I'm a little cynical about the G-20. Usually all of the countries are there with their own interests and objectives. I would imagine the US is currently concerned about where it is going to find buyers for its 1.2 trillion dollar bonds, so possibly that could have been done in the background as well as many other objectives other than the ones we would logically have thought would have been the most important ones.
Perhaps MYP and Parakeet can come up with better insights.
Perhaps MYP and Parakeet can come up with better insights.
I'll be honest and say that I haven't really been following G-20. The one thing I heard was that they banned the next April Fools' Day for their April 1st joke. 
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I didn't hear much chatter though, so I doubt anything too groundbreaking happened.
We really don't have to worry about a market for our treasury bonds. People are actually buying them in vast quantities. The next big fear is that there is a bubble in T-Bills and gold that will bust soon. Everyone rushed to the "riskless" investments to try and find stability. It actually drove the prices to a somewhat unreasonable level for a bit.
.I didn't hear much chatter though, so I doubt anything too groundbreaking happened.
We really don't have to worry about a market for our treasury bonds. People are actually buying them in vast quantities. The next big fear is that there is a bubble in T-Bills and gold that will bust soon. Everyone rushed to the "riskless" investments to try and find stability. It actually drove the prices to a somewhat unreasonable level for a bit.
I'm not an expert on this. What would happen if the interest rates should become negative? Hopefully it won't, as obviously there is zero common sense in that. But how would that effect T-Bills for example? And yes, obviously there is a real danger of a bubble. Question though, where is the money coming from to purchase the T-Bills?
I don't think interest rates could ever become negative for T-Bills or any other bonds. The speculation in the other thread about negative interest rates referred to the rates that the Fed lends at.
There are times when the Fed will lend money to other banks. This is one way to increase the money supply. They lend more money to the banks at a low interest rate. The banks then lend it at a higher interest rate. The banks make a small profit and the money supply grows as desired. It's a win win.
The negative interest speculation just meant that the Fed would actually have to pay banks to lend out money. This was just because most banks were more concerned about having enough liquid cash around to avoid bankruptcy. They didn't want to lend anything out, even to other banks. So we would have to actually give them money for lending in the bad environment.
T-Bills are bought by the banks and governments of foreign countries for the most part. Some are bought by American banks though. They are quite attractive, because it is almost impossible for the US to truly default on them. If worse comes to worse, they could just print more money and pay them off. That obviously wouldn't be good...but it means that they will never just default on them.
I believe that most of the actual money is from trade. We pay for goods from foreign countries in US dollars. The dollars are converted at the banks. The banks have a lot of US dollars sitting around. Their natural response is to buy T-Bills with them to earn a bit of a return.
There are times when the Fed will lend money to other banks. This is one way to increase the money supply. They lend more money to the banks at a low interest rate. The banks then lend it at a higher interest rate. The banks make a small profit and the money supply grows as desired. It's a win win.
The negative interest speculation just meant that the Fed would actually have to pay banks to lend out money. This was just because most banks were more concerned about having enough liquid cash around to avoid bankruptcy. They didn't want to lend anything out, even to other banks. So we would have to actually give them money for lending in the bad environment.
T-Bills are bought by the banks and governments of foreign countries for the most part. Some are bought by American banks though. They are quite attractive, because it is almost impossible for the US to truly default on them. If worse comes to worse, they could just print more money and pay them off. That obviously wouldn't be good...but it means that they will never just default on them.
I believe that most of the actual money is from trade. We pay for goods from foreign countries in US dollars. The dollars are converted at the banks. The banks have a lot of US dollars sitting around. Their natural response is to buy T-Bills with them to earn a bit of a return.
Now this confuses me again. If the big banks are in trouble to the tune of 1-trillion US dollars, how can they have a lot of dollars to buy T-Bills with? Just does not make sense to me. Another proof of creative economics?
The foreign banks physically have US dollars lying around (well...on their computers at least...90% of our currency isn't in paper form). They have a dollar that any business in the United States is required to accept by law. That's what legal tender means. It has no value in China though, since it has to be exchanged. Welcome to the wonderful world of currency trade.
Chinese businesses are paid in US dollars (usually). They take the dollars and exchange them to the banks. They build up a natural surplus of dollars due to our trade imbalance. They then send the dollars back to us to effortlessly finance US debt (they save the money that they would have to spend converting it with another bank).
That's how I understand it at least.
