It is said that Julius Caesar borrowed so much money to become elected pontifex maximus that he essentially forced his creditors to support his political ambitions in the hope of seeing some payment on the debts.
And for a slight twist on the same theme, MMM Ponzi schemer Sergei Mavrodi, who had no political ambition whatsoever, ran for the State Duma (which granted him immunity from prosecution: the only issue he turned up to vote on) after his scheme collapsed and was voted in by thousands of people whose only hope of seeing the savings he'd conned them out of again rested on trusting his promises to sort everything out
I suspect even just loaning powerful people money at that time was effectively being on them / a political act in the first place. Less so that it built up over time and surprised anyone.
This is true to some extent, but his debtors had a strong interest in Julius Caesar's continued success--which means that even if his later actions were ones that the debtors would not have supported originally, their wagons had been hitched to his and they had a very strong incentive to support him.
> wonder if Pontifex Maximus is the oldest title still in use
The titles Kaiser and Czar literally derive from Cæsar. Meanwhile, we still maintain consuls in diplomatic relations between countries who often have Senate houses filled with Senators.
"Pontifex Maximus" was originally the high priest of Jupiter in Rome, dating all the way back to the Roman monarchy and before the Roman republic. "Pontifex Maximus" is currently the official title of the pope (in a sense, still the highest priest in Rome). I don't think anybody still has the title "Pharaoh".
Depending on your viewpoint and what “counts”, king is probably the oldest in a loose non-specific way. Though this did lead me down a rabbit hope where I found an interesting bit of trivia. The Akkadian word for king, “šar”, is suspiciously close to the Slavic word for monarch, “tsar”. I can’t find any concrete evidence of a connection, but hey, it’s fun to ponder whether it’s coincidental or not.
There is no connection. Tsar and Kaiser are both derived from the name Caesar, which became a royal title (along with Augustus) in the 300s under Diocletian.
I believe "Caesar" derives from the word "caesaries", which means "hair/curls/beard-hairs".
Romans at the time were using three names, the given name (Gaius), the family/clan name (Julius) and the cognomen (Caesar), which was originally a nickname that became hereditary to identify a particular branch of a family.
So, the emperor of Russia was called the tsar because Gaius Julius or one of his ancestors was nicknamed "Curly" or maybe "Beardy".
All the statues I’ve seen of him make his hair look not so curly, and they don’t show him having a beard. This open up the possibility that many royal titles are ultimately named after some Italian guy’s magnificent chest hair (which would be hard to capture in a statue).
I'm with you all the way, but I'm pretty sure cognomen had transitioned from nicknames to hereditary by Gaius Julius Caesar's time. Also, clean-shaven was a relatively new fashion in Rome -- Cicero, one of Caesar's political enemies and of the previous generation, had a speech complaining about how women these days liked pretty clean-shaven younger men, and not the robust full-bearded old patricians, like they should.
Another less popular theory is that it's from caesus which means to cut, which would be interesting because the cesarean section, also known as a C-section, was named after Caesar so it'd be a bit of circular definition.
>because Gaius Julius or one of his ancestors
Sextus Julius Caesar is the first Julii Caesares according to wikipedia. I just love that the term for all of them is Julii Caesares.
While studying anthropology I briefly heard about the theory that in monarchies the support of the nobility should be conceived of as an investment. It really stuck with me.
Related, on a broader level: “Kill one man, and you are a murderer. Kill millions of men, and you are a conqueror. Kill them all, and you are a god.
Thoughts of a Biologist” (Jean Rostand)
> To sate the lust of power; more horrid still, The foulest stain and scandal of our nature Became its boast — One Murder made a Villain, Millions a Hero. — Princes were privileg’d To kill, and numbers sanctified the crime. Ah! why will Kings forget that they are Men?
This is a bit of a misconception. The US need never formally default on its dollar obligations, as it can simply print dollars. It will never be in formal default, although, it would effectively have defaulted by inflating its debt away.
The consequence for the US economy won't be pretty though.
> The US need never formally default on its dollar obligations, as it can simply print dollars
The assertion was that bond holders would hate for the value of the maturation currency to fall. This is true, regardless of the currency origin.
Beyond that, printing more dollars or defaults, would influence USD value to some degree, but would not guarantee a decline in overall attractiveness.
One of the pillars of US hegemony is OPEC appointing USD as the preferred trading currency, over the last 50 years. Another is the industrial capability that the US exercised in WW2. It demonstrated that the US is capable of incomparable mobilization, growth of production and innovation, when properly motivated.
Government bonds aren't buying influence with anyone though.
Campaign contributions, sure.
But the idea that there is any kind of compulsion for citizens to buy government bonds seems false. I don't know, maybe in some dictatorships or something, but certainly not in western democracies.
The article is about origins of a quote and has variations on the numbers.
1,000 vs 1,000,000
100 vs 100,000,000
100 vs 100,000
More than smart-ass quotes, I'm curios about these sorts of flips in risk/value in a general abstract sense. What is this sort of thing called? What are examples on other domains beyond lending?
Is the usage of "your banker" vs "the bank" a difference between British English and American English or a difference between 1940s English and modern English?
As a British English speaker I would say "the bank". I think it's not so much a difference between 1940s English and modern English as between 1940s banking practices and today's (especially for the more well-to-do customer) -- it implies that you have a personal relationship with an individual person at the bank who knows you and manages your money for you, and that just isn't the way banks work these days, except perhaps for the mega-rich.
