Re: Bernanke says Fed ready for aggressive cut

In misc.survivalism, Robert Sturgeon <rsturge@xxxxxxxxxxx> wrote:
On Fri, 11 Jan 2008 15:23:44 +0000 (UTC),
EskWIRED@xxxxxxxxxxxxxxxxxxx wrote:

In misc.survivalism, Winston_Smith <not_real@xxxxxxxxx> wrote:

I wonder if this isn't setting up a future problem. They can get the
money cheap right now. Probably see mortgages in the 4-5% range. But
they will be borrowing short term to lend it out long term.

You have no clue as to how the mortgage biz works. There are extensive
material on the 'web to explain it.

There isn't just one model of how a mortgage is funded.

True. There are infinite varieties. But I'm talking about the typical,
near-universal scenario, put in place by FNMA.


Some mortgages are sold on to another investor,

Yes, nearly all of them.


and thus the
original mortgage lender is not stuck with a long term asset
and short term liabilities. But someone, somewhere, is
stuck with a long term asset.

Yes.

Other lenders do keep their
mortgages.

Yes. Often commercial loans stay at the bank.


Wells Fargo often does. If so, then a lender
does have a long term asset, funded with deposits which can
be jerked at a moment's notice. This is not a stable
business model.

It is stable enough with sufficient reserves, and when the reserves
dwindle, the FED ca take action to put a band-aid on the situation. That
is one advantage of a flexible money supply.


It's all about confidence. In fact, modern banking is a
legalized confidence game. So long as the bank's depositors
have confidence in the bank, things will be OK. As a wag
put it several years ago, "It isn't FDIC that maintains
depositor confidence in the banks; it's those FDIC stickers
on the banks' doors that does." The FDIC doesn't have
anything like enough money to repay depositors in case of a
general run on the banks. The system is inherently
unstable, and it only takes a bit more of a perturbation
(than we typically have) to throw the whole thing into
chaos. If that happens, the only thing for "them" to do is
print up a whole big bunch of new money to pay the
depositors. Inflationary? Yup. But it would be that or
collapse.

Yes. And such a scenario has been predicted at least twice in the last
decade or two. It is once again being predicted, and I am more sceptical
than I had been in the past. I was pretty much convinced that the S&L
crisis would have worse repurcussions, and I was quite nrvous about the
fate of the banks leading up to y2k.

Now, I think we will muddle through, with a slow decline of American
wealth, rather tan a catastropic collapse.


--
The whole problem with the world is that fools and fanatics are always so
certain of themselves, but wiser people so full of doubts.
-- Bertrand Russel

.

Relevant Pages

  • from a democratic site
    ... What Is This Money Even For? ... The $700 billion figure isn't an explainable one, given the purported problem at hand of "bad mortgages". ... Instead, we're getting a Wall Street bailout not of the mortgages, but of the absurd, speculative, economy-wrecking derivatives based on those mortgages, derivatives that investors and banks ravenously sold each other at unsupportable and quite-probably-crooked prices. ...
    (rec.gambling.poker)
  • Re: Very easy money almost a sure thiing.
    ... Take any and all extra money you can invest without causing ... another inflation indicator - hit an all-time high in late 1980. ... This is still massively illegal even if the banks LET you do it. ... All of the people that yet want to get one over the government with their mortgages. ...
    (rec.gambling.poker)
  • OT What is this money for? (great article)
    ... What Is This Money Even For? ... The $700 billion figure isn't an explainable one, given the purported problem at hand of "bad mortgages". ... Instead, we're getting a Wall Street bailout not of the mortgages, but of the absurd, speculative, economy-wrecking derivatives based on those mortgages, derivatives that investors and banks ravenously sold each other at unsupportable and quite-probably-crooked prices. ...
    (rec.arts.tv.soaps.cbs)
  • Re: OT "a leap of faith"
    ... All of the US banks held their portfolios up against the strict ... The best patsy money can buy: ... Paulson claims that banks won't lend money unless they can clean up ... mortgages on commission, whereas the bankls etc. which bought the bundles ...
    (sci.electronics.design)
  • Re: First Great Western want franchise review
    ... that banks borrow money from each other. ... placed there by its depositors. ... The former problem explains inter-bank lending. ...
    (uk.railway)