IndyMac: Not Such ‘A Wonderful Life’
Portraying Senator Chuck Schumer as the evil Mr. Potter from It's a Wonderful Life makes understanding a bank run fairly easy.
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The most recent panic story about the US economy came a few days ago, when the IndyMac bank failed, following a classic run on the bank. Pretty well everyone knows a run on the bank is a bad thing: older readers will remember having heard about the bank runs that were the opening act of the Great Depression — which, of course, makes the phrase “bank run” all the more frightening.
Reading about it in the papers, listening to the legacy media talk about it, it has become clear that people know a bank run is a bad thing, but they don’t know just what a bank run is.
To understand a bank run, the first thing we need to do is think about how a bank works as a business. What banks do is loan money, charging interest. To do that, they have to have money: that comes from the bank’s stockholders to start with, then is followed by money from depositors; the bank pays the depositors interest, and then if all goes well, they make a profit to pay back to the stockholders.
To keep this to a reasonable sized article, we’re going to think about a really simple bank — the Bailey Savings and Loan of Bedford Falls. It’s a small, family-run savings and loan in a mill town. In addition to the investment of the stockholders — primarily the Bailey family members themselves — there are a lot of small depositors. The depositors have savings accounts (this is an old-fashioned S&L, no checking accounts) and the bank loans money on mortgages and real-estate. People get mortgages in order to buy homes. This lets them pay for the home over a long time, while paying the Bailey S&L interest. The income from mortgage interest lets the Baileys pay the depositors and, with luck, keep a little for themselves.
Bailey S&L, like other banks, has to do a bit of a balancing act. They want to loan out as much money as they can, because the more they loan out, the more revenue they get. That’s what they make money on.
On the other hand, when they loan out the money, it goes to builders and plumbers and the people who sell homes. It’s not in a swimming pool in the basement where George Bailey can play Scrooge McDuck with it. So when a depositor comes in and wants some of their savings back for Christmas presents, Bailey S&L needs to have some cash — not a swimming pool full, but at least maybe a bathtub’s full. So the Bailey S&L keeps a cash reserve, say five percent of their total deposits. The other ninety-five percent is in their part ownership of houses and businesses through those mortgages. This is called fractional reserve banking, and it’s the way all banks, credit unions and similar institutions work.
This fractional reserve is what makes a bank run possible. For whatever reason, the rumor gets around that the Bailey S&L has financial problems. The people who have their savings in the bank (perfectly reasonably) don’t want to lose their money, and go to see George Bailey asking for their money back. If enough people do this, the bank becomes “illiquid,” which just means the bathtub is empty. When that cash reserve is exhausted, the bank has to shut down until it can get more, and since the other ninety-five percent of its money is in real estate mortgages, it can’t do that easily. So someone has to come along and buy the assets, providing cash for the panicky depositors, and since it’s a forced sale, the odds are good they’ll buy the assets at a discount. Someone gets the assets cheaply, but the Bailey S&L (and the Bailey family) is ruined, and the depositors may not get all their savings back either.
Charlie Martin is a Colorado computer scientist and nearly-successful screenwriter who contributes to the Flares Into Darkness political blog as ‘Seneca the Younger,’ and blogs under his own name at the aggressively non-political Explorations blog.
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67 Comments
Roy:It’s hard to believe that this was not a deliberate act by Sen. Schumer. “Land of the free, home of the brave,” unless you do something to cross an unscrupulous Senator. I urge the voters to dump this egomaniacal excuse for a legislator.
Jul 19, 2008 - 7:46 am Laurent:As one who placed mortgages with Indy Mac, I can report that Indy Mac was run honestly, and did not grant loans imprudently. But when the normal loan to value ratio on a mortgage is 80%, and house prices drop by 30% (as in Los Angeles, where Indy Mac was headquartered), the loan becomes over 100% of the house’ value, and the borrower may just walk away. Indy Mac could have sold its remaining assets and gradually gone out of business, but Senator Schumer made sure he released his letter to the press - the financial equivalent of crying “Fire!” in a crowded theater. Why would he do this? First, Schumer is a publicity hound: the only Seator whose name is a verb, “to Schume” is to rush toward the nearest microphone or camera, regardless of the consequences. Second, Schumer is the head of the Senate Democratic Campaign Committe, and this is his way of shaking down the remaining bankers for campaign contributions: contribute or I’ll put you out of business too. Think of it as a protection racket, financial McCarthyism and extortion.
Jul 19, 2008 - 8:10 am kabud:Laurent:
>and house prices drop by 30%
those dangerous criminals in the highest ranks of Freddy & Fanny and federal government as well who in violation of freddy & fanny statute began packaging low grade mortgages with false rating consciously created this unprecedented attack on US financial system
Indy Mac may look like one of the victims as we all are,
but prices of real estate began falling in the fall of 2005!!
Bankers at Indy Mac did not do a good job:
they MUST HAVE start selling declining assets in 2005 to cut loses
this is not serious: everybody knew that housing is a bubble
several hedge funds made billions on the common sense analysis of buying power of american public
One only has to wait for the FDIC to detonate beneath a floundering Republic. If anyone thought U.S. Treasury bonds are a riskless investment, think again. Am I suggesting the U.S. government will default on its obligations? In my opinion, no other outcome is imaginable. If you doubt this conclusion, try to imagine federal, state and local government paying off $10 trillion. It’s not going to happen, as the readiest method of default open to government is the debasement of the national currency. This means an end to American international power – financial and military. It means an end to the old international order, which has existed since 1945. It means global revolution. Wave hello to socialism.