Even today you "just" need qualify for slightly premium accounts - top ~2% or so will qualify at some banks - to get a named contact person at the bank you can contact, but of course at that level they still have far too many accounts per person to actively manage anything.
For my local European bank the barrier doesn't even seem to be that high only 150 k€ loans or 50 k€ investments. Then again we are not that rich country. Not that the services will be any different at that level, but hey you have named person!
I mostly agree, with the exception that I think the users of those accounts are split between people signing up for the limited extra features, and people signing up because it makes them feel important, and I suspect at least a subset of the latter would love to refer to them as "their banker". It's probably not a very large subset, though. And yes, it's pretentious.
There used to be much more personal relationships. So it was possible you had a banker a person you worked in with in the bank. Especially with a big bank. So certainly for them losing million might mean losing job, even if the bank itself was big enough to manage.
I think it's a period thing rather than a country one. People are likely to say they owe "the bank" over here in the UK as well. Back in the 40s though your bank manager had a lot more leeway in the debts they'd underwrite, and presumably had more personal investment in any loans that were defaulted on because they'd personally signed off on them.
Worked on big telecom billing back in the days. There was the average fish like me whose bills go to a normal flow when unpaid, and the big fish, like government, big companies, etc that not even have to pay their bills (for a time, of course).
(This isn't a political comment, honest! But..) After reading The Art of the Deal, I get the impression this is a lesson Trump took to heart early in life. Always using other people's money to build and do things which, in turn, seems to give him more power than he might otherwise.
I've heard about a situation here in Toronto where a family had a double mortgage on their overvalued mansion. The bank would never get their money back on a power of sale, so instead of calling in loans, they just extended them more credit, and connected them with an investment manager to help them manage the money the bank was throwing at them.
This is called "extend and pretend." It's what's happening now with office loans.
Conversely during the GFC the Obama administration put a plan together to allow people to get their loan terms adjusted (write down). The plan was very long, bureaucratic, and difficult to follow. Nearly everyone who attempted to use the scheme failed to successfully complete it and receive the write down.
When asked about this, an administration official explained that the plan was never designed to give homeowners relief. Instead the purpose was to dangle a carrot in front of their nose to get them to struggle and sacrifice to continue to make full payments as long as possible so that the banks didn't have to take losses as quickly.
"The cynical view is that HAMP worked exactly to the Treasury's liking. Both Senator Elizabeth Warren and former Special Inspector General for TARP Neil Barofsky revealed that then-Secretary Geithner told them HAMP's purpose was to "foam the runway" for the banks. In other words, it allowed banks to spread out eventual foreclosures and absorb them more slowly. Homeowners are the foam being steamrolled by a jumbo jet in that analogy, squeezed for as many payments as they can manage before losing their homes."
My understanding in the US is you can simply walk away from a house in negative equity and not lose anything?
In the UK, if you owe 200k, the bank takes over your house, sells it for say 150k and has 20k of costs you still owe them 70k, and you have to go bankrupt and spend the next decade in financial misery
> 12 states are non-recourse, including CA and TX.
This wording makes it sound like mortgages are required to be non-recourse loans in the 12 states, but that's not the case. 12 states allow non-recourse loans, however they are not common for mortgages, with many lenders not even offering them.
There's Fed Reserve research on this. The only thing recourse does is make borrowers a bit less sensitive to negative equity and only for high value homes:
"Importantly, recourse affects default only through lowering borrowers sensitivity to negative equity. Unconditionally, there is no difference between the default rates in recourse and non-recourse states."
"The effect of recourse is significant only for higher-appraised properties."
> Credit standards and interest rates will be different on non-recourse loans
"To the extent that borrowers in recourse states are less likely to default in response to negative equity, and are more likely to default in a lender-friendly way if they do default, lenders are likely to face smaller losses from default in recourse states. Thus, one might expect interest rates to be lower in recourse states. However, we find no evidence that they are; in fact, we find that loans are more expensive in recourse states."
Many recourse states require the bank to credit you the full appraised value, not the actual foreclosure sale value - because banks often bid against themselves at foreclosure auctions and control bid acceptance so they effectively set the foreclosure price. Various things (wages, personal property, retirement accounts) are often excluded from recourse for your primary home. In some states like Minnesota a jury must determine the fair market value of a foreclosed home. Other states have strict requirements (like short filing deadlines) or lengthy procedures (all attorney billable hours!).
This effectively makes non-foreclosure options way more popular - where a bank will ofter to take the deed and cancel the debt. In the end it is more cost-effective for the bank and better for the borrower.
Furthermore even if you get a deficiency judgement the old proverb "You can't squeeze blood from a stone" applies. Someone who can't pay their mortgage is unlikely to have significant assets to draw on. All you get for your trouble is a bankruptcy filing from the borrower. After all that time and trouble your deficiency judgement gets discharged anyway.
In the end recourse states mean more defaults happen through a voluntary non-foreclosure process but lending standards and interest rates are not that different and very few borrowers ever actually have a deficiency judgement let alone pay a dime toward one.
Ha! That explains those weird videos of houses in neighbourhoods which looks like a neutron bomb or the Rapture. Cars left, coffe cups on the tables, sometimes facilities still working, TV on. Nobody there.
It happened to a lot of every day people during the mortgage crisis in the US.
Bank would foreclose, let the family stay there until the house sold again, and some even PAID people to take care of the property / not damage it on the way out.
My neighbors refinanced at a terrible time, they quit paying, foreclosure happened, then they actually worked out a new mortgage with the bank to stay.
