TRICHET: WE STAND READY TO SUPPLY UNLIMITED LIQUIDITY
Posted by WARREN MOSLER on September 23rd, 2011
He’s got this part right, and it would nice if the Fed took notice and acted likewise for it’s banking system.
The way I say it is the liability side of banking is not the place for market discipline.
Also note, banks don’t need capital to function.
In fact, up until not that long ago most euro banking was by ‘national’ banks
which means they have no private capital.
Directly or indirectly,
regulators shut banks down, not markets.
See my banking proposals at:
http://www.moslereconomics.com/?p=8968
September 23rd, 2011 at 8:39 pm
Love those banking proposals, Warren. Thanks for reposting them, and forgive me for ever doubting you :)
Reply
WARREN MOSLER Reply:
September 25th, 2011 at 7:09 am
thanks!
Reply
September 23rd, 2011 at 9:00 pm
Also note, banks don’t need capital to function.
fair enough but if you’re going to go that route then they shouldn’t be owned by anyone and they definitely shouldn’t be publicly traded either. Just like there’s not a CEO and no ticker symbol for the department of defense, the IRS, etc.
these banks as they are now get the best all worlds and the risk of none. They are a social abomination as they stand.
Directly or indirectly,
regulators shut banks down, not markets.
kind of a fallacious statement since if there were no regulators then what could close down any institution other than sheer murder. The rules our society agrees upon immediately also creates ways to “fall out” of society. If there was no way to “fit in” then would be no way to “fall out” either. In such a world, we could theoretically all go on forever without considering “solvency” or “ethics” or “law.” The only concern would be someone killing you.
Reply
RJ Reply:
September 24th, 2011 at 7:07 am
@Mario,
“these banks as they are now get the best all worlds and the risk of none. They are a social abomination as they stand.”
How do you come to this strange conclusion (risk of none). If true banks would never go bust and would always make huge profits
They get the risk that their assets (loans) might not be paid back. Or that their running costs might be exceeded by their revenue
Reply
Gary Reply:
September 24th, 2011 at 12:07 pm
@RJ,
costs might exceed revenue?
Reply
Mario Reply:
September 25th, 2011 at 5:44 pm
@RJ,
How do you come to this strange conclusion (risk of none). If true banks would never go bust and would always make huge profits
by bank bailouts and continually propping them up in so many ways is how I come to these conclusions. And last I checked the owners of these banks do have huge profits…beyond most a man’s wildest dreams.
I’m fine with government run banks so long as they are government run not privately run.
That’s just my preference.
If there’s no capital financing needed then who’s name falls under the Owner’s Equity side of the accounting equation? If it’s not the government (and it’s not at this time) then it’s a social abomination according to my personal opinion and definition.
Reply
RJ Reply:
September 24th, 2011 at 7:12 am
@Mario,
“fair enough but if you’re going to go that route then they shouldn’t be owned by anyone and they definitely shouldn’t be publicly traded either”
And a statement that does not follow from Warrens comment. Banks don’t need capital to operate. This can be easily proved by setting up a new bank with no capital.
As long as they can obtain Fed reserves when required to settle with other banks capital is not needed.
Reply
September 29th, 2011 at 7:12 am
You have regulatory capital requirements because of the nature of commercial banks as financial intermediaries and because it just makes sense to have a default pool..which is pretty much what shareholders’ equity is when all h*ck breaks loose.
So Warren’s statement still stands. It’s nice to have, but not absodamnlutely required. It’s not even required that bank staff stick solely to operating financial intermediaries. In periods of stress banks that can manage to hold on to some of their capital, if even by a thread, are still in an excellent position to offer their expertise as service providers.
Furthermore there’s little reason that banks cannot look to borrowers themselves as a source of regulatory capital, as outlined in Warren’s short but to the point post on purchases of bank issues of Variable Convertible Preferred shares to borrowers.
Reply