The other thing to remember about the bailout was that they had a problem with solvency, not necessarily debt. They just didn't have enough liquid cash to cover their obligations. Everything was tied up in bonds and investments. Normally, they would just pay for it by getting a loan leveraged off of their capital. When the credit market froze, they were all left out in the cold. The market froze because all of the banks were afraid that all of the other banks might be insolvent. It snowballs and here we are. The government just stepped in and effectively loaned them the money to keep them solvent until everyone calmed down.
The ones buying T-Bills were probably in fairly good shape. T-Bills are usually just short-term, low interest, safe investments for most banks when they have extra liquid cash lying around (might as well do something with it). The Fed also convinces them to buy T-Bills by effectively paying them extra to do so. That's one of the ways that they shrink the money supply.
Yeah...it's all confusing the first time around. Let it sink in. It usually does after a bit.
Chinese businesses are paid in US dollars (usually). They take the dollars and exchange them to the banks. They build up a natural surplus of dollars due to our trade imbalance. They then send the dollars back to us to effortlessly finance US debt (they save the money that they would have to spend converting it with another bank).
That's how I understand it at least.
The other thing to remember about the bailout was that they had a problem with solvency, not necessarily debt. They just didn't have enough liquid cash to cover their obligations. Everything was tied up in bonds and investments. Normally, they would just pay for it by getting a loan leveraged off of their capital. When the credit market froze, they were all left out in the cold. The market froze because all of the banks were afraid that all of the other banks might be insolvent. It snowballs and here we are. The government just stepped in and effectively loaned them the money to keep them solvent until everyone calmed down.
The ones buying T-Bills were probably in fairly good shape. T-Bills are usually just short-term, low interest, safe investments for most banks when they have extra liquid cash lying around (might as well do something with it). The Fed also convinces them to buy T-Bills by effectively paying them extra to do so. That's one of the ways that they shrink the money supply.
Yeah...it's all confusing the first time around. Let it sink in. It usually does after a bit.
It seems to me that it is only some foreign banks that have dollars and others don't. They were bailing banks out all over Europe, but not so much in China and the Mid-East where it was not necessary? No run on those banks since they could easily provide funds when required.
So the recent financial meltdown is simply a matter of the pin striped suits getting the jitters?
I wish I understood it better, but it is somewhat like medicine, it may have a very direct effect on me at some point, but I am just not willing to study enough to be a doctor.
I appreciate your explanations, Parakeet.
So the recent financial meltdown is simply a matter of the pin striped suits getting the jitters?
I wish I understood it better, but it is somewhat like medicine, it may have a very direct effect on me at some point, but I am just not willing to study enough to be a doctor.
I appreciate your explanations, Parakeet.
Thanks. It's good practice for me too. I'm trying to not let the cobwebs form on the economics stuff I'm learning.
I believe the other banks were spared, in part, because there were regulations preventing the foreign banks from forming mortgage backed securities.
This didn't mean that a number of European banks didn't buy and sell the ones that were formed in the US though. That's how a lot of them got tied up with our fate. The ridiculous amount of trading that occurred with mortgage backed securities tied up a lot of investment banks in foreign countries.
I'm not sure about any of the other foreign banks. It would partially seem like they weren't really into the investment banking field. A number of the institutions that buy US debt are just big banks with small returns for their costumers. They just like it because it's a safe way to grow their money. T-Bills don't offer near enough of a return for the big boys. If they have the bonds, then it's just a safety measure.
The current crisis is unfortunately a perfect storm of US policy, irresponsible banking, and fear. A big part of the problem was the simple fact that nobody knew who had the bad sub-prime mortgages in their assets. There was no easy way to find out either, so the market just froze until everyone figured it out.
Another problem was that a number of investment banks started trading using a "brilliant" system. They would take a short term loan and invest in a high return project (usually mortgage backed securities). They then just kept getting new short term loans to pay off the last until the investment paid off. They then used the money to finally pay off the loan and pocketed the pure profit. Worked great for awhile until the credit market froze and left them with obligations that they didn't have the money to pay (and assets that were losing value every second).
There's plenty of other little things that came into play, but these were some of the big factors that actually hurt the banks.
There were only a few institutions that were truly beyond saving though. Everyone else just needed some cash to pay their interest debts and their operating expenses until everything worked out.
I believe the other banks were spared, in part, because there were regulations preventing the foreign banks from forming mortgage backed securities.
This didn't mean that a number of European banks didn't buy and sell the ones that were formed in the US though. That's how a lot of them got tied up with our fate. The ridiculous amount of trading that occurred with mortgage backed securities tied up a lot of investment banks in foreign countries.
I'm not sure about any of the other foreign banks. It would partially seem like they weren't really into the investment banking field. A number of the institutions that buy US debt are just big banks with small returns for their costumers. They just like it because it's a safe way to grow their money. T-Bills don't offer near enough of a return for the big boys. If they have the bonds, then it's just a safety measure.
