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JP Morgan Bails Out California
BusinessInsider ^ | 8/19/09 | John Carney

Posted on 08/24/2009 8:46:52 PM PDT by Sammy67

Remember when the US government had to bail out investment banks? Now a bank is bailing out the state of California.

California had been covering its budget shortfalls by issuing IOUs to pay for services, making it the first state to issue its own fiat currency since the Civil War. The program ran into trouble when banks announced they wouldn't keep cashing the IOUs.

Eventually California reached a budget deal and kicked the can down the road, but there's still the issue of the outstanding IOUs.

Yesterday JP Morgan agreed to lend California $1.5 billion to

(Excerpt) Read more at businessinsider.com ...


TOPICS: Business/Economy; News/Current Events; US: California
KEYWORDS: bailout; banking; business; california; economy; iou; jpmorgan; tarp; wallstreet

1 posted on 08/24/2009 8:46:52 PM PDT by Sammy67
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To: Sammy67

Like the liberals say, “As California goes, so goes the nation.”


2 posted on 08/24/2009 8:48:19 PM PDT by FlingWingFlyer (January 20th, 2013)
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To: Sammy67

The question is where does JP Morgan get the 1.5 billion to bail out California? Maybe the court order for the Feds to release their documents will provide the answer.


3 posted on 08/24/2009 8:50:44 PM PDT by Parley Baer
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To: Parley Baer

i think its more likely that its the FED using JP Morgan as the proxy to bail out California


4 posted on 08/24/2009 8:55:15 PM PDT by 4rcane
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To: 4rcane

Agree. I think this has been the plan all along. When California threatens to default, it will be considered a threat to the financial system and we will bail them out.


5 posted on 08/24/2009 8:57:46 PM PDT by MontaniSemperLiberi
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To: Parley Baer
The question is where does JP Morgan get the 1.5 billion to bail out California?

Banks don't actually lend existing money, they create the money they lend by typing the amount of the loan into the borrower's (in this case California) account. This is brand new money added to the nation's money supply. When (if) California pays the loan back the money is destroyed.
6 posted on 08/24/2009 9:00:08 PM PDT by Fingolfin
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To: 4rcane
i think its more likely that its the FED using JP Morgan as the proxy to bail out California

That's funny. It was JP Morgan, the person, whose bailout of the federal government in the early 1900's, which led to the creation of the Federal Reserve.

7 posted on 08/24/2009 9:03:12 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Fingolfin

yeah right. sarc


8 posted on 08/24/2009 9:04:48 PM PDT by Orange1998
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To: Fingolfin
Banks don't actually lend existing money, they create the money they lend by typing the amount of the loan into the borrower's (in this case California) account.

That's not how it works.

9 posted on 08/24/2009 9:05:36 PM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: 4rcane

True. They bought my mortgage last year. I don’t plan on any default anytime soon.


10 posted on 08/24/2009 9:06:21 PM PDT by eyedigress
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To: Fingolfin
Banks don't actually lend existing money,

The ones that stay in business do.

they create the money they lend by typing the amount of the loan into the borrower's (in this case California) account.

When California spends the loan, the bank better have some existing money, in the form of deposits, or the checks will bounce.

11 posted on 08/24/2009 9:07:56 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Parley Baer

***The question is where does JP Morgan get the 1.5 billion to bail out California?***

From the 401-Ks that people I used to work with have, or what is left of the 401-ks.


12 posted on 08/24/2009 9:11:53 PM PDT by Ruy Dias de Bivar (Tar and feather the sons of bi#ches! Ride them out of town on a rail!)
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To: Toddsterpatriot
When California spends the loan, the bank better have some existing money, in the form of deposits, or the checks will bounce.

JP Morgan is simply crediting California's bank account with brand new money it created with a few keystrokes on a computer. Checks drawn against that account won't bounce because California really does have 1.5 billion dollars, albeit it is just digital checkbook money created from the initial debt.
13 posted on 08/24/2009 9:18:26 PM PDT by Fingolfin
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To: Parley Baer
"vThe question is where does JP Morgan get the 1.5 billion to bail out California?

Exactly! JPMChase doesn't have any more "money" than the government does. In plain terms, they're both broke.

