A world with no US federal government debt

[Harry Bosch]

which banks were allowed to go under again? I missed reading their names in the news.

What news are you watching? You ever hear of google. Hundreds of banks went under. I can think of three in my tiny part of the country: Columbia River Bank, Washota Bank, West Coast Bank.

 

[Trausti]

which banks were allowed to go under again? I missed reading their names in the news.

WaMu? That was probably the biggest.

 

[Tom Sawyer]

My brother's company ate Chase and became even more gargantuan.

 

[Togo]

Not all the banks were involved in the sub prime mess. My bank never did a subprime loan. I had never even heard of them until 2008.

Did it buy any? Did it lend any money to those who had? If so, your bank was a direct beneficiary TARP.

Tarp didn't "bail out" the banks.

Yes, it did. Banks who were technically insolvent suddenly got strong, largely risk-free assets in the place of assets who's market value had dropped to nill. That's a bailout, by any definition.
Similarly, banks who didn't have any toxic assets, but instead had leant money to banks who did have such assets, now saw their creditors who would have defaulted on their payments surviving and paying on time. That in turn, stopped them getting into financial trouble. That's also a bailout.
Similarly, banks who had neither bought any toxic assets, nor leant money to those who did, continued to benefit from a banking industry and lending and cash network that had not collapsed, precisely because the government had acted as a guarantor for the industry, willing to pledge money to shore it up. That is in effect a bailout.

The banks in bad condition were allowed to fail. TARP was an equity injection into mostly strong banks that was designed to instill confidence in a scary market and prevent a run on deposits.

More specifically, it stopped those who had leant money to bankrupt banks going bankrupt themselves. Such banks were not 'mostly strong', they were staring down the barrel of a market collapse in which they would lose, potentially, far more money than they had as assets. The government stepped in to stop them going bankrupt.

 

[SimpleDon]

Sound like Utopia?

What would happen after the disappearance of the bond market?

The US doesn't have to have any debt. We can print the money we need to fund government out of thin air. But we don't do that.

Why? Is it because of the thirst for US debt?

There is federal debt for many reasons. There is a "thirst" to own it because it represents the closest thing to a risk-free asset. Debt financing does provide some restraint on the part of the borrower, since repayment is usually expected and intended.

Federal debt does largely exist because there is a demand for a risk free interest paying asset. Money is the ultimate risk free asset but it doesn't pay any interest.

Government debt of a sovereign country is risk free because the government can always create more money.

And no, Greece isn't sovereign government. It doesn't have control of its own currency.

Debt financing restrains you are and I but it is not what restrains the government, since they can create money out of thin air to pay off their debt. What limits governments from too much deficit spending is that it can create too much demand in the economy that leads to inflation. What limits government from paying off their accumulated debt by taxing more than they spend is that it can destroy too much demand in the economy that leads to deflation.

 

[SimpleDon]

I always thought Adolf would have made an excellent Carlton man. Though Collingwood is plausible

Benito Mussolini was a Carlton fan (or should that be the other way around?). Adolf liked to see everyone as black and white.

I assume that this is snark about Australian Rules Football Clubs?

 

[SimpleDon]

which banks were allowed to go under again? I missed reading their names in the news.

WaMu? That was probably the biggest.

Yes, you are right, Washington Mutual was the sixth largest bank, it was chartered as a savings and loan, in the US when it failed. Its assets and liabilities were sold to JP Morgan Chase. Chase had been planning to buy WaMu before the Great Financial Crisis for considerably more than they were able to acquire them from the FDIC.

Georgia was running neck and neck with California for the most number of bank failures in the US after the GFC&R. It looks like about sixty, see here. This out of ~330 banks that existed before 2008.

Georgia had pretty restrictive banking regulations until the Great Deregulation Delusions took hold in the mid 1990's when the legislature removed all effective state regulation over banks.

 

[SimpleDon]

My brother's company ate Chase and became even more gargantuan.

He must work for JP Morgan, what was Chemical Bank in New York. JP Morgan Chase is the largest bank in the US.

Chase was formed out of the Manhattan Company Bank, Aaron Burr's bank, whose formation is one of the more interesting ones in the history of American corruption

 

[laughing dog]

Debt financing restrains you are and I but it is not what restrains the government, since they can create money out of thin air to pay off their debt.

Gov'ts do have the power, but many gov'ts (including the US) have voluntarily restrained themselves from simply printing money. In the history of the USA, Congress has shown restraint in deficits. For example, during the last recession, the federal gov't did not spend nearly as much as what was generally thought was necessary to get us out of the recession. That restraint was not due primarily to a fear of inflation, but to many other factors including the worry about repayment and debt service.

 

[Tom Sawyer]

My brother's company ate Chase and became even more gargantuan.

He must work for JP Morgan, what was Chemical Bank in New York. JP Morgan Chase is the largest bank in the US.

Chase was formed out of the Manhattan Company Bank, Aaron Burr's bank, whose formation is one of the more interesting ones in the history of American corruption

And where is that bank now? Dead, just like Aaron Burr. That's where it is.

Therefore, corruption doesn't pay.

 

[SimpleDon]

Did it buy any? Did it lend any money to those who had? If so, your bank was a direct beneficiary TARP.

Tarp didn't "bail out" the banks.