Jul 19, 2008 - 9:05 am Charlie (Colorado):Um, kabud, go back and look at my earlier articles Good News and Bad News and How Bad is the national Debt. First of all, ten trillion is a little bit of a nutty estimate (where’d you get that number?), and second, even if it were a sensible number, that’s ten trillion in long-term bonds against a 13 trillion dollar annual GDP. Say the average term of the bods is 10 years –then it’s a ten trillion dollar debt against at least 130 trillion in GDP. Sorry to disappoint you, but while that’s serious money, it’s hardly bankruptcy, and the contradictions inherent in the system are likely to manage to sustain themselves for a while longer.
Jul 19, 2008 - 10:21 am Richard:Ah, kabud, try turning down the lights, turn off the television, take a Valium,lay down in a quiet room, and think of ocean waves breaking softly on a sandy beach.
From where I sit, about ten miles from Indymac’s headquarters, only two houses in 100 are in foreclosure.
Jul 19, 2008 - 10:54 am Javelin:Can anyone offer one shred of evidence he is doing this for personal gain? Sounds like the normal right wing “shoot the messenger and conjure up a conspiracy” thing than anything intelligent. With all those bad mortgages out there, there are bound to be bank failures. But it’s so much easier to find a liberal scapegoat than look at the whole subprime mortgage fiasco.
Jul 19, 2008 - 12:15 pm Charlie (Colorado):Javelin, does it matter if he did it for personal gain, or because he’s anxious to publicize things that will help his side in the election, or merely because he’s a publicity hound with no ethics?
Jul 19, 2008 - 12:34 pm Elroy Jetson:Laurent,
Jul 19, 2008 - 1:41 pm kabud:That is an interesting theory concerning a potential shakedown of the rest of the banks. I wonder if there has been an increase in donations from the financial sector to the democrats since the IndyMac meltdown.
I would like to try to find out…but how?
Charlie (Colorado):
well, i will be the first one to cheer you if 5 tril FM&FM added to 9 tril of fed debt added to whatever figure social security and other entitlement debt will be SOMEHOW payed by SOMEONE off
any idea HOW?
Richard:
you said: >From where I sit, about ten miles from Indymac’s headquarters, only two houses in 100 are in foreclosure.
SO HOW COME BANK IS BUNKRUPT? Who is going to cover loses?
Jul 19, 2008 - 2:17 pm kabud:Charlie (Colorado):
so i read you articles. basically you are saying the same things: economy should grow fast enough to provide growing taxation to pay for spending
simple as that
what is then you disagree SPECIFICALLY with the quote ?
Well, lets assume GDP is $13 tril
The President’s actual budget for 2007 totals $2.8 tril
all of a sudden we have feds taking over OTHER PEOPLE debts in the amount
of so far almost 6 tril since banks started to go down
DO WE KNOW how much it will cost us and in what way it will get financed?
We are in a very new territory now: US fed paper and its denominator($) is declining in value and in its risk assessment
S&P already warned that FM&FM situation may and likely WILL
CHANGE THE CREDIT RATING OF FED PAPER
you never studied mathematics, did you?
Jul 19, 2008 - 2:39 pm bgates:ten trillion is a little bit of a nutty estimate (where’d you get that number?)
Jul 19, 2008 - 2:43 pm kabud:Those nuts in the Treasury Department at over $9.5 trillion. $4.2T of that is intragovernmental debt (the “trust fund”), but somebody’s going to have to pay that too.
I don’t understand your contention that $10 trillion in debt can’t cause bankruptcy given GNP of $13 trillion. The debt is the government’s responsibility; GNP is for the nation. The government’s revenue is hovering around 20% of GNP, or $2.5 trillion. Using your 10-year time period, that’s $13 trillion in debt vs $25 trillion in revenue. So the government can easily pay the debt, assuming it cuts every other aspect of its budget, or increases its tax base, by more than 50% every year for the next 10. Or it could debase the currency.
If the 10 year time period you chose is a bad one, that would help. But debt is growing faster than GNP, which means the government’s obligations are growing faster than the ultimate source of its income. That can’t go on forever.
well to be fair, http://www.mckinsey.com has a very good publication along the lines you offered here.
It was estimated that US can continue to borrow on the same rate for the next 15 years as far as i remember
but think about it:
if rating of federal gov changes, if dollar is declining, if GDP is not growing, if taxation will increase, if assets value SERIOUSLY AND UNCONTROLLABLY FALL DOWN-
we may sit down and write some models to depict it more in or less precise way
but i doubt we can figure out effects of Gulf oil been locked by the war with Iran
How about fuel shortages?
How about attack of a much harder degree then 9-11 was?
If we want to be fair we must take it ALL in the account.
This economy never had a situation of FM$FM magnitude alone not mentioning the rest
Add to it population tendency of getting older: less work power, more spending on entitlements
Do you have an answer to this?
I don’t.
B
Jul 19, 2008 - 2:47 pm Charlie (Colorado):kabud, either you can do arithmetic or you can’t. If you can, the details are in those articles; give it a try yurself.
