Sara Holland #MMT@sarahollando552
The financial sector is a burden on the real economy with billions paid to wealthy people in unnecessary interest payments on government ‘debt’, unquestioned corporate welfare while social security for the poor is but to the bone.
@wbmosler has solutions.
https://gimms.org.uk/wp-content/uploads/2024/07/How-to-Deep-Six_Bin-Off-the-Financial-Sector.pdf
oooooo
How to Deep Six/Bin Off the Financial Sector
Warren Mosler
July 15-17, 2024
University of Leeds
Proposals to Gut the Financial Sector
-
Permanent 0 rate policy
-
Eliminate tax advantaged savings incentives
-
Require public companies to offer unlimited new shares at a fixed price
-
Full bank deposit insurance and unsecured overdrafts at the Fed
Direct Financial Sector Employment is Over 3 Million People
Over 1,365,000 Million Employed in Commercial Banking:
1,073,500 Employed in Capital Markets
Ancillary Costs of the Financial Sector
● Legal expenses
● Audit expenses
● Educational expenses
● Energy consumption
● Regulatory expenses
● Computational resources
Proposed Permanent 0 Rate Policy
● Banking System’s cost of funds is 0%
● Bank lending prices risk adjustment
● Unlimited 0% CB overdrafts for member banks
● No Treasury securities longer than 3 month bills
● The Fed will have a bid for longer dated Treasury securities
Real Gains from a Permanent 0 Rate Policy
● Eliminates interbank lending
● Eliminates trading of Treasury securities
● Eliminates Treasury interest expense
● Eliminates tens of thousands of those employed in this aspect of the financial sector
Eliminate Tax Advantaged Savings Incentives
● Ex Poste, for every entity that spent less than its income
(saved) another spent more than its income (deficit spent).
● Tax advantages provide incentives to not spend income.
● This income can’t be realized without deficit spending by another entity.
● Public and private deficit spending are the source of investment funds for the financial sector.
● Eliminating the tax advantages eliminates the savings desires facilitating the deficit spending that creates the funds that support the financial sector
Real Gains from Eliminating Tax Advantaged Savings
● The reversal of the rapid growth of the then contracting vast pools of savings will transition tens of thousands of financial professionals to other sectors.
● Real investment will continue to create its own savings, both through the banking system and private funding markets.
Require Public Corporations to Offer Unlimited New Shares at a Fixed Price
● Puts a ceiling on the price of the stock
● Doesn’t hurt existing investors
● Purchases of new shares adds cash to the company
● Existing investors who purchased stock at lower prices benefit accordingly from new shares sold and new corporate investment
● The incentive to speculate on price is largely eliminated
● Trading in stocks is dramatically reduced
● Buybacks are largely eliminated
Real Gains from Capping Stock Prices
● Tens of thousands of people directly and indirectly involved in stock trading lose their livelihoods and can be redeployed touseful endeavors.
● Massive quantities of real resource consumption will cease and can be redirected or curtailed
Banking Proposals
● Full deposit insurance- eliminates the need for money market funds
● Unlimited, uncollateralized borrowing from the discount window- eliminates liquidity issues and interbank trading
● Eliminate financial assets as qualifying collateral- eliminates state sponsored financial leverage
● Retention of agency insured mortgage backed securities by the housing agencies- eliminates volatility from negative convexity
Real Gains from Banking Proposals
● Eliminates tens of thousands of people directly and indirectly involved in current banking activities that can be redeployed to useful endeavors.