And if the banking system were actually designed by poor people to suit the needs of poor people.
How would this scenario play out differently?
A bank is underwater on loans to a certain house. If they pull the plug now, the bank takes a loss. If they work with the household to raise the household wealth, then they can recoup their loan amount from the new wealth.
So what's your alternative solution, in the world where banks are designed for the poor?
I ask because I don't see how the personal assets of the people who designed this system come into play, at all
I think you would end up with a lot more institutions designed in the vein of Credit Unions rather than banks. The differences are subtle but noticeable. They still generate profit but they're non-profits, and so the profits they do generate are invested immediately back into the institution, by way of expanding their branch offices, providing lower rates or relief to members who are struggling, and other misc. community-focused projects.
> It's almost like the banking system was designed by rich people to suit the needs of rich people or something.
Food for thought: If they didn’t have an investment manager before this, and their primary asset was a big house they couldn’t afford… these people weren’t rich. They were working class, over extended themselves into a house, and got lucky.
Your premise may have some validity but the story in this thread may be an example of a bank making a working class family rich.
That is just a plain stupid conspiratorial collection of communist cliches which demonstrate the common symptom of bigotry; treating a disfavored group as though they were a hivemind monolith and being literally unable to comprehend that groups are made up of different people.
Under that logic you get howlers of counter-factuals like "Kings were rich and therefore there was never a war between kings." It is up there with the abject stupidity of System of a Down accidentally going pro-monarchist by asking why don't presidents fight the war.
Apply some actual thought, please. The job of a bank is to accumulate idle money to put to use in investment to generate returns. "Why does money accumulate in the money accumulator that generates more the more money is put inside of it?"
Not at all. They're not asleep, they knew about it. A few isolated people had reported exactly how 2008 was going to go down. The banks know the economy is underpinned by their assets, Uncle Sam is NEVER going to let them actually die, not in a million years. It would be the end-toll of the U.S. dollar as the defacto world currency, it would shred trillions of dollars in assets, far beyond the actual homes, I don't think Wall Street could ever actually recover from that.
And like, I don't even think that's necessarily wrong? Like I don't know how you would let some of these banks actually die in such a way that wasn't immensely worse for everyone. My only real issue with it is that these are for-profit businesses that funnel absolutely stressful amounts of money up the proverbial chain. If we just as a society want to say that we're comfortable with the notion of supporting banks with public money because ultimately letting them fail is worse for everyone, that's fine. I get that. I just don't think anyone at the top of those banks should be ripping millions of dollars a year out of that institution. At that point, that's not a business, it's more analogous to a utility and it should be owned and operated by the state.
I saw at least once in 2008 that it was done right. I don't remember which institution, but it got taken over, the depositors were protected, the stockholders lost everything, and the management was replaced.
And that's just about what you want, right? You want the depositors protected, both because they didn't make the bad loans, and because wiping them out is going to cause ripple effects that spread the damage. But the stockholders, the ones that profited (temporarily) from the bad loans? Wipe them out. The management? Wipe them out.
Perhaps true in 1945, but these days $1M is petty change to a bank. There are lots of people out there with $1M mortgages out there who are definitely at the mercy of their bank.
£1 in 1945 is ~$25M today and even that value doesn't seem high enough for the quote to apply. I wonder where the cutover is? $100M? $1B?
It probably depends on the bank somewhat. My local community Bank in a small rural town won't have many, if any, million dollar home mortgages, maybe some of the farm or business loans are that large.
Also I hope you meant £1M is ~$25 M today and not £1 :D
I think the quote applies in relative terms of the bank's size. When Elon bought Twitter, and then he started saying there were so many bots, I remember people saying how much the finance department at his creditor was sweating. That to me is Musk owning the bankers, and yet, $45B is likely not close to how much that bank as in deposits.
edit: which I actually just read, was multiple large banks, which is now a great strategy to not being owned by debtors. I assume a single large bank would be sweating a lot more.
https://en.wikipedia.org/wiki/Se%C3%A1n_Quinn is another example; he managed to persuade the bank, via accomplices, to lend him €451 million to buy its own shares in a sort of circular pyramid scheme to inflate its value.
In a Man in Full in the scene where the bankers are grilling the guy who owes them money, they are worried because he owes them so much they have a problem - of course they do their best not to let on that such is the case and he evidently doesn't pick up on it either. I'm not sure the amount he owed in the book, published in 1998, but I believe it was 600 million dollars.
evidently a user named wasteduniverse is shadow-banned or something, I saw his question but it was marked dead and I couldn't reply. Looking at his comments page all his other comments were also grayed out and dead.
I don't know what he did but since his question seems unproblematic enough I'll answer here - I didn't finish all the book, my Tom Wolfe phase was done, it seemed ok but not as cool as I thought Bonfire of the Vanities was, I remember some snide reviews of it at the time all about how Wolfe was still trying to be his idea of a great writer which was hopelessly out of date (opinion of reviewers).
My understanding it the Netflix adaptation has gotten a lot of complaints.
Probably whatever is less than your actual assets.
You owe the bank $100 and have $0 to your name then they're just out. Although I guess they didn't lose sleep until it was a bunch of people's mortgages so probably ~250k.
Worth noting that banks are, on average, a LOT bigger than they used to be.
The popular conception of a bank, even when I was a kid, was a place that was based in your town and had maybe a few branches and took in people’s deposits and wrote mortgages and business loans.
