WI: Chicago Plan Implemented

Ian_W

Banned
They can issue stock.

Which will extend the run from just the bond market to the bond market and the stock market.

Remember, a bank run for bonds is when your counterparties won't take new bonds to pay off their old bonds, but want cash.
 

kernals12

Banned
Which will extend the run from just the bond market to the bond market and the stock market.

Remember, a bank run for bonds is when your counterparties won't take new bonds to pay off their old bonds, but want cash.
Stock market runs aren't a thing.
 

Ian_W

Banned
But the value of the account is equal to the assets underlying it. If you put $100,000 in a brokerage account and the value of the securities it is invested in drops to $99,000, then if you close the account, you will get $99,000. This means there's no harm to the bank's balance sheet and therefore, there's no chance of a run. And because of the volatility, this scheme would make for a terrible checking account, but it would pose no risk to the financial system as a whole.

You're making a very, very dangerous assumption there.

You're assuming that the Not-Bank isn't using it's customers money to make it's own bets.
 

Ian_W

Banned
Oh Shit.

Pre 1930s, US mortgages are all at-call.

This means as soon as you get a run on the Lending Institutions paper, they call in mortgages and we get auctions at the courthouse steps so the Lending Institutions can make their next coupon payment.

Boom, crisis goes from Wall Street to Main Street.
 

kernals12

Banned
What do you call that thing when everyone wants to turn their call on the future profits of a firm into cash ?
I call it a crash. And when that happens, people are selling their stock to another person at a lower price than what they bought it for. Selling Apple stock doesn't pull any money out of the company's vault.
 
I call it a crash. And when that happens, people are selling their stock to another person at a lower price than what they bought it for. Selling Apple stock doesn't pull any money out of the company's vault.
No, but if they need more money, as most companies do on a regular basis, and no one is lending and no one will buy their stock...
 

kernals12

Banned
Oh Shit.

Pre 1930s, US mortgages are all at-call.

This means as soon as you get a run on the Lending Institutions paper, they call in mortgages and we get auctions at the courthouse steps so the Lending Institutions can make their next coupon payment.

Boom, crisis goes from Wall Street to Main Street.
Call loans probably would also get banned.
Also, mortgages were not very common pre 1930. People either rented or bought their homes with cash.
 

kernals12

Banned
No, but if they need more money, as most companies do on a regular basis, and no one is lending and no one will buy their stock...
Companies will always fail no matter what. But most of the time, such failures have no impact for most people. Worldcom and Enron didn't start any crises.
 

Ian_W

Banned
Companies will always fail no matter what. But most of the time, such failures have no impact for most people. Worldcom and Enron didn't start any crises.

Yes, and what happens to the loans a Lending Company holds under the Chicago Plan ?
 

Ian_W

Banned
They will have to be able to swallow up that cost.

I get it.

Under your implementation of the Chicago Plan, Lending Companies will not exist because no one will lend them any money, because they lent out their money and can't get it back.

It's one way to run a financial system, I guess.

Pity if you're a small to medium business who isnt big enough to float their own loan on the money market.
 

kernals12

Banned
I get it.

Under your implementation of the Chicago Plan, Lending Companies will not exist because no one will lend them any money, because they lent out their money and can't get it back.

It's one way to run a financial system, I guess.

Pity if you're a small to medium business who isnt big enough to float their own loan on the money market.
Really? Nobody will fill in the massive role of lending?
 

kernals12

Banned
"Call loans probably would also get banned."

"They will have to be able to swallow up that cost."

As well as no access to deposits.

Yup. It's a mugs game.
Call loans are uncommon IOTL for most lending (except for demand deposits themselves). And not only banks, but all companies that make sales on credit have to account for bad debts.
 
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