If you can’t, you’ll just have to believe.
Jul 19, 2008 - 3:06 pm Richard:kabud,
You said, SO HOW COME BANK IS BUNKRUPT?
Well, maybe it was all bunk.
Jul 19, 2008 - 3:12 pm Joe:To paraphrase a paraphrase, never attribute to intelligence that which can be attributed to stupidity. Chuck Schumer is too stupid to have done this with some overarching goal in mind. I think he just wanted to sound smart and never considered the consequences.
Jul 19, 2008 - 3:13 pm Chuck Pelto:TO: Charlie (in Colorado) Martin
RE: Sorry Charlie….
…but isn’t it the Bailey Building and Loan, in that classic movie. Not a Savings and Loan.
Hope that helps.
Regards,
Chuck(le)
Jul 19, 2008 - 3:15 pm Richard:kabud,
you asked: So how come bank is bunkrupt?
Maybe it was all bunk.
Jul 19, 2008 - 3:16 pm Allison:It wasn’t a savings and loan.
It was the Bailey Building and Loan. It wasn’t actually a bank, since the money was loaned specifically for the building of other peoples’ homes.
Jul 19, 2008 - 3:19 pm Ten:Charlie, don’t be hard on kabud. Don’t be hard on kabud because kabud is simply right. We will indeed inflate our way to only a partial slowing of the exploding debt and in doing so we’ll resemble the Seventies more than you even care to consider.
(By the way, your hoorahing the American monetary house of cards is consistently incomplete. Your piece on the debt was nearly useless.)
Your hometown example above misses one very important point: For the Bailey bank, “more money” means more printing — why we call the man Ben “Helicopter” Bernake. It doesn’t mean a strong, earning dollar. Regardless, everyday banks don’t qualify for the same socialism Bear-Sterns, Freddie, Fannie, and only the accounts of their size do — remember: profits are private, as they should be, but big losses are always socialized.
Well, always within the context of possible, which is where things really get interesting.
What you also leave unreported is that there’s only around $50B in FDIC reserves behind $6.9T in deposits, and with a limit of $100,000 per account, if there’s ever more than a paltry 50k insolvent accounts, Houston we have a problem. A single city could bankrupt the entire insurance account.
Meanwhile, the US national debt is only reported at some $9,000,000,000,000 but is going thru the roof (as is the money supply; no suprise). But add in all the known unpaid federal entitlements coming home to roost, and as of today’s date, we’re actually some $53,000,000,000,000 in the hole which, by your estimate, is four years of the country’s output.
The govt plays numbers reporting the CPI, which is actually in the vicinity of 10% a year and not the few percent inflation the newz pundits mouth by rote at six and eleven. Heck, Ahnold’s Kalifornia just increased it’s expenditures by some half, all of it under just his short reign. Are we fooling ourselves thinking this is normal?
Of course we are.
A trillion-point-six is already going by the boards in the mortgage crisis and we’re maybe halfway thru this little readjustment of ours. We haven’t event started the great ARM debacle of Spring 2009 (hi Obama, you budding socialist) which promises more ruin than even you can deny. And the dollar is being more or less held hostage by those external market powers who, while they need our income to a degree, should they reverse their position would simply put us six feet under. The dollar is being devalued in a world that’s finally seen the limits of it’s prowess.
Go back and consider that last part again. The dollar is over. It was killed by the last half century of Fed policy.
Some call this crafty risk management, and like you they have a peripheral point, at least for as long is the livin’ is easy. But at its core some call it monetary Russian roulette, which is precisely what it is because this neo-Keynesian endgame is entirely unknown.
One thing it surely isn’t is conservative. In fact, it defies the very definition of the word, no matter how you use it.
Kabud is actually 500%+ correct — the big red number is in excess of fifty trillion dollars. Like I say, your monetary (and fiscal) perspective is incomplete, especially in the context of an ostensibly conservative e-zine, where aside from the hoorahing just because a Republican is, for the moment, in office, surely we know better. This time the crisis isn’t the work of a liberal media preparing for eight sad years of Democrat rule. This time it’s real.
It’s so real we deny it. I mean, you just tacitly promoted the notion that four years of the entire nation’s output would be consumed just to have DC finally break even.
Jul 19, 2008 - 3:20 pm kabud:Richard:
>Well, maybe it was all bunk.
see, you just admitted something that probably u don’t understood yourself:
the system is not TRANSPARENT
it was ok for a while when perception of it was more or less positive
NOT ANY MORE
TRUST diminishes, risks are growing and facts are just started to unveil
Jul 19, 2008 - 3:25 pm kabud:Charley, may be u forgot your own writings, so i am here to remind you :
if we can keep spending constant, or even just keep spending growing slower than the growth in GDP, even if we start at a major deficit, we will eventually break even and even start to accumulate a surplus. Keep that up long enough, and the debt goes away, the Social Security and Medicare underfunding goes away, and we can pay for all sorts of things. Or, better yet, give some of the money back so people can do what they want with it.
We know this is true, because this is exactly what happened in the 90s — the economy grew significantly faster than spending did. It’s not that spending didn’t grow, and in fact it grew faster than inflation; just not as fast as the economy did. Sure enough, in a few years, we had a budget surplus. Of course then we had a recession, which cut revenues temporarily, and a war, which raised spending, but that doesn’t actually matter: wherever you start, so long as spending isn’t growing as fast as the economy on average over a long time, you will eventually come back to a surplus.
