Anybody paying attention to the Greek bank situation?
- Thread starter i am herdman
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Not good.
What you have to realize is, that to a very large extent, all financial markets are a mirage based almost exclusively on belief and trust. You get "paid" every couple weeks for the work you do. You don't actually get the money, it's automatically deposited in to your account. You go out on "pay day" to a nice restaurant with your wife and "buy" dinner with your "money", but you don't actually give them any money, you hand them a piece of plastic and they swipe it through some machine and some third party takes the "money" from your account and puts the "money" in the restaurant's account. The restaurant then uses that "money" to "pay" the companies that provide them with the food they prepared and served to you.
Sure, you can go to the bank and pull out a few hundred, or thousand, dollars, but the amount of real money that exists relative to overall economic activity is minuscule. Our typical branch has about $20MM in "deposits", but on a typical day would have far less than $100,000 in cash. So what happens when everyone comes looking for thier "money" at the same time? If you lose belief and trust in the system, it collapses.
Even scarier is the stock market. It's value is wholly dependent on having someone else willing to buy your "ownership" in some company. I'll leave that for another time.
What you have to realize is, that to a very large extent, all financial markets are a mirage based almost exclusively on belief and trust. You get "paid" every couple weeks for the work you do. You don't actually get the money, it's automatically deposited in to your account. You go out on "pay day" to a nice restaurant with your wife and "buy" dinner with your "money", but you don't actually give them any money, you hand them a piece of plastic and they swipe it through some machine and some third party takes the "money" from your account and puts the "money" in the restaurant's account. The restaurant then uses that "money" to "pay" the companies that provide them with the food they prepared and served to you.
Sure, you can go to the bank and pull out a few hundred, or thousand, dollars, but the amount of real money that exists relative to overall economic activity is minuscule. Our typical branch has about $20MM in "deposits", but on a typical day would have far less than $100,000 in cash. So what happens when everyone comes looking for thier "money" at the same time? If you lose belief and trust in the system, it collapses.
Even scarier is the stock market. It's value is wholly dependent on having someone else willing to buy your "ownership" in some company. I'll leave that for another time.
Yep. The start of more debt laden country's melting down to come. Just find it very interesting that zombies in this country spend more time celebrating the removal of one flag and wrapping the social media page in another instead of realizing this financial reality will be the US fate at some point if real fiscal change does not occur.
I refuse to focus solely on doomsday scenarios as a practice but clearly our current financial situation as a country points us on this course down the road.
I refuse to focus solely on doomsday scenarios as a practice but clearly our current financial situation as a country points us on this course down the road.
I'm not a big economist nor did I stay at a holiday inn express last night. But I honestly don't think this whole Greece thing is as big a deal people think. This has been coming for years and for all intents and purposes has been bankrupt for a while. It's going to suck for the Greeks but will be just a small hiccup for the rest of the world economy.
Rufus, the big difference in the US and Greece is 1. Much of the world is dependent on the American market, and 2. No one is dictating shit to the nation with 60% of the world's nuclear arsenal.
Greece is in this predicament because no one cares if they go belly up.
Greece is in this predicament because no one cares if they go belly up.
Agree 100% with this and what Banker said. (Surprised? I bet).
Will be an interesting period to watch. Greece itself is small potatoes, but could trigger a domino effect. Italy could be next, I suspect.
I take that back. Puerto Rico is announcing default today at 5:00 it seems. Italy will have to wait in line
Assuming the world will always depend on the American Market is quite an assumption. The current "dependency" goes only as far as the remainder of the world using US dollars to trade commodities as well as demand for U.S. debt (bonds). If demand for our paper can not be maintained, our "liquidity" goes poof very quickly. IMO the canary in the coal mine is Japan for various reasons I won't get into here.
Again, I'm not a doomsdayer per se, but the writing is on the wall without fiscal reform. I am actually an optimist. I believe there is always opportunity....even in chaotic times.
Having just returned from Puerto Rico, I have a real problem with not helping them out. First of all, those are US citizens. Second, Puerto Rico has the highest participation rate in our volunteer armed forces. Also, even though they are a territory and not a state, they pay full FICA unlike Guam and other territories that only pay 60%.
If you study the history, the US has abused PR for about 100 years.
If you study the history, the US has abused PR for about 100 years.
I sat through a presentation the other day that talked about how even one bankruptcy in that part of the world will snowball into a much bigger problem. Say the first lending institution is given 100,000,000 to lend out. The way it's structured, that first institution is only required to keep 10% of that in reserve, meaning they can lend out $90,000,000. The next lender, like the first lender, is only required to keep 10% of that $90,000,000, & so on & so on. One bankruptcy could create major problems.
Yeah, anyone who believes Greece going under doesn't cause bigger problems is ignoring the inter connectivity of the financial markets. Go back and look at 1998 when Long Term Capital bit the dust. What that proved is that you can't count on rational when it comes to the markets. If people were rational and just kept doing what they were doing then an event like Greece wouldn't be that impactful, but people aren't rational. They want to get out first and the race to get out is what accelerates the decline. The fear that banks will collapse becomes a self fulfilling prophecy.
Two things deplete capital in a hurry, large credit losses and the rapid withdrawal of deposits. Banks are required to be adequately capitalized to handle the credit losses, and those required reserves were significantly increased post 2009. However, those capital levels are supported by deposits. If you lose the deposit base, your capital shrinks. Your capital shrinks and you have to start borrowing more money to meet capital levels. When a bank has to borrow to meet capital levels it is a huge red flag to the financial stability of the bank which leads even more people to transfer their funds to a better rated bank/country. It also crushes the bank's earnings which makes it extremely difficult to rebuild capital organically. The bank eventually fails and everyone that got their money out pats themselves on the back for being smart enough to pull their deposits, but in actuality the act of pulling the deposits is what caused the bank to fail.
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