tag:blogger.com,1999:blog-4815867514277794362.post8219661493823257465..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Mixed up policy responses and liquidity preferenceJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-4815867514277794362.post-18168671010364660462009-04-23T13:53:00.000+10:002009-04-23T13:53:00.000+10:00I think the real problem is that $170 billion in r...I think the real problem is that $170 billion in reserves is actually quite appropriate for positions that stretch into the trillions. 10% reserve requirement, and all. What's that you say -- an anachronism?? A barbarous relic??<br /><br />I don't know. I think perhaps it was the $30B level of reserves that was unnatural.Aaron Krownehttps://www.blogger.com/profile/10625220296615695247noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-44759103972485250412009-04-23T11:57:00.000+10:002009-04-23T11:57:00.000+10:00Why not a one off 5% wealth tax on everyone's cash...Why not a one off 5% wealth tax on everyone's cash holdings and liquid assets?<br /><br />It would get people spending much quicker than cash chucked out of helicopters.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71178574053052630722009-04-23T08:00:00.000+10:002009-04-23T08:00:00.000+10:00RE I just think WaMu was a really bad decision. I...RE I just think WaMu was a really bad decision. Incompetent and dangerous.<br /><br />I agree John...and getting rid of Sheila Bair would be the first step in improving consumer confidence...<br /><br />People rise to their level of incompetence and Bair is surely at hers.<br /><br />How they can be thinking of handing her responsibility for more, is mind boggling...This woman created more problems than she has ever solved, and selling WAMU for pennies on the dollar was a huge mistake...and I do hope it bites her, hard...<br /><br />Get the facts on just how bad her judgement was....<br /><br />www.wamutruth.comJoycehttp://www.wamutruth.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12865501659542421872009-04-23T07:09:00.000+10:002009-04-23T07:09:00.000+10:00I lost less than 1% of my wealth on WaMu.
I howev...I lost less than 1% of my wealth on WaMu.<br /><br />I however had a few other preferreds and lost about 4% of my wealth (thus far) on them. <br /><br />I just think WaMu was a really bad decision. Incompetent and dangerous.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72598080924822975992009-04-23T05:43:00.000+10:002009-04-23T05:43:00.000+10:00OK. I agree that WaMu was a mistake. But Figure 2 ...OK. I agree that WaMu was a mistake. But Figure 2 still supports my contention that Lehman started the crisis. You can only interpret the WaMu seizure within a context of a Calling Run having begun. However, I believe that the government should have intervened to save WaMu, given its circumstances. Or, at the very least, given WaMu more time. This still supports my view that government intervention was expected and depended upon. I don't know if you agree.<br /><br />Absent Lehman and a Calling Run, I don't think WaMu would have been seized. However, remember, you're for consolidation. I'm not.<br /><br />Don the libertarian DemocratDonald Pretarihttps://www.blogger.com/profile/14493535232127084725noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-58887091216447215332009-04-23T05:39:00.000+10:002009-04-23T05:39:00.000+10:00I like your blog. your insights are brilliant. m...I like your blog. your insights are brilliant. maybe rose colored glasses at times, but nonetheless brilliant. I am curious re. your vendetta for Sheila Bair. just how much did you lose on WM. P.S. I believe you are correct that they prob could have withstood the run.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-14912006805783937412009-04-23T01:15:00.000+10:002009-04-23T01:15:00.000+10:00The CEO of U.S. Bancorp said in the earning confer...The CEO of U.S. Bancorp said in the earning conference calls that business that are creditworthy are no longer interested in borrowing. Should we create a government program to force business to debase their balance sheets by borrowing money they don't need until economic recovery happens?Advant Guardhttps://www.blogger.com/profile/13724697741711826082noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-91416524179641744952009-04-23T01:10:00.000+10:002009-04-23T01:10:00.000+10:00As the very first commenter pointed out, negative ...As the very first commenter pointed out, negative interests seem like another option. Greg Mankiw has a post on this today:<br />http://gregmankiw.blogspot.com/2009/04/more-on-negative-interest-rates.htmlDilipnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-48197326497783692882009-04-23T00:23:00.000+10:002009-04-23T00:23:00.000+10:00Anon's last comment is nonsensical.
