Tuesday, July 8, 2008

First Rule Of Banking - Broken

"Only lend money to those who do not need it".

This seemingly senseless maxim has been banking's cardinal rule since time immemorial. Another way to put it is this: borrowing should only be undertaken to improve returns, not to cover basic needs. Optimally, then, borrowing should be a choice, not a necessity and bankers should act accordingly.

However, lending to those who do not need the money is a ho-hum business and not very profitable. Witness the sleepy, two-martini lunch era of banking that lasted until the late 1970's. A comfortable living to be sure, but nothing to set the world on fire - or to buy mega yachts with.

But look at what happened during the last decade: banks increasingly lent to those who really needed it. Households needed to borrow heavily to buy homes and/or to supplement their dwindling income. Portfolio managers were forced to expose themselves to ever increasing leverage via exotic structures (e.g. SIV's) in order to enhance their dwindling returns from conventional securities. Investors, even conservative ones like pension and endowment funds, were forced into hedge and private equity funds because politicians left them few alternatives in a world of rapidly deteriorating demographic and labor conditions.

Well, we know what happens when bankers get greedy, break the cardinal rule and lend money to those who need it - don't we? Just ask Shylock...

The pound of flesh, which I demand of him,
Is dearly bought; 'tis mine and I will have it.
If you deny me, fie upon your law!
There is no force in the decrees of Venice.
I stand for judgment: answer; shall I have it?

May I remind all readers (bankers included) that Shylock does not get his "pound of flesh" in the end..

24 comments:

  1. Since Shylock was portrayed as a Jew, but could easily have been a Bishop or a Cardinal, are we to assume that only those renown over millennia for fiscal probity are suitable to be bankers?

    ReplyDelete
  2. I came across this interesting document, the author is drawing parallels between the physics of water and market driving forces.

    http://www.pimco.com/LeftNav/Viewpoints/2008/Viewpoints+Cy+Cular+Change+Bhansali+July+2008.htm

    Enjoy

    ReplyDelete
  3. I came across this somewhere on ML-Implode:
    "Party like its 1929!"
    Nice.

    Sooooo... I've also come across some pretty hardcore conspiracy sites while you were sailing. Is the Federal Reserve truly a privately-owned secret society that the gov pays to "create" new money that it will then lend to the Treasury at 6% per annum? Money that that the gov could create itself without any interest? Flavius?

    Some Canadian artist made a 45 minute cartoon about the shadowy history of banking which I watched. Then, with the help of Google, this snowballed into the JFK assasination. I may have to switch from voting Obama to writing in Ron Paul now. Yikes.

    ReplyDelete
  4. The banksters thought they were covereing their asses when they got their bought & paid for Congress to pass, and Shrub to sign, bankruptacy "reform". I believe they will be in for a rude awakening.

    ReplyDelete
  5. Dink,
    I recommended "Money as Debt" 2-3mos. ago but no one picked up on it. Yes, the Treasury pays the Fed interest, thru its debt obligations, on the dollars the Fed prints or credits to member banks and those member banks get a cut of that interest (I think the rate is set at 6%) and the balance is supposed to be refunded to the Treasury at the end of each year, approx $30B.

    The theory of JFK being offed by the Fed is an old one as every other Pres. who opposed private central banking was shot, also a congressman was killed on the second try in the 30's for opposing the Fed. As for creepy coincidences, the father of Hinkely (the guy who shot Reagan) is a close family friend of BushSr and was with Bush in the day's leading up to the shooting. Also, the paternal grandfather of Hitler is assumed to be Baron Rothschild of Vienna. Hitler's paternal grandmother was a single woman working as a live-in maid in the Baron's mansion when she became pregnant and refused to divulge who the father was and when she died she was discovered to have a large amount of money for someone who worked as a menial servant all her life.

    How's that for conspiracy fodder.

    ReplyDelete
  6. Dink,
    You might want to check out Zeitgeist for more on shadow govt. goings-on.

    ReplyDelete
  7. Yoyomo,

    "the balance is supposed to be refunded to the Treasury at the end of each year, approx $30B."

