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General discussion

Greenspan urges SS cuts. He's got to go !! NOW!!!

Feb 25, 2004 12:47AM PST

Discussion is locked

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James, you clearly don't understand how the modern banking system works.
Feb 26, 2004 1:40PM PST

Maybe this is overkill as I have already covered this in two other posts. However, banks no longer operate on the absolute level of interest rates. THey seek a given margin for a particular maturity. The senior problem is that they're seeking to fund long term needs with short term investments. This is the opposite of the situation that the Savings & Loans found themselves in. It has equally devastating consequences, but it is not the fault of the banks and is probably not the fault of the Fed.

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Are "we" getting insulting now? Not really interested in that type of discussion.
Feb 27, 2004 1:33AM PST

It's obvious you have a personal pan on this fire, and I think it's blinding you to the overall grander scheme of things economically. Unfortunately the protectionist attitude you are displaying are probably echoed throughout the banking system. Sad.

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No James, there was no insult intended although I am getting frustrated
Feb 27, 2004 5:29AM PST

trying to explain this. I've tried to give you a little perspective on how banks actually operate, and what role they play. It's been clear from your comments that you do not have this understanding. Unfortunately, it looks like you insist on seeing an 'overall grander scheme' and 'protectionist attitude' where I don't think these exist. I think it is fair to expect you to change your view when something is explained. If not, to say what is wrong about the explanation. While you are certainly free to blame banks for your(?) problems, I may persist in explaining why I think you're wrong.

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I didn't blame the banks. I blamed Federal Reserve policy.
Feb 27, 2004 6:25AM PST

Not linking to every post this concerns, but there are several things you have said that just don't mesh. I'm not repeating them, but addressing them some below;

1)The government through the Federal Reserve lends money at interest to Banks. That is a given, even you should understand and accept. You seemingly don't accept that an interest return on money, even to the government constitutes income. What economic book did you get that from?

2) I've pointed out that the Federal Reserve has become a competitor against seniors by undercutting the interest rate they are able to obtain. That is not a proper use of the Federal Reserve power and is one reason Greenspan must either change or go.

3) Just as those who are now seniors deserted the S&L's in the 80's to gain more income through higher interest rates offered elsewhere, now we have Banks doing the same in reverse, deserting those depositors using the guarantee of inordinately low prime lending rate from the Federal Reserve to lower the interest rate they now pay to depositors. I'm not placing blame here on them, they are doing what makes the most business sense.

4) In simplest terms, if the Federal Reserve will raise the prime lending rate then the interest rate that seniors can make from deposits will also increase. This raise in prime lending rate is the easiest broad base way to correct some economic problems, alleviating need for new taxes. This raise by almost 2 points in the prime lending rate is all I want to see and don't see why you argue the point so much, since it's benefit to seniors, yea all depositors seems obvious to almost anyone. It will put more power over the use of money back to the people.

5)Seniors with a more secure income lower costs to the Federal government, some will also pay taxes on that income.

6)If the stock market starts to take off again, then you can be sure the Seniors still able will move their funds back into it, and that's only going to hurt the banks.

All of the above is obvious, but knock yourself out arguing with it if you wish.

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OK, bear with me James. One of us doesn't understand how the system works, and, since I've spent 35 years (I)
Feb 27, 2004 11:29AM PST

working in a bank, I hope you'll bear with me for thinking that is you.

1) The Federal Reserve does loan money to banks, but not very often. They typically loan money when the bank is in trouble. Thus, the Fed does not normally loan money to banks, and the banks normally do not pay interest to the Fed. They do pay membership fees if they are members of the Fed, and they pay fees for services like check processing. That's not economics, it's just how the system works.

2) Since the Fed does not loan money to banks, it is not a competitor in the sense that I think you mean. If it was, the banks might turn away your deposits since they would not need the money. The Fed has several jobs. One is to maintain stability in the economy. It does this primarily be influencing interest rates and by controlling the money supply. A major mechanism for infuencing interest rates is the Fed's control of the prime rate. The prime is influential because many other rates are based on it.

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OK, bear with me James. One of us doesn't understand how the system works, and, since I've spent 35 years (II)
Feb 27, 2004 11:33AM PST

3) Banks do tend to set their rates based on the prime, but they have not deserted their depositors because they are getting funds from the Fed. They are simply reflecting the prevailing rates in the economy. Note that rates on loans and mortgages are also low. That's a main part of what the Fed's trying to do with low rates.

4) You are partly correct. If the Fed raises the prime, rates on deposit accounts will tend to go up also. Along with this, rates on loans will go up. This will slow business investment and spending which will lead, in turn, to higher unemployment and reduced profits. These, in turn, produce lower tax revenue. The Fed only does this when it WANTS the economy to slow down to avoid inflation. However, if there is too much of a business contraction, a depression will ensue. This will reduce interest rates for everyone because of a reduced need for funds. This will happen no matter how high the prime is.

