Quotulatiousness

August 18, 2017

What Do Banks Do?

Filed under: Business, Economics — Tags: , — Nicholas @ 02:00

Published on 28 Jun 2016

This week: Dive deeper into one type of financial intermediary: Banks.

Next week: Sticking with macroeconomics, we’ll take a look at the next intermediary: Stock Markets.

Some people want to save and invest, others want to borrow. Sometimes, savers and borrowers link up directly. But most times, they don’t know each other. So they rely on institutions that bridge them together. These bridges are called financial intermediaries, and this video will show you one kind—banks.

How do banks operate?

On the savings side, they attract depositors by paying interest on deposits. On the borrowing side, banks make loans, for which they charge interest. The key to a bank’s profit is in charging a higher interest for loans than the interest paid out to depositors. Of course, to make sure that loans are as productive as possible, banks have specialized staff and systems for evaluating loan applications.

That sort of due diligence, and specialization is central to what a bank does. Not only does a bank coordinate the savings of many, but it also undertakes the task of studying borrowers in order to determine the most qualified. And then, to further minimize risk, a bank will spread its money out across a whole portfolio of loans. Thus, if one loan goes bad, the bank won’t go bankrupt.

In this way, you can see how banks provide valuable services—they allow you to earn interest on your savings, while also turning those savings into loans, which help economic growth.

Notice though, that as a depositor, your savings won’t just rest in a vault. But then, what happens when you decide to make a withdrawal? Banks account for that by having reserves. Banks keep an eye on their reserves so they can cover the withdrawals of various depositors. Predictably, problems arise, when there aren’t enough reserves to cover withdrawals. In the words of our previous video, that’s one kind of failed intermediation.

In the next video, we’ll look at a different kind of intermediary — stock markets.

There, we’ll show you how stock markets turn savings into investment. Hang tight, and see you then!

August 13, 2017

Saving and Borrowing

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Published on 21 Jun 2016

On September 15, 2008, Lehman Brothers filed for bankruptcy, and signaled the start of the Great Recession. One key cause of that recession was a failure of financial intermediaries, or, the institutions that link different kinds of savers to borrowers.

We’ll get to intermediaries in the next video, but for now, we’ll first look at the market intermediaries are involved in.

This market is the combination of savers and borrowers — what we call the “market for loanable funds.”

To start, we’ll represent the market, using two curves you know well—supply and demand. The quantity supplied in the market comes from savings, and the quantity demanded comes from loans. But as you know, we have to factor in price. In the case of the market for loanable funds, the price is the current interest rate.

What happens to the supply of savings when the interest rate goes up? When are borrowers compelled to borrow more? Or less? We’ll cover these scenarios in this video.

One quick note: there’s not really one unified market for loanable funds. Instead, there are many small markets, with different sorts of lenders, lending to different sorts of borrowers. As we said in the beginning, it’s financial intermediaries, like banks, bond markets, and stock markets, which link these different sides of the market.

We’ll get a better understanding of these intermediaries in our next video, so stay tuned!

May 25, 2017

Words & Numbers: Government Can’t Stop Creative Destruction

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

Published on 24 May 2017

Technology doesn’t just change things, it utterly destroys things. And that’s just fine. It happens so often that people barely even notice when it does. Think about all the new services that have come to market just over the past few years: Uber, Airbnb, Redbox … the list goes on and on.

But that’s only half the story. In turn, the list of services replaced by these new ones is similarly long: taxis, hotels, Blockbuster, etc. And workers in these industries often lose their jobs in the line of creative destruction. We generally accept this as the price of innovation, but many people try to use the government to stop this by blocking the new services.

Today we’re seeing this with more politically well-connected industries like taxis and hotels. Pressure is put on Uber and Airbnb, respectively, to “protect” the established industries they are upending.

This week, Ant and James talk about why this is always a mistake.

Learn More:
https://fee.org/articles/government-cant-stop-creative-destruction/

April 12, 2017

Why wasn’t Lucy Maud Montgomery considered for inclusion on a banknote?