TODAY we have all this accelerated in negative.
And it is just a beginning.
AGAIN for those who can not overcome the wishful thinking:
1. all your conclusions are based on assumption of certain variables fluctuation within desired:
asset values, government credit rating and ability to borrow, dollar value, economic growth, general state of economy, etc
AGAIN: it may go ok under the above.
But what if
-assets deflate to th unexpected level, say times more then u estimated?
-government can not borrow that easy as in the past
-tax revenues go down because economy shrinks
-chaotic processes will take place because of FUEL SHORTAGES
-large scale terror attack kills tens of millions in nuclear or biological hit
it is all very likely events and NOTHING is done on a systemic level to prevent any of the cosequences!!!!!!!
Jul 19, 2008 - 3:43 pm DensityDuck:UN-altered REPRODUCTION and DISSEMINATION of this IMPORTANT information is ENCOURAGED!!
Jul 19, 2008 - 3:46 pm Akatsukami:No, javelin>/b>, it’s a right-wing exposure of the left wing’s usual attempt to find a scapegoat in Evil Big Business.
Jul 19, 2008 - 4:10 pm Richard:kabud,
Jul 19, 2008 - 4:17 pm kabud:I admit nothing; I just thought “bunkrupt” was the funniest thing I’d read since a guy looking for help on a Ford board said he was the owner of a Ford “Exploder.”
Richard:
Jul 19, 2008 - 4:37 pm kabud:exploder is usually reserved for M$ browser)))))))
DensityDuck: distribute this then too:
Jul 19, 2008 - 4:39 pm Javelin:SO HERE IS A PLAN.
1.Openly admit to every past shady deal with the enemy, from 1917. It will gradually create a public trust of high level towards the Government
2.Openly describe to the public what is known to elites and what they hide from the People, including kremlin’s long term strategy to impose world totalitarian domination by force. Including Beijing plans to exterminate Americans and divide our homeland with kremlenoids. Yes, our elites know this.
3.Immediately stop any trade and cancel diplomatic recognition of kremlin, Beijing and all their allies . Also cancel our debt to them. Including Saudis and alike. Including oil imports from them: no trade, no diplomatic recognition NOW. Create domestic methanol fuel economy: doable in several months period.
4.Publish all details on our rotten financial system, including the real situation with Federal debt, federal reserve etc. May be, as some fellow economists proposed, create a new solid currency instead of fiat dollar
5.Immediately cancel all regulations that create obstacles for any kind of economic development here, including those that have created monopolistic conditions in almost all industries, global warming bullshit, etc. Those are well known to the American public.
6.Massively register all illegals. Profile them. Deport all who are remotely suspicious to be the actors of subversion: 1 month term.
7.Seal all borders in a matter of ONE WEEK. We can easily do it.
8.Offer a refuge to all willing to come here Israelis (Jews). Since it may become very dangerous for 6 million people to remain in Israel. Allow them to resettle in California. They will have Israel back in a few years. Or just withdraw any political restrictions we put on their policies in the past: let them handle it on their own and win the region or come here. Or both.
Akatsukami
You are as petty and dishonest as this accusation. People that babbel about evil all the time are usually too childish and simplistic to have an opinion that means a thing. Mr. Schumer did not make all those bad loans as well as most of the people who made those loans or took them are not evil either. But there are some bad apples in the industry and they created a crisis that is hurting us all.
In the old days of the bad old media we might get some good investigative journalism, now we have pinheads like you who go to their favorite hyper biased talk show and blogs and get some cheap little hit piece with no facts but tons of speculation! Small minded people of your ilk think in terms like this: coonnnnnns goooooood, liberals baaaaadd.
Jul 19, 2008 - 5:21 pm kabud:comment to the above:
If i would have a magic power over the US policy- this is what i would do. We are at war. Much bigger war then we think.
All our policies in the Middle East and elsewhere either failed or will fail because we don’t understand a long term strategy of the enemy.
It is in our culture and our political system: we live from elections to elections, we are open society, we accept everything including subversion, we trust everyone. And we are misguided by the rulers who are not telling us the truth. And we are far away from the rest of the world and have a WRONG perception of it.
IT IS NOT JUST ABOUT FINANCES- it is SO MUCH MORE.
So we are headed for a major catastrophe- like the Freddy Mac coming disaster described here : http://xyu.livejournal.com/649821.html
I can easily prove that this plan above will effectively and fast end threats to us. They may try a war, but morally they will have no chance so they will lose!
They WILL TRY A WAR ANYWAY, so the above measures will save tens of millions of our fellow Americans
and if not undertaken beforehand - will become necessary AND WILL BE TAKEN later, but:
we will have to suffer massive casualties and may even lose our Republic forever.
So: don’t say u were not warned.
Jul 19, 2008 - 5:57 pm ic:For those who are concerned about the national debt, this may help:
http://www.optimist123.com/optimist/2005/01/national_debt_b.html
http://www.optimist123.com/.shared/image.html?/photos/uncategorized/debt_burden_history_20050204_1.gif
http://boomerang.blogs.com/optimist/2008/06/interest-on-the.html
Please pay attention to the debt clock on the right, and the fact that Japan’s national debt is amost 160% of GDP, ours is about 66%, Italy, Canada, Germany, and France have higher national debts than we have. We seem to be queuing up for national bankruptcies.