    Seems odd even if legitimate..

    "How's that for conspiracy fodder"

    I watched both items you mentioned. And I love conspiracies. I was really hooked on the Knights Templar/John the Baptist/Im Hotep/Merovingian stuff for a while, but wandered off since any evidence is lost to the ages. But this Fed stuff would be tangible, traceable..

    One problem that causes (healthy) skepticism is that groups aren't easy to manage and that actions of those outside the group are even harder to manage. No one in the Illuminati has ever been tempted to tell the secrets? And won't the advances in genetics be able to reveal some bloodline surprises? Hmmm.

    BTW, got anything on Prescott Bush? Seems like a bastard, too :)

    ReplyDelete
  8. Skylock not only didn't get his pound of flesh, he was punished, ruined in fact, for demanding it.
    But then Shakespeare's play, and possibly Shakespeare himself, whoever he was, was anti-semitic. And not that anyone has here, but to argue otherwise is sheer folly.

    I think you are right that the cardinal rule in banking is to lend only to those who don't need the money. Sort of like a courtroom lawyer's cardinal rule where no question should ever be asked that
    one doesn't already know the answer to.

    As for The Fed, it's essentially a banking cartel with very shady origins. Read "The Creature From Jekyll Island" and William Grieder's, "Secrets of The Temple.

    Prospectively, I think the Federal Reserve System is not long for this world, what with their taking all sorts of toxic financial sludge on to their books.

    In the meantime I hear some people advocating that Congress usurp The Fed and take direct control of money. As a matter of Constitutional principle I agree. As a matter of practicality it strikes me as a disastrous notion. Congress is inhabited by too many folks who are imbeciles and/or mountebanks.
    They are largely responsible for why our nation's finances are in such dire condition. It's hard to fathom an improvement coming from their management.

    Hey yoyomo, do you have any links on Baron Rothschild being the grandfather of Hitler?

    ReplyDelete
  9. "Read "The Creature From Jekyll Island" and William Grieder's, "Secrets of The Temple"."

    Researching conspiracies is time-consuming, no? Thanks for the info, Edwardo.

    "not long for this world, what with their taking all sorts of toxic financial sludge on to their books"

    Is there a way to default on the Federal Reserve without taking down the Treasury with it? If so, my mood will brighten tremendously.

    "Congress usurp The Fed and take direct control of money" "disastrous notion"

    Yeah, but today's complexity may have outmatched even the "masters of the universe". Things have changed since 1913: too many humans, too much data, ease of communication.

    ReplyDelete
  10. " do not understand this 'anti-semitic' business "

    1) Religious intolerance is bad. Did you read about that atheist soldier in Iraq who was assigned a body guard because the evangelical Christian soldiers were threatening him?

    2) There are plenty of Catholic and Protestant bankers. And Muslims who denounce usury, but own bank stock.

    3) Large religions have sects. Can't blame all for the behavior of one sect.

    Anyhoo, discuss people by individual name instead of religious demographic and you'll be fine.

    ReplyDelete
  11. anonymous
    I wouldn't mind if every member of the Fed was Jewish. It's the Episcopalians that worry me:)

    ReplyDelete
  12. Yoyomo, Ishare Edwardo's curosity, do you have any links?

    Dink, would you also share a few of your links?

    Greenie, I figured you read this but in case you didn't, FYI... I hope you were on the winning side of oil trades of late?

    ReplyDelete
  13. Edwardo & Thai,
    Try
    www.rense.com/general69/agent.htm

    also go to the wikipedia entry for Alois Hitler (Adolph's father). That said, there is no hard proof of what happened back in 1837 except that Alois' mother was single, working as a maid, and died with a large sum of money way beyond her means.

    Dink,
    Prescott had some of his assets confiscated during WW2 for financing war material for the German army.

    WRT groups maintaining control and secrecy, read "Jewish History, Jewish Religion: The Weight of Three Thousand Years" by Israel Shahak. It's a very short book only about 90p long. If you can't find it at Amazon, go to:

    www.washington-report.org/

    and click on the link for the book club on the left. Most Jews I know are totally unaware about the nature of orthodox Judaism and what it says about Gentiles. Please get this book and pass it around to your friends, it's a real eye-opener.

