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On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole.
By the "banking industry" do you mean anyone who has a FDIC insured bank account?
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United States43929 Posts
On May 02 2023 01:00 GreenHorizons wrote:Show nested quote +On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account?
No?
Why would I mean that?
Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense?
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On May 02 2023 01:47 KwarK wrote:Show nested quote +On May 02 2023 01:00 GreenHorizons wrote:On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account? No? Why would I mean that? Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense?
While generally considered a truism of capitalism, I don't think they "must", but I have a hard time understanding why you think they wouldn't?
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United States43929 Posts
On May 02 2023 02:00 GreenHorizons wrote:Show nested quote +On May 02 2023 01:47 KwarK wrote:On May 02 2023 01:00 GreenHorizons wrote:On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account? No? Why would I mean that? Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense? While generally considered a truism of capitalism, I don't think they "must", but I have a hard time understanding why you think they wouldn't?
They’re already profit maximizing regardless of overhead. They’re not going to go to their shareholders and say “we thought we could make another $5b this year but we didn’t want to be greedy so we paid out more interest to our account holders than we needed to”.
To put it in the simplest possible terms, price and cost are not 1:1 correlated. You charge what the market will bear and book the difference as profit, regardless of what your costs are (as long as revenue exceeds costs). An increase in cost has little to no bearing on what price the market will bear, if people will pay $100k for a luxury car it matters little whether I can make one for $50k or $90k, I’m selling it at $100k anyway.
If the cost increases $5k but the market will still only pay $100k then that extra $5k in costs is not borne by the customer but by the shareholders, it comes out of the profit.
If I was hypothetically selling them at $50k, my cost, then I would have to increase the price to $55k to pass through the extra cost. But I would never sell them at $50k because people value them at $100k.
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On May 02 2023 02:19 KwarK wrote:Show nested quote +On May 02 2023 02:00 GreenHorizons wrote:On May 02 2023 01:47 KwarK wrote:On May 02 2023 01:00 GreenHorizons wrote:On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account? No? Why would I mean that? Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense? While generally considered a truism of capitalism, I don't think they "must", but I have a hard time understanding why you think they wouldn't? They’re already profit maximizing regardless of overhead. They’re not going to go to their shareholders and say “we thought we could make another $5b this year but we didn’t want to be greedy so we paid out more interest to our account holders than we needed to”. To put it in the simplest possible terms, price and cost are not 1:1 correlated. You charge what the market will bear and book the difference as profit, regardless of what your costs are (as long as revenue exceeds costs). An increase in cost has little to no bearing on what price the market will bear, if people will pay $100k for a luxury car it matters little whether I can make one for $50k or $90k, I’m selling it at $100k anyway. If the cost increases $5k but the market will still only pay $100k then that extra $5k in costs is not borne by the customer but by the shareholders, it comes out of the profit. If I was hypothetically selling them at $50k, my cost, then I would have to increase the price to $55k to pass through the extra cost. But I would never sell them at $50k because people value them at $100k.
So you think they will pass the expense to shareholders (the people that own the bank/basically make the decisions) instead of customers because you think that the bank will refuse to/can't possibly recover the expense with increased revenue from its customers?
That strikes me as uncharacteristically naïve, so I feel like I must be missing something?
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United States43929 Posts
On May 02 2023 02:45 GreenHorizons wrote:Show nested quote +On May 02 2023 02:19 KwarK wrote:On May 02 2023 02:00 GreenHorizons wrote:On May 02 2023 01:47 KwarK wrote:On May 02 2023 01:00 GreenHorizons wrote:On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account? No? Why would I mean that? Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense? While generally considered a truism of capitalism, I don't think they "must", but I have a hard time understanding why you think they wouldn't? They’re already profit maximizing regardless of overhead. They’re not going to go to their shareholders and say “we thought we could make another $5b this year but we didn’t want to be greedy so we paid out more interest to our account holders than we needed to”. To put it in the simplest possible terms, price and cost are not 1:1 correlated. You charge what the market will bear and book the difference as profit, regardless of what your costs are (as long as revenue exceeds costs). An increase in cost has little to no bearing on what price the market will bear, if people will pay $100k for a luxury car it matters little whether I can make one for $50k or $90k, I’m selling it at $100k anyway. If the cost increases $5k but the market will still only pay $100k then that extra $5k in costs is not borne by the customer but by the shareholders, it comes out of the profit. If I was hypothetically selling them at $50k, my cost, then I would have to increase the price to $55k to pass through the extra cost. But I would never sell them at $50k because people value them at $100k. So you think they will pass the expense to shareholders (the people that own the bank/basically make the decisions) instead of customers because you think that the bank will refuse to/can't possibly recover the expense with increased revenue from its customers? That strikes me as uncharacteristically naïve, so I feel like I must be missing something?