● Massive quantities of real resource consumption will cease and can be redirected or curtailed
Note, oharra:
Dokumentu osoa, hemen: https://www.scribd.com/document/765676504/W-Mosler-Finantza-sektorea-eta-ekonomia-erreala
oooooo
Warren Mosler | Deep 6 The Financial Sector
Bideoa: https://www.youtube.com/watch?v=urXHOddxwAE
Presented 17 July 2024 | MMT Conference | Leeds University
Transkripzioa:
0:07
[Applause]
0:11
who you came up with a bid off I had
0:12
never heard that
0:14
so
0:18
Amer all right proposals to gut the
0:21
financial sector now a lot of these are
0:24
proposals for Scotland so somehow one
0:27
fits in the other uh number one
0:30
permanent zero rate policy again I don’t
0:34
like why not and you know about the
0:37
univers UMKC buaro right I went through
0:40
that there’s always a zero
0:43
rate eliminate tax advantage savings
0:47
incentives what’s that all about uh
0:51
chapter six in the seven deadly inoc and
0:54
frauds that um out there there’s this
0:58
understanding in Congress
1:00
it’s a deadly innocent fraud that we
1:02
need savings to have money for
1:04
investment which is completely backwards
1:06
savings is the accounting record of
1:08
investment cation of investment to
1:11
savings you know it’s just backwards but
1:13
they have it backwards and
1:16
uh we’re going to eliminate those
1:19
because when they put on tax advantage
1:22
savings incentives in the US you put
1:25
money in your pension fund is before tax
1:28
money so you earn a dollar to pay 30
1:31
cents in taxes or you can put the whole
1:32
dollar in savings until the end it’s
1:34
compelling not to spend your money so we
1:37
have all these tax incentives not to
1:39
spend your money what does that mean it
1:41
means there has to be deficit spending
1:44
on the other side or else they exp poos
1:49
when we look at last year’s numbers the
1:51
income and the savings won’t be there
1:54
somebody has to spend more than their
1:55
income to create the savings that you’re
1:58
going to put away so but what it does is
2:00
it creates that’s what’s creating these
2:03
giant pools of savings the 40 trillion
2:06
under management by asset managers that
2:08
are doing all the damage so what we’re
2:10
trying to do is cut off the source cut
2:13
this stuff off at source my idea has
2:17
always been rather than pay out a dollar
2:19
then try and Claw back claw it back
2:21
don’t pay it out to begin with okay and
2:24
that’s the whole thing set
2:25
around requiring public companies to
2:28
offer unlimited new shares that price
2:30
that’ll be above their current market
2:32
share that will end stock market
2:35
appreciation in terms of price investors
2:38
will still get more value through
2:40
earnings and dividends which is what the
2:43
whole investment theory is all based on
2:45
anyway not price speculation and it
2:47
eliminates vast uh numbers of people
2:50
involved in uh the fact that stocks
2:53
trade all you know go
2:54
up
2:56
um full bank deposit insurance overdraft
3:00
and F and also that would That’s The
3:05
Logical conclusion of anybody looking at
3:07
banking system from a clean sheet of
3:09
paper versus what we have now it
3:11
eliminates another big chunk in the
3:13
financial
3:15
sector okay direct employment in the
3:19
financial sector over 3 million people
3:22
these are Big
3:24
Numbers over a million employed in
3:27
capital markets
3:32
how much do they make 98,000 to 180,000
3:35
average salaries these are large numbers
3:37
even to the
3:41
US cost with the financial sector now I
3:44
look at real compliance costs not the
3:48
money legal
3:50
expenses you can look at the numbers JP
3:52
Morgan I don’t know 10 billion dollar a
3:54
quarter or some crazy thing but what’s
3:56
behind that all the people getting paid
3:58
for that the lawers all the clerks all
4:00
the people teaching them in school the
4:02
professors their educations uh all the
4:05
court cases paper Court won’t just give
4:08
you a file you know they have to print
4:10
everything you know how many trees to
4:12
cut down to these courts it’s crazy and
4:15
uh but all the associated legal expens
4:18
all the anxiety associated with getting
4:20
sued by the IRS or having to do all this
4:23
stuff all the medical attention you all
4:25
goes wet on any expenses
4:29
staggering costs here all gone
4:32
educational expenses energy
4:34
consumption massive amounts of energy
4:37
consumption and all this from everything
4:40
from all angles I’m going to raise
4:41
through this little bit regulatory
4:43
expenses government expense Monitor and
4:45
regula all this stuff um just think
4:49
about what all the regulation behind the
4:50
