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		<title>Is Another Banking Crisis Inevitable?</title>
		<description>Discuss Is Another Banking Crisis Inevitable?</description>
		<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable</link>
		<lastBuildDate>Sun, 26 May 2013 06:27:49 +0000</lastBuildDate>
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			<title>Tom Corson-Knowles says:</title>
			<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-605</link>
			<description><![CDATA[Reggie, awesome blog! I've learned so much from reading it over the past few months. I definitely agree with you about the incredible risks inherent in the commercial banks today. It's just getting worse. I own a debt buying company that specializes in credit card loans and the price of fresh charged off credit card loans has plummeted from an average of 10-12 cents down to 4-6 cents in 2009-2010 and has recently climbed to 7 cents. The banks used to collect the majority of these loans by hiring collection agencies. Now, they're trying to dump as much as they can so they can build up capital (and "show a profit" since they've already been written off the books). I don't think they nearly understand all the risks they're taking, but they know something is wrong. They're scrambling to get rid of their bad assets and increase their capital, and just about any price will do..]]></description>
			<dc:creator>Tom Corson-Knowles</dc:creator>
			<pubDate>Tue, 15 Feb 2011 20:30:32 +0000</pubDate>
			<guid>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-605</guid>
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			<title>Pie_Row says:</title>
			<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-665</link>
			<description><![CDATA[Here is my thesis in a bit better detail. I’ll start with a metaphor. You have a small economy. It runs on grain. There is a bank that buys and sells grain and will loan you grain as well. So we have a farmer named Fred. In this economy he owns a farm. The first year he borrows from the bank a bushel of grain. He plants this grain and harvests 10 bushels of grain. The contract with the bank calls for a repayment of 4 bushels of grain. This leaves him with 6 bushels to pay his taxes with and live on etc. Next year he borrows 4 bushels of grain and harvests 40 bushels. Repaying 16 bushels to the bank he has 34 bushels to spend. He thinks he is rich. He wants a McMansion. He figures that if he borrows 100 bushels, he can plant 40 bushels and spend 50 bushels and have 10 left over. The 50 bushels might not buy a McMansion but he was living high on the hog. The problem was this. When we planted 4 bushels he was at the optimum yield point for planting, so planting 10X as much didn’t get you 10X the yield. It got you closer to the same yield. So he got back the 40 bushels that he planted. He still owed the bank 400 bushels. He lost his farm. Now everyone had done the same thing at the same time so the whole economy crashed. This is a debt bubble simplified. The conclusion here is that the economy can only service so much debt. Iceland found this out. We are going to find this out. If you want to get 10X the yield then you to plant 10X the grain on 10X the arable land. With paper money if you want to get 2X as much money out of the economy you need to have 2X the value added or you need to double the wages. I don’t see us adding 2X the real economic output. So we need 2X the wages. How do you get 2X the wages? 4X the minimum wage. Here is a thought experiment. Small businesses come and go all the time. It is the nature of the game. So if you up the minimum wage from $7 whatever to $15/hr then you will put the small businesses that are using labor close to $15/hr under stress. Some will fail some will not. Then 6 months from now you bump minimum wage to $21.50/hr. This will put a lot of small businesses under stress. Some will fail some will survive. Others will be born. Then upping minimum wage to $30/hr in another 6 months, some more small businesses will fail. Some won’t. Others will start. The fed has pushed a lot of working capital out there to be used. The limit on it being used is the already way over extended consumer. The popping Real Estate bubble is soaking up all the money that the fed can print. Those that don’t lose their jobs will have more income to borrow against. This will cause the economy to grow. As jobs get added at the higher minimum wage you get a new opportunity to expand M3. It balances on paper. What I see is short term contraction, long term growth.]]></description>
			<dc:creator>Pie_Row</dc:creator>
			<pubDate>Mon, 07 Feb 2011 01:14:29 +0000</pubDate>
			<guid>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-665</guid>
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			<title>Jim says:</title>
			<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-668</link>
