The Fed's Bond Bubble Doomsday Machine

[CrusaderFrank]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

 

[EdwardBaiamonte]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

 

[g5000]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

The Fed needs to stop avoiding pain. Pain avoidance just makes the next downturn bigger.

When a bunch of banks fuck up, they need to pay the price. If they don't, they won't change their ways. It's called moral hazard.

And, sure enough, the banks have not changed their ways. They continued their fraud unabated after being rescued and allowed to live. ISDAfix fix, LIBOR fix, etc.

And yes, the bond bubble has a potential risk of dwarfing the last crash. Instead of talking about banks that are Too Big To Fail, we will be talking about Too Big To Save.

Does the Fed know this? Some at the Fed might, but most are just as deluded as they were during the last bubble.

 

[CrusaderFrank]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

The problem now is so so so so fucking huge that it's like a 20 mile asteroid that going to impact. These fed changes in 2016 are only answering the question of where and it impacts and the reality is that won't make a bit of difference. It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

Fed policy should have been to:

• allow banks to operate without FDIC insurance and the government guarantee. You puts up your money you takes your chances. Don't look for the public to assume your risks. Fear of losing your own money is far and away the best, most fool proof form of regulation that's ever been invented
• close FHA, Fannie and Freddie, sell their asset at auction and it's a crime punishable by death to propose legislation allowing the federal government to make any loan guarantees

Did we ever discover who was sucking $500 Billion in cash out of the system in 2007

 

[CrusaderFrank]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

The Fed needs to stop avoiding pain. Pain avoidance just makes the next downturn bigger.

When a bunch of banks fuck up, they need to pay the price. If they don't, they won't change their ways. It's called moral hazard.

And, sure enough, the banks have not changed their ways. They continued their fraud unabated after being rescued and allowed to live. ISDAfix fix, LIBOR fix, etc.

And yes, the bond bubble has a potential risk of dwarfing the last crash. Instead of talking about banks that are Too Big To Fail, we will be talking about Too Big To Save.

Does the Fed know this? Some at the Fed might, but most are just as deluded as they were during the last bubble.

yeah, the Fed is clueless.

Run with that

 

[g5000]

It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

The key word is "circulation". There is enough money out there to cause massive inflation. It is just buried in the back yard right now.

See my first two posts in this topic.

 

[CrusaderFrank]

It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

The key word is "circulation". There is enough money out there to cause massive inflation. It is just buried in the back yard right now.

See my first two posts in this topic.

You mistake credit for money. There won't be a Weinmar Event in the USA because we don't have the cash, we only have EBT cards

 

[g5000]

It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

The key word is "circulation". There is enough money out there to cause massive inflation. It is just buried in the back yard right now.

See my first two posts in this topic.

You mistake credit for money. There won't be a Weinmar Event in the USA because we don't have the cash, we only have EBT cards

Electronic money is the same as cash. And there is enough buried in the banks' back yards to cause rampant inflation when it picks up speed.

 

[EdwardBaiamonte]

cause rampant inflation when it picks up speed.

actually we have central banks to prevent inflation. Fools have been waiting for inflation for the last 10 years, in Japan for the last 25. Fools lack the IQ to learn.

 

[EdwardBaiamonte]

The key word is "circulation". There is enough money out there to cause massive inflation. It is just buried in the back yard right now.

See my first two posts in this topic.

econ 101. We have Central Banks to prevent inflation. Sorry to rock your world

 

[EdwardBaiamonte]

Does the Fed know this? Some at the Fed might, but most are just as deluded as they were during the last bubble.

of course if they were deluded they would not have been able to so deftly prevent another Great Depression. We are a long way from 1929 when the Fed was still learning.

 

[EdwardBaiamonte]

When you buy a bond, you are making a loan to the issuer. That bond is money owed to the buyer, making it an asset.

When the Federal Reserve buys a US Treasury bill, note, or bond, it is making a loan to the federal government because the federal government has appropriated more spending than it has received in revenues.

This is called "monetizing the debt". Putting more money into circulation.

Because of the crash resulting from the global derivatives bubble, the Federal Reserve has also been buying Mortgage Backed Securities (MBS) from Wall Street. Yeah, the Fed owns mortgages. Maybe even your house. This is also printing money and putting it into circulation.

So how much money has the Fed printed? What is the book value of its assets?

3 trillion dollars.

With that much extra cash in circulation, inflation is a real concern. There are those who claim inflation is the reason the price of gas or stock prices are so high, but they are making a common mistake, confusing rising relative prices with inflation.

The price of oil has always been volatile, but we rarely hear anyone making panicked cries of doom over "rapid deflation" when the price of oil plummets. Instead, there is dead silence when it does. We only hear panicked cries of doom when the price of oil jumps. A simple observation of the price of oil over long periods of time reveals there is obviously something greater than inflation at work there.

