As usual, wiki is your friend: http://en.wikipedia.org/wiki/Money_creation and http://en.wikipedia.org/wiki/Fractional-reserve_banking explain the process pretty well; essentially the money is created by lending money against a reserve. You do not need to have $700 billion in "real" money, you only need to have enough "real" money to satisfy the "fractional" proportion of your loan, the rest exists only as debt on the books.
Creating money in this way is inflationary, as you are essentially conjuring money out of nothing (although to be fair the money eventually disappears once the loan is paid out - except that currently, old loans are just rolled over into new loans instead). Currently the USA "exports" a lot of this inflation to other nations who buy US dollars for various purposes, notably purchasing oil.
Yeah I understand (understood) that much but I guess I didn't understand the whole story of it and the long term implication of it how the $700B enters and exits the system.
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"With a coach and a player, sometimes there's just so much respect there that it's boils over"
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What are they going to do, have have a freight train deliver cash to Wall Street Station?
I don't know how this kind of thing works, but I know there is more to it than just printing money and passing it around.
In 1999 the IMF used 9 armored vehicles in the middle of the night to transport over $90 billion USD from the Argentina stock market in Buenos Aires to New York...Happened when the Argentinean economy collapsed. I know that's a different set of circumstances for a variety of reasons, but the US kinda makes it's own rules.
In terms of where the money actually comes from, obviously this money is not fiat...It's electronic. 'Making' it is as easy as typing into a computer. The idea that the US can just put as much money into the market as need be and not worry about inflation is what is so interesting. It comes from the idea that they can control the value of their currency compared to others through coupling it to things like oil, gold (although not really) and other commodities. I guess they figure as long as the world uses USD, they have a reason to be at the top. There's plenty of reason to think the US is trying to devalue their currency right now (mostly due to the Chinese owned US reserve notes).
In 1999 the IMF used 9 armored vehicles in the middle of the night to transport over $90 billion USD from the Argentina stock market in Buenos Aires to New York...Happened when the Argentinean economy collapsed. I know that's a different set of circumstances for a variety of reasons, but the US kinda makes it's own rules.
In terms of where the money actually comes from, obviously this money is not fiat...It's electronic. 'Making' it is as easy as typing into a computer. The idea that the US can just put as much money into the market as need be and not worry about inflation is what is so interesting. It comes from the idea that they can control the value of their currency compared to others through coupling it to things like oil, gold (although not really) and other commodities. I guess they figure as long as the world uses USD, they have a reason to be at the top. There's plenty of reason to think the US is trying to devalue their currency right now (mostly due to the Chinese owned US reserve notes).
Exactly, but the value of the USD has also dropped which confuses me about the overall dynamics about the economy. What exactly is being exchanged here? So are we saying to the bank, on a whole, they can create $700B and not have to pay it back? Do they have to pay it back? Are we just excusing $X of bad debt? Are they writing down the books a certain way? When this idea of inserting $700B into the system (i.e. electronically) what exactly can control the cash flow, and how can it go into the wrong hands, ie. CEO's? Is there something being leveraged here and who owns it?
This idea of money and creating it an incredibly complex idea.
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"With a coach and a player, sometimes there's just so much respect there that it's boils over"
-Taylor Hall
How was the US government planning to finance the purchase? The US government had intended to borrow the money from world financial markets. The proposed legislation gave the Treasury the authority to issue an additional $700bn worth of Treasury securities. The hope was that eventually the Treasury could sell the distressed assets back into financial markets once the housing market stabilised, perhaps even making a profit. Others were concerned that issuing more government debt, and virtually doubling the size of the budget deficit, was not the solution. The sale could have made the US more dependent on foreign banks, who may be the biggest purchasers of Treasury securities.
Lol, that flow chart is awesome. Bank --> bank --> bank --> bank. How did they decide that circle of bankage wouldn't flow the other way?
