http://www.minyanville.com/articles/NYX-SPY-GSPC/index/a/23402
Over time people have become confused between money and wealth. This is precisely what central bankers have had to do to convince consumers to borrow and spend recklessly. If any part of the US government/ Federal Reserve/ banking system is operating well, it's their public relations/ advertising/ media division.
At any period, there's a certain amount of wealth in the US economy, yet government has created much more "money" over very short periods to intermediate that wealth. Thus wealth per "dollar" has been diluted vastly.
How have they done this? By lowering the cost of debt both to the lender and the borrower and increasing leverage in the system through the fractional banking system. In our credit-based system, money equals debt: We've been spending credit, not wealth.
Recognizing the fact that economies more and more are influenced by central banks that attempt to stimulate economies (consumption) by creating debt many years ago, I began physically moving my assets around the world, shifting my wealth from time to time to the country I felt would devalue its currency the least: When a central bank creates debt, it essentially creates more of its currency, and thus devalues that currency.
Inflation is the creation of superfluous debt that chases unproductive assets (assets that produce little or no income for the risk undertaken). It devalues currency and drives up prices -- especially
Showing posts with label Hot money. Show all posts
Showing posts with label Hot money. Show all posts
Tuesday, July 7, 2009
Sunday, July 5, 2009
Hot Money: For Banks, Wads of Cash and Loads of Trouble
http://www.nytimes.com/2009/07/04/business/04brokered.html?_r=1&ref=global
H. Averett Walker used hot money to turn Security Bank from a sleepy Southern lender into a regional powerhouse. Darrell D. Pittard used hot money to jump-start his brand-new MagnetBank, allowing it to lend hundreds of millions of dollars even though it did not have a single drive-up window or even a customer with a checking account.
It is a formula being replicated at banks across the United States.
Rather than simply wooing local customers, they have turned to out-of-state brokers who deliver billions of dollars in bulk deposits, widely known as “hot money,” from investors nationwide. In fast-growing regions like this one in central Georgia, the money produced record bank profits and financed whole new communities, built at a phenomenal rate.
But the hot money also came with a high cost. To lure the money from brokers, banks typically had to offer unusually high rates. That, in turn, often led them to make ever riskier loans, leaving them vulnerable when the economy collapsed. Magnet failed early this year and Security Bank is barely hanging on.
Though few people have heard of it, hot money — or brokered deposits, as it is also known in the industry — is one of the primary factors in the accelerating wave of failures among small and regional banks nationwide. The estimated cost to the Federal Deposit Insurance Corporation over the last 18 months is $7.7 billion, and growing.
H. Averett Walker used hot money to turn Security Bank from a sleepy Southern lender into a regional powerhouse. Darrell D. Pittard used hot money to jump-start his brand-new MagnetBank, allowing it to lend hundreds of millions of dollars even though it did not have a single drive-up window or even a customer with a checking account.
It is a formula being replicated at banks across the United States.
Rather than simply wooing local customers, they have turned to out-of-state brokers who deliver billions of dollars in bulk deposits, widely known as “hot money,” from investors nationwide. In fast-growing regions like this one in central Georgia, the money produced record bank profits and financed whole new communities, built at a phenomenal rate.
But the hot money also came with a high cost. To lure the money from brokers, banks typically had to offer unusually high rates. That, in turn, often led them to make ever riskier loans, leaving them vulnerable when the economy collapsed. Magnet failed early this year and Security Bank is barely hanging on.
Though few people have heard of it, hot money — or brokered deposits, as it is also known in the industry — is one of the primary factors in the accelerating wave of failures among small and regional banks nationwide. The estimated cost to the Federal Deposit Insurance Corporation over the last 18 months is $7.7 billion, and growing.
Subscribe to:
Posts (Atom)