You’re naive. Let’s say they were able to extract more from the customers to cover this additional expense. Why would they wait for the additional expense before extracting it? Why not extract it whether or not there is an expense?
Your model requires the banks to say “we’re making a enough profit right now, we won’t cut too close to the bone, if ever our costs go up we’ll reevaluate if we need to increase revenues to cover those costs but for right now we’re good with revenues remaining flat”.
Does that sound realistic to you? That they would wait for a cost to actually happen before passing it on? It doesn’t to me.
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United States43929 Posts
On May 02 2023 03:09 Poll) wrote:
Hi everyone. I would like to learn how to invest in the stock market and ETFs. Where should I start?
You’re in Poland?
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On May 02 2023 03:02 KwarK wrote:Show nested quote +On May 02 2023 02:45 GreenHorizons wrote:On May 02 2023 02:19 KwarK wrote:On May 02 2023 02:00 GreenHorizons wrote:On May 02 2023 01:47 KwarK wrote:On May 02 2023 01:00 GreenHorizons wrote:On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account? No? Why would I mean that? Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense? While generally considered a truism of capitalism, I don't think they "must", but I have a hard time understanding why you think they wouldn't? They’re already profit maximizing regardless of overhead. They’re not going to go to their shareholders and say “we thought we could make another $5b this year but we didn’t want to be greedy so we paid out more interest to our account holders than we needed to”. To put it in the simplest possible terms, price and cost are not 1:1 correlated. You charge what the market will bear and book the difference as profit, regardless of what your costs are (as long as revenue exceeds costs). An increase in cost has little to no bearing on what price the market will bear, if people will pay $100k for a luxury car it matters little whether I can make one for $50k or $90k, I’m selling it at $100k anyway. If the cost increases $5k but the market will still only pay $100k then that extra $5k in costs is not borne by the customer but by the shareholders, it comes out of the profit. If I was hypothetically selling them at $50k, my cost, then I would have to increase the price to $55k to pass through the extra cost. But I would never sell them at $50k because people value them at $100k. So you think they will pass the expense to shareholders (the people that own the bank/basically make the decisions) instead of customers because you think that the bank will refuse to/can't possibly recover the expense with increased revenue from its customers? That strikes me as uncharacteristically naïve, so I feel like I must be missing something? You’re naive. Let’s say they were able to extract more from the customers to cover this additional expense. Why would they wait for the additional expense before extracting it? Why not extract it whether or not there is an expense? + Show Spoiler +
Your model requires the banks to say “we’re making a enough profit right now, we won’t cut too close to the bone, if ever our costs go up we’ll reevaluate if we need to increase revenues to cover those costs but for right now we’re good with revenues remaining flat”.
Does that sound realistic to you? That they would wait for a cost to actually happen before passing it on? It doesn’t to me.
For one, because of how the incentives work. Growing revenues and profits every year for 5 years is more rewarded socially and economically than growing a lot one year and shrinking/stagnating the next 4, even if you ultimately end up at the same place. That's a clear incentive to moderate increases in revenue/profits rather than grab all they can as soon as they can.
Also it's a common refrain to use increased expenses to rationalize raising prices for customers, we hear this all the time regarding minimum wage. "It costs more make it so it has to cost more to take it" which is generally accepted capitalist dogma. A business raising more revenue off its customers unprovoked is more readily met with resistance that is largely avoided when the business can point to an increase in the cost of being in business.
If a business is given a choice between possibly not retaining profits after raising prices above what the market may accept (not that it has much of a choice in this case) and giving themselves a chance for even more profits or definitely giving up potential profits to potentially protect their customers from being charged more than they can bear for what is functionally an essential service. It sounds much more realistic to me for the business to choose raising prices on something people basically need and risk not fixing the hole in profits with a chance to increase profits even more, than definitely not fixing the hole in profits and ensuring the shareholders get hosed. Your idea sounds like a great way to shed shareholders though, which as I understand it, is not a desirable outcome for a business. Unless they are buying the shares themselves at a discount (they are) and realize after they've bought them that it's actually a more profitable idea to put the cost on customers and count on being essential enough to their lives, which banking tends to be, that they pay up because of the capitalist truism that if it "costs more for the business it has to cost you more or they can't be profitable and they have to go out of business". But banking can't go out of business without society as we know it collapsing, so customers have to foot the bill.