In the US, small local banks are everywhere. There's an entire ecosystem that matches capital to start a bank with experienced management teams that run the bank (not just anyone can be an executive at an OCC chartered bank). There are SaaS providers that do the heavy IT lifting. And, of course, specialist lawyers. They open a local bank, build it to a certain size, and (usually) one of the regional or super regional banks comes and picks them up. Lather, rinse, repeat. Not unlike what you see in SV with startups.
The situation in Germany with the "Sparkasse" and "Volksbank" is a bit different. They have a special legal form, preventing takeovers from other banks. But the local Volksbanken (or Sparkassen, I guess) can merge with each other. If that process in the end also leads to a "too big to fail" status at some point in time, I cannot predict, but I doubt it.
Apparently in the UK, the largest four banks control 75% of all current accounts (en-us: checking account ). Admittedly a smaller market, but even more centralised.
"Big banks have most of the money" and "Big Banks have gotten bigger" has absolutely nothing to do with "Are there small banks". I was talking to some folks I know in this world this week about a small bank they're starting, so it's not 2000 we're stuck in. I get "Big Banks are Bad" is the horse you want to beat, tho long dead, but there's plenty of room in this thread to shoehorn your pet gripe where it would be at least remotely on-topic.
The quote, that is the title of this comment thread (we're discussing a specific thing here, the quote in question, mind you, not which banks are good and bad) was a whole lot more applicable in the past than it is today.
Yes, sure there are small banks. But if you walk around any major city or drive around any major residential area, nearly all the banks you see (and in reality, nearly all the banks people actually bank at) will not be a match for the main point this quote is making.
That's because the banks that nearly all of us interact with now, are so large, and so politically connected and interwoven with our core financial structures, that it's actually impossible for almost anyone living to have a bank at their mercy due to the amount of money they owe the bank.
So the quote, once widely understandable and applicable, is slowly starting to make less sense to the average reader.
It is said that Julius Caesar borrowed so much money to become elected pontifex maximus that he essentially forced his creditors to support his political ambitions in the hope of seeing some payment on the debts.
So, essentially, ‘twas ever so.
And for a slight twist on the same theme, MMM Ponzi schemer Sergei Mavrodi, who had no political ambition whatsoever, ran for the State Duma (which granted him immunity from prosecution: the only issue he turned up to vote on) after his scheme collapsed and was voted in by thousands of people whose only hope of seeing the savings he'd conned them out of again rested on trusting his promises to sort everything out
I suspect even just loaning powerful people money at that time was effectively being on them / a political act in the first place. Less so that it built up over time and surprised anyone.
This is true to some extent, but his debtors had a strong interest in Julius Caesar's continued success--which means that even if his later actions were ones that the debtors would not have supported originally, their wagons had been hitched to his and they had a very strong incentive to support him.
Too indebted to fail
I wonder if Pontifex Maximus is the oldest title still in use.
> wonder if Pontifex Maximus is the oldest title still in use
The titles Kaiser and Czar literally derive from Cæsar. Meanwhile, we still maintain consuls in diplomatic relations between countries who often have Senate houses filled with Senators.
Caesar was the name of Gaius Iulius, not his title. That came later. Pontifex maximus was an honorific title before Caesar's name became one.
I guess if Caesar was borrowing from the Pontifex Maximus, that title must pre-date those based on his name.
Pharaoh predates it for some thousand years.
Where is that title still being used?
Probably the same places 'Pontifex Maximus' is still in use.
"Pontifex Maximus" was originally the high priest of Jupiter in Rome, dating all the way back to the Roman monarchy and before the Roman republic. "Pontifex Maximus" is currently the official title of the pope (in a sense, still the highest priest in Rome). I don't think anybody still has the title "Pharaoh".
Depending on your viewpoint and what “counts”, king is probably the oldest in a loose non-specific way. Though this did lead me down a rabbit hope where I found an interesting bit of trivia. The Akkadian word for king, “šar”, is suspiciously close to the Slavic word for monarch, “tsar”. I can’t find any concrete evidence of a connection, but hey, it’s fun to ponder whether it’s coincidental or not.
Etymonline [0] says 'tsar' comes from Caesar, which comes from the name Caius Julius Caesar. “šar” would therefore be unrelated.
[0] https://www.etymonline.com/word/Caesar
There is no connection. Tsar and Kaiser are both derived from the name Caesar, which became a royal title (along with Augustus) in the 300s under Diocletian.
Doesn't seem related--looks like šar is Semitic in origin [0] while tsar comes to the language by way of Caesar [1].
0: https://en.wiktionary.org/wiki/%C5%A1arrum#Akkadian
1: https://en.wiktionary.org/wiki/tsar#Etymology
Isn't "tsar" derived from "Caesar" which was originally just someone's name?
I see people pointing out the "Caesar -> tsar" link (and I've heard that myself too), but I have to wonder if Akkadian "sar" somehow became "Caesar".
I believe "Caesar" derives from the word "caesaries", which means "hair/curls/beard-hairs".
Romans at the time were using three names, the given name (Gaius), the family/clan name (Julius) and the cognomen (Caesar), which was originally a nickname that became hereditary to identify a particular branch of a family.
So, the emperor of Russia was called the tsar because Gaius Julius or one of his ancestors was nicknamed "Curly" or maybe "Beardy".
All the statues I’ve seen of him make his hair look not so curly, and they don’t show him having a beard. This open up the possibility that many royal titles are ultimately named after some Italian guy’s magnificent chest hair (which would be hard to capture in a statue).