stock market all the regulations behind
4:52
that all the banking Regulators
4:55
computational resources I don’t remember
4:57
what that is computers
5:00
data science huh data
5:03
Cent data Cent are using more energy
5:05
than the whole
5:07
city
5:09
um proposed permanent zero rate policy
5:12
what does that mean the banking systems
5:15
cost of funds is zero how do you do it
5:17
by the way you just when the government
5:19
deficit spends it credits accounts and
5:21
then money just stays in those accounts
5:22
it’s really simple you don’t sell bonds
5:25
and you don’t pay interest on the
5:26
accounts Japan’s been doing it for 30
5:28
years right and and there are no bad
5:31
effects it’s one of the nicest places to
5:32
live in the world and U uh no issues
5:37
about what might happen if we didn’t
5:39
have government securities except you
5:40
eliminate you know whole armies of bond
5:43
Traders and that whole cottage industry
5:45
that’s spawn around it and and think
5:47
about the income distribution issues
5:49
that started that this thing feeds right
5:53
because of the tens of millions of
5:54
dollars a year these managers are making
5:57
to do something that doesn’t need to be
5:58
there they could be out curing cancer
6:01
doing something
6:02
useful um so cost of funds is zero it
6:06
doesn’t mean all interest rates at zero
6:08
rates are risk adjusted in Japan the
6:11
cost of funds is zero but more you do is
6:13
are at 3% okay maybe a corporate loan
6:16
it’s a risky business might be 5% the
6:18
market figures that out but their cost
6:20
of funds is zero you’re not giving the
6:23
banks free money or anything like that
6:25
that’s their cost of money to make money
6:27
they have to find a a borrower and then
6:29
compete with the other Banks and the
6:31
spreads get compressed I could show you
6:33
a chared bank interest margins it’s not
6:37
much and it’s th and it goes down okay
6:39
so it’s not about giving anything to the
6:41
banks okay Bank lending prices risk
6:44
adjustment unlimited overdrafts for
6:46
member
6:48
banks okay and the reason for that
6:53
is the way it works
6:56
now AR
6:59
I’ve got my make a payment to you and
7:01
I’ve got my money in a bank and I write
7:04
a check and give it to you and you
7:06
deposit it in your bank and the check
7:08
clears you’ve heard the word
7:10
clear how does it get how does money
7:14
disappear from my account and get into
7:16
his account your account what happens
7:19
nobody takes a wheelbarrow and runs
7:21
across the street or something B nothing
7:24
have what they do is both banks have an
7:27
account in a Third Bank which is called
7:30
a clearing Bank the central bank it’s
7:32
between the banks I have an account
7:34
there your bank has an account my bank
7:37
has an account there your bank has an
7:39
account there so when I write a check
7:41
what happens is they said the Federal
7:43
Reserve or the ECB the central bank will
7:46
subtract the money from my bank account
7:48
and add it to your bank’s account and
7:51
now both Banks you know have the correct
7:53
information and they can account for
7:56
everything and however neither have any
8:00
money in our account to begin with
8:01
neither bank has any
8:03
money my account is now negative and the
8:06
other bank’s account is
8:08
positive and what happens today in the
8:10
market to reconcile that is I have my
8:13
bank has to go to your bank and borrow
8:15
the money back and then the
8:18
FED lends you know because once the
8:20
money is borrowed then it goes from your
8:22
bank it’s Lo back to my bank and both
8:24
banks are back to
8:26
zero okay so I I pay you my bank has to
8:30
borrow the money from your bank you know
8:31
to clear this thing that’s how it works
8:34
so who’s doing all this borrowing and
8:36
lending back and forth between Banks
8:38
that’s called interbank
8:40
lending these people don’t come cheap
8:42
okay and there’s thousands of them we
8:44
have 4,000 banks in the United States
8:46
you got all these people tied up and
8:48
doing this it doesn’t have to be that
8:49
way the central bank can just say one
8:52
bank’s negative and the other’s positive
8:53
and just leave it like that you don’t
8:56
have to have do all this other stuff
8:58
these aren’t gold coins or anything
9:00
right and uh and if you just leave it
9:03
there what does that mean okay it means
9:06
my Banks borrowing it from the FED
9:08
instead of borrowing it from your bank
9:10
so what it doesn’t matter it’s never
9:13
mattered and this way to do things is
9:15
how Banks and Emerging Markets start
9:18
until they’re sophisticated enough to
9:20
start having interbank people doing it
