Changes in the money supply

Discussion in 'Economy' started by william the wie, Oct 28, 2010.

  1. william the wie
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    william the wie Gold Member

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    Banking is a middleman activity. Since the development of dependable mail service in the 1700s and even more so since the invention of the telegraph and telephone the cost of information has been going down. Middlemen use the costs of gaining and processing information to make a profit. So banks as middlemen should be in the process of being squeezed out.

    Pretty much everybody knows the above facts but it still came as a shock to me in reading up on the meltdowns of the past 50-60 years to run across the following facts:

    right after WWII (according to James Dimon as quoted in "Last Man Standing") that banks accounted for 60% of banking activity but only 20% now.

    The securitization of debt which began in the 70s is an effect of profit margin squeezes. Insurance companies, trust funds, foundations and newer ideas such as hedge funds and money markets have been taking market share from the banks at a steady 1.2% a year growth rate for probably a couple of centuries.

    Federal financial regulation has focused on this steadily shrinking industry since the 1790s.

    What are the dimensions of this problem?
     
  2. loosecannon
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    loosecannon Senior Member

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    what is the problem?
     
  3. william the wie
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    william the wie Gold Member

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    The fed is operating on the principle that the banks they supervise are the banking system and that is how they managed to shut down the shadow banking and caused meltdown in 2008. Shutting down 80% of a market because you never managed to figure out that it exists is what the Fed brought us.
     
  4. Paulie
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    Paulie Platinum Member

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    Sometimes you're vague to the point of frustration.

    Can you elaborate on what you're talking about for us laymen who aren't privy to the Fed's behind the scenes actions?
     
  5. william the wie
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    william the wie Gold Member

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    80% of the bubble was financed by insurance companies, pension funds, money markets and the like. For example most hedge funds that used Lehman Brothers as clearing broker out of its London office could not get their trades cleared under British law until Nomura securities bought that operation out of US bankruptcy court days later. That was the proximate cause of the 2008 stock market collapse as US equity collateral was sold in job lots to cover margin calls for money sitting in LB's customer escrow accounts.
     
  6. Paulie
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    Paulie Platinum Member

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    I get what you're saying now.
     
  7. loosecannon
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    loosecannon Senior Member

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    but that doesn't make those "insurance companies, pension funds, money markets" banks, or even providers of banking services.

    Hell I would be happy if the banks were just banks and didn't dabble in underwriting derivatives or acting as a clearing house for other equity operations.

    What definition of "banking" are you relying on?
     
  8. william the wie
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    william the wie Gold Member

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    Those who accumulate other people's capital and invest it: AIG, Citigroup, Berkshire Hathaway and other insurance companies are the nation's biggest banks. The various famous foundations Ford, Rockerfeller, Gates and various others are the financial angels at the bleeding edge of research. The Harvard, Yale and Stanford trusts pick up the big ticket illiquid items that no one else can legally touch. There may have been as many as 20 companies that had more than 1 T in financial assets under management in January 2008 and there are still some left but not as many. You may call them bond funds, insurance companies or what have you but as far as I am concerned anyone who gets more than 0.1% compensation for running 1T in capital is a bank.
     
  9. asterism
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    asterism Congress != Progress

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    Perhaps the migration of finance away from banks is in response to the increased regulations, and that the regulations really don't regulate but instead micromanage.

    We need oversight, not increased micromanagement.
     
  10. william the wie
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    william the wie Gold Member

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    Jamie Dimon head of JPM says the exact same thing.
     

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