h a l f b a k e r yThis ain't rocket surgery.
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I'm not too clever with these things but I rather wish people would not panic. |
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sitting on the fence with my bun... stop sniggering, I know who you are. |
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I suspect this would make the problem
a lot worse, rather than better. People
will sit watching some graph twitching
up and down, and perhaps sometimes
dipping and spiking, as the bank's
funds fluctuate as they always have
done in the past. |
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But now, investors will get nervous and
start to withdraw their funds at every
twitch of the graph. The result? That
twitch becomes a slide, which becomes
a run, and the whole thing collapses. |
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60% of the reason for the current
upheaval is that there is instant access
to information - some real, some
rumour. The whole system is
connected. As a result, ripples get
magnified into tsunamis instead of
being accepted as part of the normal
market fluctuations. |
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So, an absolute [-] for this. |
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"Well, it's rather brutal here. Right now we are advising all our clients to put everything they've got into canned food and shotguns." |
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Much less to worry about these days than in 1929 (at least in the US), since the creation of the FDIC. |
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You could rename this idea the "Trigger a bank run mechanism". |
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I'm all in favour of this sort of thing. Rather like my own 'Global Pandemic Alerts" idea, it could be used as an advertising site for the financial services sector. With luck, the hectic and unreasoning switching about of funds between institutions by panicky investors would see all of the invested cash gradually eroded down to nothing as it gets steadily absorbed in transfer fees (the website would, of course, claim a small commission on every account switched via it's website), thus making a run on the bank impossible because nobody, apart from the owners of the website, has any money left to run with. |
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//huge voliatility //
So close to a [marked-for-tagline] |
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The fundamental problem is credit default swaps. They're a brilliant financial vehicle with unlimited fraud potential for both buyer and seller. The CDS bubble has grown bigger than the entire world's annual production of marketable goods. The law of gravity says that it will come crashing down; to spend $700 billion before it does will simply (1) make the crash even bigger than it would have been, and (2) leave the country $700 billion poorer going in. |
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I was hoping for some kind of timepiece to be worn by old biddies that would keep them out of bank queues during the lunchtime rush. |
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As long as you've got more of the bank's money than they've got of your money, you should be OK |
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I suspect that if a bankrupt bank owes you money you'll never see it again, but if you owe a bankrupt bank money the debt will be sold onto someone else who'll want it back off you. That's the way banking works in my experience. |
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The sad reality is, this money actually is backed by nothing whatsoever. All the exotic financial instruments in the world won't change that. What is needed isn't less information, but more. How overleveraged is your bank? What is the real capicity of FDIC to pay back depositors? What are the real chances of over x amount of money being withdrawn? At what value of x will your bank be insolivent? Anyone who thinks problems can be solved by hiding information is sadly deluded. |
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//this money actually is backed by nothing whatsoever//
To a large extent, it never has been. What has changed now is that the banks no longer trust each other. A system which, to a large extent , was based on the principle of 'My word is my bond' has suddenly discovered that everyone was lying to each other and that crucial word 'confidence', which underpinned the whole thing, has evaporated. It's a real and, at some level, deeply satisfying, "The Emperor's got no clothes!" moment. |
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Yes, good to know the same people who sorted out the Enron debacle are going to fix this one too... |
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"And next week here on How To Herd Cats, George Bush and Gordon Brown will be demonstrating 'How to nail jelly to the ceiling'........." |
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Many thanks for all your kind comments - i am surprised at the level of 'fishes' it seems to have generated! |
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\\What is needed isn't less information, but more.// |
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Thanks voice... my thoughts exactly... or perhaps most people dont care about their money. Anyway i have started a blog to take the idea forward (see link above)... please drop by - your comments are most welcome. |
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[hippo] that may not actually be entirely accurate. If you happen to have money in the bank beyond the FDIC limit, while at the same time owing that bank a mortgage that is in all likelehood significantly larger than the sum of your deposits, were the bank to go under, you could be out the money that's not covered by insurance, while the bank's new creditors would demand that you continue to pay your mortgage -- it's not netted out as some P&L or budget would be, at least not automatically so. |
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Having said that, it's been surprising to me that the US govt. hasn't pursued a rise in the FDIC insurance limit -- that would assuade most of the fears of small businesses and individuals, and it wouldn't be hat expensive to do. Upping it to 250K, or even a million, would make a lot of sense. |
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It would definitely be helpful, but the current insanity in bank share prices has less to do with private savings than with the jitters of investment manager in control of far larger amounts. |
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I'm wondering whether I could use a prediction market like the one proposed in 'The Wisdom of Crowds' to disguisedly direct my investment strategy without the crowds catching on. |
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Insider trading is only ever effective if *nobody* else is on the inside. |
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One year on ... just thought i would update you all... the blog is continuing to cover the banks in their finest hour.... we have seen runs across the world - the latest was in the netherlands. |
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And I was hoping this would be a fashionable timepiece I could wear on my arm. |
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Why couldn't it? An ARM chip and a bit o' memory, a
wireless receiver from a cell phone and an LCD screen
and you're there... |
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