I'm sure you can anticipate what will happen to (5) and (6) if there is a depression. The seniors will be better off financially with falling prices, but will be stymied by production shortages.

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Maybe you should just take the word of the Federal Reserve on this.
Feb 27, 2004 2:50PM PST
http://www.federalreserve.gov/pubs/frseries/frseri3.htm

Second, the boards of directors of the Federal Reserve Banks initiate
changes in the discount rate, the rate of interest on loans made by
Reserve Banks to depository institutions at the "discount window."
Discount-rate changes must be approved by the Board of Governors.
All depository institutions that are subject to reserve requirements set
by the Federal Reserve?including commercial banks, mutual savings
banks, savings and loan associations, and credit unions?have access
to the discount window.


There's a lot more on that page that might interest you, but I just excerpted the paragraph that supports what I've said.

I'm well aware of the overall function of the Federal Reserve in regulating money supply, but that is not exactly the issue we are discussing, although related, but money supply depends on more than prime lending rate. I don't care to get into a larger economic argument or we would have a book by the time we were finished arguing or discussing the merits and demerits of various economic theories and government practices and their resultant effects. If prominent economist don't agree on everything, then I have little hope we would either.

I've been trying to keep the discussion to the original subject of Greenspan, prime lending rate as it affects savings interest rates for all, and how changes can help seniors which is the group under current attack by Greenspan, and that Greenspan himself is responsible in a large part for the economic woes of many seniors.

Was it comparing banks to "robber barons of today" that put the torch under you?
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You can lead a horse to water, but.... (Part I)
Feb 28, 2004 9:37AM PST

James, my only 'agenda' is to point out errors in information I see posted, and, many times, to put forward my point of view. In this thread, it is almost exclusively the former. If you called banks 'Robber Barons', I missed it. I would not charactize them that way, but, if you want to, go to it. I see them as a business, like any other, and not at all in a "Robber Baron' category. The only way you can get there is by casting banks as manipulators of the financial system. It is clear that they have no power to act in the way you suggest. In my previous post I told you that banks can borrow from the Fed, but do not normally do so. Thus, it is hardly a rebuttal to point to that borrowing mechanism.

If I understood your argument, it was that the Fed collects interest from banks because it loans them the funds they need to operate. Thus, I would expect that interest income would be a major component of the Fed's income. Perhaps you would care to explain the following quote from the Fed? 'The earnings of the Federal Reserve System come primarily from interest received on the Reserve Banks' holdings of U.S. government securities (which are used in the conduct of monetary policy) and from fees they charge depository institutions for providing services (such as processing and clearing checks). The expenses of the System are paid from these earnings. Any net earnings are paid yearly to the U.S. Treasury. For 2002, the payment was $24.49 billion.' Is that ringing any bells yet?

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Re:You can lead a horse to water, but.... (Part II)
Feb 28, 2004 9:41AM PST

In an attempt to deal with the question of loans, I went to Google and searched for "Federal Reserve" "Statement of Condition". I found the Statement of Condition for several Feds including New York. The New York Fed reports 0 loans, that's zero, zippo. If the Fed loans money to banks, and the largest banks in the country are in New York, why do you think the New York Fed reports zero loans?

Here's another one, albeit 1997. Beginning to see a pattern?

James, are you having a problem with pride? Can't admit you are wrong? Just a suggestion.

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Message has been deleted.
Feb 28, 2004 12:17PM PST
Happy
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I'm seeing the forest, you're looking at the trees (nt)
Feb 27, 2004 6:27AM PST

.

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Re: Greenspan SS cuts -- Typical Republican approach: Billions in tax cuts for the wealthy, billions in benefit cuts for everyone else. (NT)
Feb 26, 2004 2:27AM PST

.

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DNC South? (NT)
Feb 26, 2004 1:33PM PST

.

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Disgudting, Dave
Feb 26, 2004 9:28PM PST

The SS funding has a 26trillion long term deficit. It is impossible to tax our way out of it save by confiscatory rates in the near future.

And all you can offer is to tax the rich. Taxing any entity or group will not solve the problem. A fundamental restructuring of the system is the only answer.

Bo

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Seems to me
Feb 27, 2004 10:21PM PST

that the money coming in for SS is propping up the general fund right now. Seems only fair that the general fund needs to prop up SS in the future.

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Times login = speakeasygang, pw = speakeasy (NT)
Mar 6, 2004 1:19AM PST

.

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Yep, Krugman takes a lot of liberties with already published statements...
Mar 6, 2004 2:37AM PST

and shows quite often that he skims when reading and doesn't ever let facts interfere with his story.

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Consider the source.
Mar 6, 2004 2:53AM PST

NYT with an election approaching. If Greenspan won't attack President Bush, attack Greenspan despite the economic realities.