Wednesday, December 09, 2009

The Party's Over

OK, now the party's over. For Macro Man, that means the pity party. OK, he's had a bad run, and he's moaned about more than a bit. But no one likes a whinger, and Macro Man feels like he's close to wallowing in self-pity. So while he might still examine his performance to distill lessons for the future, the moaning stops here. Anyone who sees/hears him whingeing any more should feel free to give him a slap.

In any event, it looks like there are plenty of other pity parties being held around the world. Dubai is turning into an annoying smell that you can't get rid of. As uncertainty continues to swirl around Dubai World, the Dubai stock markt continues to collapse; there's been a nearly uninterrupted string of limit-down days since the debt restructuring concers first surfaced.

These concerns over the peripherals just won't go away. Greece has unsurprisingly come under the cosh over the last couple of weeks, with selling going through both the cash bond and CDS markets (which is pictured below.) Now, one can wonder about the utility of predatory buying of protection on Greece for speculative purposes; it's hard to argue that such activities serve a useful purpose to anyone but the investors of the fund(s) in question. But the selling of cash bonds (if anyone can find someone to bid) is something else; it's pretty telling that Greek 15 month bonds now yield more than 2.6%, particularly on a day when the ECB is offering 3- and 6-month fixed rate tenders at 1%. Those Greek yields are up more than 100 bps since the day before Thanksgiving; that is why you are seeing the Greek finance minister in the headlines. It's hard to see this ending in any solution that doesn't involve the letters "i" and "m" and "f". How soveriegn buyers of euros would view such a development remaisn to be seen.
And then we come to the UK, where Alistair Darling will lower the boom at 12.30 local time today. The BBC reports that there will bea punitive tax rate on all bank bonuses above £20,000; the story is unclear whether the measure would be on the tax treatment of bonus compensation on banks' income, or whether it would be a punitive measure levied at the individual level. Intellectually, the former is far preferable to the latter; address the insitution that received the benefits of government largesse, rather than arbitrarily targeting individuals.

Anyhow, if the tax is geared towards the insittutions, one could credibly wonder what the hell the FTSE is doing within a hair's breadth of the year's high when financials represent the highest sector weight of the index.
Alistair and Gordon are desperate men, and look set to take desperate measures.
As noted yesterday, it's not hard to envisage the biggest pity party in the world taking place in the City at about 12.31 today.


Anonymous said...

"It's hard to see this ending in any solution that doesn't involve the letters "i" and "m" and "f"."
I'm f*cked?
Instigate multiple frauds?
All set to be an interesting year end, MM, high water mark maybe not but some recouping shurely.
Ta, JL

Anonymous said...

King must be tearing his hair out.All his QE effort to keep the cost of Uk debt down potentially could be unravelled by the terrible twosome's efforts to get reelected. As if a windfall on banks is going to do anything significant for patching up the gaping chasm in UK debt me please from populist arseholes like Brown.Short GBP on most anything doesn't look like a bad place to be.

Anonymous said...

Dubai, Greece, UK

I'll add NJ, Michigan, California etc. etc.

While states cannot go bankrupt cities and counties certainly can. Muni bonds. As they cannot raise taxes it will be stimulus II next year....followed by more pipeline inflation.

Richy Rich said...

We have already declared a "No Whinge Wedensday" such was the volume of lament here earlier.

As for the GB/AD show. The city was built on regulatory arbitrage. I reckon in a year's time there will be very few banks left in London.

However there will be some new names on the street, eg Barclays Furniture Warehouse, Goldman Jewellery and Trinket Merchants, JPMorganchasebearstearnschemicalmannyhanny TV repair shop, HSBC Bar and Gril.. banks ? I cant see any banks ? .. where?

Richy Rich said...

And I hope to hell that Ocean Finance get nailed by this too. How come they are still going?

Nemo Incognito said...

I'd like to see Goldman's SSG group start a pawn shop chain. THAT would not be a huge departure from reality or particularly shocking.

Nemo Incognito said...

And as for you Macro Man all I can say is Hong Kong or Singapore. Choose your low tax poison. Surfing in Bali on the weekend is pretty sweet.

But What do I Know? said...

What ever happened to patriotism? Or is that just for the suckers? The fact that the first option is corporate flight tells you what kind of a world we live in--someday it might be more important to have friends than money. . .

As an aside, why are they bothering to raise taxes--don't they know they can issue as much money as they want?

Nemo Incognito said...