Jul 19, 2008 - 6:25 pm Charlie (Colorado):Kabud, I’ve been watching marxists predict this for, hell, 40 years. Before that my father and grandfather watched marxists predict it. Oh, that I prefer the spelling “Charlie”, like at the top of the page.
Chuck, “building and loan” is a synonym for “savings and loan”. I wanted the more familiar term.
Ten, I make no pretense of being a “conservative” — in fact, if you google my “seneca” moniker you’ll find more than one posting titled “Why I’m not a conservative”. What I am is someone who reads history and can do arithmetic; we’re talking about a total asset base of about $90 trillion dollars, and we’re fussing about $6 or $9 or $10 trillion in long term debt. Would it be better if we didn’t have it? Sure. But if all that debt hit, and there were no residual value in the assets, and we had to pay it off over umpteen years, we would.
When you can find me an example of country in that kind of asset position that had the kind of crisis you’re talking about, let me know.
Jul 19, 2008 - 6:29 pm Charlie (Colorado):Oh, and Joe, I agree with you (that’s Heinlein’s Razor, or “Hanlon’s”, by the way.) I’ve seen the active-conspiracy ideas passed around, and I want more evidence. But it seems entirely plausible to me that Schumer saw a chance to score some political points and didn’t think.
Now, as I understand it, the SEC would charge you with a crime if you did the same thing without Congressional immunity, but that doesn’t mean he was involved in a conspiracy.
Jul 19, 2008 - 6:34 pm Chuck Pelto:TO: kabud
RE: [OT] That War Thing
“All our policies in the Middle East and elsewhere either failed or will fail because we don’t understand a long term strategy of the enemy.” — kabud
It’s a fascinating topic. But Off-Topic here. I wish someone would bring up a discussion of the ‘long-term’ war we’ve been dealing with since the 8th Century on PJM. It would certainly be educational.
Regards,
Chuck(le)
Jul 19, 2008 - 6:37 pm Javelin:[Peace: A time of cheating among nations between two periods of conflict.]
Yeah, let’s forget about the people really responsible for this mess and focus on Schumer, like the kneejerk pinheads we are. This is the mentality of mental midgets educated by Rush. I’ll stick to the dreaded MSM for some intellgent analysis based on research as opposed to juvenile blog screed like this.
Jul 19, 2008 - 7:22 pm Ten:When you can find me an example of country in that kind of asset position that had the kind of crisis you’re talking about, let me know.
At the risk of suggesting you’re moving goalposts, Charlie, what is the endgame of playing this game?
http://calculatedrisk.blogspot.com/2008/07/uk-economic-horror-movie.html
Jul 19, 2008 - 8:27 pm pdxnag:Suppose instead that a prosecutor started complaining about bogus appraisals? 18 USC 1014
Suppose the prosecutors, to a man/woman, chose to ignore such criminality so as not to cause a panic?
What good are laws, if not applied early and aggressively, and with an even hand. Let’s not blame the wrong party here.
The money that was lent, if in violation of 18 USC 1014, can be traced to the seller who got more than their property was worth. It did not go poof like a Fairly Odd Parent. Void the transaction and we can just unwind some of the nonsense, or at least give it a try, and restore the innocent parties to where they had been had their been no appraisal fraud.
I am not in favor of a legislative blanket grant of immunity/pardon to the long list of criminally culpable parties.
Jul 19, 2008 - 10:25 pm bgates:we’re talking about a total asset base of about $90 trillion dollars
Jul 20, 2008 - 12:06 am b gates:We are? Where did that number come from? The only thing I can find is your own article claiming that “we’ve got something like $162,000 in individual share of the national debt — but we’ve got something like $300,000 share of the national wealth.” OK, $300,000/person x 300 million people = $90 trillion assets. But $162,000/person x 300 million people = $48.6 trillion in debt. Are you getting your asset number from somewhere else, and saying debt is $10T at the high end (”nutty”, even)? Or was that debt article the source for your $90T, in which case the debt number is close to $50T?
(This may turn up as a double post, sorry.)
Jul 20, 2008 - 12:08 am ismellbs:we’re talking about a total asset base of about $90 trillion dollars
We are? Where did that number come from? The only thing I can find is your own article claiming that “we’ve got something like $162,000 in individual share of the national debt — but we’ve got something like $300,000 share of the national wealth.” OK, $300,000/person x 300 million people = $90 trillion assets. But $162,000/person x 300 million people = $48.6 trillion in debt. Are you getting your asset number from somewhere else, and saying debt is $10T at the high end (”nutty”, even)? Or was that debt article the source for your $90T, in which case the debt number is close to $50T?
“As one who placed mortgages with Indy Mac, I can report that Indy Mac was run honestly, and did not grant loans imprudently.”
Laurent,
I beg to differ.
Indymac was not loaning out 80/20 loans to people, and then got caught up in a problem not of its making when home values fell 70%.
Indymac was loaning out 100% loans to people, not verifying their citizenship, and not verifying their income. Indymac was playing the game of “reverse bank fraud.”
In this game, the bank WANTS me to lie on my loan application, so that it can loan meet its “loan requirements.” Everyone knows that shortly after Indymac closes the loan, it sells it off to some OTHER SUCKER, who has to collect the money.
