The Uncertainty

[JCnOwasso]

They spend 90,000,000 on 70,000 employees?  Equals approximately 1300 per employee per year, which would lead me to believe his employees are footing a huge portion of the bill; they have crappy insurance; or they do not provide insurance to a good portion of their employees... or a combination thereof.

[Gaspar]

They spend 90,000,000 on 70,000 employees?  Equals approximately 1300 per employee per year, which would lead me to believe his employees are footing a huge portion of the bill; they have crappy insurance; or they do not provide insurance to a good portion of their employees... or a combination thereof.

Uh. . or most of their employees are minimum wage or part time burger flippers.

[JCnOwasso]

Or that.

[Gaspar]

You know, one of the things that is not mentioned is the fact that the federal reserve is still paying the bigger banks not to lend money.  This of course is not going to be much of a hit to monster employers like Carl's Jr.  but it is a hit to the smaller companies trying to get a loan or cash-flow line of credit.  That with the unknown 5 year business expenses has got to be a double whammy on small to midsize companies.

[nathanm]

You know, one of the things that is not mentioned is the fact that the federal reserve is still paying the bigger banks not to lend money.

How's that? By driving down interest rates? By buying their debt?

[Gaspar]

How's that? By driving down interest rates? By buying their debt?

Uh, no. 

The Fed is still paying banks 0.25% interest on reserves, which is more than the banks are paying out in interest to most account holders.

It was part of the big bank bailout that should have been lifted by now.

[we vs us]

Uh. . or most of their employees are minimum wage or part time burger flippers.

Which, if you think about it, is the reason why HCR will increase their costs.  If his workforce consists of low and minimum wage earners, then yeah he's going to face some cost hikes when they're all offered insurance that they used to not have.  Though to be fair, not all of his min wage earners are required to be offered insurance.  

[AquaMan]

AquaMan,

When you make a 5 year plan, it's not voodoo.  It needs to be able to satisfy your creditors who, in many cases, you rely on for cash-flow.  It also must satisfy investors who rely on you to make good decisions with their money.  

You control for every variable that you can.

You took one word out of the post and blew it out of proportion. The 5yr plan is a necessity, as well as 2 and 10 year plans. Its naive to believe that they have to be bulletproof to satisfy creditors and investors. They have to be defensible, well researched and well presented. You do the best you can with the info available. Truth is many times you simply don't know, what you don't know. Even smart, Rhodes Scholars and Harvard MBA's just plain miss the obvious. Lots of examples over the years.

Just like the long range weather reports. If any of the farmers in Texas, Oklahoma and Kansas had predicted drought conditions in their business plans 4-5 years ago why did they plant this year? Why did the bankers loan them money?
Investors and creditors need to know you are capable, competent and have a plan.

When you guys do that, cherry pick a word or two and ignore the thrust of the post, I become suspicious of your motives. There is more uncertainty in what the Republicans and Tea Partiers are proposing and whether or not they may have the power to succeed in their plans than there is from the Health care plan, yet they get a pass.

That is why his range of cost was from 5% to 34%. 5% if the Republicans win and follow through, Up to 34% over a 5 year period if they don't.

[nathanm]

The Fed is still paying banks 0.25% interest on reserves, which is more than the banks are paying out in interest to most account holders.

Ah, yes, that. I saw a nice video explaining why in a zero interest rate environment it is absolutely necessary that the central bank pay interest on reserves. I may be misremembering, as it's been a couple of months, but I recall it had to do with being so far away from the point where they could possibly force interest rates higher through market operations (thanks to all the QE) that the interest paid on reserves is the only way they can keep control over inflation.

I'm not quite sure what it has to do with depositors, though. Banks don't make money paying you interest; they make money from other people paying them interest. Say, on a loan, which will definitely makes them more than 25 bp if they're lending to a good credit risk.

Once again here, the real problem is demand. People aren't exactly clamoring for loans. The big companies that want money are easily able to get it.

[Gaspar]

Ah, yes, that. I saw a nice video explaining why in a zero interest rate environment it is absolutely necessary that the central bank pay interest on reserves. I may be misremembering, as it's been a couple of months, but I recall it had to do with being so far away from the point where they could possibly force interest rates higher through market operations (thanks to all the QE) that the interest paid on reserves is the only way they can keep control over inflation.

I'm not quite sure what it has to do with depositors, though. Banks don't make money paying you interest; they make money from other people paying them interest. Say, on a loan, which will definitely makes them more than 25 bp if they're lending to a good credit risk.

Once again here, the real problem is demand. People aren't exactly clamoring for loans. The big companies that want money are easily able to get it.

That was not the purpose of the .25 program.  It was initially designed to help bail-out banks "secretly" (within the power of the fed) without raising too many eyebrows and signaling the impending economic meltdown.  It was actually one of the more successful measures because it "slowed the wheel" by encouraging banks to reserve more money and be rewarded with tens of billions of totally risk-free cash. 