A bank lends...Anon's last comment is nonsensical. <br /><br />A bank lends money out.<br /><br />The liquidity goes down RIGHT THEN.<br /><br />The write off the loan does not change liquidity. Not one drop. But it does change solvency.<br /><br />The excess liquidity on the balance sheet is completely irrelevant when handling write downs.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-22981886929607251672009-04-22T23:24:00.000+10:002009-04-22T23:24:00.000+10:00So you think the trillion in cash sitting idle on ...So you think the trillion in cash sitting idle on banks' balance sheets is not needed to handle more write downs?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-84127973512037430272009-04-22T20:51:00.000+10:002009-04-22T20:51:00.000+10:00mr hempton -- i'm not sure why excess reserves mus...mr hempton -- i'm not sure why excess reserves must be a function of bank liquidity preference. i don't doubt that there's some truth to this. but anecdotal evidence is also that banks are snapping up high-yielding securitized debt at low prices -- it seems they are ready to employ cash situationally. <br /><br />as you say, american households are debt swamped. but does it follow that they are not driving liquidity preference because they are not liquid? <br /><br />indeed it seems to me that most banks would love to lend to good household credit -- they need to earn on fat spreads, after all, to get out of their mess. but it also seems that good household credits have in aggregate sharply revised opinions of debt in light of new understandings and situations (eg employment). so they are paying down debt and saving. the households still approaching banks for loans are, it seems, the desperate -- exactly those to whom the banks now cannot lend.<br /><br />this distribution of credit quality and loan demand means, i think, that it is essentially lack of quality loan demand driving excess reserves -- as noted above, banks can no longer insure against making awful credits and so don't, but good credits are paying down on net.gaius mariushttps://www.blogger.com/profile/10618655639631695070noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45034070981769277882009-04-22T15:22:00.000+10:002009-04-22T15:22:00.000+10:00Brilliant idea John!
Although I think WaMu shocke...Brilliant idea John!<br /><br />Although I think WaMu shocked bondholders more than management, the flexible capital ratio might solve a lot.<br />It would be totally approriate here in Germany.<br />Bank lending here has reached insane restrictions on Mittelstand companies with unrealistic covenants. So either you stop borrowing (hardly a possibility) or you sign covenants that gives the banks a licence to steal your company whenever you experience some stress in your P&L (= probably when your auditor brings in 2009 results). Owners just hope that banks have other things to do and won´t go as far.<br /><br />I would have thought that giving banks gov money should come with a string attached that they ought not to be allowed to shrink their company loan book. But your idea is much better.Hubertnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-88776712552940485432009-04-22T12:29:00.000+10:002009-04-22T12:29:00.000+10:00The lending in 2006 was insane.
But the managemen...The lending in 2006 was insane.<br /><br />But the management of the banks were not irrational. They were responding to the incentives that they were given.<br /><br />The incentive was to keep the balance sheet ticking over or the CEO would be out of a job.<br /><br />The lack of lending now is equally insane. But the management are responding to the incentives given.<br /><br />Keep liquid. Keep alive. Overdo above. Or you will be confiscated and out of a job.<br /><br />Both incentives are NOT THE RIGHT INCENTIVES. But they are the incentives we have.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68247587210311861232009-04-22T11:42:00.000+10:002009-04-22T11:42:00.000+10:00There is, of course, a simple if impracticle answe...There is, of course, a simple if impracticle answer to the question of whether to force banks to lend. Fast forward 10 years and look at what happened to the Chinese banks that have recently obeyed the central command to open the floodgates.<br /><br />I find it hard to believe any solution that assumes banks have suddenly become irrational and unresponsive to financial incentives (which is assumed by solutions that use threats etc). I find it easier to believe that there is nothing that all these banks would rather do than lend money at current rates (as evidenced by any bank not under current threat of stress test etc). So are we not back to the problem (discussed at length on these pages) how to remove the threat of liquidity driven insolvency?Rodnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-70651876591380667062009-04-22T11:31:00.000+10:002009-04-22T11:31:00.000+10:00I would be surprised if banks started lending anyt...I would be surprised if banks started lending anytime soon. A major reason why banks had been lending to any idiot who wanted to borrow was that they could buy a swap from AIG for the protection.<br /><br />I hate debt anyway, so no tears from me. Debt is the porn equivalent of money.Mrs. Watanabehttps://www.blogger.com/profile/17409842578762602196noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-31802416276772198372009-04-22T10:13:00.000+10:002009-04-22T10:13:00.000+10:00What - are you suggesting the Federal Reserve shou...What - are you suggesting the Federal Reserve should take interest rates NEGATIVE - by forcing the banks to pay interest (to them presumably) on their excess cash?<br /><br />I would love to know the legal mechanism... <br /><br />But yes - your suggestion is that we should remove the zero bound by having negative interest rates on cash.<br /><br />We could also remove the zero bound by inducing inflationary expectations. But that works better with Mrs Watanabe.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-70429238266661259462009-04-22T09:39:00.000+10:002009-04-22T09:39:00.000+10:00surely the common sense way of dealing with this i...surely the common sense way of dealing with this is to require the banks to pay interest on their 'excess cash'... <br /><br />tweek the interest rate and soon they'll be sending money out the doormark iinoreply@blogger.com