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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: MetalTrader who wrote (97140)	4/29/2009 5:41:53 PM
From: Elroy Jetson	4 Recommendations Respond to of 116555

To play any game, you need both rules and a referee. . A merchant bank can operate on the basis you envision. A merchant bank has no "depositors". The would-be depositors purchase shares in the merchant bank and share the profits and losses. Goldman Sachs or General Electric are modern day versions of merchant banks. If all merchant banks were to close, the economy may be less robust, but it still functions. The economy still needs a regulated banking system for the transfer and payment of funds. "Transactional Banks", which I will call "Banks" must live in a system of regulation. Failure to segregate Banks from "Merchant Banks", which are free to take as much risk as they prefer, always leads to catastrophe. Hundreds of years of experience prove "depositors" exert no enforcement powers over an individual Bank or banking system until it is already too late. This is because transactional depositors have no more access to relevant information than did Bernie Madoff's "investors". You might say, "well their books should be audited and published". And I point out you are already recreating the required system of regulation you thought wasn't needed. You'll also discover during an expansion, there's a slippage of bank capital ratios over time in most Banks. Unfortunately the transactional function of Banks is not safe if only your bank is safe. The operation of the system is dependent upon all banks being safe. You might say, "well there could be an insurance company like AIG which could charge premiums and then go bankrupt when bad times come." And I will point out you've recreated a badly structured FDIC. Worst of all is the fact that an unregulated fractional reserve banking system destroys free-market signals, as the increased creation of money through fractionally backed loans both creates more demand for money AND actually reduces real interest rates, making economic bubbles self-reinforcing. Unless transactional Banks operate within a framework of enforced prudent banking standards, they destroy the free market economy and themselves in the process - which is very stupid. George Soros calls this "reflexivity". .

To: MetalTrader who wrote (97140)	4/29/2009 5:44:05 PM
From: Elroy Jetson	1 Recommendation Read Replies (1) \| Respond to of 116555

Five Fundamental Laws of Stupidity , as conceived by Carlo Cipolla. 1.) A person is stupid if they cause damage to another person or group of people without experiencing personal gain or, even worse, if they also cause damage to themselves in the process; 2.) The probability that a given person is stupid is independent of any other characteristic of that person; 3.) Non-stupid people always underestimate the number of stupid people in circulation; 4.) Non-stupid people always underestimate the harmful potential of stupid people; they constantly forget that regardless of the circumstance, dealing with or associating themselves with stupid individuals is a costly error; 5.) A stupid person is the most dangerous type of person there is. .

To: MetalTrader who wrote (97140)	4/29/2009 8:51:44 PM
From: Skeeter Bug	1 Recommendation Respond to of 116555

MT, what would stop executives at a bank from using their position to monetize their power at the expense of company owners and the general public in a totally free market? people are fundamentally self centered and selfish - they will take from others when given the opportunity. there is no shame - citibank has asked to give fat bonuses b/c their employees are "discouraged." they have no concept of the mass destruction they've heaped all over the world, THEY JUST WANT TO GET THEIRS WHILE THE GETTING IS STILL GOOD. PERIOD. what is to stop a government form being sold to the highest bidders and insiders?