Wednesday, June 13, 2012

Hey, Jamie Dimon, loans create deposits!

When asked why other banks have higher loan-to-deposit ratios Dimon responded:

"We have to keep a higher amount of cash on hand becaue our customers can move lots of money at a single clip."

Does Dimon think his bank lends its reserves?

Loans create deposits, Jamie...loans create deposits.

12 comments:

y said...

Yes but banks still settle transfers between themselves in reserves, i.e. cash.

So if a bank thinks its customers might shift their accounts to some other institution at a moment's notice, it makes sense to have more cash on hand for settlement purposes.

Matt Franko said...

Now this moron is advocating to "get our fiscal house in order", which will KILL his business and increase his bad loans...

The only non-moron I heard was the guy from Montana who was breaking Dimon's balls about JPM's role in the MFG fiasco where JPM screwed farmers who were hedging...

Travesty of government.

Matt Franko said...

Mike he probably got his education in banking by watching "It's a Wonderful Life" and thinks he is George Bailey...

y said...

"Now this moron is advocating to "get our fiscal house in order", which will KILL his business and increase his bad loans"

No, because all bankers now know for certain that governments will sacrifice everything to bail them out.

"get your fiscal house in order" means: stop giving money to poor people, and then give it to us instead.

Matt Franko said...

Yeah but y to the extent that they are in business to issue loans, they have not done any new net business in like 3 or 4 years and their borrowers are stressed...

I guess perhaps to your point that is why they get into these convoluted screw deals like the "London Whale" chaos...

They have a "golden goose" and these morons have figured out a way to f that up... they are a disgrace.

Little girls running lemonade stands on the side of the road this summer are better business people than this moron and others like him who LOOSE BILLIONS and advocate for "fiscal discipline"...

Mike Norman said...

Y: That's true, but that's completely separate from their ability to lend. The amount of reserves they have on hand doesn't constrain their ability to lend in the least bit. He's saying that it does.

Matt Franko said...

Right Mike the specific question was similar to what you actually posted here the other day wrt "Why aren't they lending here in the US?" (rather than speculative trading in London), and the questioner pointed out JPMs loan to deposit ratio in support of his point (lack of lending relative).... disgraced moron $B loser Dimon implied they couldnt lend because they have to keep deposits in hand in case of withdrawals just like his mentor "George Bailey" in the old B&W Jimmy Stewart movie.

rsp

Dan Kervick said...

What Dimon is saying makes sense to me. The percentage of reserves banks wish to hold depends on the anticipated volume of payments they have to make as a proportion of their deposits. There is no fixed percentage for every business model, and the percentage will vary from one bank to another, and also within a given bank depending on changes in economic conditions. His questioners are probably thinking within the false "reserves create loans" framework, and think that if JPM is carrying excess reserves that means they are "hoarding" money. He would be right to point out that his bank's lending activity has little to do with the reserves they are carrying, and that they don't lend their reserves.

More interesting question: why do his customers need to move their money more quickly than customers of other banks? What do they buy? Just more financial assets?

Anonymous said...

He explained that, because JP Morgan is the biggest US bank, their customers are much larger than other banks' customers. He said some of the companies that do business with his bank move "5-6 billion dollars per day".

Nothing unusual about his comments.

Bob said...

If the central bank system cannot be controlled it should be scrapped, too much guaranteed perpetual interest income to JPM and the rest of the illuminati, and too much hidden tax on working people via the inflation of goods and services over the years starting in 1913 and no payroll increases to keep up with it, too much misallocation of precious capitol into useless assets instead of better spent dollars for education and R &D, too much parasitic income in the financial system avoiding a 99% tax rate, just sayn.

Tom Hickey said...

I think that the cb system should be scrapped for a number of reasons, mostly philosophical and political rather than economic. It is basically a command system that is anti-capitalistic as such and it is also anti-democratic by design, being under the de facto control of the masters of the universe that control a large swath of the financial sector globally. Central banks collude all the time with each other and international institutions that are beyond accountability.

This is reason enough to formally consolidate the cb and Treasury functions under Treasury, the secretary of which reports to the president, who is accountable at the ballot box. That consolidation should also involve direct issuance of currency without the required offset of tsys. If interest rates are set above zero, it should be through IOR, although I personally favor setting the rate to zero and letting the market determine rates and yields independently, based on risk analysis. This is heading toward a de facto governing body that is appointed from cronies rather than elected democratically based on ability and accountability.

Also, the basic rule should be that if a firm is too big to fail, it is too big to exist and needs to be restructured. If we are going to have capitalism let's be real about it.

There also needs to be strict regulation, oversight and accountability to keep the playing field level in a way that everyone can trust. This means a system of checks and balances that reduce the opportunity to game the system or capture the process.

Sam said...

Why Congress Won’t Touch Jamie Dimon: JPM Derivatives Prop Up US Debt
http://www.commondreams.org/view/2012/06/20

JP derivatives "prop us" US debt! Really?

Ellen gets it and then doesn't get it, gets it and then doesn't get it.

However, this is not to apologize for Dimon, obviously.