Savers Vs Spenders: The Need To Seize Property And Bank Savings

The present crisis hammering the first world banking system isn’t something new or even slightly different.  It is the same old bubble/crash story of the last 500 years or more.  Bad bets eliminate capital and this capital is the savings entrusted to bankers for earning interest.  Fixing this by imposing the ZIRP capital gains system has turned banking on its head while countries offering higher interest returns on savings are seeing their banks go under due to crappy loans mainly in real estate and poor business venture loans.

 

One can easily view the world’s banking cultures as either ‘ant’ or ‘grasshopper’.  The ant banking culture admires thrift and a refusal to go into debt and the grasshopper culture is all about making merry, playing while the sun shines and doing all of this while deep in debt.  The ant countries are appalled by the grasshopper cultures and the grasshoppers consider the ants to be Nazis and Scrooges.

 

Much of the grasshopper cultures of the sunny, warm Mediterranean are hopping mad at the ant colonies in Germany.  How dare the ants force the grasshoppers to change their wild spending?  Even Britain, once an ant colony and now, since Thatcher and Reagan in the US, a grasshopper culture, is attacking the Germans for being mean because they want the Mediterranean grasshoppers to be sober and save money like the Germans:  Margaret Thatcher had a point about Germany – Telegraph Blogs

 

No one forced the Cypriots to blow up their banks on such a scale and then bankrupt their country. However, the “rescue” looks like bullying, instigated by the Germans who are determined to keep their single currency together and hang the human cost.
Yesterday there was an illustration of what can go wrong when attempts are made to apply Germanic principles across an entire continent. The Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings of euro finance ministers, triggered a mini-run on European banks by indicating that the bail-out of Cyprus and reordering of its banks was not an exception, henceforth the raiding of depositors as part of bank restructuring will be the “model”. In one sense bravo. Why do those who invest big in banks think it is the poor taxpayer’s job to rescue them if they haven’t paid attention and have taken too much risk in search of a good return? That is the German view.

 

And that is my view.  The bankers have an obligation to avoid major risks. They MUST protect the capital entrusted to them for lending.  Banks consider savings to be a liability because they are responsible for losing this money.  All capital is a liability in that it can disappear and leave one on the hook for this.

 

In the good old days, anyone responsible for their bank losing its capital had the common curtesy of committing suicide.  Today, they snarl for central bank rescues and then complain bitterly about the rules imposed by these rescues.  Today, in the US and UK, the bankers own the government so they not only get bailed out and don’t commit suicide, they get pay raises and bonuses after destroying trillions in capital.  And to recapitalize the funds they lost, they have the central banks print more currency notes and then charge zero in penalty payments for this capital.

 

Some big German banks with offices in the grasshopper universe lost capital due to stupid speculative loans.  In Germany, they are left to ponder how to make themselves more lovable to the grasshoppers who hate ants.  This is impossible, of course.  Berlin can’t fix ‘austerity dictator’ image alone | Germany | DW.DE | 26.03.2013

 

Anti-German sentiments in Europe culminated last weekend when a regional edition of the Spanish newspaper “El Pais” published an article on its website in which a Spanish economics professor compared Angela Merkel with Adolf Hitler. “Like Hitler, Angela Merkel has declared war on the rest of the continent, this time to secure economic Lebensraum,” wrote Juan Torres Lopez from the University of Seville. The article has since been removed due to “editorial slip-ups.”
“It’s an issue of who has the strongest influence in the systems,” was how policy analyst Janis Emmanouilidis of the European Policy Center, a Brussels-based think tank, explained Germany’s natural leading role. “Everybody looks at Germany because of its size and because Germany has been weathering this crisis better than others. Germany’s voice is the strongest and matters most,” he told DW in an interview.

 

How did they do this?  It is obvious: there was no real estate bubble in Germany so the average person couldn’t play the musical chairs game of ‘up-up-up goes the value’ until it becomes ‘London Bridge is falling down, falling down!’  These various housing bubbles spanned the globe and concentrated mainly where there were generally grasshopper cultures.  In the US, the worst states with the most housing losses in the last bubble were all grasshopper states like Florida, fun in the sun, or Nevada, sin city, or LA la-la-land and others which are viewed as fun retirement or entertainment hubs.

 

The Germans are trying to analyze all of this:  Are Germans poorer than Italians, Spaniards? | Europe | DW.DE | 23.03.2013

 

A study by the Deutsche Bundesbank, Germany’s central bank, says no. In comparison with citizens of neighboring countries, 44 percent fewer Germans own their own house or apartment. In France, 58 percent are homeowners; in Italy, 68 percent; and in Spain, nearly 83 percent.