9:22
the other way spending money on
9:24
compliance and everything else so
9:26
there’s anyway you don’t want to hear
9:28
any more about it
9:30
so unlimited overdrafts to bank numbers
9:32
it doesn’t mean um Banks can now borrow
9:36
all they want and lend all they want
9:38
lending is not constrained by how much a
9:40
bank can borrow there’s not a line of
9:42
borrowers at a bank waiting for them to
9:44
get the money have you ever got your
9:46
bank and say okay wait in the line we
9:48
don’t have the money yet of course okay
9:51
the bank lending is constrained by
9:53
people borrowing by credit worthy
9:56
borrowers when that they can wory
9:59
borrower borrows money and what you do
10:02
is sign a promissary note and the bank
10:04
buys that note from you and puts the
10:07
that number of dollars or pounds in your
10:10
account and then that note is an
10:12
asset okay and then if you want to take
10:14
that money out it has that asset to
10:16
borrow money you can borrow it just as
10:18
easily from the Central Bank through a
10:20
overdraft as it can from another bank
10:22
get back the funds that you just moved
10:24
out
10:26
anyway unlit over Justice there’s no Mor
10:29
has there’s no operational anything
10:31
associated with it nobody would ever
10:33
know the difference no treasury security
10:36
is longer than 3 month bills bonds no
10:38
bonds I’m in the no bonds but for the US
10:42
institutionally
10:44
specific the treasury can decide whether
10:47
it wants to do 30-year bonds 10e bonds
10:49
or three Monon bills it makes that
10:51
decision it’s called debt management so
10:53
I can just decide to go to three-month
10:54
bills it doesn’t require any legislation
10:57
any approval by anybody El it’s just a
11:00
policy change so if the treasury
11:01
secretary says we’re only going to go
11:03
three Monon bills it’s done three Monon
11:05
bills don’t get traded they don’t have
11:07
this huge industry out there supporting
11:11
million dollar salaries and all that
11:13
they’re just like regular cash the way
11:15
they Ed so for institutional Simplicity
11:18
we just say nothing longer than
11:20
three-month bills and it can get done
11:21
tomorrow it doesn’t have to wait and go
11:23
through this whole Bing process and
11:25
everything else uh and it’s with a zero
11:28
rate policy so the interest is going to
11:30
be zero on all those and in fact
11:32
treasury bills tend to trade at a lower
11:34
rate you have zero rates like Japan or
11:37
like we had in the US it was not
11:39
uncommon for treasury bills to trade at
11:41
negative interest rates uh the FED will
11:45
have a bid for longer data security so
11:47
that the long-term treasury Securities
11:49
out there there’s not going to be any
11:51
market so we don’t need any bond Traders
11:54
and they’ll eventually mature that used
11:56
to be what the joke back when I was in
11:59
trust what’s the difference between
12:01
bonds and bond
12:03
Traders the bonds eventually mature
12:09
right so the outstanding bonds will just
12:12
be there to be sold to the FED at near
12:14
zero range maybe five days point so
12:16
there’ll be no money no incentive for
12:18
anybody to be out trading bonds anymore
12:20
and so this is getting rid of this per
12:24
permanent zero rate policy with couple
12:26
of operational things with it it’s
12:28
getting rid of big chunk of the
12:30
financial sector now what’s wrong with
12:34
the financial sector in 1976 I was
12:36
working at a Savings Bank Manchester we
12:40
I was paid $140 a week we left at 4:00
12:43
every day and play golf we took in
12:46
deposits at 5% loan about mortgages at
12:49
8% there were 2.6 million housing starts
12:52
that year the population was less than
12:54
200 million people today with 350
12:58
million people and the financial sector
13:02
now 30% of GDP uh S&P earnings back then
13:06
was under 5% it’s just us guys running
13:09
the stupid Savings of loans for no money
13:12
easy easy thing uh today with this
13:15
massive financial sector housing starts
13:18
just came out today 1.4 million with
13:20
almost double the population and it’s
13:22
you know it’s like picking up it’s
13:24
looking good right the financial sector
13:27
doesn’t add anything to financing any
13:29
anything real in the real world all you
13:31
need is a couple of Clerks people walk
13:33
in they qualify under the rules you give
13:35
them the load and they walk out you
13:36
don’t need all this other stuff around
13:38
it that we have and it’s staggering in
13:40
is you know size complexity and eating
13:44
up real resources using up real energy
13:47
that can either be not used or deployed
