funny how things changed after the banks could suddenly create money from thin air... I don't think that's any coincidence!!
PS, In their BASIC form, banks are simply the borrowers and lenders of money. Putting aside the 'unconventional' stuff such a 'derivatives' and other such rubbish, a bank borrows money and pays, say 5% for it. It was always the rule of thumb back in the olden days that they bank had to charge AT LEAST a 2% margin above that to cover the costs of running the bank. Its Branches, wages, tax, and bad debts and so on. All above 7% was supposed to be profit. Rough figures only, but that is the idea. Thus! "Again it highlights my assertion that the banks are in fact insolvent." In the very strictest form of the word they are. As I have said elsewhere, a run is DEATH to a bank. They live by one word - CONFIDENCE!!!!
Errol, Thanks for bringing this back to mind. http://www.youtube.com/user/DuckPlumberThe2nd/videos?query=Yes+what
Something else from a long dead age. Way back in my days in the branches, over 30 years ago now, we had a thing called the 'Lending Manual'. In addition to specific bank policy, it contained the basic common sense, hard learned, lessons given to Bankers over 400 years. Prohibitions on UN-secured lending, warnings on over valuations of security, criteria for the ability of the borrower to fulfill his obligations, a margin in favour for bad times, and so on. Lies and truth stretching was weeded out of any application, and NOT accepted at face value. Discreet inquiries between banks was common. The Lending Manual was 2 inches thick! A Branch Manager that ignored or broke these rules could expect little sympathy from Head Office when SHTF day arrived. He could expect at worse the sack, or at best a transfer to the dungeon of the Head Office Cash Department!!!! Branches had a thing called the 'Weekly Return', a summary for H/O of the weeks activities and figures, and also a listing of 'Accounts gained and lost' and the reason. An account lost was often stated as "Unsecured Accommodation Refused', a reason H/O never argued with.
PS, For American readers who may interested, you have a thing called the 'Community Reinvestment Act 1979'. This was handed down to posterity by komrade Jimmy Carter. It mandated that if a bank had a branch accepting deposits in a 'depressed area', they MUST make loans in that area. Thus the good residents in that area, no matter how bad their credit rating, MUST be granted housing loans, no matter how unemployable or handicapped they were, or how run down the property was. The US Banks 'Lending Manual' was thrown out the window. The banks fought the thing in the courts and lost, so they made the loans and on sold to various idiots. Thus was born the terms, "JUNK LOANS" and "SUB PRIME"!! So next time you laugh at the idiot US banks making bad loans, - remember the Act of 1979.
In plain talk, was this the branch managers way of telling head office that someone was refused an unsecured loan and the customer took their money out of the bank? OC I find it incomprehensible that any court would tell a private enterprise that they HAD to loan people money. We often talk about how our freedoms are being slowly taken away from us these days but to imagine over 30 years ago banks were by law forced to make loans is unbelievable. Under FRB you would think common sense would dictate that government would only ever want to force lenders to do exactly the opposite. I suppose the GFC taught us that lesson, I doubt we will learn from it though.
Yes, but often it was just a customer that went to another bank for some reason other than an application for a loan. Maybe the customer did not like the Teller! It just got the Manager off the hook for losing an account. I am certain that H/O knew all about it, they probably did it themselves when they were running a Branch.
I'm sure there are some here (including myself) that remember the CBA's Dollarmite savings program that was marketed to school kids in the 80's. The accompanying jingle at the time: "... A dollar might go further in a Dollarmite account."
"Not an assertion. Simple fact (but I think you know this)." Hard to say! Every year, a Bank issues its Annual Report and included in the figures is an allowance for 'Bad and Doubtful Debts'. This is always considered as 'good' if that figure is about 1% of loans outstanding. When it gets up to about 2% it is cause for concern, and if it gets to maybe 3% it is cause for real worry. ( In theory or practice, if the Bad and Doubtful Debts are more than the Shareholders Funds, the bank IS insolvent.) I think from memory that the figures remained below 2% during the GFC. Most banks are prudent and over allow on the side of caution, so a REAL allowance of 1.25% may be announced as 1.75% or so. A lot of hidden profit can be stored away in Bad and Doubtful Debts allocations. Another little piggy bank to squirrel away assets is 'Premises', and I remember years ago the CBA had its balance sheet showing 'Value of Premises' as 6 Million Pounds, when the market value of Head office itself was more than that. All the city branches and State Offices were gravy!
Lovey80, The Act of 1979 is a classic example of the joys of socialism and of a centrally planned economy. If I had been the CEO of the bank effected, I would have closed the branches immediately.
This is the best thread in ages There's something about anecdotal history that really makes me want to hear more.
UNSECURED lending! Give the basic fear of such an imprudent act, it never ceases to amaze me that NOW the Australian banks have about FIFTY BILLION out on credit cards, and ALL of it is UNSECURED! A lot of people talk about a housing "bubble" (the most flogged to death word in the English language), but to my mind a danger at least as big is that 50 Billion!
OC, the issue with solvency is not so much the banks' bad loans column, which of course in todays highly leveraged asset bubbles can turn south very quickly (remember that NINJA/Sub-Prime was less than 3% of the US property market). But more the FRB system of the inverted pyramiding of debt. Remember there is far more debt out there at any one time than money in circulation to even possibly pay if off. This necessitates the need to constantly expand the debt supply to ensure the system stays affloat. Hence why the Bernanke's of this world are absolutely terrified about a deflation in the money supply. A big enough deflation (people using cash to pay down debt canceling out the fractional multiplier) will see the whole system implode on itself in quick order. So while a bank run is the death of a bank as you know, the simple spooking of the population into transferring their savings into paying off debt on a wholesale basis will see a ledger balance showing masses of debt still outstanding, with absolutely nothing in the credit column. It wouldn't even get to zero in the credit column before everything shut down. I wouldn't bother worrying about the pizzly 50billion in unsecured credit card debt. Remember the banks never had that 50billion in the first place to loan out. They created it out of thin air, there is but a tiny fraction (few hundred million maybe) in deposits backing those loans? They can write that debt off just as fast as they created it.
Agree with that, it is a different world now, far more neat and straightforward in the old days. As for the volume of debt in our society I agree 100%, any promises from a Government could not possibly be honoured. If something triggers a SHTF situation it will be VERY messy, making the old domino theory look tame.
Big AD, "I know people who can't add up two double digit numbers without using a calculator sad" Was at a locksmith today and wanted 2 new keys cut. I asked the cost and the young bloke about 22 or so said "$8.80 each Sir". When he wrote out the docket, he reached for his calculator............. SIGH! As the wise man said, "The country is in the very best of hands".
