you are loaning other people's money, and if you make loans that default and you go bankrupt, the taxpayers will bail you out. So interest does not create anything of value, unless the money you loan out is yours. Then you are supplying a service, through your own capital. If you loan out your money, well, there is risk involved, so making a profit off such a commodity(money) would be very reasonable. When you loan out other people's money that is a different story.
The stock market on the other hand is a risky venture and it is known when investing that you may not get your money back. The stock market is a great thing IMO. The idea that anyone may choose a company or companies that show the most promise to make the most profit in their eyes, and then invest in that company is a great idea! The stock market is not a parasite, I would agree that the banking system is a parasite, because it provide's nothing at all to the taxpayers or it's customers, and is just plain deceptive in 'it's' claims.
The stock market by itself is a great way for businesses to get investment capital. It is also a good way for someone with a knowledge of business to make some money by providing a necessary commodity to growing businesses(money).

Investments have risk. Money deposited in a bank are considered safer and protected by the FDIC to a limit. The rule of thumb is the greater the risk - the greater the reward.

There is nothing (other than a lack of sufficient capital) to prevent any person from loaning money directly to a company or another person with the hope of a return. If a person wanted to conduct an ongoing business of loaning money to a variety of people - that might require Government approval and regulation (adds cost).