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/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.
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.
Banks are bigger now, I assume.
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.
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...
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 wonder if Pontifex Maximus is the oldest title still in use.
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.
Too indebted to fail
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.
First place I'd heard the quote. Something I learned via Civ, an interesting idea no matter who it is attributed to.
Instance from 1998: <http://freefall.purrsia.com/ff200/fv00123.htm>
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).
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.
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?
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.
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"
(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.
If you owe the bank a million, the bank owns you. If you owe the bank a billion, you own the bank.
The quote needs adjusting for inflation though.
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.
Mmm, I don't think that would be a sufficiently personal contact for anybody to seriously refer to that person as "my banker".
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!
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”
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.
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
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.
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.
no that’s not common at all in the US
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
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.