I'm with you all the way, but I'm pretty sure cognomen had transitioned from nicknames to hereditary by Gaius Julius Caesar's time. Also, clean-shaven was a relatively new fashion in Rome -- Cicero, one of Caesar's political enemies and of the previous generation, had a speech complaining about how women these days liked pretty clean-shaven younger men, and not the robust full-bearded old patricians, like they should.
Hopefully nobody wrote down the true source of his nickname so I can plausibly continue believing…
Another less popular theory is that it's from caesus which means to cut, which would be interesting because the cesarean section, also known as a C-section, was named after Caesar so it'd be a bit of circular definition.
>because Gaius Julius or one of his ancestors
Sextus Julius Caesar is the first Julii Caesares according to wikipedia. I just love that the term for all of them is Julii Caesares.
I thought tsar was derived from Caesar? (Or is that just a folk etymology?)
While studying anthropology I briefly heard about the theory that in monarchies the support of the nobility should be conceived of as an investment. It really stuck with me.
That man really had the gaul to do anything.
Indeed. Shill your own bag. Saw it with Bitcoin too. And every company VCs invest in and the public invests in through wall street.
“Too big to fail”.
Related, on a broader level: “Kill one man, and you are a murderer. Kill millions of men, and you are a conqueror. Kill them all, and you are a god. Thoughts of a Biologist” (Jean Rostand)
http://evene.lefigaro.fr/citation/tue-homme-assassin-tue-mil...
Variants of that is older than Rostand [1]
> To sate the lust of power; more horrid still, The foulest stain and scandal of our nature Became its boast — One Murder made a Villain, Millions a Hero. — Princes were privileg’d To kill, and numbers sanctified the crime. Ah! why will Kings forget that they are Men?
-- Beilby Porteus (1759)
[1] https://quoteinvestigator.com/2010/05/21/death-statistic/
You get this quote in Civ VI if you research banking. They attribute it to Getty as well.
https://civilization.fandom.com/wiki/Banking_(Civ6)
I’ve always appreciated Civ’s quotes. I still quote the ones from IV.
First place I'd heard the quote. Something I learned via Civ, an interesting idea no matter who it is attributed to.
It’s no coincidence the US, the most powerful country in the world, tries to get every other country to buy as much of its debt as possible.
We owe everyone billions or trillions. They’d hate to see us (or our dollar) fall.
This is a bit of a misconception. The US need never formally default on its dollar obligations, as it can simply print dollars. It will never be in formal default, although, it would effectively have defaulted by inflating its debt away. The consequence for the US economy won't be pretty though.
> The US need never formally default on its dollar obligations, as it can simply print dollars
The assertion was that bond holders would hate for the value of the maturation currency to fall. This is true, regardless of the currency origin.
Beyond that, printing more dollars or defaults, would influence USD value to some degree, but would not guarantee a decline in overall attractiveness.
One of the pillars of US hegemony is OPEC appointing USD as the preferred trading currency, over the last 50 years. Another is the industrial capability that the US exercised in WW2. It demonstrated that the US is capable of incomparable mobilization, growth of production and innovation, when properly motivated.
> as it can simply print dollars. It will never be in formal default (...). The consequence for the US economy won't be pretty though.
Argentina tried doing that, resulting in 100% inflation per month.
Couldn't the causality be reversed here? If you're powerful, people are compelled to lend to you. See the situation with government bonds.
So many "paradoxes" make perfect sense if you flip the causality.
> people are compelled to lend to you. See the situation with government bonds.
Uhh, where are people compelled to buy bonds? People buy bonds when they think they're a good investment vehicle - not out of obligation.
For example it's implicit in the capital requirements for banks under Basel III.
I think OP means internal compulsion, not external compulsion. If I have tons of money why wouldn't I want to try to "buy" influence.
Government bonds aren't buying influence with anyone though.
Campaign contributions, sure.
But the idea that there is any kind of compulsion for citizens to buy government bonds seems false. I don't know, maybe in some dictatorships or something, but certainly not in western democracies.
https://en.wikipedia.org/wiki/Social_Security_Trust_Fund
The quote needs adjusting for inflation though.
Owe your banker £1k you are at his mercy; owe him £1m the position is reversed (2019)
Owe your banker £1,245.21 you are at his mercy; owe him £1,245,207.25 the position is reversed (August 2024)
source: https://www.bankofengland.co.uk/monetary-policy/inflation/in...
The article is about origins of a quote and has variations on the numbers. 1,000 vs 1,000,000 100 vs 100,000,000 100 vs 100,000
More than smart-ass quotes, I'm curios about these sorts of flips in risk/value in a general abstract sense. What is this sort of thing called? What are examples on other domains beyond lending?
We need to revisit this after the credit crunch -
"Owe Your Banker £1k You are at his mercy; Owe Him £1M the position is reversed; But if everyone owes the banker £1M then its everyone's problem"
And if something is everyone's problem, we just ignore it.
Is the usage of "your banker" vs "the bank" a difference between British English and American English or a difference between 1940s English and modern English?
As a British English speaker I would say "the bank". I think it's not so much a difference between 1940s English and modern English as between 1940s banking practices and today's (especially for the more well-to-do customer) -- it implies that you have a personal relationship with an individual person at the bank who knows you and manages your money for you, and that just isn't the way banks work these days, except perhaps for the mega-rich.
Even today you "just" need qualify for slightly premium accounts - top ~2% or so will qualify at some banks - to get a named contact person at the bank you can contact, but of course at that level they still have far too many accounts per person to actively manage anything.
