Comments on: Credit Crisis Update: An Inside Look at the Commercial Paper Debacle

By: Buy, Sell or Hold Insight: GM Remains a High Risk Profit Play – Even as it Files its Turnaround Plan Today

Tue, 02 Dec 2008 11:12:53 +0000

[...] carrying “A” ratings on their bonds, and “A1” to “P1” on their commercial paper – accounted for about one-third of all investment-grade paper outstanding, I analyzed them [...]

By: For the U.S. Economy in the New Year, the Pain Will Precede the Promise

For the U.S. Economy in the New Year, the Pain Will Precede the Promise — Mon, 10 Nov 2008 21:38:11 +0000

[...] Money Morning Special Investigation of the U.S. Credit Crisis (Part VI): Credit Crisis Update: An Inside Look at the Commercial Paper Debacle. [...]

By: Jutia Group - Market Jitters & Political Critters

Jutia Group - Market Jitters & Political Critters — Mon, 03 Nov 2008 15:48:50 +0000

[...] The credit markets have thawed as corporations took advantage of the Fed’s decision to buy short-term commercial paper, thus, providing them much needed liquidity. Major banks began receiving capital injections [...]

By: Uncertainty Escalates as Tomorrow’s Presidential Election Looms

Uncertainty Escalates as Tomorrow’s Presidential Election Looms — Mon, 03 Nov 2008 14:42:52 +0000

By: Although Bank-to-Bank Loan Rates Fall for the Sixth Straight Day, Only the Strong Will Survive

Tue, 21 Oct 2008 13:07:02 +0000

[...] from issuers that can't find buyers in the market. [Check out Money Morning’s report on the near seizing of the all-important commercial paper market, part of an investigative series on the credit crisis published by this global investing news [...]

By: How LIBOR Threatened to Destroy the Global Banking System

How LIBOR Threatened to Destroy the Global Banking System — Tue, 21 Oct 2008 08:00:36 +0000

[...] That high leverage makes a bank more profitable in good times, but it increases a bank’s risk in a downturn, because each dollar of capital has to support the losses on $15, $20 or even $30 of assets. Since last fall, banks have suffered losses on holdings of low-quality debt, which has reduced their capital. At the same time, they have been forced to take back onto their balance sheets assets that they had thought were safely parked in “Structured Investment Vehicles,” or SIVs, that were funded with commercial paper – and now the asset-backed commercial paper market has cratered. [...]

By: How U.S. Missteps Triggered a Spiral of Worldwide Margin Calls and Deepened the Financial Crisis

Tue, 14 Oct 2008 10:51:34 +0000

[...] Money Morning Special Investigation of the U.S. Credit Crisis (Part VI): Credit Crisis Update: An Inside Look at the Commercial Paper Debacle. [...]

By: As the Credit Crisis Deepens, There Are Still Many More Questions Than Answers | Jutia Group

Mon, 13 Oct 2008 14:06:49 +0000

[...] with access to much-needed cash. The U.S. Federal Reserve also will purchase significant commercial paper to aid short-term corporate funding. [Check out Money Morning ’s special investigative report [...]

By: As the Credit Crisis Deepens, There Are Still Many More Questions Than Answers

As the Credit Crisis Deepens, There Are Still Many More Questions Than Answers — Mon, 13 Oct 2008 08:31:10 +0000

By: Bruce

Bruce — Mon, 13 Oct 2008 00:00:17 +0000

Banks neither receive money, nor lend it. What they receive is a promise to pay money and a security interest in collateral. It then lends a party his own credit in another form and charges interest on the transaction. Of course, nobody expects to ever pay any money. Money is specie coin.

In short, banking is a big confidence game designed to transfer the wealth of people who do things and make things to people who do nothing. It is a means of consolidating economic, and thus, political power.

The fact that you present yourself as someone who understands money, but you so erroneously portray what money is and how it works suggests that you have a relationship with the bankers. That is important information to me, and why I still receive your news letters.

By: Marilyn Johnson

Marilyn Johnson — Sun, 12 Oct 2008 12:20:03 +0000

I enjoyed and learned a lot from the article on Credit Crisis Update. In it, you said the Fed was preventing a run on the bank by increasing FDIC insurance to $250,000. But this increased amount ends on Dec. 31, 2009. So next year no one should be buying any 1 year CDs if it puts their balance in the bank over $100,000. Why is no one talking about this?

By: Inside the Credit Crisis: How the Fed’s Efforts to Lower the Fed Funds Rate May Leave it Powerless to Stop the Financial Meltdown

Fri, 10 Oct 2008 09:33:59 +0000

[...] cost of funds, and of the overall lending process, take a look at yesterday’s Money Morning report on the commercial paper market. The report is free of charge.] Banks compete with each other to make loans. If they have [...]

By: Charles Ezell

Charles Ezell — Fri, 10 Oct 2008 00:33:03 +0000

Shah,

To be more specific about fractional reserve banking- the bank lends out the $1 million 10 times thus it would make $700,000 in your first example. This of course is patently fraud (though legalized by the government) as the bank promises that anyone who makes a deposit in a DDA account can have the money whenever they want it. This is impossible of course thereby causing runs when the confidence in the banking system is in question. I have read your counter proposal and find it wanting because it does not address the root of the problem which is the above mentioned fractional reserve banking combined with a cartelized banking system protected by a private bank (the Federal Reserve) that can and does print fiat money at will combined with innumerable government regulations. I strongly urge you to read Mises, Hayek, and Rothbard.

By: Michael

Michael — Thu, 09 Oct 2008 22:14:52 +0000

I agree with Tim's earlier comment about fractional reserve banking. It is my understanding that commercial banks can lend something like, say, four dollars for every one dollar of deposits, plus when they make the four dollar loan that becomes a four dollar deposit against which they will loan sixteen dollars and so on and so on. This is a great pyramid scheme in "normal times". The problem is it appears to be collapsing in these abnormal times. It seems to me fractional reserve banking has been a train wreck waiting to happen.

By: Kerry

Kerry — Thu, 09 Oct 2008 21:21:35 +0000

You have missed the point, along with all the other yentas telling us whats wrong, and pointing blame at everyone except the real culpert. This mess is just the culmination of a 100+ year plan, started in 1910 with the planning and creation in 1913 of the Federal Reserve.
The book "The Creature from Jekyll Island" tells the whole story, including possible outcomes.
The only real money left will be gold and silver. Smarter folks than I recommend putting at least 10% of your assets into gold or silver. Get some now while our money can still buy something of value.

By: Scott Willinger

Scott Willinger — Thu, 09 Oct 2008 16:40:03 +0000

Shah,

Your explanation of the Commercial Paper Debacle, especially the simplistic explanation of the way banks work was excellent. I sent a copy to my son, a college senior double majoring in Real Estate and Hospitality. Keep up the good work.

Scott Willinger

By: Credit Crisis Update: An Inside Look at the Commercial Paper Debacle | Jutia Group

Thu, 09 Oct 2008 16:31:14 +0000

[...] By Shah Gilani Money Morning [...]

By: Tim

Tim — Thu, 09 Oct 2008 15:05:00 +0000

Shah,
I appreciate you informative perspective. Have you not left out a key component in this discussion by not addressing the fractional reserve system in banking?
Thank you,
Tim

By: topwebbusinesses » Blog Archive » Credit-Crisis Update: An Inside Look at the Commercial Paper Debacle

Thu, 09 Oct 2008 11:01:15 +0000

[...] Original admin [...]