 

The study’s authors call that disparity a chief reason why the total assets of private households in Germany are significantly lower than in Spain or Italy.The Bundesbank study finds that the median net worth for Germans is around 54,000 euros ($70,100). By contrast, the same figure is around 163,900 euros in Italy, and even 178,300 euros in Spain.

 

The reason the grasshopper housing bubble places have high home ownership was due entirely to the wild lending by bankers there.  Nearly anyone could, on a very small income, get a loan for $300,000+ and this is exactly why the collapse is so destructive.  Huge sums of bad loans were handed out like candy to the ever-hungry, work-evasive grasshoppers.  They all, nearly every one of them, hoped, like in the US, to have an ‘interest only’ loan with low monthly costs and then flip the property for a profit.

 

“In Germany, we have a well-functioning apartment rental market and a correspondingly low rate of home ownership,” said statistician Christoph Schröder of the Cologne Institute for Economic Research. “The second issue is: we have a very good social safety net, and that means that the motivation to save for retirement or unemployment is limited here.”

 

The last sentence isn’t true at all.  All of the grasshopper nations in the EU have copied Germany’s social system.  Germany, after all, under the conservative Bismark began the socialist life.  Even Hitler was a socialist but like the Jewish community, he wanted this only for ‘echt deutsch’ that is, the so-called Aryan German (a fictional character).  Everyone loves socialism but paying for this like Germany by having restrictions on speculation and property bubbles is not beloved by most of us.

 

We want to have our cake and eat it too.  And then have the ants rescue us when we are starving.  Someone has to save capital and make it available for lending!  A system that lends with zero capital always collapses.  Any system that drives savers into hoarding gold coins hidden away is a dying society.  Trust in bankers is the keystone of capitalism. And the men running our banking systems are NOT capitalists and they abhor real capital and want to be allowed to crank out loans at will with zero risk to themselves or their jobs.

 

Thus, the mess we have today.  The Federal Reserve is going to buy from these desperate, capital starved bankers, $85 billion A MONTH.  Yes, every month for the foreseeable future.  This is grasshopper stuff.  The capital is our entire currency system which will be very badly eroded (inflation) by this grasshopper solution.  The Germans are being badgered to do the same thing because unlike the Grasshopper countries, Germany is the world’s #2 holder of capital wealth.  Right next to China which is #1.

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18 Comments

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18 responses to “Savers Vs Spenders: The Need To Seize Property And Bank Savings

  1. Joseppi

    Step right up and get your no money down home loan today. The real estate market with the government’s help is trying to boom again.

    http://www.bankrate.com/finance/mortgages/4-mortgages-that-require-little-money-down-1.aspx

  2. Peter C.

    Lots of grasshoppers up here in Canada….home ownership reached 70%,fed by 40 year zero down 2.5% mortgages (unlike the USA ,Canadian mortgage interest rates are only locked in for the first 5 years,not the length of the mortgage ,ouch).Way too many people employeed installing granite countertops.
    There are $500,000 houses here that would go for a tenth that down in Washington state.What a mess.
    Lots of spec houses contractors tried to sell for a million,empty condos,empty commercial properties,and they are all driving around in monster 4 wheel drive pickups with nothing in the back.
    Oh yeah…and they took they saving and invested in rental houses in Arizona.

  3. JT

    “The second issue is: we have a very good social safety net, and that means that the motivation to save for retirement or unemployment is limited here.””

    Well yes and no.
    Germans, Finns, Dutch, Swedes and Norwegians have the money to pay for these benefits and retirements.

    They copied the German system but never bothered to pay for it.
    So in the olive belt they pay those out with government loans.

    Finland for example has 125 billion in pension funds (25 000 euros per person).
    We pay out 20 billion in pensions per year (25% of pension payments come from the revenues of these pension funds without touching the capital).

    For decades even though we are poor the system was 25% goes to funds, 75% is payed out.

    Spain for example has 60 billion in pension funds (1250 euros per person).

    This is possible because the money has not been spent and because taxes are 10-15% higher than in Spain.

    North europe has no net debt.
    (Finland national debt 80 billion, national pension funds 125 billion).

    So that is exactly true. People are poorer here due to high taxes and high pension premiums.
    And people do not save for retirement here.

    High taxes and state pension funds = rich country, poor people
    low taxes and no state pension funds = olive belt, rich people

    So the poor citizens of Northern europe are paying for the pensions of the rich citizens of the south.
    Now is that socialism?

