tag:blogger.com,1999:blog-5882645467378797266.post992628942235846707..comments2023-07-17T11:55:51.363+02:00Comments on ObservingGreece: Keynes On Why Banks Don't Lend (and a proposal how to correct this)kleinguthttp://www.blogger.com/profile/12491174042954678023noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5882645467378797266.post-54692212426782544072014-08-05T16:41:32.672+02:002014-08-05T16:41:32.672+02:00About your proposal Klaus and Prof YV. Your propo...About your proposal Klaus and Prof YV. Your proposal is logical but it may assessed as insufficient or unpractical because a bank possibly can't have for 10-15 consequtive years only profits,or investors to show discourage in acquiring stocks of a bank that will not pay a dividend for 15 or 20 years. The good think about your proposal is that a balance sheet of bank would be far more transparent (performing loans) and with better CAR, even above 20%. <br />For me the only way banks can really serve their role is to have two different "pockets" one from which they will produce profits and one other to repay loans. <br /><br />My small addition to your proposal is more costly for taxpayers money but create a motive, bankers not to reject the basic idea of your proposal which is much more fair as it is for taxpayers interests.<br /><br />1) In order greek bankers to recapitalize banks during 2013 they use warrants. HFSF which is major shareholder of banks was to examine recently a possible public proposal- to buy the warrants with a profit for shareholders (and hedge funds) of those warrants. This proposal however has many technical difficulties- and for sure cost for taxpayers money. ( I don't have any stocks or warrants in any greek bank).<br />2) A slightly different version: 90% of profits to repay a loan and the remaining 10% to be payed to shareholders of a bank.So if a bank has 100 mil profits for a period the analogy is 90 mil to repay loan and 10 mil for the shareholders.<br /><br />About Prof YV.<br /><br />Alexis Tsipras before almost 2 years during the crisis said: "I wish we had become Argentina". The amusing photo posted after recent events in Argentina.<br /><br />https://twitter.com/Paratiritirio_/status/495135675994619904/photo/1<br /><br /><br />My difference is that YV never criticize Alexis for 2-3 major directions of his policies not for details. Many are much better and fair compared to government policies.<br /><br />In an article about recent events in Argentina YV is confusing:<br /><br />http://www.protagon.gr/?i=protagon.el.oikonomia&id=35671<br /><br />"In 2001, Argentina went bankrupt. Very simply, the state did not have the money, and did not find the new loans needed to pay $ 100 billion public debt. Argentina defaulted, devalued the currency, saw a quarter of its GDP vanishing, but WITHIN TWO YEARS (with the help of increased demand for exports from China) was found to grow dramatically - see graph which records the per capital GDP of the country in dollars"...<br /><br />Ex finance minister Prof N Christodoulakis respond to YV that Argentina's per capital GDP of 2013-14 is equal to 1995.<br /><br />http://www.protagon.gr/?i=protagon.el.post&id=35706<br /><br /> Its a question, Argentina of 2014 is in much better position than the Argentina of 2000 in GDP per capital given also the fact that inflation still is not credibly measured? <br /><br />PS: It's obvious-- for me-- that YV has well hidden political aspirations for highest role e.g finance minister or even more ---but not less---This is good if you are straightforward to opponents but especially to friends.<br />Its easy to accuse Merkel for bad decision making in europe and criticize her denial to reduce unsustainable greek debt (sic), but far more difficult to talk about things which need to change in internal policy issues as you may accept bad criticism, even unfair.<br /><br />Your proposal is good Klaus (2 & 3).<br /><br />MSAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5882645467378797266.post-42500424365932443282014-08-02T20:19:58.817+02:002014-08-02T20:19:58.817+02:00Exchange on the subject with Prof. Yanis Varoufaki...Exchange on the subject with Prof. Yanis Varoufakis:<br /><br />YV: Something like what you are suggesting would work. Except that you also offer a full explanation of why the bankers will fight tooth and nail to prevent it: "If dividend pay-out is stopped for 20 years, the banks' shares might plummet and today's shareholders might feel wiped out. However, today's shareholders would know that, in 20 years from now, their children would be rich again." So, what can be done? Well, let us not forget that the government still has a very large stake in the banks. It could, if it were not a criminal gang, appoint new boards of directors (free of the Mr Sallas's of the world) and come together with the BoG to implement your proposal. But then again, if they were to do that, why not just create a state owned bad bank whose 'assets' would be gradually retired using the banks' profit stream? In the end, it is all a matter of ending the stranglehold bankers have over the state. Pure and simple.<br /><br />KK: In my way of thinking, the BoG (and the state) would tell the banks the following: “This is a completely voluntary offer. If you chose to take advantage of it, it is your voluntary decision. We hope you will because it would guarantee you your jobs and it would guarantee your shareholders that, eventually, their shares would be worth good value again at some point in the future. However, should you decide against the offer, you should be aware of the following: from now on, you are on your own. Any implied government support under which you may have worked so far will be officially withdrawn. If you get into trouble, you are in trouble. If you face the threat of failure, you will fail. If you fail, you will lose your jobs and your shareholders will lose their investment. And, by the way, you might face personal criminal law suits for having knowingly entered into risks for your shareholders which risks you could have avoided by voluntarily accepting our proposal”.<br /><br />YV: On the Greek banks, I disagree. The bankers will simply assume that the threat you suggest is non-credible (in game theoretical terms). Why will the bankers believe that they will lose control of the banks if they throw them on the rocks when the last time the threw them on the rocks (2010-12) they were rescued by the taxpayer, were allowed to keep full control of the boards, and, to boot, the banks were returned to them at huge taxpayer losses soon after (see the recent share issues in which the taxpayer was not allowed to participate). Moreover, given the fact that 'their' banks are the only source of funding for the mass media, their stranglehold on public opinion and on the politicians is greater than ever. They know that any threat issued by politicians, like the one you suggest, will be for show only.kleinguthttps://www.blogger.com/profile/12491174042954678023noreply@blogger.comtag:blogger.com,1999:blog-5882645467378797266.post-47990584820927887152014-08-02T17:45:33.209+02:002014-08-02T17:45:33.209+02:00Whether the bank's balance sheet total changes...Whether the bank's balance sheet total changes depends on how the BoG pays for the problem loans which it takes off the bank's books. <br /><br />1) If the BoG pays cash, the total doesn't change: where the bank had 10 BEUR problem loans on the asset side, it now has 10 BEUR cash. That form of payment is highly unlikely because the BoG doesn't have the cash.<br />2) Most likely would be that the BoG would pay by issuing a 10 BEUR bond in the bank's favor. The bank's balance sheet total would not change: where the bank had 10 BEUR problem loans on the asset side, it now has a 10 BEUR BoG bond. It could then use that bond as collateral to obtain ECB financing.<br />3) Finally, the balance sheet could be reduced in the following situation: assume the bank has 10 BEUR funding from the BoG; i. e. it has a loan from the BoG. The BoG could say: 'we pay for your 10 BEUR problem loans by reducing your debt to us by 10 BEUR". In that scenario, the balance sheet of the bank declines by 10 BEUR.kleinguthttps://www.blogger.com/profile/12491174042954678023noreply@blogger.comtag:blogger.com,1999:blog-5882645467378797266.post-90451619024418524822014-08-02T16:18:41.939+02:002014-08-02T16:18:41.939+02:00Very nice proposal of yours. If i say i had the s...Very nice proposal of yours. If i say i had the same idea (but not so technical) you won't believe me.<br />Question: the balance sheets of a bank will change also? i mean for example the total assets or the total loans will appeared much less? <br /><br />MSAnonymousnoreply@blogger.com