According to the St. Louis Federal Reserve Bank, this program has brought private bank reserves up to $1.6 Trillion in untouched cash.  Do the math, and you find that a risk free return like that is hard to beat.  Figuring that more small businesses are failing in this economy than ever before, your incentive to loan this money as opposed to guaranteed profit, is minimal.

And where is this money coming from?  Hot off the presses. . .directly into the bank's pockets.  Tick, Tick, Tick.  Do you hear the timebomb?

[we vs us]

That was not the purpose of the .25 program.  It was initially designed to help bail-out banks "secretly" (within the power of the fed) without raising too many eyebrows and signaling the impending economic meltdown.  It was actually one of the more successful measures because it "slowed the wheel" by encouraging banks to reserve more money and be rewarded with tens of billions of totally risk-free cash.  

According to the St. Louis Federal Reserve Bank, this program has brought private bank reserves up to $1.6 Trillion in untouched cash.  Do the math, and you find that a risk free return like that is hard to beat.  Figuring that more small businesses are failing in this economy than ever before, your incentive to loan this money as opposed to guaranteed profit, is minimal.

And where is this money coming from?  Hot off the presses. . .directly into the bank's pockets.  Tick, Tick, Tick.  Do you hear the timebomb?

Supposedly, part of a potential QE3 package from the Fed would include surcharges for banks that are holding any amount of cash with the FRBs.  So, not only would they erase the .25% (or whatever) rate that's being earned now, they would be charged a fee for the FRBs to hold the money.  This is one way of encouraging the banks to lend rather than hold their capital.

FYI:  this is one of the major downfalls of Greenspan's extended low interest rate policy in the 2000's . . . it doesn't allow savings to make money and instead encourages the money to search for a higher return. In a controlled environment and in short bursts I can see it being good for the economy.  But if it's sustained, it pushes capital into weirder and weirder places -- like commodities, and like houses! -- and incents it to create weirder and weirder investment vehicles -- like derivatives, MBSs, etc.   

[Gaspar]

Supposedly, part of a potential QE3 package from the Fed would include surcharges for banks that are holding any amount of cash with the FRBs.  So, not only would they erase the .25% (or whatever) rate that's being earned now, they would be charged a fee for the FRBs to hold the money.  This is one way of encouraging the banks to lend rather than hold their capital.

or, you could just phase out the .25% (should have been done long ago).  The problem now is that if you impose a penalty or eliminate the risk-free income, the banks would immediately shift $1.6 trillion in new wet money into the market.  The dollar would drop and inflation would spike.  I respect Mr. Bernanke, but he tends to have tunnel vision, and cannot see the obvious scenarios that sprout from his policies.

[we vs us]

or, you could just phase out the .25% (should have been done long ago).  The problem now is that if you impose a penalty or eliminate the risk-free income, the banks would immediately shift $1.6 trillion in new wet money into the market.  The dollar would drop and inflation would spike.  I respect Mr. Bernanke, but he tends to have tunnel vision, and cannot see the obvious scenarios that sprout from his policies.

Not necessarily true.  It would depend on how steep a penalty, and quickly it was phased in.  If banks can actually plan for it, the drop of cash into the market might be much more orderly and much constructive. 

Of course, the Fed is still perceived as the best port in a very stormy sea, and I could very easily see banks choosing to take the penalty and keep their money safe, if only because it's a predictable erosion of their capital, rather than a wild and bumpy ride out in the markets and where the potential losses could be much bigger.

[Gaspar]

Not necessarily true.  It would depend on how steep a penalty, and quickly it was phased in.  If banks can actually plan for it, the drop of cash into the market might be much more orderly and much constructive. 

Of course, the Fed is still perceived as the best port in a very stormy sea, and I could very easily see banks choosing to take the penalty and keep their money safe, if only because it's a predictable erosion of their capital, rather than a wild and bumpy ride out in the markets and where the potential losses could be much bigger.

That's reasonable.  I'm just still amazed at the "no one at the wheel" impression I get from both the Fed and the White House.  Not only do they not have a plan, but their concern is less than urgent.

[nathanm]

or, you could just phase out the .25% (should have been done long ago).  The problem now is that if you impose a penalty or eliminate the risk-free income, the banks would immediately shift $1.6 trillion in new wet money into the market.  The dollar would drop and inflation would spike.  I respect Mr. Bernanke, but he tends to have tunnel vision, and cannot see the obvious scenarios that sprout from his policies.

Without a greater demand for dollars, that money isn't going to do a thing. Maybe if they can find another bubble to bet big on, but a $1.6T bubble isn't all that big by modern standards. Besides, the fed has already dumped in around 3 trillion, and there's been no inflation to speak of.

Even in oil, one of the most speculative commodities, demand is a strong driver of price. It's often drowned out, but you'll note that the really big swings come when expectations of future demand change.