			<description><![CDATA[Once possibility worth considering is that the Euro economies and ECB will follow the Fed. The magic in the punch? Low interest rates. When banks borrow at next to nothing and lend at a couple of percent, they make good money. Of course, their lending takes profits from businesses and helps clean up the hit they take on NPA's. If we take 10-15% defaults on Euro1.7 trillion, that works out to about Euro250 billion that will have to come out of the banks over the next couple of years. That is in addition to Euro110 billion already pledged to Greece, Euro75 billion to Ireland, and another Euro675 billion in bonds over the next two years. By 2013 we can expect the EMU to have to absorb about Euro1.1 trillion. Now, most folks believe Trichet's tough talk and consider low rates as suicide for Germany, which is Europe's engine at the moment. If one considers the long slump in Eastern Germany, Poland, and the Czech Republic though; expanding domestic credit might work. After all, European consumers are not carrying the kind of debt that Americans got used to since the 1980's. Only Germany borrows at 10-year rates lower than the US, so much of the EMU would not necessarily incur a flight of capital. The Asian savers badly want a currency substitute for the dollar and already have shown that they want to diversify their consumers from North Americans to Europeans. Given the crisis on tap, Europe soon might see the advantages of inching rates down and allowing banks to build up reserves again. After all, 2% rates did not lead to the Spanish bust in housing, NPA's and the bond mess has. The recent move of MBS's to domestic banks and sovereigns will gives domestic governments more control over managing the NPA's. The extra consumption in places like Spain will be for manufactured goods, since the overhang in housing is going to take time to work off. That demand for manufactured goods around the EU should help factories and banks to slowly get folks back to work and pay off debts, essentially working off financial debts at banks with profits generated domestically both by domestic and foreign (read: Asian) consumers. It worked well for the US in the 80's and 90's, before the US consumer became highly indebted, so it might just work for Europe at this point in time.]]></description>
			<dc:creator>Jim</dc:creator>
			<pubDate>Sun, 06 Feb 2011 02:23:29 +0000</pubDate>
			<guid>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-668</guid>
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			<title>louboutin says:</title>
			<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-670</link>
			<description><![CDATA[Let me intorduce it to many people,because it made good.]]></description>
			<dc:creator>louboutin</dc:creator>
			<pubDate>Sat, 05 Feb 2011 12:06:21 +0000</pubDate>
			<guid>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-670</guid>
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			<title>mars says:</title>
			<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-669</link>
			<description><![CDATA[Thanks for sharing your information and I read it 3 times .]]></description>
			<dc:creator>mars</dc:creator>
			<pubDate>Sat, 05 Feb 2011 12:05:04 +0000</pubDate>
			<guid>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-669</guid>
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			<title>fedwatcher says:</title>
			<link>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-678</link>
			<description><![CDATA[I expected lots of comments by now, so I guess everyone is watching Al Jeezera's excelent coverage. But please remember that the entire Middle East and Asia is suffering from the increase in food prices brought about by our Fed in its ruthless rescue of our bankers who after all are "Doing God's Work". Another Banking Crisis? Well if you take the wrong approach to the first one, or second one, or third one, etc., You can definitly see another one. Or most popular political prisoner, Martin Armstong says the bottom is mid-June. His cycle theory has many holes, yet many Big Money Asian Investors follow him and trade on his recomendations, thus ignore him at your peril. We are trading in "Uncharted Waters" and thus any "Black Swan" can upset our apple cart and cause major pain. Iceland has shown minor players how to play this, will Ireland pull an Iceland? I hope so as I want to see Jamie Diamond's {figurative, not actually} head on a lamppost via an SEC inditement. Our bankers have placed us on a cross of gold. When will we take to the streets? I am mulling over if I should take my SSI now. It is begining to look like now is better than latter as latter may mean nada. I should not be in this possition, as latter should always look better. It is to everyone's advantage for "latter" to look better. Remember that a 2% inflation target translates to your dollars lossing half their value in less than 35 years. The lack of understanding basic math is the root of our problem.]]></description>
			<dc:creator>fedwatcher</dc:creator>
			<pubDate>Sat, 05 Feb 2011 04:32:08 +0000</pubDate>
			<guid>http://boombustblog.com/reggie-in-the-news/item/4673-is-another-banking-crisis-inevitable#comment-678</guid>
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