    ReplyDelete
  14. Commenting on comments. I knew this would happen. My contribution was meant more as a cynical jibe. I am a Jew so I am breaking no rules here. For those too obtuse to grasp it (present company of course excepted), what I am saying in effect is that you need neither probity nor wit to be a banker. As has been amply born out in the present economic debacle anyone sufficiently motivated by greed can rise in an environment appropriate to that instinct. The Medici were bankers and they were not, at least to my knowledge, Jews—and I am sure they would have had a thing or two to teach even the Rothschilds who by the 18th century had, for probity and wit, eclipsed even them.

    ReplyDelete
  15. Thai,

    If you google "Money as debt paul grignon" you'll get a link to the ~45 minute cartoon that started me down the path of insanity.

    The Rothschilds (German for Red Shield) are seriously interesting people. Like many royal dynasties, they seem to believe their bloodline is superior so cousins have been intermarrying for generations. On the matter of religion, they seem to have created their own. They've been more fun to read about than even the Freemasons.

    ReplyDelete
  16. Shakespeare's play, and possibly Shakespeare himself, whoever he was, was anti-semitic.

    Irrelevant to the discussion at hand.

    ReplyDelete
  17. Blackstone Group, the private equity firm, said that it would appoint Lord Nathaniel Charles Jacob Rothschild, a member of the banking dynasty, and Brian Mulroney, the former Canadian Prime Minister, to its board of directors ahead of its flotation.

    http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article1892785.ece

    And now bank regulators are talking about removing regulatory restrictions on bank holding companies so that private equity firms can buy controlling interests in insolvent banks.

    "Private-equity firms are now hatching a plan to provide a backdoor entry for sovereign wealth funds to U.S. retail banks. David Rubenstein, chief of the Carlyle Group, argued in an April speech that troubled U.S. banks are tempting investment targets because "sovereign wealth funds can't do certain things because of their foreign status . . . private-equity groups can join forces with the funds to facilitate transactions."

    http://online.wsj.com/article/SB121538911268431155.html?mod=todays_us_opinion

    You do the math.

    ReplyDelete
  18. "Greenie, I figured you read this but in case you didn't, FYI... I hope you were on the winning side of oil trades of late?"

    Thai,

    Thanks for the link. Yes, I read it and posted it on my new oil blog (http://plenty-oil.blogspot.com).
    I had to start the blog, because everyone in the blogosphere, except nakedcapitalism, is so blatantly bullish on the sector. Only an idiot would believe in peak oil, and there is no shortage of them lately.

    I am heavily short oil and commodities stocks. Not the actual commodity yet.
    Greenie

    ReplyDelete
  19. "Religious intolerance is bad."


    ...but you still did not explain, why such a significant number of Jews are among those robbing this country, and how best to describe this tribal connection. I know many Jews, who help each other (to the point of excluding deserving candidates) just because they were Jews. How is pointing that out sign of religious intolerance? None of these people are in any way religious, other than the name of the group attached to them.

    If Federal reserves had all nine Chinese guys, do you think American public would have noticed?

    ReplyDelete
  20. Anon,
    Read the book "Jewish History, Jewish Religion" by Israel Shahak. He was from an orthodox Polish Jewish family who became secular and decided that exposing and changing Jewish attitudes toward Gentiles was necessary toward resolving hostility between the two groups. He partly blames Talmudic teachings toward Gentiles for inciting anti-semitism and I consider it the most informative book on Jewish/Christian relations that I've ever come across. It certainly explains the behavior of the Rothschilds and of the Jews you referred to.

    If you want a ready answer for anyone that tries to hide behind accusations of anti-semitism, you should definitely get and read this book. You aren't likely to find it in the library (even if your local branch carries a copy, most likely it will be stolen by those who don't want it contents revealed) but you can get it at:

    www.washington-report.org/

    Click on the link to the book club on the left and you will have the specific (chapter and verse) information to refute any false allegations hurled at you by those who indulge in double standards.

    ReplyDelete
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