  4. John

    AWESOME post, Elaine. I’ve been thinking of the financial mess in terms of ants & grashoppers for quite some time now, and I’m not a bit surprised you used this anaolgy/fable. It’s spot-on. I also like your comments in the last paragraph about bankers & capitalism; they also jibe with what I’ve been seeing, and how I’ve been describing it. Nobody wants real capitalism, because nobody wants to live within their means any more. And of course, it will all end in tears – sooner, rather than later, is my guess.

  5. DM

    Yes, but, there may be other aspects of the Great Game here.

    This is also interesting ..

    http://pennyforyourthoughts2.blogspot.ca/2013/03/part-2cyprus-israelturkey-syria-nato.html

  6. DM

    And (I know you are not a fan of Ellen Brown) – via ICH

    http://www.informationclearinghouse.info/article34442.htm

    Can They Do That?

    Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay.

    Which all tends to prove that “defecits [really!] don’t matter”

  7. emsnews

    DM, I just finished an article tearing Ellen to shreds. How silly is this???

    NEVER has the depositor owned their money given over to regular banks!!! It is held in RESERVE and if the bank has money to pay you back, you are lucky. If they run out of money, you are dead in the water.

    The ONLY thing preventing this is for the first $250,000 is insured by the FDIC but all the rest goes poof if a bank goes belly up.

  8. Just Ice

    EMS,

    I would respectfully disagree with the proposition that the first $250,000 of a bank or brokerage account would be effectively insured by the FDIC or SIPC in all instances.

    For example, if and when the whole system goes kaput in a hypothetical hyper-inflation, those institutions will liquidate and freeze all accounts at some certain notional dollar value, at that time. One or two years later when they emerge from bankruptcy, that dollar value, some sum less than 250,000 dollars, won’t buy a loaf of bread. That goes for bank accounts, stocks held in “street name,” annuities, etc.

    Physical possession of stock certificates in companies resistant to inflation such as commodity producers (renewable and non-renewable), not to mention vices like booze, are probably better than physical possession of gold from both a personal security as well as a long term investment standpoint.

  9. CK

    To be a “bet” there do have to be at least two parties involved. A bad bet for one of the parties is by definition a good bet for the other. All betting does is move wealth from one set of hands to another set of hands. Nothing is destroyed. Even the “bad bet” that is war and that kills many and destroys much also gives favour and wealth and assets to the makers of weapons and the flyers of bombers and the families of the dead.
    If I take some of my earnings of some of my savings and lose them at the local bingo and craps parlour, it means that I indulged in a bad bet for me; the bingo parlour has more money to comp rooms with and give out free drinks and pave a bigger parking lot.

  10. emsnews

    Quite true so why put your money in a bank? I put it in mine because they do NOT bet on it, it is safe and still grows.

  11. Blissex

    As to grasshoppers and the lice who profit from their wild ways, our blogger’s argument that the british run a series of financial pirate coves is well supported by this article in Vanity Fair:

    http://www.vanityfair.com/society/2013/04/mysterious-residents-one-hyde-park-london

    «It comes as a surprise to most people that the most important player in the global offshore system of tax havens is not Switzerland or the Cayman Islands, but Britain, sitting at the center of a web of British-linked tax havens, the last remnants of empire. An inner ring consists of the British Crown Dependencies—Jersey, Guernsey, and the Isle of Man. Farther afield are Britain’s 14 Overseas Territories, half of them tax havens, including such offshore giants as the Caymans, the British Virgin Islands (B.V.I.), and Bermuda. Still further out, numerous British Commonwealth countries and former colonies such as Hong Kong, with deep and old links to London, continue to feed vast financial flows—clean, questionable, and dirty—into the City. The half-in, half-out relationship provides the reassuring British legal bedrock while providing enough distance to let the U.K. say “There is nothing we can do” when scandal hits.»

  12. There does seem to be an influx in people living beyond their means. There needs to be more saving, less spending.

  13. lucky13

    EMS, spam at this site is way up!

    Contact ‘abuse@gmail.com’

    re:
    missmonicahouseofloan@gmail.com

  14. lucky13

    What about what happened in Cyprus?

    re;
    Quite true so why put your money in a bank? I put it in mine because they do NOT bet on it, it is safe and still grows.

  15. emsnews

    Lucky, I periodically clear out the stupid spam. Thanks for noticing! 😦

  16. lucky13

    Lately the spams have been ‘randomly posted’ as I sometimes check ‘who has posted here recently’ and old topics of yrs have been commented on, with ‘Nigerian bank’ type posts!
    yahoo has made it difficult to complain about spam, Hotmail still makes it easy to have spam email accounts closed.

  17. Jim R

    Many sites I have visited will close comments on a thread that is more than five days (more or less) old.

  18. emsnews

    I don’t. I often get good comments even long afterwards.

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