Patriotism is the last refuge of a scoundrel.

Anonymous said...

Please, do not forget the brightest of all ideas:

It is non other than BIS that was to become the designated host of CDSs clearing (mind the GF behind as the the on-line real time QE of the central national victim of a given credit event that the over-paid grand knights of the crunch round table first elect to pass a verdict upon - as such), so that causality of »spot« »market« yield direction to the “market” participants (and the“markets” too) is not lost entirely solely due to the upcoming lack of AIG&Co. continuous QEed bail, TARP parts and windfalls thereof, TBTF OCC official policy, backed by Fed Treasury and the FDIC, stimulus 1.0, 2.0 and other spending - directed on “our way out of” that Keynesian wise is short of, virgin path’s & other yet to be defaulted upon turds increasing the fiscal deficit via FEDs monetary policy via enlarged impl. BS that in its entirety is the one mysterious trade secret one short step short of national security trade mark, un”marking” from “market” of the other non-existing assets backed by nothing but the drying cash flow of the under un-employed that now back the whole scheme running, increasingly disappearing deposits covered by the growing FDIC deficit backed by future profits of the already stress tested over solvent holders of now yield bearing increased reserves that deflate what was left back while controlling the OTCed daughter “carry” bumps @ the same time etc…

I for one am glad that the recession is over and done with.

The only dilemma left open is how to now short the must not short silver too much.

Nemo Incognito said...

wtf was that.

DT said...

I second Nemos comment. WTF was that?

Anonymous said...


Where do you prefer: Hong Kong or Singapore?


Macro Man said...

Depends on whether you have a family: Singapore with kids, HK without.

Nemo Incognito said...

Depends on how bad the air quality is in HK on any given day..... Sing is a much better lifestyle but further away from China (if that's your focus / specialty).

Nemo Incognito said...

And MM is right, if your life still revolves around bottle service and having a private life that is Tiger-lite then HK is better.

Anonymous said...

Good news MM I guess Christmas has come early in the UK --- Chancellor of the Exchequer Alistair
Darling said in Parliament today in London that “from the
Budget, I will cut bingo duty from 22 to 20 percent.” Enjoy!

Anonymous said...

"fiscally neutral" might be if you believe all of his projections for borrowing and growth.Personally ,I'd find that much easier to do if he had not had to adversely revise just about everyone of his prior projections.

Richy Rich said...

I missed a trick there ..
Banks to rebrand as Bingo Halls and take a tax cut

But What do I Know? said...

@Nemo Incognito

Since we're adapting quotes--

How many armored battalions does HK/Singapore have?

Anonymous said...

Now Spain getting the hard word from S & P.
Sovereign debt is hotting up that's for sure.

der Tillman said...

Anon @ 10:22 – Your interpretation is what came to my mind first also. But I believe mm is simply saying imf = international monetary fund (the pun was probably intended)

Nemo – love the quote on patriotism

Bwdik – nationalism is also for demagogues

I think I like the risk-reward here for equities into year end. But it’s very tough to buy, which means it is probably the right thing to do. We shall see.

Looks like tiny Tim is holding onto the TARP funds for another 10 months. To be fair, it’s probably not a bad idea.

Anonymous said...

MM, Nemo,

Thx. I think I'm gonna take Jim Roger's route to Singapore as single days are long gone.

On the market, looks like EUR will be under further stress given PIGS may not fly as high as they used to.


Skippy said...

Singapore is a good place to live and work. Tax is considerably better than elsewhere, but the cost of housing is high (although not quite HK standards). Schools are good, air quality good, airport best-in-the-world and very good beaches and golf courses near by. Perth is 4.5 hours away and you can join the cricket club and swim in a pool outside every day of the year.

Rural property in New Zealand or Australia is a good hedge if the world goes to hell, however.

Anonymous said...

MM: ...why you are seeing the Greek finance minister in the headlines. It's hard to see this ending in any solution that doesn't involve the letters "i" and "m" and "f"...

Coffee still hasn't kicked in. When I first read this, I read it as "I aM F###'d"

Macro Man said...

I'd prefer to characterize it as a quality line that has a dual meaning- literal and figurative!

Gary said...

The really interesting question about the UK banker tax is going to be whether it is applied "fairly"

Most importantly, will Fred Goodwin be taxed at this new rate? I mean, if you had to put one face on the mess in the UK, it would be hard not to blame Goodwin. The guy is collecting GBP 350K in "pension" (from a bankrupt bank in govt receivership) ... that's a lot bigger bonus than 20K (maybe it should be called political gratuity?)