The bank business became the loan sales business. The underlying ability of the borrower became irrelevant to the bank, because the bank was never going to assume the risk of the loan. It sold the risk of the loan to Wall Street.
So, please … do us a favor: Don’t make Indymac out to be the victim of runaway home values. It was loaning money to people in this country illegally, without verifying their income and without requiring any down payment from those people.
That’s bad business, and IndyMac deserved to be bankrupted by their practices.
Jul 20, 2008 - 5:33 am Brian Macker:bgates,
You can’t do the math you are doing because the personal debt is owed to other people in the economy. That average debt doesn’t include assets. For instance my home mortgage is counted in that number and NOT my nearly twice as large 401K money market. A lot of that personal debt we owe to other americans.
Ten, I approve your message for the most part. We are in bad shape.
Kabud, you are one crazy mofo. Chinese and Russians want to exterminate us and take over our lands? Get a grip. Most Chiese are just worried about getting food on the table.
Jul 20, 2008 - 5:56 am Brian Macker:BTW, it’s ridiculous to blame Schumer for this. Our financial house of cards is in very bad shape and we’ve been running on nonsense for a long time. One can run these ponzi schemes for a long time when the investors can’t get at thier money for 50 years.
Yep, I expect pretty much zip from SS and the money in my 401k is going to evaporate in value due to inflation.
Jul 20, 2008 - 6:00 am Akatsukami:The truth hurts, doesn’t it, javelin?
With your snarky, fact-free attacks on conservatives — not just in this thread, but throughout Pajamas Media — you are, like Schumer, attempting to sow leftist FUD. The difference is that Schumer has enough influence to start a bank run, whereas you couldn’t get a sailor to follow into a whorehouse.
Jul 20, 2008 - 6:45 am MattJ:Brian and Javelin, I probably agree with you on the state of the financial system and the origins of the crisis, but defending Schumer is nonsensical. There was only one possible result of his letter; a bank run and the failing of IndyMac. This result has lead to losses for many depositors and a big hit to the FDIC, which is clearly undercapitalised. Who was helped by his letter? The few depositors who got their money out between the release of his letter and the bank being closed.
Anyone who has been paying attention to the unfolding housing crisis has known IndyMac would be in trouble for years, and I’m sure that the FDIC has been working to resolve their problems for some time. If he had not released his letter, there is a chance that they may have been able to engineer a merger or a sale that would have protected the depositors and the FDIC. That would have been a better result.
I suspect that he was trying to preemptively shift blame from the actions of Congress onto others, and that he does not have as pessimistic a view of the current state of the banking system as I do. The time for him to speak up and point out the faults of the regulators was 5 years ago; it is much too late now, and we are in too much danger of a national bank run to let loudmouth idiots like Schumer run around causing more damage without calling them on it.
Jul 20, 2008 - 6:49 am Ten:bgates, as I claimed yesterday, the combined debt is indeed in well excess of $50T, even as charlie’s numbers inadvertently suggest. The $9T number is a fiction:
http://www.usatoday.com/news/washington/2007-05-28-federal-budget_N.htm
(And of course, the “share of the national wealth” is utter conjured BS. As in the taxpayer-funded bailouts now happening all around us, only losses are socialized.)
Jul 20, 2008 - 7:31 am Ten:So, please … do us a favor: Don’t make Indymac out to be the victim of runaway home values. It was loaning money to people in this country illegally, without verifying their income and without requiring any down payment from those people.
That’s bad business, and IndyMac deserved to be bankrupted by their practices.
You do realize you’re then talking about the entire US banking system under Greenspan, don’t you? “Runaway home values” were caused by a systemic cash glut, so in other words, when you boil this entire mess down, the US government’s printing press is to blame.
Jul 20, 2008 - 7:34 am Charlie (Colorado):Uh, bgates, $90 trillion is assets? That would be the $90 trillion in assets. If I’d have meant equity (assets - liabilities = equity) I’d have said equity.
I know, you’re just making humor, right?
Ten, I’m not moving any goalposts because I don’t have any. It’s your thesis, support it. Point me to the blog post when you do.
pdxnag, you’re not thinking this through: a prosecutor who felt there was criminality involved would very probably keep the indictment sealed (unless they were politically ambitious and it was time for election; that took Elliot Spitzer to Albany.) They could co-ordinate with bank examiners, the FDIC, whomever. Then when the indictment came out, the FDIC and such would be there to say “but deposits are insured, and we’ll be handling this to make sure no one is hurt.” That’s not ignoring it, that’s taking care not to hurt innocent bystanders. Or, they could blurt it out, and cause a bank run, which can criipple even a perfectly run bank.
Javelin, this is an article about bank runs. Arguments about how the Eeevil Conservatives have Ruined Everything are down the hall to the left. Far left.
Brian, all I blame Schumer for is the bank run. As Matt says, absent the bank run, IndyMac could have been resolved in what the regulators like to call an “orderly fashion.” Even then, I’m not signing up for the conspiracy theories: it’s a lot easier to figure Schumer is just a publicity-addicted fool.