For my local European bank the barrier doesn't even seem to be that high only 150 k€ loans or 50 k€ investments. Then again we are not that rich country. Not that the services will be any different at that level, but hey you have named person!
Mmm, I don't think that would be a sufficiently personal contact for anybody to seriously refer to that person as "my banker".
I mostly agree, with the exception that I think the users of those accounts are split between people signing up for the limited extra features, and people signing up because it makes them feel important, and I suspect at least a subset of the latter would love to refer to them as "their banker". It's probably not a very large subset, though. And yes, it's pretentious.
There used to be much more personal relationships. So it was possible you had a banker a person you worked in with in the bank. Especially with a big bank. So certainly for them losing million might mean losing job, even if the bank itself was big enough to manage.
> Especially with a big bank.
No, especially as a big client, if anything more so at a small bank than a big one.
I think it's a period thing rather than a country one. People are likely to say they owe "the bank" over here in the UK as well. Back in the 40s though your bank manager had a lot more leeway in the debts they'd underwrite, and presumably had more personal investment in any loans that were defaulted on because they'd personally signed off on them.
I’ve never had a banker, so I just say “the bank”
When my US high school US history teacher told us that expression in the 1980s, he used the "bank" variant, not "banker". He was also from the US.
Ask the Greeks how that turned out.
That was a smokescreen to bailout (a second time) indebted French and German banks:
https://www.corpwatch.org/article/eurozone-profiteers-how-ge...
Also, economist Mark Blyth has written extensively about this.
Same thing in other industries.
Worked on big telecom billing back in the days. There was the average fish like me whose bills go to a normal flow when unpaid, and the big fish, like government, big companies, etc that not even have to pay their bills (for a time, of course).
Instance from 1998: <http://freefall.purrsia.com/ff200/fv00123.htm>
If you owe the bank a million, the bank owns you. If you owe the bank a billion, you own the bank.
(This isn't a political comment, honest! But..) After reading The Art of the Deal, I get the impression this is a lesson Trump took to heart early in life. Always using other people's money to build and do things which, in turn, seems to give him more power than he might otherwise.
Particularly relevant for twitter these days.
Too big to fail, too big to bail!
I've heard about a situation here in Toronto where a family had a double mortgage on their overvalued mansion. The bank would never get their money back on a power of sale, so instead of calling in loans, they just extended them more credit, and connected them with an investment manager to help them manage the money the bank was throwing at them.
Wouldn't be nice to fail upward like that?
This is called "extend and pretend." It's what's happening now with office loans.
Conversely during the GFC the Obama administration put a plan together to allow people to get their loan terms adjusted (write down). The plan was very long, bureaucratic, and difficult to follow. Nearly everyone who attempted to use the scheme failed to successfully complete it and receive the write down.
When asked about this, an administration official explained that the plan was never designed to give homeowners relief. Instead the purpose was to dangle a carrot in front of their nose to get them to struggle and sacrifice to continue to make full payments as long as possible so that the banks didn't have to take losses as quickly.
citation needed
"Bailout: How Washington Abandoned Main Street While Rescuing Wall Street", Neil Barofsky, page 157
Note though that he is only quoting "off the record" conversations with Treasury Secretary Tim Geithner
That's the problem with these "citation needed" remarks, those who say it never come back after they received the high quality citations.
You can google "Home Affordable Modification Program" and "foam the runway" [for the banks]. But here's one of many articles:
https://prospect.org/economy/needless-default/
"The cynical view is that HAMP worked exactly to the Treasury's liking. Both Senator Elizabeth Warren and former Special Inspector General for TARP Neil Barofsky revealed that then-Secretary Geithner told them HAMP's purpose was to "foam the runway" for the banks. In other words, it allowed banks to spread out eventual foreclosures and absorb them more slowly. Homeowners are the foam being steamrolled by a jumbo jet in that analogy, squeezed for as many payments as they can manage before losing their homes."
reality is stranger than fiction. yes citation needed. but this seems banal compared to what things go down.
My understanding in the US is you can simply walk away from a house in negative equity and not lose anything?
In the UK, if you owe 200k, the bank takes over your house, sells it for say 150k and has 20k of costs you still owe them 70k, and you have to go bankrupt and spend the next decade in financial misery
This is called a non-recourse loan and the exact rules depend on the state. 12 states are non-recourse, including CA and TX.
Credit standards and interest rates will be different on non-recourse loans, and cancelled debt typically has to be reported as income and taxed.
> 12 states are non-recourse, including CA and TX.
This wording makes it sound like mortgages are required to be non-recourse loans in the 12 states, but that's not the case. 12 states allow non-recourse loans, however they are not common for mortgages, with many lenders not even offering them.
IIRC this is incorrect, at least for WA and CA. They only allow non recourse loans at least for purchase mortgages.
Primary home mortgages are all non-recourse in CA. Texas is similar. The exceptions are things like cash out refis, second mortgages, fraud.
There's Fed Reserve research on this. The only thing recourse does is make borrowers a bit less sensitive to negative equity and only for high value homes:
"Importantly, recourse affects default only through lowering borrowers sensitivity to negative equity. Unconditionally, there is no difference between the default rates in recourse and non-recourse states."
"The effect of recourse is significant only for higher-appraised properties."