Or will this "punative" tax be applied against people who had little choice in obeying the nonsense commands coming from Edinborough? Punishing people who did not make the decisions?

Worst, will this "punative" tax be applied to the new employees? Punish the people who are trying to fix the problem that Goodwin (with a little help from Gordon Brown) created?

Rewarding politically connected failures and punishing the janitors that try to clean up the mess is exactly how England became a has been.

We here in the colonies are just going to tax and spend ourselves into prosperity.

zanon said...

LOL! I don't think a banker tax is going to reduce prosperity in the UK.

First, if it reduces banking activity, that will probably be a net positive for the economy as a whole. When banks focus on making loans that get paid back, they're a net positive. Everything else is just a transfer.

Second, I can see shareholders paying the tax and not bankers. Shareholders in banks are used to getting dribs and drabs anyway, so must be pretty insensitive to this stuff.

Maybe it will catch on and there will be a worldwide race to the bottom?

Anonymous said...

UK = one big sad joke = new labour dream

Gary said...

Zanon - I think you misread my comment.

I wasn't for or against a banker tax per se.

I asked whether England was going to punish the guilty, the accessories, or just some random 3rd party.

If MM goes and robs a bank, please explain to the class why you think it would be fair / appropriate (from society's viewpoint) to send you to prison for the crime?

That, in essence, is what a tax on current bankers or banks would do.

Taxing shareholders? There's a classic example of why an angry mob makes for bad government.

The government (aka the taxpayers, aka the angry mob itself) are the main shareholders of RBS. DUH!!!

Your last comment about this becoming a worldwide race to see which country can devise the most foolish way to shoot themselves in the foot was way more poignant than you intended

Our Man in NYC said...

Gary -- I think the tax is being applied to the firms, not the individuals (though of course, I'm sure the firms will pass it on...and predominantly to those at the lower end of the food chain, of course).

That said; as I read it (probably wrongly) the firms could always wait till May-10 and then pay the bonuses tax free (not that this is an election scam, of course)...

Gary said...

OM in NYC -- I interpreted the proposal in the same way as you. But taxing the individual directly, or taxing him/her indirectly via the firm isn't really the important issue (from society's standpoint).

As you say, taxing via the firm means passing the cost to individuals -- and probably the rank and file will get a disproportionate amount of the cost (certainly from a guilt standpoint, probably by any measure).

Can you imagine UK citizens proposing to bench players at random from Manchester or Chelsea regardless of playing ability -- and instead field players selected by politicians?

That is exactly what they are doing with RBS. It is as stupid as it sounds.

If you think the people who caused this mess should pay for the cost of cleaning it up -- which seems to be the angry mob's battle cry -- the tax should be on senior managers (past or present) of rescued banks who received above a threshold total compensation/yr from 2001-2007 (just to pick some round dates).

I see nothing intelligent about taxing new staff whom citizenry are hoping will fix RBS and bail the govt out of a losing trade.

In the past, the captain was always expected to go down with the ship (or at least be the last one off). The actions of most bank CEOs can only be described as cowardly and unworthy. How anyone can propose a tax on new staff while still paying Fred Goodwin's pension is beyond idiotic

And yes, the same logic needs to be applied to bank CEOs here in the US. I am picking on Goodwin / RBS / UK because the new tax idea is coming out of the UK.

leftback said...

While we debate the banker bonus tax situation, the dollar is having another good day and the other instrument is going down again - you know, the one we cannot mention....

Crisis Management said...

"Don't gain the world and lose your soul, wisdom is better than silver and gold." - Bob Marley

Anonymous said...

china going to start reducing loans dished out ... another small prick to the liquidity bubble ... they may all be slow and small, but heading the the right direction

Our Man in NYC said...

Gary - agreed in principle, however I can see Darling's kernel of logic...given:

- The government were/are/will be too pathetic to let the institutions fail. (ditto stripping Goodwin of his bonus, and going making him sue them).

- Most employees (especially in the retail banking businesses) won't meet the bonus threshold (c25K). (And barely any, at least in % terms, of the staff are new)

- He has an election to fight (stupid reason, but he's a politician...much like Geithner's TARP is extended till Oct-10)

- (If i understand it right)...The banks have a free option if they don't want to stiff shareholders/employees. Don't pay anything >25K until after end of tax year (then pay the rest, free of the bonus tax).