EDIT: I forgot we have an ongoing example with oil/gas where a generally plausible explanation (the War in Ukraine) was used to rationalize a price hike that lead to record profits rather than shareholders/industry leaders taking a haircut to equalize the lost profits from increased expenses.
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Step 1: Get information. Know what you are investing in, and why.
Step 2: Repeat step 1. Make sure that you are focusing on information regarding how to do this in the country you live in. Laws and taxes can change what is recommended and what isn't. Make sure you are not getting your information from some weird crypto bubble or meme stock group.
Step 3 (From here on onward my information in Germany-based, i don't know how much of it transfers to other countries): Get a securities account. Ideally one which isn't too expensive with regards to orders and keeping the account.
Step 4: Buy the stuff you want to invest on with that account. Usually it is quite easy to do.
(A generally good recommendation for most people is investing in low-cost index funds, usually ETFs. But don't take my word for anything. Get information.)
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Personally I find all the bailouts really weird. Like, it's fine to have private capital but then the debt becomes public responsibility all of a sudden...
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United States43929 Posts
On May 02 2023 04:16 Manit0u wrote:
Personally I find all the bailouts really weird. Like, it's fine to have private capital but then the debt becomes public responsibility all of a sudden...
FDIC isn’t public. It’s a banking industry insurance pool that the banks are forced to pay into to stabilize the banking ecosystem in the event of bank failures. It’s literally “make the banks pay for banking issues”.
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United States43929 Posts
On May 02 2023 04:11 GreenHorizons wrote:Show nested quote +On May 02 2023 03:02 KwarK wrote:On May 02 2023 02:45 GreenHorizons wrote:On May 02 2023 02:19 KwarK wrote:On May 02 2023 02:00 GreenHorizons wrote:On May 02 2023 01:47 KwarK wrote:On May 02 2023 01:00 GreenHorizons wrote:On May 01 2023 22:24 KwarK wrote:
FDIC is the banking industry bailing out the banking industry so it's pretty much fine in terms of structural risk. Also First Republic's assets will mature to par eventually, they just needed time. If the FDIC are willing to backstop the losses and then hold the bonds to maturity they will come out with only interest rate loss (a failure to make a profit when one could have been made).
Overall I think that the intervention of the government including forced sales and directing the FDIC to cover all deposits, not just deposits < $250,000 was wise. Fractional reserve banks are fundamentally illiquid and unless we want to eliminate banking altogether the contagion should be contained aggressively to prevent a loss of trust. There's already an issue where smaller banks are seen as less trustworthy and so bank runs effectively concentrate consumer deposits into the hands of larger banks which is seen as undesirable for the banking ecosystem as a whole. By the "banking industry" do you mean anyone who has a FDIC insured bank account? No? Why would I mean that? Is this some “any time a company pays for operations they ultimately must pass that onto their customers” nonsense? While generally considered a truism of capitalism, I don't think they "must", but I have a hard time understanding why you think they wouldn't? They’re already profit maximizing regardless of overhead. They’re not going to go to their shareholders and say “we thought we could make another $5b this year but we didn’t want to be greedy so we paid out more interest to our account holders than we needed to”. To put it in the simplest possible terms, price and cost are not 1:1 correlated. You charge what the market will bear and book the difference as profit, regardless of what your costs are (as long as revenue exceeds costs). An increase in cost has little to no bearing on what price the market will bear, if people will pay $100k for a luxury car it matters little whether I can make one for $50k or $90k, I’m selling it at $100k anyway. If the cost increases $5k but the market will still only pay $100k then that extra $5k in costs is not borne by the customer but by the shareholders, it comes out of the profit. If I was hypothetically selling them at $50k, my cost, then I would have to increase the price to $55k to pass through the extra cost. But I would never sell them at $50k because people value them at $100k. So you think they will pass the expense to shareholders (the people that own the bank/basically make the decisions) instead of customers because you think that the bank will refuse to/can't possibly recover the expense with increased revenue from its customers? That strikes me as uncharacteristically naïve, so I feel like I must be missing something? You’re naive. Let’s say they were able to extract more from the customers to cover this additional expense. Why would they wait for the additional expense before extracting it? Why not extract it whether or not there is an expense? + Show Spoiler +
Your model requires the banks to say “we’re making a enough profit right now, we won’t cut too close to the bone, if ever our costs go up we’ll reevaluate if we need to increase revenues to cover those costs but for right now we’re good with revenues remaining flat”.
