Bruddah IZ
DA
Why would it? That was not the purpose of GS.
Essential Economics for Politicians
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Bruddah IZ
DA
No it did not. Again, expansion of the money supply by the Fed is what caused the financial crisis. Want me to "expound"?
I said "function," not "intended." As often the case, Congressional acts function quite differently than their intended purposes. Sherman Act is another example.
But let's not get into politics. That's the lower-end shit best left for Bernie Sanders to chew on. And bleeding heart libs like Wez, Dukes, espn, and that illegal alien whose name I have trouble pronouncing much less remembering. And the gun-wielding intellectual Moe. And that random guy who named himself after an animal part. Hyena's Butt, I think.
Bruddah IZ
DA
What are you talking about? Derivatives are regulated.
Bruddah IZ
DA
Contribute? Maybe. Cause? Absolutely not.
Bruddah IZ
DA
Russ Roberts: I want to start with a very interesting point you make about the repeal of Glass-Steagall. Now, a lot of people blame the crisis on the repeal of Glass-Steagall and the Gramm-Leach-Bliley Act, accomplished that in 1999. It was a Democratic president who signed that but I think it was a Republican Congress that pushed it; but it was a bipartisan bill. It got a lot of support from both sides of the aisle. And you make the argument that its direct effect in causing the crisis was very small. So I want you to explain that. And then the more interesting point--but you still point out the political implications of that were not small. That's fascinating. So, talk about those two things. First, why it had little direct impact but its political impact was not trivial.
Luigi Zingales: So, just to make sure that everybody is on board, I think that what Glass-Steagall used to do is to separate commercial banks from investment banks. And during the crisis, the banks that were most exposed and suffered the most and some of them failed to be bailed out were pure investment banks that would have existed even before the repeal of Glass-Steagall and would have got in trouble even before the repeal of Glass-Steagall. And in fact, one of the solutions or partial solutions to this crisis was to have some rescues, so you had J.P. Morgan buying Bear Stearns, and you had Bank of America buying Merrill Lynch, and this was made possible by the repeal of Glass-Steagall. Because during Glass-Steagall JPMorgan could not have bought Bear Stearns and Bank of America could not have bought Merrill Lynch. The only sort of bad example in this picture was Citigroup. Citigroup was both an investment bank and a commercial bank, and it was highly exposed and was really saved by the government because otherwise it would have gone bust. And by the way, during the crisis, the way you got some confidence back for banks like Morgan Stanley and Goldman Sachs was for them to file as commercial banks. So, I think there is no question; in my view, the separation of investment banking and commercial banking was not the [?] factor in causing the crisis or precipitating the crisis.
Russ: Did you mean to say that without Glass-Steagall, that if Glass-Steagall were still in place, that JPMorgan could not have purchased Bear Stearns? Guest: Yeah. It could not. Because it was an investment bank.
Russ: Aren't they both investment banks?
Guest: JPMorgan is a commercial bank. JPMorgan Chase is actually both, a huge commercial franchise.
Russ: Okay. I get the point, then. The argument for Glass-Steagall of course is that commercial banks are FDIC insured, and the story is that if you merged them the money would somehow get mixed together and that made the investment banks that had commercial arms or vice versa too big to fail. But the truth is, the investment banks were viewed as implicitly insured anyway. So, it's in a way it does seem to be not a very important piece of legislation, the repeal of it.
Guest: In addition, the investment banks were heavily exposed to commercial banks through sort of a lot of loans. If an investment bank had failed, probably would have brought down the commercial banks that guaranteed the credit. So, the separation itself I don't think is the most effective way to limit risk.
Bruddah IZ
DA
You mean "expounding" to the best of my ability upon your request given your self admitted lack of depth in the area?
Bruddah IZ
DA
Another 6 questions.
If it's fiat money why would it be affected by other then?
No, the supply of money determines velocity or the lack thereof.
What is the cause of the vigorous market? Typically it is an increase/inflation (Sub prime loans) in the money supply/credit
Fiat money relies on inflation of supply without backing. Commodity money is backed by real assets.
Really dude? Commodity money is the free market check.
Fiat money doesn't work for anything but booms and bust.
Bruddah IZ
DA
Just read the rest of the book. It is not as complicated as you think.
I have actually read a good portion of that. Wasn't going to tell you that because on a forum, it's impossible to have an intelligent discussion if we keep expanding the topic. It may not be your intention, but giving links tends to exactly that.
The linked articles, and by extension your point, is basically that the fiat money gives the government the ability to manipulate the supply of money, and therefore the relative prices of things. Manipulating money supply is effectively fractional reserve banking. Fundamentally this is the cause of boom and bust cycles. Commodity money, on the other hand, has intrinsic value, thus by definition, prevents fractional reserve banking. Magically it can avoid financial crises. Is this your point in a nutshell?
Bruddah IZ
DA
Cool. Expanding the topic within the intent of the thread, which is economics, is okay. My intent is not to go beyond economics although the bible does contain many references to economics.
If a big economic collapse occurs, what would you do with a closet full of gold coins or bullion? You can't eat it, you can't wear it, you can't burn it for heat or to move a car or generate electricity... Anyone who would accept it in trade for useful items would be relying entirely on its symbolic value.
Bruddah IZ
DA
Agree. "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.--F.A. Hayek
Fiat money gives the Fed the ability to manipulate the supply of money through either the purchase or sale of Treasury bonds. The Fed purchasing bonds from our Treasury increases the money supply and the opposite is true with the sale of Treasury bonds. Fractional Reserve banking is what happens within the actual commercial banks that you and I use. Chapter 16 contained some simplified balance sheets that may help. Fundamentally, boom and bust is caused by an increase in the money supply. An example of commodity money is what you see in post #7 (silver certificate commodity) as opposed to post #6 (fiat) on page 1 of this thread. Commodity money does not magically prevent fractional reserve banking or financial crisis. Commodity money is the check on fractional reserve banking that mitigates or reduces the effects of a financial crisis. How would you know if fractional reserve banking was happening with Silver Certificates that all look the same? And how would you respond to that knowledge?
Bruddah IZ
DA
How much do you want for your gold? I'll give you a paper dollar to snack on.
For it to be true, the Feds would have to increase the money supply by a substantial amount, wouldn't it?
That just shows that the "intrinsic value" of commodity money is not so "intrinsic" after all. Value comes from demand and faith.
Bruddah IZ
DA
Yes. And they have.
Bruddah IZ
DA
You are confusing fiat money which has intrinsic value that relies on supply and faith/ignorance with commodity money that you can trade for silver with a certificate like the one you see in post #7.
Bruddah IZ
DA
...the paper currency in your purse or wallet is a liability of the Federal Reserve, legally speaking. After all, these green pieces of paper have "Federal Reserve Note" written on them. This is an accounting fiction, of course, a throwback to the days when the notes were simply claims to actual gold or silver. It's hardly a liability to have billions of dollars in "claims" against the Federal Reserve floating around, when they are claims to nothing. (If you tried to present a $20 bill for redemption at a Federal Reserve Office, you would be able to get two $10 dollar bills, or four $5 dollar bills, but certainly no other type of asset.)--HPBRW
Bruddah IZ
DA
Just as a free press is necessary for a free citizenry, so too is sound money necessary for a free economy. All other aspects of what is meant by the term "economic freedom" in conventional circles--low tax rates, mild regulation, no trade barriers -- are a moot point if the government has a printing press at its disposal.
That is why education is the first and most important step--people need to understand the importance of sound money, and the dangers of fiat money and central banking
That is why education is the first and most important step--people need to understand the importance of sound money, and the dangers of fiat money and central banking