The last one is why this is a complete political sideshow move and non-event...unless senior bank folks want to screw their employees/shareholders!

Macro Man said...

OMNYC, not sure if it is quite as easy as that. The fine print says that any allocation made between now and April 6 is subject, regardless of when it is paid. He's also held open the possibility of extending it (though whether the new Government will validate such an extension is of course open to question.)

There will of course be a roaring trade in avoidance schemes, many of which may well work. But the upshot is that the hot cash injection that many City folk were looking for come new year just ain;t gonna happen. We'll see how that Q1 recovery looks without the usual consumption boom from city bonuses...

Gary said...

OM in NYC -- I am hardly an expert on British politics, but my friends in London seem to feel Brown / Darling are in deep trouble... so an act of total desperation is hardly a surprise.

I could care less about Goodwin's misdeeds in and of themselves -- its water over the bridge

What I do care about is how society (well, the financial industry) moves forward from here

I can't imagine why someone with the skills / experience to fix RBS (Citi / BofA / etc) would want to jump in and pay for the misdeeds of Goodwin / Prince / Lewis / etc.

IMHO, all these entities should have been shut down, just as was done to Continental Illinois and hundreds of S&Ls in the 1980s. Start up Resolution Trust Corp II or whatever. And much as I don't like the meddling, I reluctantly see the merit of having the banks collapse in a "controlled" manner so depositors don't get screwed.

But if we are going to pretend AIG and RBS and whatnot are viable entities (I doubt it) -- it seems downright stupid to punish unrelated third parties to spite ourselves (we the taxpaying majority shareholders).

Darling's plan is probably DOA, and easily avoided via May2010 delay anyway.

But the problem of who is paying for this mess and how to restore the banking industry to health remains

Darling/Brown are telling us they have no idea -- hopefully the British taxpayers will take that admission into account.

How to pay for the mess and fix the banks remains unresolved

leftback said...

"my friends in London seem to feel Brown / Darling are in deep trouble... "

That's the understatement of the year, Gazza.

Quite so. Of course a future Tory government would inherit the mess and - unlike Obama's crew - would not be able to take the credit for The Rescue. Meanwhile the capital position of the UK banks is MUCH worse than even C, BAC and WFC, b/c the TBTF banks in the UK are fewer and larger in relative market share than their US counterparts.

Gary said...

No one picked up on my "slip" of the tongue saying Goodwin's misdeeds are water OVER the bridge...

Yes, I agree the UK is in serious trouble going forward -- even if they elect someone who is up to the job

leftback said...

Anyone think we might see a Christmas/Hannukah Clawback in New York as well? Tempting for Obama to follow in Gordo's footsteps here. It would give Timmy a chance to repair his battered public image a bit.

Our Man in NYC said...

MM -- thanks for setting me straight on the fine print!

Gary -- agreed on shutting them down having been the preferable option.
The problem/issue might be that the equilibrium/optimal/etc size of the FS sector is smaller than it was!
That and Japanese-style zombie Banks floating around...

In happier news, I received confirmation of my eligibility to vote this I can do my part in kicking Darling/Brown out of office (not that my vote will actually impact anything, being in one of the most Cons seats in the house!)

Our Man in NYC said...

LB -- I'd be stunned, Obama/Timmy heart WS too much!

Anonymous said...

Penalising the bankers offers littl or no tangible benefit to the overriding problem of managing the fiscal mess we find ourselves in.However ,politically it was never an option to do nothing. You simply cannot deal with the stuff that will make a difference ,eg imposing a public sector paycap which may turn into a freeze or paycut later ..and then turn a blind eye to banking remuneration issues. That's how you do get 1/2 million angry people on your doorstep.
Bankers would be recommended to shut up and hope the public gradually forget about them meanwhile I'm sure they will have many options open to them to quietly tiptoe around the latest vote spinning manouvers.

Fleeing Yank said...

MM/AO/NI - The biggest question is how to get to Singapore/HK/Sydney as NYC and London are seeing the rats all trying jump ship at the same time.

Especially when you are sub-30, have kids, a U.S centric specialty, and are long the U.S. property market....

leftback said...

"Especially when you are sub-30, have kids, a U.S centric specialty, and are long the U.S. property market...."

TIGER? Is that you...? Definitely HK over Singapore.

zanon said...

Gary: I think we've seen what happened to the guilty. I would expect to see some collateral damage amongst the accessories and random third parties.

The innocent have been getting it in the shorts for quite a while now.

