A bit of economic panic and ...

[AtW]

The most straight-foward form of leverage is borrowing money to invest.

Indeed, only leverage would be more or less 1 in this case.

Banks assets are their loans, more than 90% of the money they lend is borrowed from depositors, hence they are more than 10x leveraged.

That's rubbish calculation.

Let's say I am a depositor in your bank and I put £100 into it. You had to reserve £10 and used £90 as 9 x £10 loans. Your leverage is almost non-existant here - if you think of leverage the main feature of it having "long shoulder" (or whatever the team used - did not study physics in this country), the longer the shoulder the more you can lift. In this case leverage is small.

Compare this with short selling when not only you can borrow shares but you need a lot less than 100% of money for this action - if broker demands 20% then your leverage is 5 - you can 5 times more money to operate for your 1 money part (that might be borrowed). Now that's leverage.

Unfortunately some banks became hedge funds and they put money into leveraged stuff, but once they did it they stopped being banks.

[KentPhilip]

...all the socialist regulators start coming out of the woodwork. As if top down regulation will provide stability and prosperity. It never has and never will. Luckily capitalists will always find ways round whatever regulations are put up and long may that continue.
Nothing fundamental has happened, the markets have regulated themselves as they always do and decided who should go and who should stay. Its a complex and beautiful system that simplistic deterministic cretins don't understand.
So for now all the useless monkeys will gibber that they were right all along yadda yadda blah blah, while the system will sort itself out and carry on much as it's always been.
The wise will note that history repeats itself and know when to take risks to prosper.

Here Here

Can I vote for you to be deputy PM alongside Clarkson

[AlfredJPruffock]

I suggest then that you stick to poetry and leave the job of running the world to us agents

Aye Da

Jings - now wouldnt that be something - so heres a wee ditty for the Agents who Run the World


I Wanna be a boss
I wanna be a big boss
I wanna boss the world around
I wanna be the biggest boss
that ever bossed the world around
I wanna do it right

Don't wanna be a dancer in the Bolshoi Ballet
Don't want to work for Daddy
In Daddy's shop, 0.K.
I get confused, so confused
I get a pain, I get a pain up here
In the Shirley Temples

I aint quite ready to reveal my campaign
This is not the time
My hero's are alive and well in a cave
I'm keeping them on ice in suspended animation
Till the very right occasion comes along

To our rally come along
Come along to our rally
Come along to our rally come along
To our rally come along
Come along to our rally
Come along to our rally come along

A Brave new world will rise from the agencys
And there upon a rock titanic, I'll cast a giant
Shadow on the face of the deep
And never again will they dare to call me
A freckled, spotty, specky, four eyed
Weedy little creep!



Everyone's going to be free
But they'll have to agree to be free
They'll have to agree to be less free than me
'Cos I rule the world you see

So wait for the army of kiddy-winkies
And terrible tiny tots
In armoured school buses
Firing poison pea-shooters
And sinking their milk teeth into your thighs
Delapsus resurgam! when I fall I shall rise!
Wanna be a boss
I wanna be a big boss
I wanna boss the world around
I wanna be the biggest boss
that ever bossed the world around ....

[Incognito]

Let's say I am a depositor in your bank and I put £100 into it. You had to reserve £10 and used £90 as 9 x £10 loans. Your leverage is almost non-existant here - if you think of leverage the main feature of it having "long shoulder" (or whatever the team used - did not study physics in this country), the longer the shoulder the more you can lift. In this case leverage is small.

That's not quite how I understood it. I always found this video quite good at explaining how the banks used your money.

I don't know how relevant it is to UK banking, but I'm guessing most of the western banking systems are similar.

[AtW]

I don't know how relevant it is to UK banking, but I'm guessing most of the western banking systems are similar.

Not all banks use leverage. In this country building societies were more like proper banks - recently "banks" in rush for profit started working with leverages that allowed them to increase profits nicely when market was playing their way, but as soon as it turned they started getting high losses. They thought they were clever and hedged bets by using insurance and securitisation crap but as soon as the market stopped for that they got saddled with lots of junk. Those companies that took part in these games ain't banks even though many called "banks".

[Incognito]

Yes but I was more disputing your figures. You said:

Let's say I am a depositor in your bank and I put £100 into it. You had to reserve £10 and used £90 as 9 x £10 loans.

I think it's more if the reserve rate is 9:1 and I deposit £100 then the bank can loan out £900, not £90.

[AtW]

I think it's more if the reserve rate is 9:1 and I deposit £100 then the bank can loan out £900, not £90.

Where they will get £900 if they only got £100? That would only happen if someone lends them money at this leverage. Do you think that's what BoE does, lending so much money at such high leverage to all banks? The whole point of reserve part of deposits being required to be set aside is to reduce amount left for lending as dumpener for money being shuffled around - that's why leverage is so bad because it creates something from nothing with huge multipliers.

Credit is evil (unless it's long term capital investment kind)

[Incognito]

Where they will get £900 if they only got £100? That would only happen if someone lends them money at this leverage. Do you think that's what BoE does, lending so much money at such high leverage to all banks? The whole point of reserve part of deposits being required to be set aside is to reduce amount left for lending as dumpener for money being shuffled around - that's why leverage is so bad because it creates something from nothing with huge multipliers.

Credit is evil (unless it's long term capital investment kind)

Watch that video. It explains it better than I could attempt to.

[sasguru]

Where they will get £900 if they only got £100?

You are making a fool of yourself yet again. Banks have ALWAYS lent more money than they have in deposits.
I know you're simple so here's a simple explanation:

http://money.howstuffworks.com/perso...nking/bank.htm

[AtW]

You are making a fool of yourself yet again. Banks have ALWAYS lent more money than they have in deposits.
I know you're simple so here's a simple explanation:

Those ain't banks - they are ponzi scheme institutions: those can be seen now as they fail utterly, they were never "banks".

Here is the bank that I bank with - I liked them for being conservative:

http://finance.yahoo.com/q/bs?s=LYG&annual

Total assets: 705,737,966
Total liabilities: 681,488,747

No leverage here.

Check any hedge fund (or "bank" that is actually a hedge fund) - you will see high leverages there with a lot more liabilities than assets.