Five Things: Fat Cat Bankers, the Pimps of Wall Street

I was having a similar conversation with the clerk at the local 7-11 convenience store. We were talking about Inflation vs Deflation. I tried to simplify it, so as to explain it to him and make sure I understood it as well. I told him, imagine the following scenario:


INFLATION:
An auction, for a condo on a desirable beach front location. The economy is good, spirits are high. The room is full, with people standing in the back and out the door, waitresses scurry about in their low cut blouses and short skirts with free champagne and hors d'oeuvres. Bank loan officers are handing out their business cards and bank rate sheets to all entries, credit and money are no problem.

The auctioneer starts off the biding, the room is electric, the crowd brings the price up in full fervor, with heated bidding wars on each unit. The bids are flowing like wine at an orgy, an expended winning bidder has his mantle piece, many hand shakes, back slapping, and shallow congratulations followed in short order by his hangover. Thus - INFLATION

DEFLATION:
Same auction, for an identical condo. The economy is stagnant, unemployment is rising, and spirits are somewhat somber. The room is less full, mostly look-E-Lou's, current unit holders and morbidly curious real estate professionals. The waitresses is a senior citizen, and it's a cash bar. The bank reps are there, but this time only to try to recapture their financial stake.

The auctioneer tries to get the biding started at a "desired" price. No bidders take the bait, slowly but surely he's forced to move the starting price down, till the "bank's planted shill" in the audience finally makes a bid at or near the bank's vested interest. After an uncomfortable pause in the bidding for the auctioneer to speak to the bank rep off to the side, the condo finally catches a "real" bid. This bid comes from a relative of the unit next door's owner (his smarter, savvy cousin), the actual mood is set. The owners of similar condos sit by in utter disdain and shock as they realize that their units are worth less than they had dreamed. Thus -DEFLATION

He listened intently then responded: Sorry, Ted . . . Unfortunately you made a rookie error that most graduate students in economics makesā€"conflating market equilibration (firm behavior) with inflation (economic behavior). Inflation is specifically defined as a rise in the general level of prices for all goods and services across all sectors and industries in a defined economy. Your example is an effect of inflation as evidenced in the behavior of one price, including the auction required to reach a market-clearing price in a situation of what is called first-degree price discrimination. It's a good example of what inflation does, not inflation definedā€"in economics you are rarely able to make an inductive case (specific to general).

Good example, though, would you like a Power-ball ticket?

:-) Minyan Ted

yea, does take all of us -

great article kevin, thanks!

Politicians in America are not smart enough !
I am surprised how little money you have to pony up to make billions. In many developing countries, politicians would demand a 10% cut on estimated profits even before the money is made !

I did a fool thing in 1975, I went bankrupt on $4,500 worth of college loans from a federal loan program NDSL back then. The local bank sold my loan to some clearing house type operation and suddenly I could not be told from one month to the next what I would be billed. I took great offense to this and told them I would be willing to pay a normally amortized amount every month if they could fix the payment. Oh forget that, no way. The judge gave me a fatherly, "are you really sure you want to do this, it will follow you for 7 years". I said thanks for his concern but screw the lenders. Here began a serious period of 7 yrs. without access to any credit, age 26 to 33. Best thing I ever did financially, to go bankrupt, because I learned to save and be very thoughtful about spending. I ran my own construction outfit from 1978 to 2009, without any loans, built my own house(no shack mind you)with cash, and built 25 other nice places with internally generated $. Wow what a bunch of bullshit huh, except its all true. I'm no money genius, it was one thing begetting another thing which meant no borrowing. I own everything 100% that I call mine, no banker calling to threaten, I sleep really well at night, arthritis and all. Other people are going to learn this, painfully but they will get it, that bankers are just setting the trap, always with that greasy smile. Credit card financed lifestyles are enslavement, just legal.

I think you guys need to add another mascot: "FatCat"...unlike hoofy and boo, he doesn't care which way the market goes because he's getting paid either way.

Charles Kincaid, you are absolutely right.

Today's economic problems is the result of excessive debt in the society. An entire nation borrowed from the future. When we borrow, banks create money out of thin air and give it to us:

http://www.tradingstocks.net/html/banks_create_money.html

Then they demand interest for it. The money that we borrow becomes our money supply. And it needs to be paid back with interest. And this can only be done if borrowing continues. If borrowing slows down, then deflation starts. Everybody looks at each other trying to sell something, but the other says "no i can't buy, because i am in debt". Thus, it becomes a deflationary crash as the bank credit which is our money supply deflates.

