SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Mish's Global Economic Trend Analysis
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: pogohere who wrote (96378)4/12/2009 9:05:50 AM
From: Haim R. Branisteanu  Read Replies (3) of 116555
 
where did you post a link to "The Roving Cavaliers of Credit" I think his analysis is basically flawed related to the money multiplier of a depositor.

The bank need 10% of equity it can not use the depositor money and just lend out 90% of it.

If a bank has $100 in equity and a depositor deposits $100,000 the bank can only lend out $1,000 and not $90,000

the remaining $99,000 the bank can buy treasuries but no more than the value of the remaining deposit. The depositor can leverage its deposit by 20 by buying treasuries (5% margin needed), but the bank can not.

In real life those lines are getting blurred and mark to market only made things worse when the market went up (yield down) the bank equity went up and the bank was able to lend out more, based on the appreciation of the tresuries it held (increased bank equity) - now we are in reverse

Investing in AAA rated MBS’s or CDO’s and buying CDS’s AAA rated also increased the bank equity very substantially which enabled the bank to lend out more etc. and that is the root of the credit debacle – mark to market in a credit bull market and ignoring the present value of the debenture the bank invested into, which debenture value remained the same by maturity!!

correct me if I am wrong
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News