13:49
somewhere
13:51
else real Gams eliminates in Bank
13:54
lending eliminates trading of Treasury
13:56
eliminates interest expense you know
13:59
about that I don’t have to say anymore
14:01
1.2 trillion a year eliminates tens of
14:04
thousands of those employed in this
14:06
aspect of the
14:07
fin eliminate tax advantage savings
14:10
incentives we talked a little bit about
14:12
it uh for every entity that spent less
14:14
than its income and other spent more
14:16
than its income or else the numbers
14:18
wouldn’t be there tax advantages provide
14:21
incentives to not spend income this
14:24
income can’t be realized without
14:26
spending by another enti all these
14:28
people are against big deficits they’re
14:30
in favor of big savings conscent you
14:33
know they’re creating their own thing
14:34
that they don’t
14:36
like public and private deficit spending
14:38
are the source of investment funds for
14:41
the financial sector so this is all
14:44
loans creates deposits investment
14:46
creates savings and that all gets
14:50
um is a source of the funds the 40 50 60
14:54
trillion dollar under management getting
14:57
seriously large fees
14:59
paying people seriously large amounts of
15:01
money and being fed upon they’re the
15:04
whales okay they’re not the Sharks the
15:06
sharks are the Wall Street groups that
15:08
hire the best of them pay them 10 times
15:10
as much to call their old buddies to
15:12
make sure they get the business off of
15:15
them and make their uh money off of
15:18
those this sector those are the 40 to 60
15:21
trillion dollar whales at the sharks of
15:23
Wall Street or feeding out you just cut
15:25
off the food supply it all goes away you
15:27
have it like done anything personally to
15:30
anybody it’s just not there
15:32
anymore um eliminating tax advantage
15:35
eliminates the savings desires because
15:37
they’re created by taxes facilitating
15:40
the deficit spending gra the funds that
15:42
support the financial sector so we’re
15:44
going to take away and support by
15:46
changing the savings rules and then it
15:48
just goes away instead of leaving
15:51
everything in place letting them make
15:53
you know hundreds of billions of dollars
15:54
and trying to figure out how to tax tax
15:57
transactions taxes which never happen
15:59
happens not going I’m against it but you
16:01
know it’s not going to happen it just
16:03
doesn’t
16:05
happen real games from eliminating this
16:08
the reversal of the rapid growth of the
16:10
then Contracting bases of savings
16:13
transitions tens of thousands of
16:15
financial professionals to other sectors
16:17
it’s a huge brain drain these guys gone
16:19
to Wharton and LSC they’re the top
16:21
people out there instead of curing
16:23
cancer they doing this stuff okay this
16:25
makes no sense at all from a public
16:27
purpose point of VI real inv vment will
16:29
continue to create its own savings both
16:31
through the banking system and private
16:33
funding markets it’s not going to
16:34
interfere at all with real investment in
16:37
fact you get all these people now doing
16:40
other things you’ll see you know the
16:42
real investment that we like expanding
16:47
exponential total assets andal is higher
16:49
than the value of assets under
16:52
Europe 47 trillion Us in 2022 I sure you
16:56
it’s gone up substantially
17:00
uh require public corporations to offer
17:02
unlimited new shares at a fixed price
17:05
but a seal it puts a ceiling on the
17:07
price of the stock if the Stock’s at 10
17:11
and but the company has to issue
17:13
unlimited shares at 20 it’s never going
17:15
to go above 20 once the price is 20 now
17:18
you’re buying new shares from the
17:19
company they’re offering them at 20 it’s
17:22
not going to go to 21 because you can
17:23
buy new shares from them it’s giving the
17:25
company money which will earn in you
17:27
know interest initially
17:29
of course under zero rates it’s not
17:30
going to very much interest but it’s
17:32
there as an asset of the company it’s
17:33
not taking anything away from them if
17:35
that’s means the return on Equity isn’t
17:38
high
17:39
enough to attract investors you’re not
17:41
going to pay
17:42
20 because when you buy it you know what
17:44
happens to the company and if that
17:46
causes it and if you make a mistake and
17:47
buy it and you have to sell it at 18 or
17:49
something well that’s your problem at 18
17:52
somebody’s buying it because it’s a good
17:53
investment based on what’s going on in
17:55
there the investment is based on the
17:57
earnings of the company and ability to
17:59
eventually give you back more money than
18:01