Jul 20, 2008 - 8:16 am kabud:Brian Macker:
you don’t understand a SIMPLE thing about totalitarian regimes:
PEOLPE DON’T COUNT. PEOLE ARE SLAVES AND HAVE NO WORD IN IT
rulers have plans
read
Jul 20, 2008 - 8:38 am kabud:http://en.epochtimes.com/news/5-8-8/31055.html
Chuck Pelto:
Chuck, the reason i brought the war up here is simple and straight forward:
attack on our finances is not done just out of greed
if we fall in the financial mess
and fuel shortages will be applied on us:
our military strength will diminish instantaneously
government will face problems maintaining nuclear and other sensitive aspects of military
morale will go down
dont we forgot about 9-11 and exactly when it happen? may be someone remembers dot-com crisis?
and anthrax attack, actually TEST of our inability to confront bio attack?
if anyone here can read russian- read their media: they are almost on the brink of war with Georgia.
there is a vast anti-american campaign going on in russia
it all may look like an attempt to rally people against us
so, i consider this financial mess as a weapon against us so successfully used
Jul 20, 2008 - 8:51 am kabud:To Charlie, absolutely))
>Oh, that I prefer the spelling “Charlie”:
u sensitive man, no more arguments?
U watch for 40 years? but u never bothered to learn how political system in totalitarian countries works: they DONY HAVE ELECTIONS. They NEVER lose power, so THEY PLAN FOR DECADES and WAIT for the right moment to strike. And the right moment as it is formulated by their strategists is:
economic or/and financial collapse of US. They learned it since 30s.
You should watch this very attentively:
http://xyu.livejournal.com/642981.html?mode=reply
Bezmenov explains how thy plan it.
Everything will come to the patient.
So they wait.
Also you must be familiar with ONE PERCENT DOCTRINE, here:
Cheney, by Suskind’s account, had been grappling with how to think about “a low-probability, high-impact event.” By the time the briefing was over, he had his answer:
“If there’s a one percent chance that scientists are helping the enemy to build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response.” from THE ONE PERCENT DOCTRINE Deep Inside America’s Pursuit of Its Enemies Since 9/11
Jul 20, 2008 - 9:14 am kabud:———
i wish and pray that all this turn wrong
ic:
yeas, other countries do have debts
but there is fundamental difference here: US currency is a world reserve currency
it is a long story what it is- you can check it yourself, may be on wiki
in 2 words: it used to give us an unprecedented power to borrow
based exactly like Charlie writes or assumes:
on our economical power and scale,
continuous growth, also on our
huge population,
one of the most effective political system in the world, geography,
national resources and
weather conditions
Thats exactly what makes our enemy so eager to concur us and take it all for themselves
And judging by the state of our political affairs: they almost done with installing socialism here: if feds will take fm&fm on their balance sheet- US WILL enter socialism as never before
Also i must mention the sovereign wealth funds of China, OPEC,Russia. They accumulated trillions of US federal paper all together.
We can figure the way this leverage will be used but it is a topic within itself.
All together OPEC and Russia have oil/gas reserves in a volume of already discovered and easily recoverable about
TWICE THE TOTAL AMOUNT OF ALL WORLD SECURITIES as of the moment, before a catastrophic devaluation of securities including government paper, stocks of industrial companies,- EVERYTHING.
World total volume of securities is around 150-160 tril
Our oil based economy created this situation.
We gave our enemy this leverage
I guarantee that it will be used.
Think in terms of devaluating the stock of american companies thru crisis like with fm&fm and buy out by foreign sovereign funds for a fraction of today costs of:
major industrial companies, major TV and other media outlets and so on
Jul 20, 2008 - 9:28 am Ten:Sorry charlie, but when you convert an article about Bank Failure 101 into a tacit national comparison of failed global monetary policy and suggest the US fares well by comparison to, well, socialist states, one must indeed resist the urge call goalpost-moving. Ditto the actual $50T+ in debt and calling it $6T or $8T or $9T, or the, um, thesis that we’re somehow all sharing in federal, collective wealth.
Kindly point me to my stake of that wealth. Meanwhile I’ll can point you to my and my children’s stake in the imploding paper dollar.
Maybe you prefer leaving the important points off the round table, calling dibsies on which comments pursue your article — comments probably not to include what actually underlies IndyMac, which is only peripherally what that pathological opportunist Schumer spouts. As to “orderly fashion” the monetary system is now in panic (and may even recognize, as the least of its many concerns, that it’s currently insuring only fifty thousand accounts in the entire country from its whopping $50B war chest. Oops; whatever.)
See, the non-conservatives have ruined things. Because in DC there are no conservatives.
Jul 20, 2008 - 9:48 am kabud:Ten: TRUE THAT!
>See, the non-conservatives have ruined things. Because in DC there are no conservatives
we all kinda overlooked that besides FEDERAL we have state and local
may we assume that state&local is roughly equal to federal?
spendings and revenues, assets and liabilities, - everything
what is happening THERE?
Jul 20, 2008 - 10:11 am njcommuter:Side question: The $100,000 limit on FDIC insurance has been around for at least half a century, probably since the FDIC was created. But the dollar has shrunk notably since then, and people don’t know whether their accounts under various titles (John Smith, John and Jane Smith, John Smith in trust for Jimmy Smith …) are added together againt that limit. When a bank’s situtation gets dicey, people may just go to move part of their assets out of it, to protect against hitting those limits. That’s going to hurt, too.