A key component of inflation that is almost always overlooked is something called "the velocity of money".

If the Fed gave you a trillion dollars, and you buried it in your backyard, then that trillion dollars will have absolutely no effect on the value of the money in circulation. The velocity of that trillion dollars is zero.

Just so since the crash of 2008. The velocity of money slowed considerably. Which is precisely why the Fed has been printing so much more of it. The Fed is attempting to get more cash out there to increase the sluggish movement of money.

Put more money into more hands and some of it is going to move around.

A great deal is being hoarded, though. Just as though it was buried in someone's back yard.

More to come...

do you have any idea what your point is???

 

[CrusaderFrank]

It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

The key word is "circulation". There is enough money out there to cause massive inflation. It is just buried in the back yard right now.

See my first two posts in this topic.

You mistake credit for money. There won't be a Weinmar Event in the USA because we don't have the cash, we only have EBT cards

Electronic money is the same as cash. And there is enough buried in the banks' back yards to cause rampant inflation when it picks up speed.

Greece showed us the main difference between electronic money and cash

 

[EdwardBaiamonte]

It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

The key word is "circulation". There is enough money out there to cause massive inflation. It is just buried in the back yard right now.

See my first two posts in this topic.

You mistake credit for money. There won't be a Weinmar Event in the USA because we don't have the cash, we only have EBT cards

Electronic money is the same as cash. And there is enough buried in the banks' back yards to cause rampant inflation when it picks up speed.

Greece showed us the main difference between electronic money and cash

Most importantly, Greece showed us how liberals manage an economy

 

[g5000]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

The problem now is so so so so fucking huge that it's like a 20 mile asteroid that going to impact. These fed changes in 2016 are only answering the question of where and it impacts and the reality is that won't make a bit of difference. It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

Fed policy should have been to:

• allow banks to operate without FDIC insurance and the government guarantee. You puts up your money you takes your chances. Don't look for the public to assume your risks. Fear of losing your own money is far and away the best, most fool proof form of regulation that's ever been invented
• close FHA, Fannie and Freddie, sell their asset at auction and it's a crime punishable by death to propose legislation allowing the federal government to make any loan guarantees

Did we ever discover who was sucking $500 Billion in cash out of the system in 2007

With or without the GSEs, we would still have had the 2008 global meltdown.

 

[g5000]

When you buy a bond, you are making a loan to the issuer. That bond is money owed to the buyer, making it an asset.

When the Federal Reserve buys a US Treasury bill, note, or bond, it is making a loan to the federal government because the federal government has appropriated more spending than it has received in revenues.

This is called "monetizing the debt". Putting more money into circulation.

Because of the crash resulting from the global derivatives bubble, the Federal Reserve has also been buying Mortgage Backed Securities (MBS) from Wall Street. Yeah, the Fed owns mortgages. Maybe even your house. This is also printing money and putting it into circulation.

So how much money has the Fed printed? What is the book value of its assets?

3 trillion dollars.

With that much extra cash in circulation, inflation is a real concern. There are those who claim inflation is the reason the price of gas or stock prices are so high, but they are making a common mistake, confusing rising relative prices with inflation.

The price of oil has always been volatile, but we rarely hear anyone making panicked cries of doom over "rapid deflation" when the price of oil plummets. Instead, there is dead silence when it does. We only hear panicked cries of doom when the price of oil jumps. A simple observation of the price of oil over long periods of time reveals there is obviously something greater than inflation at work there.

A key component of inflation that is almost always overlooked is something called "the velocity of money".

If the Fed gave you a trillion dollars, and you buried it in your backyard, then that trillion dollars will have absolutely no effect on the value of the money in circulation. The velocity of that trillion dollars is zero.

Just so since the crash of 2008. The velocity of money slowed considerably. Which is precisely why the Fed has been printing so much more of it. The Fed is attempting to get more cash out there to increase the sluggish movement of money.

Put more money into more hands and some of it is going to move around.

A great deal is being hoarded, though. Just as though it was buried in someone's back yard.

More to come...

do you have any idea what your point is???

Yes. It can't be helped you do not have the ability to comprehend.

 

[g5000]

This is eye-popping, holy-shit-we're-fucked news.

no idea why you think negative interest rates are so bad?? Can you tell us??

I keep laughing to myself over the stupidity of this question ever since I read it.

Hey, if you think your bank charging you to keep your money there isn't a problem, I don't know what to say.

 

[CrusaderFrank]

When the Fed buys a bond, it is putting more money into circulation. This makes people who hate the Fed crazy. "They are debasing the currency!!!"