Thats just crazy talk. Everybody in the world knows that bank flowcharts always go clockwise to the next bank. Counter clockwise isnt even a consideration
In 1992 the United States Congress passed a housing law requiring the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to devote a percentage of their lending to support affordable housing. This in part, contributed to increased Fannie Mae and Freddie Mac pooling and selling of such loans as securities, (i.e. securitization), and expanded the secondary market for those loans.[2]
In early 1993 PresidentBill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[6] The new rules went into effect on January 31, 1995 and featured: requiring numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[3][5]
According to Howard Husock, vice-president of the Manhattan Institute for Policy Research, a right-wing think tank, these new rules greatly increased CRA lending. He writes that the new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans. Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[3]
The number of CRA mortgage loans increased by 39 percent between 1993 and 1998. Other loans increased by only 17 percent.[7][8]
Do the provisions that the Clinton administration made in 1995 have anything to do with what his happening.....not trying to pin the whole thing on Bill Clinton, but just wondering if this was a contributer to the current predicament.
Do the provisions that the Clinton administration made in 1995 have anything to do with what his happening.....not trying to pin the whole thing on Bill Clinton, but just wondering if this was a contributer to the current predicament.
Not just the actions in 1995. It kept happening, and yes it looks to be the root cause for the current problems.
Do the provisions that the Clinton administration made in 1995 have anything to do with what his happening.....not trying to pin the whole thing on Bill Clinton, but just wondering if this was a contributer to the current predicament.
A contributor - absolutely. Any time you screw around and force things, you are going to create new issues and not necessarily just the ones you expect. Although I'm not surprised a "right win think tank" would want to lay the whole issue at the feet of a Democratic president. Definitely a contributor, but doubtful that it is the sole reason.
But there are also issues with how the risky mortgages were being packaged and re-sold in order to hide the amount of risk.
There were also issues with some of the safety mechanisms put in place (limits on the amount of leverage you were allowed to do), which were waived.
There were issues with how low the interest rates have been kept for so long. This has made sense for traditional measures, but the effects on financial markets seems to have created a whole house of cards dependent upon low interest rates, a house now collapsing.
Lots of reasons, lots of blame.
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"The problem with any ideology is that it gives the answer before you look at the evidence."
—Bill Clinton
"The greatest obstacle to discovery is not ignorance--it is the illusion of knowledge."
—Daniel J. Boorstin, historian, former Librarian of Congress
"But the Senator, while insisting he was not intoxicated, could not explain his nudity"
—WKRP in Cincinatti
But there are also issues with how the risky mortgages were being packaged and re-sold in order to hide the amount of risk.
There were also issues with some of the safety mechanisms put in place (limits on the amount of leverage you were allowed to do), which were waived.
There were issues with how low the interest rates have been kept for so long. This has made sense for traditional measures, but the effects on financial markets seems to have created a whole house of cards dependent upon low interest rates, a house now collapsing.
I don't know hardly anything about this problem. It would seem to me, however, that the solution is based on the idea that they are entitled to unlimited access to limited natural resources (on thier own land or anyone elses)?
This video gets a bit political in the end, but it runs down the situation.
Quote:
'The world changes, and Congress and the laws have to change with it,'' said Senator Phil Gramm of Texas, chairman of the Banking Committee and one of the bill's prime sponsors.
Phil Gramm, a staunch deregulation republican.
The Republican help the House and Senate for 6 of Clinton's 8 years. Republicans have also had the presidency since then and had control of both House and Senate for 4 of those years. They aren't angels in this.
(and I can't see the video, it is blocked for me at work. I'll watch it later)
Both parties were either active or complicit in the root causes that lead to this.
__________________
"The problem with any ideology is that it gives the answer before you look at the evidence."
—Bill Clinton
"The greatest obstacle to discovery is not ignorance--it is the illusion of knowledge."
—Daniel J. Boorstin, historian, former Librarian of Congress
"But the Senator, while insisting he was not intoxicated, could not explain his nudity"
—WKRP in Cincinatti
Yes, on that bill, both parties worked to get it through. But Clinton was prepared to veto it unless low income loans were included. And the Republicans caved.
Watching the Senate vote on the Financial Bill on CSpan at the moment, looks like the Aye's have the majority a good chunk of the way in....
Wonderful.
__________________ I am in love with Montana. For other states I have admiration, respect, recognition, even some affection, but with Montana it is love." - John Steinbeck