Does that sound realistic to you? That they would wait for a cost to actually happen before passing it on? It doesn’t to me. For one, because of how the incentives work. Growing revenues and profits every year for 5 years is more rewarded socially and economically than growing a lot one year and shrinking/stagnating the next 4, even if you ultimately end up at the same place. That's a clear incentive to moderate increases in revenue/profits rather than grab all they can as soon as they can. Also it's a common refrain to use increased expenses to rationalize raising prices for customers, we hear this all the time regarding minimum wage. "It costs more make it so it has to cost more to take it" which is generally accepted capitalist dogma. A business raising more revenue off its customers unprovoked is more readily met with resistance that is largely avoided when the business can point to an increase in the cost of being in business. If a business is given a choice between possibly not retaining profits after raising prices above what the market may accept (not that it has much of a choice in this case) and giving themselves a chance for even more profits or definitely giving up potential profits to potentially protect their customers from being charged more than they can bear for what is functionally an essential service. It sounds much more realistic to me for the business to choose raising prices on something people basically need and risk not fixing the hole in profits with a chance to increase profits even more, than definitely not fixing the hole in profits and ensuring the shareholders get hosed. Your idea sounds like a great way to shed shareholders though, which as I understand it, is not a desirable outcome for a business. Unless they are buying the shares themselves at a discount (they are) and realize after they've bought them that it's actually a more profitable idea to put the cost on customers and count on being essential enough to their lives, which banking tends to be, that they pay up because of the capitalist truism that if it "costs more for the business it has to cost you more or they can't be profitable and they have to go out of business". But banking can't go out of business without society as we know it collapsing, so customers have to foot the bill. EDIT: I forgot we have an ongoing example with oil/gas where a generally plausible explanation (the War in Ukraine) was used to rationalize a price hike that lead to record profits rather than shareholders/industry leaders taking a haircut to equalize the lost profits from increased expenses.
The theory that CEOs are motivated by long term sustainable growth and don't care about profit maximization in any given quarter is probably a little controversial to say the least. It’s also unexpected to hear such a bold defence of CEOs from you.
The fact that price increases are presented by said CEOs as simply passing on costs is not necessarily evidence that that is what they are doing. It's an easier sell than "we saw an opportunity to push up margin and we took it". These people don't always tell the truth all the time. If you take a look at the profits year over year of many of the companies who say "we're just passing on the bare minimum costs we need to stay afloat" you'll note that they're actually doing rather well.
Businesses raise profits off customers unprovoked all the time, you just don't see it because you don't see that the benchmark is already at the maximum the market will bear. I'm relatively senior in the accounting hierarchy for a consumer staple that I can assure you that you buy, and most likely from me. We raised our prices on you this year for reasons outside cost. You can trust me on this one, I was in the meeting where they outlined to sales the need to push price in an increasingly oligopolistic market.
Not sure what you're getting into with above what the market may accept. My point was very simple, there's almost never any reason to be priced under the maximum the market will accept in a competitive environment. You don't need to wait for pass through costs to slowly push you towards that maximum, you go to the maximum on day 1 and you stay there until you make so much money that a competitor seeks to undercut you. That's the basic mechanism of supply and demand. The exploitative profit maximization of the supplier is driver for the competition that eventually undercuts them, they're making so much money fucking their consumers that someone else tries to get in on the scam. It's why capitalism works, in theory, and also why you oppose it. Exploitation is required to make it work. If you're no longer of the opinion that capitalists are a bunch of exploitative assholes who maximize profit at every opportunity then that would surprise me.