> Credit standards and interest rates will be different on non-recourse loans
"To the extent that borrowers in recourse states are less likely to default in response to negative equity, and are more likely to default in a lender-friendly way if they do default, lenders are likely to face smaller losses from default in recourse states. Thus, one might expect interest rates to be lower in recourse states. However, we find no evidence that they are; in fact, we find that loans are more expensive in recourse states."
You can read the paper for yourself: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1432437. Note that this paper (and many other sources) classify Texas as recourse but it is not. I'm not certain why that is.
Many recourse states require the bank to credit you the full appraised value, not the actual foreclosure sale value - because banks often bid against themselves at foreclosure auctions and control bid acceptance so they effectively set the foreclosure price. Various things (wages, personal property, retirement accounts) are often excluded from recourse for your primary home. In some states like Minnesota a jury must determine the fair market value of a foreclosed home. Other states have strict requirements (like short filing deadlines) or lengthy procedures (all attorney billable hours!).
This effectively makes non-foreclosure options way more popular - where a bank will ofter to take the deed and cancel the debt. In the end it is more cost-effective for the bank and better for the borrower.
Furthermore even if you get a deficiency judgement the old proverb "You can't squeeze blood from a stone" applies. Someone who can't pay their mortgage is unlikely to have significant assets to draw on. All you get for your trouble is a bankruptcy filing from the borrower. After all that time and trouble your deficiency judgement gets discharged anyway.
In the end recourse states mean more defaults happen through a voluntary non-foreclosure process but lending standards and interest rates are not that different and very few borrowers ever actually have a deficiency judgement let alone pay a dime toward one.
Ha! That explains those weird videos of houses in neighbourhoods which looks like a neutron bomb or the Rapture. Cars left, coffe cups on the tables, sometimes facilities still working, TV on. Nobody there.
Could you share some links? I’m not familiar with this.
For the vast majority of mortgages in the US, the situation is the same. You owe the bank the full amount, even in a foreclosure or short-sale.
It happened to a lot of every day people during the mortgage crisis in the US.
Bank would foreclose, let the family stay there until the house sold again, and some even PAID people to take care of the property / not damage it on the way out.
My neighbors refinanced at a terrible time, they quit paying, foreclosure happened, then they actually worked out a new mortgage with the bank to stay.
> Wouldn't be nice to fail upward like that?
It's almost like the banking system was designed by rich people to suit the needs of rich people or something.
And to tax the poor but that's a more recent component.
And if the banking system were actually designed by poor people to suit the needs of poor people.
How would this scenario play out differently?
A bank is underwater on loans to a certain house. If they pull the plug now, the bank takes a loss. If they work with the household to raise the household wealth, then they can recoup their loan amount from the new wealth.
So what's your alternative solution, in the world where banks are designed for the poor?
I ask because I don't see how the personal assets of the people who designed this system come into play, at all
I think you would end up with a lot more institutions designed in the vein of Credit Unions rather than banks. The differences are subtle but noticeable. They still generate profit but they're non-profits, and so the profits they do generate are invested immediately back into the institution, by way of expanding their branch offices, providing lower rates or relief to members who are struggling, and other misc. community-focused projects.
The alternative would be the removal of the banking system, not to re-make it.
> It's almost like the banking system was designed by rich people to suit the needs of rich people or something.
Food for thought: If they didn’t have an investment manager before this, and their primary asset was a big house they couldn’t afford… these people weren’t rich. They were working class, over extended themselves into a house, and got lucky.
Your premise may have some validity but the story in this thread may be an example of a bank making a working class family rich.
That is just a plain stupid conspiratorial collection of communist cliches which demonstrate the common symptom of bigotry; treating a disfavored group as though they were a hivemind monolith and being literally unable to comprehend that groups are made up of different people.
Under that logic you get howlers of counter-factuals like "Kings were rich and therefore there was never a war between kings." It is up there with the abject stupidity of System of a Down accidentally going pro-monarchist by asking why don't presidents fight the war.
Apply some actual thought, please. The job of a bank is to accumulate idle money to put to use in investment to generate returns. "Why does money accumulate in the money accumulator that generates more the more money is put inside of it?"
Wow apparently a lot of rich people and/or bankers are here judging by the downvotes.
This is how we end up in another 2008 crash. Regulators asleep at the wheel, again
Not at all. They're not asleep, they knew about it. A few isolated people had reported exactly how 2008 was going to go down. The banks know the economy is underpinned by their assets, Uncle Sam is NEVER going to let them actually die, not in a million years. It would be the end-toll of the U.S. dollar as the defacto world currency, it would shred trillions of dollars in assets, far beyond the actual homes, I don't think Wall Street could ever actually recover from that.
And like, I don't even think that's necessarily wrong? Like I don't know how you would let some of these banks actually die in such a way that wasn't immensely worse for everyone. My only real issue with it is that these are for-profit businesses that funnel absolutely stressful amounts of money up the proverbial chain. If we just as a society want to say that we're comfortable with the notion of supporting banks with public money because ultimately letting them fail is worse for everyone, that's fine. I get that. I just don't think anyone at the top of those banks should be ripping millions of dollars a year out of that institution. At that point, that's not a business, it's more analogous to a utility and it should be owned and operated by the state.
I saw at least once in 2008 that it was done right. I don't remember which institution, but it got taken over, the depositors were protected, the stockholders lost everything, and the management was replaced.
And that's just about what you want, right? You want the depositors protected, both because they didn't make the bad loans, and because wiping them out is going to cause ripple effects that spread the damage. But the stockholders, the ones that profited (temporarily) from the bad loans? Wipe them out. The management? Wipe them out.
