Tuesday, 16 February 2016

Asking the wrong question.

From The Metro:

Does anyone actually know the name of their MEP and does anyone actually care?

Enid, Glasgow

Not clear if she's asking a trick question, is herself stupid or genuinely doesn't care.

The question should refer to "their MEPs" plural. Each region of the UK returns around half a dozen MEPs, so everybody has - in theory - around half a dozen MEPs.


Bayard said...

Arguing from personal experience, I didn't know that about MEPs, I didn't know it because I don't care, so the last is probably the most likely of your three explanations.

Random said...

Mark, I have a wonderful picture to show you:

If you take a bank purchasing shares from a entity that is also a deposit customer then what happens is simply this.

Hmm indeedey. But houses have some more advantages over stock market speculation:

* A margin account called "mortgage" is available nearly to anybody, with leverage ratios of 4x or even 20x with "Help to Buy", and is sold by several shops in most high streets. This can turn a yearly rental yield on the property of 5% into a yearly gross return on capital invested of 20% or even 100%. More as the house appreciates and the rent goes up.

* Not only the 4x or 20x leverage can boost *rental* ROI by as much, but for the main dwelling there are no capital gains taxes at all, and capital gains of 5-10% per year can double or quadruple the gross rental yield of 5%, and rather more than that after tax and expenses.

* The margin account called "mortgage" has no margin calls on the borrower after she pays the initial deposit.

* Offering a margin debt is quite safe for the lender too, even without margin calls on the borrower, because if the collateral goes down in valuation the *government* will provide extra margin to the lender in the form of extremely generous bailouts; plus the borrowers vote and the government will have a strong incentive to boost up again the collateral valuation, or change accounting rule to let lenders value the collateral to fantasy.

Think of how wonderful it would be if the City or Wall Street lobbied their governments to give the same "wealth-creating" advantages to every small saver's share saving account...

But if reserves don't buy assets for banks then what does? The answer is simple. The bank takes the asset and creates a matching deposit. Just as it does when it creates a loan asset. It's good old balance sheet expansion again aka money creation :)

Mark Wadsworth said...

B, fair enough.

R, that picture is not "wonderful" it is a sensible example of how bank bookkeeping works. I have been trying to explain this to people for years. Clearly, I have failed miserably.

Dinero said...
This comment has been removed by the author.
Dinero said...

Similarly if a bank wants to pay interest to deposits holders or pay dividends to share holders it puts a deposit entry in the liabilities column.

Dinero said...

That is why it is a myth that banks "don't create the interest required to repay a loan". In fact they do . Banks create the loan's interest the same way as they they create the loan's principle.

Mark Wadsworth said...

Din, when it comes to interest, banks take their sharpest quill pen, add a bit to mortgages (what people owe the bank), add a smaller bit to deposits (what the bank owes depositors) and the rest they add to "bank profits".

When a bank actually pays interest to depositors, i.e. when depositors withdraw, then the book entry is a you say "debit liabilities, credit cash". That is less important.