Filed under: Books, Cancon, History — Tags: , , — Nicholas @ 05:00

Colby Cosh uncharacteristically praises-to-the-skies Lucy Maud Montgomery as even a shortlist candidate to appear on a Canadian banknote:

The choice of Viola Desmond came at the end of a formal search for historic women to put on a banknote, and I am still baffled by the absence of one name from the shortlist: that of the novelist L.M. Montgomery. If you think about the global noteworthiness standard, there are not many Canadians of any race or gender who can meet it. In its highest form it would exclude, for example, Wayne Gretzky, who must be one of the two or three most famous Canadians: there are too many places on Earth that know or care nothing of ice hockey.

They play Bach on keyboard instruments everywhere, so you could put Glenn Gould on a banknote under this rule. I start running out of names pretty damn fast after that, which may suggest a truth about our country that we do not like to confront. But Lucy Maud Montgomery is surely near the top of any such list.

Think what an extraordinary thing it is that we are still arguing about the merits of new adaptations of (and posters for) Anne of Green Gables. Those books are literature of a type that almost revels in its ephemerality. They were meant to be affordable components of a homogenous literary diet for the young. Montgomery could never have imagined that she would end up as the most enduring, best-travelled Canadian fiction author of all.

But how many cycles of fashion has Anne outlived; how many avant-garde authors and poets of her time has she seen off into oblivion? There is something about her that has unfailingly charmed readers of 1960 and 1990 and 2017. Nothing about this phenomenon is insincere or contrived, and it seems to transcend the English-speaking world with ease. Progressives and feminists are not reluctant to give the Anne books to their children. There has been no attack that I know of on Montgomery’s political bona fides. Her intellectual ambitions were small, and confined to an out-of-the-way place, yet her imagination conquered a world.

All of which does not even take into account the merely commercial argument for a banknote with Anne of Green Gables and/or her creator on it: the Japanese would hoard it like treasure. Then again, maybe that is what the Bank of Canada is afraid of — unpredictable monetary effects from an important currency denomination being too popular as a collectible. But I cannot see any other reason for them to keep missing this layup. Maybe they are prudently keeping Anne in reserve for the advent of the five-dollar coin, in order that the annie might join the loonie and the toonie?

February 28, 2017

Outbreak of World War 1 – A Banker’s Perspective I THE GREAT WAR Special

Filed under: Economics, Europe, History, Military — Tags: , , , — Nicholas @ 05:00

Published on 27 Feb 2017

The classic narrative of the outbreak of World War 1 is that everyone saw it coming and was awaiting it with patriotic fervor. But studying the people that profited most from a war, the bankers, that idea is definitely challenged.

December 24, 2016

The History of Paper Money – Lies – Extra History

Filed under: Economics, History — Tags: , — Nicholas @ 04:00

Published on Nov 12, 2016

James talks about our mistakes and adds additional stories and explanations for the History of Paper Money!

December 8, 2016

The History of Paper Money – VI: The Gold Standard – Extra History

Filed under: Economics, History — Tags: , , , , — Nicholas @ 04:00

Published on Nov 5, 2016

Even as the use of paper money grew, ties to the gold standard remained… and remained challenging. From the First Opium War to the Great Depression, events around the world stretched the capacity of bullion based economics. So what – and who – finally abandoned it?

December 5, 2016

The History of Paper Money – V: Working out the Kinks – Extra History

Filed under: Economics, History — Tags: , , — Nicholas @ 03:00

Published on Oct 29, 2016

The first question of paper money is not how much you can print, nor even what its value is – but who prints the money? When every bank started to print their own bank notes, it caused confusion and frustration. Enter the Central Bank.

December 3, 2016

The History of Paper Money – IV: Lay Down the Law – Extra History

Filed under: Economics, Europe, France, History — Tags: , , — Nicholas @ 03:00

Published on Oct 22, 2016

What happens when you really try to put paper money doctrine into practice? And why would you put a gambler, womanizer, and fugitive criminal like the ironically named John Law in charge of running it?