However, the Fed sells its bonds, too. And when it sells the US Treasuries it owns, it takes the principal it receives from those sales and...destroys it! But you never hear the people who hate the Fed crying, "They are strengthening the currency!!!"

Most of the profits from the interest earned on the assets it owns go to the US Treasury. That's right, to the federal government.

By buying and selling Treasuries, the Fed maintains an inflation rate of about two percent. That two percent is to accomodate economic growth.

As I mentioned in my last post, the Fed holds about $3 trillion in assets. That's an extra $3 trillion of money that would not ordinarily be in our economy.

That extra liquidity is not causing any inflationary problems right now. In fact, it prevented runaway deflation.

We can debate all day long over whether we should have allowed that deflation to occur, but that's another topic.

Anyway, as I said, the velocity of money is sluggish, and so inflation is not getting away from us...yet.

But what happens when the economy begins warming up again? What happens when people start digging up that $3 trillion from their backyards and begin spending it, increasing the velocity of money in our economy?

Inflation happens, that's what.

And that is when the Fed would start selling its assets and soaking up all that cash flying around and destroying it.

But...we have a problem.

More to come...

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

The problem now is so so so so fucking huge that it's like a 20 mile asteroid that going to impact. These fed changes in 2016 are only answering the question of where and it impacts and the reality is that won't make a bit of difference. It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

Fed policy should have been to:

• allow banks to operate without FDIC insurance and the government guarantee. You puts up your money you takes your chances. Don't look for the public to assume your risks. Fear of losing your own money is far and away the best, most fool proof form of regulation that's ever been invented
• close FHA, Fannie and Freddie, sell their asset at auction and it's a crime punishable by death to propose legislation allowing the federal government to make any loan guarantees

Did we ever discover who was sucking $500 Billion in cash out of the system in 2007

With or without the GSEs, we would still have had the 2008 global meltdown.

Maybe.

The best regulation is when you're risking your own capital. Through FHA, FDIC and the GSE, the government has been putting the public on the hook for losses. It's a distorted market

 

[g5000]

The reason asset sales are not cheered as strengthening the currency is because the Fed has never historically exited from its asset holdings in an efficient enough manner to avoid a deflationary spiral. It has caused several of those in its history.

They have no idea what they're doing. They literally sit around and come up with hypotheses and hope to god that they work, and they usually don't.

I disagree wholeheartedly!

The Fed knows EXACTLY what's it's doing and it's going to hand over the biggest financial disaster in human history over to Obama's susccessor

thats sounds a little extreme. It would indicate that they we will have worse than Great Depression in a year and that Fed knows this? How is that possible? What should Fed policy be?

The problem now is so so so so fucking huge that it's like a 20 mile asteroid that going to impact. These fed changes in 2016 are only answering the question of where and it impacts and the reality is that won't make a bit of difference. It's either US Great Depression, Part II worse than 2007 or Weinmar Republic -- well actually, there's not enough cash in circulation for that, so it's bad.

Fed policy should have been to:

• allow banks to operate without FDIC insurance and the government guarantee. You puts up your money you takes your chances. Don't look for the public to assume your risks. Fear of losing your own money is far and away the best, most fool proof form of regulation that's ever been invented
• close FHA, Fannie and Freddie, sell their asset at auction and it's a crime punishable by death to propose legislation allowing the federal government to make any loan guarantees

Did we ever discover who was sucking $500 Billion in cash out of the system in 2007

With or without the GSEs, we would still have had the 2008 global meltdown.

Maybe.

Definitely. In the global market, the GSEs were bit players.

The best regulation is when you're risking your own capital. Through FHA, FDIC and the GSE, the government has been putting the public on the hook for losses. It's a distorted market

And whose money do you think Stearns, Lehman, Goldman, Morgan, Landsbanki, RBS, Allied Irish, et al. were playing with? The stockholders, their depositors, and their investors capital. Not their partners capital.

Those institutions should never have gone public.

 

[g5000]

If Interest Rates Go Negative . . . Or, Be Careful What You Wish For   Liberty Street Economics

Beyond cash and special-purpose banks, a variety of interest-avoidance strategies might emerge in connection with payments and collections. For example, a taxpayer might choose to make large excess payments on her quarterly estimated federal income tax filings, with the idea of recovering the excess payments the following April. Similarly, a credit card holder might choose to make a large advance payment and then run down his balance with subsequent expenditures, reversing the usual practice of making purchases first and payments later.

We might also see some relatively simple avoidance strategies in connection with conventional payments. If I receive a check from the federal government, or some other creditworthy enterprise, I might choose to put the check in a drawer for a few months rather than deposit it in a bank (which charges interest). In fact, I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.