I want you to take a minute to think about what you're suggesting with the shedding shareholders. Let's say that the market will bear a price of $100 and my cost is at $50. My shareholders are used to me making sick bank year after year and my stock price is priced accordingly. The cost goes up to $60 and I make slightly less bank. You are correct that my stock price will decline as bank sensitive investors seek better opportunities. What you are proposing is a model where I decide that I only want to make $10/unit and so I initially price my product at $60. Then, when my cost goes up to $60, I up my price to $70/unit. You are correct that this would be neutral to the shareholders. However, which strategy do you think the shareholders prefer? It's the one where they make sick bank year after year and then have slightly reduced bank one year. Your strategy is the strategy of a village coop, not of a bank.
Your thing about banks buying their shares at a discount is just not how any of this works.
The oil and gas thing isn't how any of this works either. Fossil fuels is an oligopolistic market with a largely fungible product with inelastic demand. The war in Ukraine did disrupt supply which did create a shortfall, someone had to go without fossil fuels. However everyone needs them and so you need pretty significant price increases to find the point where people consume less. I'd buy at $30/gallon as easily as I'd buy at $3 because I'm not walking to work so if it was me and someone richer bidding for the same insufficient supply of oil you'd probably see $50/gallon before I started working from home. That doesn't mean there's a cost increase being passed through. As you identify, the fossil fuel companies made a shitload of money from the shortfall because that's the intended mechanism of capitalism. When demand exceeds supply for an essential product the bidding war makes the existing suppliers so obscenely rich that someone else tries to get in on the scam and increases supply, restoring the equilibrium. It's actually quite weird to me that you've brought up the fossil fuel spike as an example of your position when it is quite obviously an example of my point, profit maximization is the name of the game, costs are irrelevant. The cost of the fuel didn't materially change from the war in Ukraine (some logistics costs of CNG to Europe did but nothing impacting us in America), the opportunity for maximization changed.
I'm sorry to be rude GH but this is one of those times where you've started with an ideological conclusion and then invented a fantasy of how the world works to support it. You don't know enough about this stuff to comment beyond "that's interesting, where can I read more about that?"
Obviously an increase in cost is unlikely to turn into savings for the consumers because shareholders aren't going to demand new strategies that result in less money flowing to them. But the default position is that every possible dollar that can go to the shareholders is already going to the shareholders which means that when costs increase without a corresponding change in the price that the market will bear then the shareholders have to give back some of their ill gotten gains. It's the price they pay for their starting position being "I want it all".
Also this banking crisis has, by and large, been pretty good for consumers. They're getting better rates from their banks than ever before because the demand for their liquidity has gone through the roof. Banks borrow from the public and the banks need those deposits to address the timing issues with their investments.
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I think the fundamental disagreement is whether the "market can bear" (I'd argue it doesn't really have a choice) the increased expense of the FDIC bailouts for banks being passed to them and whether those banks will test them to find out or instead pass the cost to their shareholders.
You insist the shareholders will bear the totality of the expense and not the customers/sources for their revenue because of market forces.
I'm comfortable disagreeing about where the revenue to make up the lost profits will come from and you holding whatever view you'd like about my perspective.
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United States43929 Posts
On May 02 2023 06:14 GreenHorizons wrote:
I think the fundamental disagreement is whether the "market can bear" (I'd argue it doesn't really have a choice) the increased expense of the FDIC bailouts for banks being passed to them and whether those banks will test them to find out or instead pass the cost to their shareholders.
You insist the shareholders will bear the totality of the expense and not the customers/sources for their revenue because of market forces.
I'm comfortable disagreeing about where the revenue to make up the lost profits will come from and you holding whatever view you'd like about my perspective.
You’re using the language in a way that still indicates you’re not really comfortable with the concepts. The market doesn’t bear increased expenses, it’s the price the market can bear, not the cost.
Your thesis is that banks are currently paying more interest on consumer deposits than consumers really require them to do. That the consumers would accept, say, 1.5% but that the banks are currently generously paying 2%. And therefore when the banks have a cost increase and have to cease their generosity and bring rates down to 1.5% they can do so with no loss of deposits. This is a strange thesis. If the banks could get away with 1.5% they would be at 1.5% today, regardless of any cost increase. And if they couldn’t then they wouldn’t bring rates down, regardless of any cost increase.
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On May 02 2023 07:24 KwarK wrote:Show nested quote +On May 02 2023 06:14 GreenHorizons wrote:
I think the fundamental disagreement is whether the "market can bear" (I'd argue it doesn't really have a choice) the increased expense of the FDIC bailouts for banks being passed to them and whether those banks will test them to find out or instead pass the cost to their shareholders.