If MM robbed a bank, and I went to jail, it would be unfair. If an industry robs a country, and random people in that industry get hurt, then that's fair too. Given how rules are gamed, this kind of after-the-fact retribution is the ONLY way to get incentives even close to being right.

Angry mobs make for bad governance. So do bankers. So do elected officials. And so do captured agencies!

The Govt may own RBS, but the Govt can print money and does not need to make a penny of RBS. Clearning out all the shareholders and bond holders, even at cost to itself, is the right way to get and sets a better precedent for the future. Government can print money, and needs to produce good governance. Producing bad governance to "save" money it doesn't even need is complete backwards.

The purpose of banks is to make loans that get paid back. Public money is the last backstop behind all lending, but we want smart, private money in first loss position. Anything that dulls from this core purpose is bad, and should be stopped. That includes securitization, CDS, off balance sheet vehicles, prop trading, and bailouts.

Fleeing Yank said...

Leftback: Would actually prefer Singapore given my personal situation (kids) and no not TIGER - much lower down the food chain...

Zanon: "The purpose of banks is to make loans that get paid back." Have to disagree - the purpose of banks is to maximize the money they make for shareholders - government and the second derivative regulation are the constraints to this goal. (Unless you are in a communist state where government policy/agenda becomes the first priority.) Essentially boils down to capitalism versus a semi-socialist governmental entity/agenda.

Securitization and off balance sheet vehicles were primarily ways to try and maximize returns by expanding the asset base without growing capital (via leverage) and to foster the political goal of the American Home Buying dream (wish I hadn't fallen for that one). The problem was the supposedly independent regulators and rating agencies fell victim to one of the two force influencing banks - politics forces for regulators and capitalism for the rating agencies.

Given the backlash against banks and bailouts currently - I can't imagine the fallout if banks weren't allowed to utilize a risk management tool to further what you consider there primary business function of making loans that get paid back. CDS was originally designed to help banks lay off the single name risk associated with large corporate lending. Capitalism and the new utopia of quant models and risk management took over from there.

The most interesting point is you argue for anything that takes first loss money out of private hands and shifts the burden onto public money is bad. I agree, but CDS, securitization, and off balance sheet vehicles all added different sources of private first lost money in front of a banks private capital base.... (ask any money market fund that held SIV paper).

The problem was an overabundance of personal credit with lax standards encouraged by a political system based on equity and fairness rather than appropriateness and restraint.

zanon said...

Feeling Yank: "Have to disagree - the purpose of banks is to maximize the money they make for shareholders"

No it is not, unless you are OK modifying it to "the purpose of banks is to maximize the money they make for shareholders by making loans that get paid back".

It should be obvious to everyone that banks are no private institutions. At best, they are public/private partnerships that have been given reserve accounts for a reason. At worst they are vampire squids. But non-banks do not have reserve accounts, and these reserve accounts make banks different.

Securitization makes banks care less whether the loan will be paid back. Off-balance sheet vehicles does the same thing, by reducing capital in a first loss position. A whole slew of bad regulations and bad regulators added to this issue. In general, it seems that no one seems to remember why banks were created and given reserve accounts in the first place: making loans that will be paid back.

Remember, private capital in first loss position is just one more element that focuses on this core function. A SIV that gets a third party rating is contrary to the purpose, even though there is private capital in first loss position there too.

All the risk management tools you talk about are fine, credit evaluation is the most critical function banks perform. But, the right structure for these to function within is loans kept on books within an entity that does little else. We are no where close to that today.

Money market funds are also a pointless abomination that demonstrates the financial system and its regulators have no clue what their own point is.

Gary said...

Feeling Yank: The Govt may own RBS, but the Govt can print money and does not need to make a penny of RBS.

I don't know if you are in the financial industry yourself -- but if you are and you believe the govt can "just print money", you are an example of why the industry failed so miserably.

There is no such thing as a free lunch -- your mother should have explained that to you when you were three or four.

Printing money is a cost -- its part of inflation. Shame on you for posting such nonsense

zanon said...

Hi Gary:

I'm better than being in the finance industry -- I have an econ degree!

And oh yeah, 10% unemployment and over a decade of experience watching Japan has left me quaking in my inflation boots. I don't know enough about how the EU and ECB works, but the US is in no danger of inflation given how incredibly low aggregate demand is.

I don't think having all those people unemployed is a "free lunch". I do think the bank bailouts were pretty free lunchy though, until I see clawbacks for bonuses from 2000-2008

Gary said...