November 24, 2016

QotD: Black hats and white hats

Filed under: Economics, Government, Politics, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

When considering the major failures of recent American governance – the 2008-09 financial crisis, the catastrophe that is U.S. policy in the Mideast – the one thing that any honest-minded person must conclude is: Nobody meant for things to turn out this way. It is impossible to make precise predictions about the effects of government policy; that is the nature of systems characterized by high levels of complexity. It’s one thing to predict that it’ll be colder during the winter, but another thing to predict down to the millimeter how much snow will fall on a particular acre in rural Maine on the third Wednesday in February, which is really what we expect from our public policy.

Classic cowboy movies, in contrast, are not complex at all: The good guys wear white hats, the bad guys wear black hats, all hats remain firmly affixed to all heads at all times, and that’s that. You can pretty much always predict how an old Western is going to turn out.

But that isn’t how the real world works.

On Tuesday, I had a conversation about Elizabeth Warren and Wall Street, pointing out that the popular version of that story – Senator Warren vs. Wall Street – is so oversimplified as to be not merely useless but misleading. The reality is that there are people working on Wall Street who dislike Senator Warren – investors and bankers, mainly – and people who adore her – notably Wall Street lawyers, who are reliable donors to her campaign and to those of other Democrats. My naïve interlocutor said: “Hopefully, it’s the lawyers that fight against Wall Street,” as though there were such a thing, as though there weren’t nice progressive lawyers in Manhattan who jokingly refer to their yachts as the SS Dodd-Frank.

Spend any time writing about this sort of thing and you’ll hear angry and panicked denunciations of derivatives-trading from people who pretty clearly do not know what a derivative is, just as you’ll hear paeans to Glass-Steagall sung by people who don’t understand the difference between a commercial bank and an investment bank, who don’t know how Goldman-Sachs makes its money or what it is that Standard & Poor’s does.

But they’re quite sure they know who is wearing the black hats.

Kevin Williamson, “Black Hats and White Hats”, National Review, 2015-04-15.

November 23, 2016

The History of Paper Money – III: Barebones Economy – Extra History

Filed under: Britain, Economics, History — Tags: , , , , — Nicholas @ 02:00

Published on Oct 15, 2016

Poor England. First Charles I and civil war, then losing to the French, then the Great Fire of London in 1666. Luckily, Nicholas Barbon comes along to help. And make obscene amounts of money. Who says you can’t do both?

October 31, 2016

The History of Paper Money – II: Not Just Noodles – Extra History

Filed under: China, Economics, Europe, History — Tags: , , , — Nicholas @ 03:00

Published on Oct 8, 2016

How does paper money get introduced? Who has to lose their head to do so? And what does Marco Polo have to do with anything???

April 5, 2016

QotD: The art of buying a house with real problems

Filed under: Humour, Quotations — Tags: , , — Nicholas @ 01:00

My house cost less than $25,000 when I bought it. I wasn’t expecting a rose garden. As it turned out, I got a lupin garden, but that’s a story for another day. There was a lot wrong with my house, and I knew it. I even knew that the sewer wasn’t likely to be first rate. There was a patch on the concrete floor around the sewer pipe. There’s always a reason why the floor has been patched around a sewer line. All the reasons are bad reasons.

I needed a house six years ago or so after catching the poverty. It was my own fault. I foolishly went to the early-bird special at the Honest Work Buffet, but Wall Street had gotten there before me and sneezed on the warming tray with the regular economy in it. Lyme Disease didn’t help any, either, although I still find ticks less loathsome than politicians.

I believe that a house is the chassis of a competent family. We were broke but it was important to keep us together in a house where we would have some control over our affairs. I looked for a house that was as cheap as the chrome on a Kia, but didn’t have anything wrong with it that I couldn’t understand or fix myself. Our house fit the bill. It had been abandoned, and the bank wanted to get rid of it, badly.

The house was owned by a local bank that held the note from the prior owners, a real rarity back when the real estate leverage world was desolating the landscape. People kept predicting that housing would fall an additional X percent, and then they’d buy. They didn’t realize that the big banks holding the leveraged debt had no interest in the real real estate. The financial institutions were being made whole by logrolling the government. The houses were abstractions to them, and only the paper was real. The local banker had his tit in the wringer over our house. I could reason with him. Either I could live in it, or he could. No one in their right mind would want to live in my house.

