Imagine three places, Conservaville, Prosperville and Leverageville. In Conservaville there is only one bank with $1,000 of capital and it does not lend any of it. The customers are happy because they have a safe place to keep there money but the economy is unable to grow because there is no financing available for the resident's ideas.
Leverageville is full of gamblers who hope to make a quick buck. Leverageville holds 1% of its capital to assets and loans out $100,000. The economy has the best prosperity until one day home prices collapse and consumers can no longer pay their loans and the bank collapses.
In the city of Prosperville, the bank has a lending policy which keeps 5% of its capital. It also has $1,000 of loans but the bank is able to loan $20,000. This allows consumers in the country to finance new projects and investments and the country reaches prosperity. The capital requirement are also high enough to prevent collapse.
As seen by these examples, there are three towns. By the Basel Committee raising leverage from 2.5% seen before the crisis to 7% they lower the amount of loans in the economy by 50% by adding a 3% surcharge to that they lower loans by 75%. It is important to ensure safety but what is the price the consumer will pay?
As seen by these examples, there are three towns. By the Basel Committee raising leverage from 2.5% seen before the crisis to 7% they lower the amount of loans in the economy by 50% by adding a 3% surcharge to that they lower loans by 75%. It is important to ensure safety but what is the price the consumer will pay?
Dude, if you live in the USA start hiding, teabaggers already have you on their list.
ReplyDeleteWhen you have total idiots running the country, from the pres down, what do you expect?
ReplyDeleteIf we don't see any QE3, we may be headed for a repeat of the recession of 37-38.
ReplyDeleteIt is going to be many years before we recover truly recover. Where our friends and neighbors have steady work. The government will try to spread their manure everywhere and tell us it is time to go spend money because everything is better. Well my friends it is the age of real self improvement. In this sense figure out what you love and turn it into a business. There are people who can still spend money. People and other businesses that need whatever we have to offer. Fortunately we still have a fertile country that allows us not only open business but fail until we succeed. However if you truly are a student of what you love then you are going to be successful the first time. I know I will be.
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