The current crisis is unfortunately a perfect storm of US policy, irresponsible banking, and fear. A big part of the problem was the simple fact that nobody knew who had the bad sub-prime mortgages in their assets. There was no easy way to find out either, so the market just froze until everyone figured it out.
Another problem was that a number of investment banks started trading using a "brilliant" system. They would take a short term loan and invest in a high return project (usually mortgage backed securities). They then just kept getting new short term loans to pay off the last until the investment paid off. They then used the money to finally pay off the loan and pocketed the pure profit. Worked great for awhile until the credit market froze and left them with obligations that they didn't have the money to pay (and assets that were losing value every second).
There's plenty of other little things that came into play, but these were some of the big factors that actually hurt the banks.
There were only a few institutions that were truly beyond saving though. Everyone else just needed some cash to pay their interest debts and their operating expenses until everything worked out.
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More confusing. How can you have lots of cash available and have problems with solvency? And how does all of this tie in with the debt? So now these banks are buying up the 1.2-trillion in T-Bills with cash that they have, however for the purpose to get rid of the debt? If I have cash stashed under my bed, and I have serious debt, surely the way to go about sorting things out is to take the cash from under the bed and pay off the debt? I find some crookery in this. Looks as though the banks do not want to be responsible for the toxic debt through mortgage-backed securities, and are separating those from their main lines of business?
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That was the problem. They didn't have enough cash. The ones with US cash are usually foreign banks and foreign investors who want a safe place to put their money. Some US banks throw their hat into the ring too. These wouldn't be the ones who needed a bailout. T-bills are a terrible investment for any serious player. They are only good, because they are risk free and short term. It's better than keeping it as cash for a month.
The ones that really needed a bailout were the plethora of investment banks dealing in high finance. Unfortunately, that composed a large portion of the banking industry in the United States.
The ones that really needed a bailout were the plethora of investment banks dealing in high finance. Unfortunately, that composed a large portion of the banking industry in the United States.
I'm still wondering about the investment banks and lack of evidence of their actual "toxic debts". Making the 1.2-trillion almost into a blank cheque for Obama. I thought we were going to go for greater transparency?
We probably are at some point, but that's up to legislator's to decide. There is plenty of evidence for their bad debt. It exists and they've shown it to the government auditors. Most of them don't want the money if they don't need it. It kills their share prices and gives them less control over the business. They've only been getting as much as they need.
So why aren't tax payers getting regular feedback on what is actually happening. I.e. X Bank has only taken Y funds and subtract that from the 1.2-trillion dollars, or is Obama thinking of using that for all his fancy socialist programmes, AND then claim fame for funding those programmes. What I thought would have been fair would have been a public Website of how the 1.2-trillion is being employed and against which debts ... would appear as though the public is quite good at being approached for massive loans, but not good enough to be trusted with transparent facts ...
I found the article with CBO. I assume that they are doing it quarterly.
Here's the link. It's a PDF, so it might take a minute to load. It's the report of transactions in January. They still lump most of the banks together but it's a decent start for my digging. 214 supposedly part of the program.
http://cbo.gov/ftpdocs/99xx/doc9961/01-16-TARP.pdf
Here's the link. It's a PDF, so it might take a minute to load. It's the report of transactions in January. They still lump most of the banks together but it's a decent start for my digging. 214 supposedly part of the program.
http://cbo.gov/ftpdocs/99xx/doc9961/01-16-TARP.pdf
Parakeet, it regretfully came up with a message: "This file is damaged and could not be repaired". Do you perhaps have another link for it as am really curious to see it. Thanks.
Still works for me.
Try to do a search for "TARP" on CBO.gov. It's the 12th one down I believe. It's called "The Troubled Asset Relief Program: Report on Transactions Through December 31, 2008"
That should link to it too.
Here's their blog post on it
http://cboblog.cbo.gov/?p=197
Try to do a search for "TARP" on CBO.gov. It's the 12th one down I believe. It's called "The Troubled Asset Relief Program: Report on Transactions Through December 31, 2008"
That should link to it too.
Here's their blog post on it
http://cboblog.cbo.gov/?p=197
Managed to access the blog, which did not say that much really. Tried all kinds of ways from the Website to access the above report, but still got the same message. Not very big on specifics in the blog. Didn't see any of the Banks names nor specific accounts. Just general overview.
It is. We have quite state of the art computers and computing here in the Middle East. Maybe there is a quirk in the US Website firewall
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