I didn’t want an abstract house. I wanted one with real problems. Mission Accomplished. I tried in vain to make real estate agents understand that I wanted to buy a house nobody else wanted. They kept trying to show me houses that looked like Home Depot had exploded inside them. The current owners wanted me to pay for the privilege of ripping out all the silly stuff they had inexpertly selected and installed. What I really wanted was a neglected house. Neglect is easier to handle than active malice. That applies to real estate and elections, now that I think of it.

Our house had been neglected, that’s for sure. There was a hole in the back roof that I could stick my head through. The wiring was still partly knob and tube. It takes a long time to foreclose on a house, even if it’s abandoned, so all the pipes had frozen and burst while the bank went through all the legal steps to foreclose on an empty house. When we bought our home, it was essentially a poorly constructed shell of a house, not a dwelling.

Sippican Cottage, “Interestingly, ‘Unified Field Theory of Neglect’ Is the Name of My Left Banke Tribute Band. But I Digress”, Sippican Cottage, 2016-03-21.

March 29, 2016

Why did Apple suddenly grow a pair over consumer privacy and (some) civil rights?

Filed under: Business, Technology, USA — Tags: , , , , , — Nicholas @ 03:00

Charles Stross has a theory:

A lot of people are watching the spectacle of Apple vs. the FBI and the Homeland Security Theatre and rubbing their eyes, wondering why Apple (in the person of CEO Tim Cook) is suddenly the knight in shining armour on the side of consumer privacy and civil rights. Apple, after all, is a goliath-sized corporate behemoth with the second largest market cap in US stock market history — what’s in it for them?

As is always the case, to understand why Apple has become so fanatical about customer privacy over the past five years that they’re taking on the US government, you need to follow the money.

[…]

Apple see their long term future as including a global secure payments infrastructure that takes over the role of Visa and Mastercard’s networks — and ultimately of spawning a retail banking subsidiary to provide financial services directly, backed by some of their cash stockpile.

The FBI thought they were asking for a way to unlock a mobile phone, because the FBI is myopically focussed on past criminal investigations, not the future of the technology industry, and the FBI did not understand that they were actually asking for a way to tracelessly unlock and mess with every ATM and credit card on the planet circa 2030 (if not via Apple, then via the other phone OSs, once the festering security fleapit that is Android wakes up and smells the money).

If the FBI get what they want, then the back door will be installed and the next-generation payments infrastructure will be just as prone to fraud as the last-generation card infrastructure, with its card skimmers and identity theft.

And this is why Tim Cook is willing to go to the mattresses with the US department of justice over iOS security: if nobody trusts their iPhone, nobody will be willing to trust the next-generation Apple Bank, and Apple is going to lose their best option for securing their cash pile as it climbs towards the stratosphere.

September 23, 2015

In debt to the bank? Underwater on your mortgage? You might want to check the document carefully…

Filed under: Bureaucracy, Business, Law, USA — Tags: , , , , — Nicholas @ 04:00

At The Intercept, David Dayen says that there are a lot of sketchy documents that banks are hoping will stand up in court, but they might well be wrong:

A Seattle housing activist on Wednesday uploaded an explosive land-record audit that the local City Council had been sitting on, revealing its far-reaching conclusion: that all assignments of mortgages the auditors studied are void.

That makes any foreclosures in the city based on these documents illegal and unenforceable, and makes the King County recording offices where the documents are located a massive crime scene.

The problems stem from the Mortgage Electronic Registration Systems (MERS), an entity banks created so they could transfer mortgages privately, saving them billions of dollars in transfer fees to public recording offices. In Washington state, MERS’ practices were found illegal by the State Supreme Court in 2012. But MERS continued those practices with only cosmetic changes, the audit found.

That finding has national implications. Every state has its own mortgage laws, and some of the audit’s conclusions may not necessarily apply elsewhere. But it shows how MERS reacted to being caught defrauding the public by trying to sneak through foreclosures anyway. Combined with evidence in other parts of the country, like the failure to register out-of-state business trusts in Montana, it suggests that the mortgage industry has been inattentive to and dismissive of state foreclosure laws.

Older Posts »

Powered by WordPress