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

Fri Oct 17 11:48:57 EDT 2008

Ben,

We're leaving this afternoon for Mom and Dad's place in Southern
Illinois and then a trip to Six Flags in St. Louis tomorrow for some
R&R with Cora. I'm going to let someone else worry about things myself
for the weekend.

It will be fun to get Dad's perspective on the current situation.  As
a kid I used to pepper him with questions about the Great Depression
and WW2.  He was always reluctant to talk.  Now that he's in his late
80's, he's happy to share his story.  On the Great Depression, he told
me a few years ago, "Son, we were poor when it started and we were
poor when it ended, we barely knew it happened". Both of my
grandparents were dead by the time I was born but Dad was the "baby"
of 10 and Mom was the 2nd youngest of 12.  My aunts and uncles gave me
a pretty good oral history of the family while they were still alive.
Both sets of grandparents were farmers and both struggled through WW2
because all the boys were off to war.  Somehow, I think if they were
alive and I could ask them about the current "financial crisis" they
probably just shrug it off.

Brad

On Fri, Oct 17, 2008 at 10:34 AM, ben
<benonvelvetelvis at theskinnyonbenny.com> wrote:
> Sorry about the confusion.  I didn't mean "vaults" to be taken so literally.  Of course I realize that every little of the money supply corresponds to actual printed cash.  All that you've written below is pretty good.  I might have a minor quibble or two, but I've got to get a lot of work done today, so I can spend the weekend where I belong -- on the boat.
>
> I bet I won't spend two seconds thinking about who should be president or where the money went in the financial markets.
>
> -----Original Message-----
> From: rhodes22-list-bounces at rhodes22.org [mailto:rhodes22-list-bounces at rhodes22.org] On Behalf Of Tootle
> Sent: Thursday, October 16, 2008 6:50 PM
> To: rhodes22-list at rhodes22.org
> Subject: [Rhodes22-list] Banking and economics and politics Ben's and Brad's replies
>
>
> 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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