Classic Depew, thanks!

When everyone is in debt and the music stops there won't be any chairs other than the ones flying through the air.

The really sad thing is that malfeasance of this magnitude at all levels ends in tragedy; buy your boxes of tissue now.

You wrote, "...fat cat bankers ... have a disastrous habit of confusing money and wealth".

Rarely have I read truer words.

Admire your writings, Mr. Depew, and how your mind works.

Robert Heinlein once wrote that "An honest politician is one that stays bought."

By that definition, it appears that Mr. Obama is less than an honest politician, eh?

Fat cat banker bounce



From my perspective (as a depositor who is getting a mere .025% interest on deposits at my bank) it would seem only fair that there should be a 50% tax on bonus money that was achieved by fleecing my interest for their bonus. Money earned from a lifetime of saving and work should be worth something. I should be able to make 5.5% on my money without having to risk it in a corrupt stock market. As it is now not only are the shareholders getting screwed out of dividends the depositors are made to pay the price for the banker's mistakes. They have been lousy stewards of our money and because of that they should be first in line to bear the burden with no bonus, lower wages, less benefits and in cases of fraud: terminations and jail. Refer to the Rico laws. Especial in the case of Hank Paulson, GS and the special interest accorded to them.

Goldman will pay out billions in bonus money this year upwards of 750.000 on average per employee and had that money been applied to dividends for shareholders it would equal 32 dollars per share. (Not the measly 1.7% they are getting currently)

Perhaps rather then tax them 50% they should force them to give depositors back the money they have been stealing by way of the Government sanctioned reduce interest rates. The spread between the .025% depositor's interest rate and the 750.000 bonus is a royal fricken that's uncalled for and is unfair.

For all the mistakes that the bankers made it's the consumers, taxpayers and depositors who have been penalized. We get .025% interest on our deposits, our taxes are used to bail out the banks and our jobs are lost by the millions as corporation and banks lean on the workers to shore up their balance sheets. and for that they get a bonus?

A huge section of our economy has been drained by reducing interest rates to nothing. As I make nothing on my money I spend nothing.

Johnny Lunch Box

JPM

I really enjoyed this article and it is so correct. Thanks!!

Sums it up very nicely, the key somehow is to eliminate all your bank debt and never do business with banks again, I know easier said than done, but that's where we need to be. Nice post !

you just can't see him, he has the very long invisible hands.

You may be spending too much time on the streets of NYC , but you got it right.

Thank you sir, and you are right... too much time, too far away.

It is enjoyable to see realistic observations of the situation, thank you. Much better than the populist pontificating by Obama in attempting to appease the masses. His comments should be directed at Geithner and Bernanke rather than the bankers.

. . . but the idea that we're all to blame for the financial meltdown is so old, they've made TV specials and documentaries about it. Besides which, you would have to be a pretty bad student of the cultural history of America to think that consumers share equal blame for this mess, that they independently, spontaneously and concurrently with the banks became addicted to debt and living beyond their means. Everyone of us was raised that way and the parents who raised us, yes, the very ones who lived through the Great Depression and fought in WWII, became hooked on easy credit. All of which was engineered by the Madison Avenue selling of the American Dream - that you can have it all - now. That's what made us American and different from everybody else around the world. Until more recently, of course, when we exported the Dream and it all came to a head in 2008. But make no mistake about it - Corporate America engineered it, aided and abetted by the tenured House and Senate members. Sri, you've been fooled. American politicians aren't stupid. They might not get the 10% vig all at once like they do in your native country and others; they get enriched over time by staying in Democratic or Republican office with corporate cash - corporate cash for the corporate political parties - the Dems and GOP. Of course Obama got big bank money (and labor and lobby and so on); how else do you fund a hundred million dollar campaign? And those of you who think the answer is living within your means and buying everything on cash - then you lose big time. Learn a lucrative skill, move to a big city (preferably New York, where the Financial Fat Cats are) and buy real estate where the value of which will inexorably rise because the primary float of that market is the financial industry and their bonuses and we know that they will never be allowed to fail.

I am a one-armed auto mechanic, so I was taken aback by this article. Where is your sensitivity toward single-armed people, Mr. Depew?

Just kidding.

Yet another reason Depew is the best writer on the Street: adds nice touches of humor. The one armed auto mechanic line made my day. Keep up the good work!
- Uncle Grapes

Thanks for your hard work.To you and yours a Merry Christmas.Minyan,JT

Thanks! Merry Christmas!