you started MC and so that’s what
18:04
investment is all about that’s how the
18:06
investment models work you know private
18:08
equity and everywhere else so in the
18:10
stock market thing that it turns into a
18:12
casino so we take away the casino aspect
18:14
of it it takes away all the people
18:17
servicing the casinos right uh and not
18:21
that these people have any political
18:22
aways but to the extent that they do
18:24
that goes away and I think that might be
18:27
very helpful
18:29
uh and this existing investors and
18:32
purchase at the lower price benefit for
18:33
new sh so no nobody gets hurt investment
18:36
works out the way it’s supposed to work
18:37
out the incentive to speculate on Price
18:40
is largely eliminated which means all
18:43
that stuff goes through which is the
18:45
important thing trading in stocks is
18:47
dramatically reduced BuyBacks are
18:50
largely and eliminated all these all
18:52
this financial manipulation goes away
18:54
when you don’t have something to
18:56
manipulate just take away the toys
19:00
okay real gains from capping stock
19:03
prices tens of thousands of people
19:05
directly and indirectly and while the
19:06
stock trading lose their livelihoods and
19:09
be redeployed to useful
19:11
endeav anybody any environmentalists
19:14
have any ideas where people could get
19:15
redeployed
19:17
to okay massive quantities of real
19:20
resource and consumption all these guys
19:21
have computers they don’t have like the
19:24
cheap ones okay they don’t have the ones
19:26
that burn 10 watts of power they’re
19:27
looking at the 50s
19:29
75s our the load on the grid would
19:33
probably drop in half without this mass
19:36
of quantities of real resour SE can be
19:39
redirected or
19:42
curtailed banking proposals full Deposit
19:44
Insurance eliminate the need for money
19:46
market funds you know all those money
19:48
market funds instead you just put your
19:50
money in the bank why don’t people do
19:52
that other they’re worried about
19:53
security and the money market funds that
19:55
collateral treasuries okay once if you
19:58
have full Deposit Insurance you put your
20:00
money in the bank they’re saying what
20:01
about the Pension funds who need
20:04
government bonds or whatever put their
20:05
money in the bank if it’s government
20:06
insur that is a Government Bond okay
20:09
nice and simple and again 30 years this
20:12
has been going on in Japan with no bad
20:14
side effects so I don’t want to hear
20:17
about need these to be termined prices
20:19
and asset values I was there before any
20:22
of that was there I first started to
20:24
word up treasury Longs we got along
20:26
perfectly well without
20:30
unlimited collateralized borrowing from
20:31
the discount window we talked about this
20:33
eliminates liquidity issues and
20:35
interbank training you know if I call if
20:38
if I write a check to one of you guys
20:41
money goes from the FED changes the
20:43
money from my back to your bank and
20:44
yourbank won’t lend me the money because
20:47
I don’t know why the guys AR playing
20:49
golf won’t answer the phone there have a
20:51
banking crisis like svb that’s all they
20:53
are liquidity crisis had nothing to do
20:55
with their assets and quality of
20:57
earnings you know it’s like if the
21:00
president’s uh Bank America if somebody
21:03
sees his wife with a City Bank charge
21:05
card and starts a rumor Bank America is
21:07
in trouble he’ll be gone tomorrow that
21:09
happened in 2008 with wov they were gone
21:12
the next day with 40 billion in net
21:14
worth that fed had to liquidate him
21:15
because nobody would lend back the money
21:18
that depositors were moving around
21:20
because everybody was petrified okay
21:23
that all goes
21:25
away eliminate Financial assets is qual
21:28
collateral eliminate state sponsored
21:31
financial leverage you can take your
21:32
stocks down go to bank and borrow
21:34
against them you can take your bonds go
21:36
to bank and borrow GI that’s speculation
21:39
that needs speculation I buy stocks
21:41
borrow the money to pay for it I don’t
21:42
have to put up very much I can buy twice
21:45
as many or 10 times as many depending on
21:47
The Leverage isues right why are we
21:50
doing this now an individual wants to do
21:52
it for somebody else that’s one thing
21:54
but when it’s through the banking system
21:55
this is state sponsored speculation is
21:58
the point the public purpose behind that
22:01
just don’t allow
22:03
it um the attention of agency issu
22:07
mortgage back
22:09
Securities okay this is a little more
22:11
interesting this is what PJ was talking
22:12