Isn’t there a case now for raising the deposit insurance ceiling to $500,000 or even $1,000,000?
Jul 20, 2008 - 5:06 pm Charlie (Colorado):Ten: Sorry charlie, but when you convert an article about Bank Failure 101 into a tacit national comparison of failed global monetary policy and suggest the US fares well by comparison to, well, socialist states, one must indeed resist the urge call goalpost-moving.
Well, Ten, I’ll be sure to let you know when I do. In the mean time, you were proposing that we’re in much more dire financial shape than I think we are; I suggested that you might find another example of a country in similar shape in the past that has had the kind of crisis you propose.
Your argument reminds me of another acquaintance who was telling me that the loss of housing value would result in 7-8 percent unemployment and inflation near ten percent, and this would lead to the Collapse of Civil Society. I pointed out that he was describing the better part of the Carter administration that that it led to a one-term presidency. Oh, I suppose some people would count the Reagan’s election as the Collapse of Civilization, but I rather liked it.
I’d still like to see you make the attempt; pick whatever measures you like and lets see if it will stand up to examination.
kabud: may we assume that state&local is roughly equal to federal?
No. Google is your friend: get data.
nj: Isn’t there a case now for raising the deposit insurance ceiling to $500,000 or even $1,000,000?
I looked back at the history of the deposit insurance. It was $5000 in 1934, went up to $10000 in 1950, and up to $100000 in 1980. Westegg.com’s inflation calculator says $10,000 in 1950 is worth about $86,110 now; $5,000 in 1934 would be about $79,300 now. On the other hand, the $100,000 in 1980 is about $282,200 now. So I’d have to say, unequivocally, “maybe”.
Jul 20, 2008 - 6:52 pm kabud:Charlie (Colorado):
u know, i thought that there is something wrong about all of your arguments.
But now I KNOW IT.
kabud: may we assume that state&local is roughly equal to federal?
No. Google is your friend: get data.
and here is google my friend
Jul 20, 2008 - 9:36 pm Charlie (Colorado):http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue-breakdown.cfm
Okay, kabud, evidence for what? It looks from that chart that your assumption holds, ie, the federal government gets about half of tax revenue, and states and localities get the other half. So, good, you have data. Now what’s the argument you’re trying to make here?
Oh, and which argument? This article says that a bank run happens when rumors of insolvency get around, and shows an example.
Jul 20, 2008 - 11:47 pm kabud:Charlie (Colorado):
you censored my explanation, but dont have any doubt
PUBLIC FIGURED YOU OUT
YOU HAVE NO IDEA
TRY TO RUMOR YOURSELF INTO SOMETHING DIFFERENT THEN WRITING
no telenat, no understanding, no nothing:
a little engine that COULDNT
Jul 21, 2008 - 10:48 am Joshua:Kabud, if you are right we are too far gone now and our Republic will collapse under the perfect storm created by totalitarian regimes preparing for our financial and social destruction and their subsequent occupation.
I guess I’ve only got one option. Go buy more bullets right away.
Jul 21, 2008 - 3:52 pm kabud:Joshua:
EXACTLY
and we must think of stepping out of 2 party political scheme we are played by:
we need A REAL LEADER and a REAL MOVEMENT
Jul 21, 2008 - 4:29 pm MattJ:It is wrong to conflate the debt represented by outstanding treasuries with intragovernmental debt, let alone with unfunded entitlement liabilities. Entitlement benefits can be reduced by Congress in ways that will reduce or erase that liability. In a similar way, the funding of entitlements can be changed in ways that effectively erase the intragovernmental debt. Neither of those changes would have the affect that defaulting on treasury debt would.
Jul 22, 2008 - 7:14 am kabud:MattJ: agree
see, what is happening here should be viewed as a tendency of more governmental unneeded involvement in supposedly free markets in a bad way
regulations are needed but unfortunately they became an instrument of enriching of corrupted who team up with officials , get priority treatment on your expense
on top of fuel problem we face
-political instability of this elections also combined with
-crisis of 2 party system, when
-2 parties degraded into self serving socialist apparatus
-and war
-and threat of a very bad attack on the homeland
we are getting to the point of no return and Republic death
i think federal government MUST do what you proposed like YESTERDAY
and explain openly to the public WHY
Jul 22, 2008 - 9:28 am Charlie (Colorado):you censored my explanation
You might want to look that word up; it doesn’t mean what you think it means.
Jul 22, 2008 - 12:02 pm kabud:Charlie (Colorado):
so find what you did not let to appear and publish it
Jul 22, 2008 - 12:37 pm Baylink:I personally think that if Schumer had a card up his sleeve, it was “make sure the public can *see the results* of 8 years of moronic Republican rule”.
I’m not worried about 1-800-RUN, as Tom Clancy once put it; I’m worried about http://www.RUN
Nice piece, Charlie.
Jul 31, 2008 - 2:10 pm Charlie (Colorado):so find what you did not let to appear and publish it
It’s probably a little late for this, but kabud, so far as I know PJM doesn’t remove any comments. (I’ve had Chuck Pelto saying he’d been censored before as well; the difficulty here is that we’re smart enough to delete comments that complain about censorship too, if we had any interest in censoring you.)
Given the general literacy of your posts, I suspect operator error.
Aug 17, 2008 - 11:15 am