Feeling Yank-- Oh, you are an economist! Then let me put things in your language:

On the one hand, your belief that the govt can just print money is disturbing. It means your fellow academics successfully indoctrinated you. Your inability to distinguish Japan from the US (savers/exporters vs spenders/importers) just adds to the disturbing feelings.

That you clearly know nothing about macro investing and you are just here to agitate and be annoying... well, socialists have to do something while they wait for their next welfare check.

On the other hand: you are an idiot

leftback said...

Feeling Yank

Gazza is right. You are an idiot.

zannon said...

Feeling Yank -- go yank yourself

Gary said...

Feeling Yank: the US is in no danger of inflation given how incredibly low aggregate demand is.

That must be why health care costs are soaring. That must be why college costs are soaring. And it must be why so many Americans had to take out home equity loans to pay the bills -- since their paycheck wasn't keeping up with non-existent inflation.

Keynesianism-- yet another fraud academia has shoved on humanity

Anonymous said...

My cost of living continues to rise faster than my paycheck (thankfully I still have one) ...

But if government statistics say that isn't officially happening -- who are we the people to question the almighty authority figures!

Fleeing Yank said...

Gary - Hopefully you aren't referring to me even if you are attributing the economic inflation absurdities to "Feeling Yank" despite zanon being the seeming target of your ire. I am a finance professional who daily gets to battle with the effects of printing money on a daily basis. I couldn't agree with your stance more, printing money is creating a new dynamic that is dramatically going to hinder any hope of a quick recovery.

Zanon - It’s obvious we have very different ideologies/political backgrounds driving our positions so its probably worthless argue any further.

But the idea that a bank must make its money via lending simply because it is a bank is absurd.

I can name ten banks off the top of my head that make less than 20% of there revenues and income based on loan margins. Just because you're called a bank doesn't mean you have to make loans. That is equivalent of saying Berkshire Hathaway has to earn its money as a textile manufacture because that is how the company started life.

The idea that securitization and off balance sheet financing change the amount of private capital that was invested is ludicrous. It just changed the source from fully bank provided to other private entities. Who is the fool: the bank who writes the bad loan or the investor who buys it from them?

SIVs were designed to provide demand for loans that the public was demanding from banks - nothing more. They were investment vehicles designed to provide return on capital not return of capital that you argue everyone places the highest value on. Greed always overcomes fear in a neutral situation.

Finally, I do agree with you in terms of Money Market funds. These will someday break the financial industry unless the next round of legislation dramatically changes the structure of this industry.

Charles said...

Methinks that this Brown/Darling shot an opening salvo, but we still don't know if it is just political posturing or a serious shift.
The effectiveness of "avoidance schemes" is going to be the litmus test in that regard. Don't fool yourself in thinking that one can escape a determined sovereign that wants to tax. If that wasn't the case, Wall Street would have moved to Bermuda long ago.
Moving to place like HK or Singapore won't be a silver bullet as well :
On a individual tax standpoint, worldwide taxation "US style" might find itself generalized quite quickly to G7 countries.
On a corporate standpoint, do you really want to move your place of incorporation to a country that has no credible last resort financing ?
As to operating a US or UK balance sheet while sitting in Singapore or HK, that will not last long if regulators put their nose into it.
Of course, you can move to HK or Singapore and work for a local company, but guess what ? they don't pay much...

zanon said...

Fleeing Yank: You almost certainly have no idea what my ideology is. I assure you I'm no Nation reader who has wandered into Macro Man looking for a fight.

The US can create any amount of money it wants. This is a fact. And it doesn't need to issue a single Treasury bill to do it. Whether or not that leads to inflation depends entirely on what happens with that money. If a bank collapses and destroys $100M in wealth, and the Govt prints up $100M to replace it, how does that cause inflation? Or deflation? The answer is subtle.

"But the idea that a bank must make its money via lending simply because it is a bank is absurd."

What is absurd is this game of heads we win tails we lose. Having a reserve account should come with strict regulatory requirements, all of which focus on bank making loans that will be paid back.

Public demand for loans they don't intend to pay back is normal. Banks willingness to indulge in this because they get to pocket an enormous vig should be strongly demotivated.

SIVs etc. all enabled additional leverage, which means there was less private capital in first loss position against larger quantity of credit. Capital requirements and credit quality are at the very heart of banking, and need to retake that position.

Glad we agree on the abomination that is the MM fund at least.