Yes, it did. Banks who were technically insolvent suddenly got strong, largely risk-free assets in the place of assets who's market value had dropped to nill. That's a bailout, by any definition.
Similarly, banks who didn't have any toxic assets, but instead had leant money to banks who did have such assets, now saw their creditors who would have defaulted on their payments surviving and paying on time. That in turn, stopped them getting into financial trouble. That's also a bailout.
Similarly, banks who had neither bought any toxic assets, nor leant money to those who did, continued to benefit from a banking industry and lending and cash network that had not collapsed, precisely because the government had acted as a guarantor for the industry, willing to pledge money to shore it up. That is in effect a bailout.

The banks in bad condition were allowed to fail. TARP was an equity injection into mostly strong banks that was designed to instill confidence in a scary market and prevent a run on deposits.

More specifically, it stopped those who had leant money to bankrupt banks going bankrupt themselves. Such banks were not 'mostly strong', they were staring down the barrel of a market collapse in which they would lose, potentially, far more money than they had as assets. The government stepped in to stop them going bankrupt.

As is common here you are both right, but only as far as you are willing to go.

TARP was required to stabilize the entire banking system. It worked and it is a good thing for all of us, not just the banks.

The banks are an integral part of the mechanism of capitalism. This tells us two things,

1. We have to have banks no matter what idiotic schemes they come up with to try to enrich themselves at our expense.
2. Because of #1 they have to be tightly regulated.

We ignored #2 and #1 came very close to destroying the economy.

The financial markets are inherently instable.

 

[SimpleDon]

He must work for JP Morgan, what was Chemical Bank in New York. JP Morgan Chase is the largest bank in the US.

Chase was formed out of the Manhattan Company Bank, Aaron Burr's bank, whose formation is one of the more interesting ones in the history of American corruption

And where is that bank now? Dead, just like Aaron Burr. That's where it is.

Therefore, corruption doesn't pay.

No, it is not dead, it lives on as part of JP Morgan Chase.

Corruption pays off handsomely if it isn't punished. Much better than making money honestly. This is why we have to have laws and regulations and regulators and courts to enforce them. This is what puts the delusions in the Great Deregulation Delusion® that affects so many people in public life.

But you knew that didn't you? I just realized who wrote the post.

 

[Harry Bosch]

Did it buy any? Did it lend any money to those who had? If so, your bank was a direct beneficiary TARP.

Tarp didn't "bail out" the banks.

Yes, it did. Banks who were technically insolvent suddenly got strong, largely risk-free assets in the place of assets who's market value had dropped to nill. That's a bailout, by any definition.
Similarly, banks who didn't have any toxic assets, but instead had leant money to banks who did have such assets, now saw their creditors who would have defaulted on their payments surviving and paying on time. That in turn, stopped them getting into financial trouble. That's also a bailout.
Similarly, banks who had neither bought any toxic assets, nor leant money to those who did, continued to benefit from a banking industry and lending and cash network that had not collapsed, precisely because the government had acted as a guarantor for the industry, willing to pledge money to shore it up. That is in effect a bailout.

The banks in bad condition were allowed to fail. TARP was an equity injection into mostly strong banks that was designed to instill confidence in a scary market and prevent a run on deposits.

More specifically, it stopped those who had leant money to bankrupt banks going bankrupt themselves. Such banks were not 'mostly strong', they were staring down the barrel of a market collapse in which they would lose, potentially, far more money than they had as assets. The government stepped in to stop them going bankrupt.

I work for a very conservative bank. We didn't do any subprime loans. It was a conscious decision made by our management. During the roaring early 2000's, we didn't grow as fast as the more aggressive banks. But the investors that stayed with us during the crash did very well compared to our more aggressive competitors. We did receive TARP, but paid it back shortly after. We were never in danger of going down, always in the top 10% for banks. If there had been a run on all banks, we probably would have gone down, as well has half the companies in America.

- - - Updated - - -

Did it buy any? Did it lend any money to those who had? If so, your bank was a direct beneficiary TARP.



Yes, it did. Banks who were technically insolvent suddenly got strong, largely risk-free assets in the place of assets who's market value had dropped to nill. That's a bailout, by any definition.
Similarly, banks who didn't have any toxic assets, but instead had leant money to banks who did have such assets, now saw their creditors who would have defaulted on their payments surviving and paying on time. That in turn, stopped them getting into financial trouble. That's also a bailout.
Similarly, banks who had neither bought any toxic assets, nor leant money to those who did, continued to benefit from a banking industry and lending and cash network that had not collapsed, precisely because the government had acted as a guarantor for the industry, willing to pledge money to shore it up. That is in effect a bailout.

The banks in bad condition were allowed to fail. TARP was an equity injection into mostly strong banks that was designed to instill confidence in a scary market and prevent a run on deposits.

More specifically, it stopped those who had leant money to bankrupt banks going bankrupt themselves. Such banks were not 'mostly strong', they were staring down the barrel of a market collapse in which they would lose, potentially, far more money than they had as assets. The government stepped in to stop them going bankrupt.

As is common here you are both right, but only as far as you are willing to go.

TARP was required to stabilize the entire banking system. It worked and it is a good thing for all of us, not just the banks.

The banks are an integral part of the mechanism of capitalism. This tells us two things,

1. We have to have banks no matter what idiotic schemes they come up with to try to enrich themselves at our expense.
2. Because of #1 they have to be tightly regulated.

We ignored #2 and #1 came very close to destroying the economy.

The financial markets are inherently instable.

I'm getting worried because I haven't disagreed with any of your posts in a long long time!