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Old 01-26-2008, 10:49 PM   #46
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I imagine that most of this money will be going into the banks, whether that be savings accounts, mortgages, or credit cards.

Oddly, considering that it is our banks that have caused most of these recession worries, that might not be a bad scenario this time around after all.
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Old 01-26-2008, 11:00 PM   #47
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Ntwalwar, I am deeply concerned about that graph I am going to post that on a forum with some economists on it to find out what they say.
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Old 01-27-2008, 01:28 AM   #48
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Here's another graph (St. Louis Fed only through 12/1/07):

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Old 01-27-2008, 10:05 AM   #49
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Quote:
Originally posted by financeguy
Ntwalwar, I am deeply concerned about that graph I am going to post that on a forum with some economists on it to find out what they say.
Could you link to that or summarize what they have to say?
I'm certainly interested, too, what they have to say, and would like to get a grasp on how good my own conclusions are.
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Old 01-27-2008, 02:06 PM   #50
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Quote:
Originally posted by Vincent Vega


Could you link to that or summarize what they have to say?
I'm certainly interested, too, what they have to say, and would like to get a grasp on how good my own conclusions are.
My interpretation - the large deflation of banks' assets (bad loans and mortgage backed securities) requires them to borrow from the Fed to increase their reserves in order to meet minimum reserve requirements. Otherwise, their net assets go negative, and they have to declare bankruptcy. That's why we've seen the Fed cut rates aggressively and stimulus plans - to try to reflate the value of those bad assets. IMO - it will be too little, too late.
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Old 01-27-2008, 03:47 PM   #51
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As long as there is no trust between the banks the Fed's money is just wasted. Currently the inter-banking system isn't working, not in the US, and also not in Europe, and banks still don't know how much in bad assets other banks have. The often even don't know for sure what skeletons are waiting in their basements to be discovered.

An interesting question would also be: Which bank, or banks, is/are the US's Northern Rock, i.e. which bank will be the first customers lose trust in.
And how long can the Fed back this broken system? No amount of money real can help those banks as long as they don't lend each other.
And you can see in your second graph how the Fed is the only institution left banks get money from (though it's only St. Louis here, I guess it's not looking much different for the rest of the country).

In the long-run, the liberalisation of the financial markets can't be sustained. Otherwise, in some years we will face another crash. But I don't think that anything will change on that account before, earliest, next year.

Well, the bail-out just goes to show how dependent the US, and eventually even the rest of the industrialised world, became of trade and consumption. They just need to keep the consumption going, hence they are now trying almost everything to keep the public buying stuff.
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Old 01-27-2008, 04:10 PM   #52
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Quote:
Originally posted by Vincent Vega
An interesting question would also be: Which bank, or banks, is/are the US's Northern Rock, i.e. which bank will be the first customers lose trust in.
Already happened with Countrywide surely?
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Old 01-27-2008, 04:17 PM   #53
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Originally posted by financeguy


Already happened with Countrywide surely?


a couple of months back

I opened my first account at CountrWide.

they were paying 5.5 % interest per annum on savings

other banks were in the 4.75 % range

all deposits in banks are insured by:
FDIC: Federal Deposit Insurance Corporation
Federal deposit insurance protects the first $100000 of deposits that are payable in the United States.
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Old 01-27-2008, 04:19 PM   #54
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Oh, forgot about them.

Okay, so... who's the next one?
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Old 01-27-2008, 04:38 PM   #55
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Quote:
Originally posted by deep

all deposits in banks are insured by:
FDIC: Federal Deposit Insurance Corporation
Federal deposit insurance protects the first $100000 of deposits that are payable in the United States.
The FDIC has around $50 billion to cover $3 trillion of insured deposits. So a massive taxpayer-funded bailout would be required if some large banks failed.
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Old 01-27-2008, 09:20 PM   #56
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Not putting it in savings at the moment since interest rates are falling. I think the interest rate is going to continue to drop.
If I were going to use it for anything other than just spending, I'd put it in dividens where the interest is still 15%.

I really really need a new computer, so I'll be spending.
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Old 01-28-2008, 01:39 AM   #57
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Quote:
Originally posted by sue4u2
I'd put it in dividens where the interest is still 15%.
Stocks .
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Old 01-28-2008, 03:19 PM   #58
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Quote:
Originally posted by Vincent Vega


Could you link to that or summarize what they have to say?
I'm certainly interested, too, what they have to say, and would like to get a grasp on how good my own conclusions are.
The most comprehensive response:-

Quote:
"This shows the reserve position of the US Depositors institutions (banks to you and me).

http://www.federalreserve.gov/releases/h3/Current/

What it is showing is the banking sector suffered a large losses and needed to call on Fed bail out to meet reserve requirements. No surpise there:

http://www.npr.org/templates/story/s...oryId=18106269

In order to meet their reserve requirements, they go to the Fed to borrow. But cost is punitive, so they will look to recapitalise, reduce their balance sheet etc. as required to unwind this.

This is a significant sum, but we know about it already - Citigroup alone took a €10bn earning hit last quarter, which would have severely affected their ability to maintain required reserve ratios without liquidating their assets.

This is not good, but we did at least know this already. And Citi are recapitalising so we should see this unwind (keep the link and you can follow by the month).

But it does show the mechanics of "debt deflation". Imagine if Citi couldn't recapitalise, they would need to sell down their balance sheet. Asset prices would fall as the bank scramble to meet reserve requirements. This would impact other banks and they do the same. No banks would be willing to lend, all would be lookng to reduce their lending and increasing their reserve holdings. And that is the story of Japan. When this happens in earnest, it doesn't matter how low interest rates are, bank won't want or be able to lend."
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Old 01-28-2008, 04:13 PM   #59
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Quote:
Originally posted by sue4u2
Not putting it in savings at the moment since interest rates are falling.
Economic theory in practice.

Thanks financeguy. I figured it would get hard to ask banks for loans, and well, banks won't lend each other. Will certainly be important that banks like Citi are continuing to recapitalise.

What I find really disturbing is that, like he said, we already knew about what was coming and still so many people who have invested in stocks reacted panicky as if it came totally out of the blue.
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Old 01-28-2008, 09:07 PM   #60
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Quote:
Originally posted by Vincent Vega

I figured it would get hard to ask banks for loans, and well, banks won't lend each other.
And even the Fed is rejecting a very high percentage of the collateral offered by banks for repurchase agreements:

http://www.ny.frb.org/markets/omo/dm...?SHOWMORE=TRUE
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