[Rhodes22-list] Banking and economics and politics Ben's and Brad's replies

[Tootle]

Ben said, “Do you guys really think that the hundreds of billions of dollars
that companies used to put in the commercial paper market is now being sent
to Swiss bank accounts, because lending to American banks for a week at a
time is too risky?

And then continued, “It's not.  Banks are keeping their money in their
vaults rather than put it on the commercial paper market.  Smaller investors
(100s of millions) are lending their money to Uncle Sam, so they can turn
around and buy bank stock (which is much better than the original plan of
buying bad assets), which will then hopefully open the commercial paper
market back up.”

Ben, very little money is sent to Swiss bank accounts as a safe haven.  And
the money is not kept in vaults at banks.  Banks have two places they keep
accounts.  If the bank says ‘National Bank’ in the name then those banks
keep accounts at the nearest Federal Reserve bank and are in banking called
‘city banks’.  

If the name does not say ‘National Bank’ in the name then it is a
correspondent bank.  It keeps it account in a city bank, or maybe a bigger
correspondent bank.  

At midnight or actually 11 pm all accounts are balanced.  If it is a city
bank then either it has to borrow from the fed to cover its accounts or loan
the positive balance to make a few shekels for the day.  The few shekels can
be quite large if the amount is say 10 or 20 million.  

That is where your commercial paper comes in.  If a bank has a customer such
as Fed Ex and Friday is payday, it needs money to pay payroll.  If Fed Ex
does not have a positive balance in its accounts it has to issue commercial
paper for a couple of days to meet payroll.  On the other side, Fed Ex may
have accounts due to cover the paper, just that the customers have not
remitted the amounts that day.  Typically the above is the way banks make
money.

On the other hand, if you sell or sold stock or other valuables for 1
million dollars and put the proceeds in a bank account, it is capital.  For
deposits of that amount the bank will probably pay interest at an amount
less than the Federal Reserve window rates, but not pay a premium.  

If you want a better return on your money you have to put it else ware, and
that is not usually a Swiss Bank account.  In the past, mortgages or the
paper that they underwrote, was a good safe haven.  With the bad loan
packages issued by Freddie and Fannie, that is history.  Another option was
stocks, bonds, etc.  With the problems of the stock market, and also note
that it will happen in the bond markets when California cities default on
bonds, the market for those securities is weakened.  So, international types
of investors move their money out of U. S. Stocks, etc. to some other
country where there is still a good rate of return.  Huge sums of money left
the stock markets in the last few weeks.  Those funds, also known as global
capital went into other investments, such as gold, foreign real estate, etc.

Contrary to the news media, the money did not evaporate.  It found another
home.  

In the past, the American mortgage and stock markets were the most secure in
the world.  Congress demanded banks make loans to people who could not
really afford them and they defaulted on mortgages.  That bubble as Stan
would call it, burst.  So those investors or speculators are going else were
looking for a good investment.

The above is only one small part of global economics.  Many books are
written on the subject.  Read some of George Soros’s books.  His expertise
is making money on exchange rates.  I suspect he has made billions.

Ed K
Greenville, SC, USA 
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