Perhaps true in 1945, but these days $1M is petty change to a bank. There are lots of people out there with $1M mortgages out there who are definitely at the mercy of their bank.
£1 in 1945 is ~$25M today and even that value doesn't seem high enough for the quote to apply. I wonder where the cutover is? $100M? $1B?
It probably depends on the bank somewhat. My local community Bank in a small rural town won't have many, if any, million dollar home mortgages, maybe some of the farm or business loans are that large.
Also I hope you meant £1M is ~$25 M today and not £1 :D
I don't think local community banks typically hold onto a lot of mortgages. They would originate the loans and then sell them to someone else.
I think the quote applies in relative terms of the bank's size. When Elon bought Twitter, and then he started saying there were so many bots, I remember people saying how much the finance department at his creditor was sweating. That to me is Musk owning the bankers, and yet, $45B is likely not close to how much that bank as in deposits.
edit: which I actually just read, was multiple large banks, which is now a great strategy to not being owned by debtors. I assume a single large bank would be sweating a lot more.
https://en.wikipedia.org/wiki/Silicon_Valley_Bank hit $15bn of unrealized losses and exploded. It was destroyed by the collective action of its depositors in a classic bank run.
https://en.wikipedia.org/wiki/Se%C3%A1n_Quinn is another example; he managed to persuade the bank, via accomplices, to lend him €451 million to buy its own shares in a sort of circular pyramid scheme to inflate its value.
The trick is to keep the circle extremely wide. Then, it's called an Economy and Healthy Inflation. :) An ecosystem if you will.
In a Man in Full in the scene where the bankers are grilling the guy who owes them money, they are worried because he owes them so much they have a problem - of course they do their best not to let on that such is the case and he evidently doesn't pick up on it either. I'm not sure the amount he owed in the book, published in 1998, but I believe it was 600 million dollars.
evidently a user named wasteduniverse is shadow-banned or something, I saw his question but it was marked dead and I couldn't reply. Looking at his comments page all his other comments were also grayed out and dead.
I don't know what he did but since his question seems unproblematic enough I'll answer here - I didn't finish all the book, my Tom Wolfe phase was done, it seemed ok but not as cool as I thought Bonfire of the Vanities was, I remember some snide reviews of it at the time all about how Wolfe was still trying to be his idea of a great writer which was hopelessly out of date (opinion of reviewers).
My understanding it the Netflix adaptation has gotten a lot of complaints.
Probably whatever is less than your actual assets.
You owe the bank $100 and have $0 to your name then they're just out. Although I guess they didn't lose sleep until it was a bunch of people's mortgages so probably ~250k.
There's a big difference between secured and unsecured loans, subprime lending crises aside.
Worth noting that banks are, on average, a LOT bigger than they used to be.
The popular conception of a bank, even when I was a kid, was a place that was based in your town and had maybe a few branches and took in people’s deposits and wrote mortgages and business loans.
Depending on where you live small local banks still exist. Although some merging processes are definitely happening, in my area.
Yes they do exists as you say. However in last 30 years or so 90% of small banks are merged into Too big to fail banks.
In the US, small local banks are everywhere. There's an entire ecosystem that matches capital to start a bank with experienced management teams that run the bank (not just anyone can be an executive at an OCC chartered bank). There are SaaS providers that do the heavy IT lifting. And, of course, specialist lawyers. They open a local bank, build it to a certain size, and (usually) one of the regional or super regional banks comes and picks them up. Lather, rinse, repeat. Not unlike what you see in SV with startups.
The situation in Germany with the "Sparkasse" and "Volksbank" is a bit different. They have a special legal form, preventing takeovers from other banks. But the local Volksbanken (or Sparkassen, I guess) can merge with each other. If that process in the end also leads to a "too big to fail" status at some point in time, I cannot predict, but I doubt it.
Sure, but over 50% of the assets held by banks in the US are held by five banks.
That’s about double the percentage in 2000. Things have changed a lot and the trend continues.
Apparently in the UK, the largest four banks control 75% of all current accounts (en-us: checking account ). Admittedly a smaller market, but even more centralised.
"Big banks have most of the money" and "Big Banks have gotten bigger" has absolutely nothing to do with "Are there small banks". I was talking to some folks I know in this world this week about a small bank they're starting, so it's not 2000 we're stuck in. I get "Big Banks are Bad" is the horse you want to beat, tho long dead, but there's plenty of room in this thread to shoehorn your pet gripe where it would be at least remotely on-topic.
My point is pretty easy to follow.
The quote, that is the title of this comment thread (we're discussing a specific thing here, the quote in question, mind you, not which banks are good and bad) was a whole lot more applicable in the past than it is today.
Yes, sure there are small banks. But if you walk around any major city or drive around any major residential area, nearly all the banks you see (and in reality, nearly all the banks people actually bank at) will not be a match for the main point this quote is making.
That's because the banks that nearly all of us interact with now, are so large, and so politically connected and interwoven with our core financial structures, that it's actually impossible for almost anyone living to have a bank at their mercy due to the amount of money they owe the bank.
So the quote, once widely understandable and applicable, is slowly starting to make less sense to the average reader.
Which is kind of interesting.
Banks are bigger now, I assume.
Yeah, I mean, look at Elon Musk's buy of Twitter. Morgan Stanley and others secured about US$6bi? That's more on them than on Elon
PS: I am aware that Elon's shares on other companies were used as collateral, but yet...