about before so when you take out a
22:18
mortgage whoever holds that whoever
22:21
loans you the money has a
22:23
risk it’s not just the risk of your
22:26
house there’s a risk because rates go
22:31
down you’re going to pay it off and
22:33
refinance so he thought he had a 30-year
22:35
mortgage and all of a sudden he’s got a
22:37
onee mortgage and if he was counting on
22:40
that because he had promised somebody
22:42
like a pension fund a 30-year return
22:44
something like that he’s in trouble okay
22:47
in the reverse happens if interest rates
22:49
go up something he thought that was
22:51
going to pay off over 67 years the more
22:54
might stay out there for 30 years and
22:56
now rates are higher and he money St and
22:58
it get replace at lower R right right so
23:03
um yeah so so what What DJ is saying is
23:08
if if I got an investor and I buy a 7%
23:10
mortgage because rates that’s what they
23:12
are today all of a sudden rates go back
23:14
to where they were mortgages are 3% you
23:16
paay it off now I’m stuck in the cash I
23:18
got to reinvest it at 3% because the new
23:21
mortgages are three now I put a three
23:23
instead of a seven well that’s not what
23:24
I wanted when I went to seven vice versa
23:28
put on a 7% mortgage today I think it’s
23:30
going to be a six or seven or eight year
23:32
mortgage because that’s payoff R go to
23:35
10 I’m going to be stuck with this thing
23:37
forever so so I have a risk it’s called
23:40
convexity Fancy name it just means
23:43
you’re backwards on this so because of
23:45
that I have to get a higher yield to
23:47
make up for it so today the 10-year note
23:50
treasury might be 4 and a half% but I
23:52
want seven on a mortgage because I’ve
23:54
got this rist I don’t know if it’s going
23:55
to be a one year or 30 year and it’s
23:59
whatever it is I know it’s going to be
24:00
working against me if it happens it’s a
24:02
one year it’s because you know rates
24:05
came down and now I’m stuck reinvesting
24:06
at the low rate to 30 I’m stuck with my
24:08
BX it’s a lose lose for me so the
24:10
question is how much higher do I have to
24:12
charge
24:13
you you know to make up for that so
24:15
mortgages are always more expensive than
24:18
you’d expect just looking at rates in
24:21
newspaper something because the lender
24:23
taking this risk now you’re getting a
24:26
benefit rates go down you get the low r
24:28
it’s great FR go up got them plenty of
24:30
people now with 3 and half% rates going
24:32
great seven so you’re getting the
24:35
benefit they getting the L if the
24:37
government the FED who bought all these
24:39
mortgages or if the mortgages have been
24:41
funded by them to begin with they can
24:43
loan them
24:44
back they don’t care about that
24:47
con okay so what happens to a a private
24:51
sector lender who has all these
24:53
mortgages he has to do what’s called
24:56
hedging is rates starting to go down he
25:00
has this stuff he’s like oh my God rates
25:03
are going down I’m going to lose all
25:04
these I’ve got to sell and fr start
25:07
goinging up it’s like you know I have it
25:10
right the box so they’re always like
25:12
buying and selling like crazy to try and
25:15
offset this risk that they have they
25:17
have complex financial analysis that use
25:20
computers that use energy to try and
25:22
figure out this risk it’s an enormous
25:24
business servicing these guys because
25:26
they’re buying and selling all the time
25:28
try and hedge this risk it all goes
25:30
anyway it all goes away if the
25:31
government holds it they don’t care you
25:34
pay it off fine money goes into the
25:36
government if they have it for 30 years
25:39
they have it for 30 years they don’t
25:40
care they don’t have a funding cost on
25:43
the other side so it serves public
25:45
purpose to retain mortgages to have
25:47
mortgages all held by a government
25:49
agency rather than the private sector if
25:52
it’s in the private sector it causes
25:54
volatility it causes a whole herd of
25:57
people they have to buy and sell all the
25:59
time moving markets more than they
26:01
otherwise mooved to try and mitigate
26:03
this
26:04
risk okay and so you don’t want that and
26:08
with the Federal Reserve having bought
26:09
all those mortgage back Securities the
26:11
volatility in the treasury market and
26:13
the interest rate markets went way down
26:15
which was a good thing nobody I’ve never
26:17
seen them write it up but
26:20
anyway real gains from banking composers
26:23
eliminates tens of thousands of people
26:25
directly and indirectly in current Bing
26:27
activities can be redeployed to useful
26:29
Endeavors that’s
oooooo
