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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: DuckTapeSunroof who wrote (41628)	3/4/2010 3:47:17 PM
From: TimF	Read Replies (3) \| Respond to of 71588

Re: "If the subsidiary is so totally separate as to effectively be another company, than that's the same as saying "the trading is not alright with me". WRONG! It's saying: Keep it separate from the taxpayer guarantees! It is separate from the guarantees (at least the explicit, legally required ones), without being in a separate subsidiary. Only the deposits are insured, not the institutions profitability or even existence. Re: "the taxpayers on on the hook for deposit insurance. That insures the deposits, not the bank itself. Wrong in degree! You forget that we operate under a system of Fractional Reserve Banking. (Reserve requirements are at 9% now. So lending is very much greater then the deposit base. Yes, and that lending is not guaranteed, just the deposits. Re: "And if by I-Banks you mean investment banks, than they don't have taxpayer backed deposit insurance." Wrong. They have all converted to bank holding companies now Exactly. They have converted. Meaning they are bank holding companies not investment banks as such. If prop. trading is so very profitable then a subsidiary for prop. trading will 'always' be increasing the company's PROFITS, right? Nothing will ALWAYS increase the companies profits, except perhaps direct permanent subsidies (which only do so at the expense of the rest of the economy), and even for those "permanent" only means "until congress changes things", in other words not really permanent, and so not "always". The trading does generally increase the companies profit (which is why they want to do it). But when it goes bad it decreases the companies profit, sometimes by a lot (esp. if it was over leveraged, and/or proper risk controls where not in place). If the "guarantees" your talking about assumptions for bailouts, than your using the wrong term, they are not guarantees. Also if that is what your talking about, than even in a subsidiary they reduced the profits, and potentially (if done in a very foolish way) expose the company to insolvency. Moving them to a different subsidiary only helps if the creditors of that subsidiary have no recourse to the parent company, that presumably would work both ways, in which case the profits will not help the deposit and lending part of the company (except is they make the value of the partial ownership in the trading subsidiary go up, and then the rest of the bank sells part of its position).