You insist the shareholders will bear the totality of the expense and not the customers/sources for their revenue because of market forces.
I'm comfortable disagreeing about where the revenue to make up the lost profits will come from and you holding whatever view you'd like about my perspective. You’re using the language in a way that still indicates you’re not really comfortable with the concepts. The market doesn’t bear increased expenses, it’s the price the market can bear, not the cost. Your thesis is that banks are currently paying more interest on consumer deposits than consumers really require them to do. That the consumers would accept, say, 1.5% but that the banks are currently generously paying 2%. And therefore when the banks have a cost increase and have to cease their generosity and bring rates down to 1.5% they can do so with no loss of deposits. This is a strange thesis. If the banks could get away with 1.5% they would be at 1.5% today, regardless of any cost increase. And if they couldn’t then they wouldn’t bring rates down, regardless of any cost increase.
Just for clarity sake: The simple version is: "When the cost of being a bank goes up, then the price of using a bank goes up".
I'm saying businesses believe they are getting the most revenue (the highest price) they can out of customers until getting it costs more, and then they insist they can, should, and must get more and frequently do, particularly when people basically need whatever it is they make/do and the price of making/doing it went up for everyone.
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United States43929 Posts
On May 02 2023 08:30 GreenHorizons wrote:Show nested quote +On May 02 2023 07:24 KwarK wrote:On May 02 2023 06:14 GreenHorizons wrote:
I think the fundamental disagreement is whether the "market can bear" (I'd argue it doesn't really have a choice) the increased expense of the FDIC bailouts for banks being passed to them and whether those banks will test them to find out or instead pass the cost to their shareholders.
You insist the shareholders will bear the totality of the expense and not the customers/sources for their revenue because of market forces.
I'm comfortable disagreeing about where the revenue to make up the lost profits will come from and you holding whatever view you'd like about my perspective. You’re using the language in a way that still indicates you’re not really comfortable with the concepts. The market doesn’t bear increased expenses, it’s the price the market can bear, not the cost. Your thesis is that banks are currently paying more interest on consumer deposits than consumers really require them to do. That the consumers would accept, say, 1.5% but that the banks are currently generously paying 2%. And therefore when the banks have a cost increase and have to cease their generosity and bring rates down to 1.5% they can do so with no loss of deposits. This is a strange thesis. If the banks could get away with 1.5% they would be at 1.5% today, regardless of any cost increase. And if they couldn’t then they wouldn’t bring rates down, regardless of any cost increase. Just for clarity sake: The simple version is: "When the cost of being a bank goes up, then the price of using a bank goes up". I'm saying businesses believe they are getting the most revenue (the highest price) they can out of customers until getting it costs more, and then they insist they can, should, and must get more and frequently do, particularly when people basically need whatever it is they make/do and the price of making/doing it went up for everyone.
As supported by the example you provided earlier of “when the cost of oil doesn’t go up the price of oil goes up and they make record prices”.
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On May 02 2023 04:59 KwarK wrote:Show nested quote +On May 02 2023 04:16 Manit0u wrote:
Personally I find all the bailouts really weird. Like, it's fine to have private capital but then the debt becomes public responsibility all of a sudden... FDIC isn’t public. It’s a banking industry insurance pool that the banks are forced to pay into to stabilize the banking ecosystem in the event of bank failures. It’s literally “make the banks pay for banking issues”.
"When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides."
Currently FDIC fund sits at around $125bn, isn't First Republic down for over $200bn?
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United States43929 Posts
On May 02 2023 10:26 Manit0u wrote:Show nested quote +On May 02 2023 04:59 KwarK wrote:On May 02 2023 04:16 Manit0u wrote:
Personally I find all the bailouts really weird. Like, it's fine to have private capital but then the debt becomes public responsibility all of a sudden... FDIC isn’t public. It’s a banking industry insurance pool that the banks are forced to pay into to stabilize the banking ecosystem in the event of bank failures. It’s literally “make the banks pay for banking issues”. "When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides." Currently FDIC fund sits at around $125bn, isn't First Republic down for over $200bn?
No. First Republic is down between nothing at all (if a sufficiently well capitalized bank takes over them and doesn’t need to firesale bonds) and $7b (worst case scenario liquidation).
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Three Banks have been halted from trading. Western Alliance, Metropolitan Bank, and PacWest Bank.
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EPT