14 posted on 08/24/2009 9:19:01 PM PDT by Desron13 (If you constantly vote between the lesser of two evils then evil is your ultimate destination.)
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To: Fingolfin
Checks drawn against that account won't bounce because California really does have 1.5 billion dollars, albeit it is just digital checkbook money created from the initial debt.

When the check goes thru the clearing process, imaginary dollars won't make it clear. JP Morgan needs real dollars from real deposits or those checks will bounce.

15 posted on 08/24/2009 9:20:58 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
When the check goes thru the clearing process, imaginary dollars won't make it clear. JP Morgan needs real dollars from real deposits or those checks will bounce.

No. This 1.5 billion did not exist prior to JP Morgan making the loan, and it certainly wasn't taken from "reserves". It may have been based on reserves, but they are still there at JP Morgan. This isn't a unique situation - it is how all loans originate and how 95% of our money supply is created.
16 posted on 08/24/2009 9:28:25 PM PDT by Fingolfin
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To: Fingolfin
This 1.5 billion did not exist prior to JP Morgan making the loan, and it certainly wasn't taken from "reserves". It may have been based on reserves

A deposit of $1.5 billion (plus reserve) is needed to make a loan of $1.5 billion.

17 posted on 08/24/2009 9:30:56 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
A deposit of $1.5 billion (plus reserve) is needed to make a loan of $1.5 billion.

Correct, but none of that is actually lent out. The 1.5 billion loan is on top of the reserve and is brand new money.

In other words, if JP Morgan has 1.65 billion dollars, at a 10% reserve ratio, it holds 150 million as "reserves" and 1.5 billion is considered "excess" and can be lent out. However, the excess is not lent out, it is used as the amount of new money to bank is legally allowed to create and credit to the borrower's (California) account. The original 1.65 billion is still safe at JP Morgan as bits on a hard drive.
18 posted on 08/24/2009 9:42:52 PM PDT by Fingolfin
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To: Fingolfin
Correct,

Excellent!

but none of that is actually lent out

Bzzzzt, wrong.

The 1.5 billion loan is on top of the reserve and is brand new money.

The loan creates new money, but the $1.5 billion actually leaves the bank when those checks get cashed.

In other words, if JP Morgan has 1.65 billion dollars, at a 10% reserve ratio, it holds 150 million as "reserves" and 1.5 billion is considered "excess" and can be lent out.

Yes!

However, the excess is not lent out

NO!

The original 1.65 billion is still safe at JP Morgan as bits on a hard drive.

The $150 million reserve is held at the Fed (or as vault cash). The $1.5 billion in deposits now exists on paper and the $1.5 billion in cash (that was deposited) is gone once the checks are cashed.

19 posted on 08/24/2009 9:50:23 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Sammy67

Thanks for posting. They’re living it up at the Hotel California...and sending us, our kids and our grandkids the bill.


20 posted on 08/24/2009 9:57:31 PM PDT by PGalt
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To: Toddsterpatriot
The $150 million reserve is held at the Fed (or as vault cash). The $1.5 billion in deposits now exists on paper and the $1.5 billion in cash (that was deposited) is gone once the checks are cashed.

This is a contradiction with your admission above that this is brand new money. If the money JP Morgan loaned California is brand new money, then JP Morgan's reserves are unaffected if someone cashes a check on California's 1.5 billion account.

The Federal Reserve's own documents back me up:
"Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts.... Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system."
Modern Money Mechanics - Chicago Fed
21 posted on 08/24/2009 10:13:47 PM PDT by Fingolfin
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To: Sammy67

JPMorganChase is flush with capital after they and us government colluded to seize Wamus assets and give them to Jamie Dimon and crew to help hide the trillions in losses on their credit derivatives (credit default swaps, etc..) business. Yes, I said Trillions. Thus given those losses and JPMCs political donations, they were labeled “to big to fail” and instead of being put into receivership where they belong, they were allowed to hold a gun to the head of the U.S. Taxpayer and demanded a bailout. And it worked!!! And now JPMC will control a majority of the credit provided to businesses and consumers worldwide. And when it comes to California, JPMorganChase becoming it’s financial overlord for pennies on the dollar is just......


22 posted on 08/24/2009 10:53:09 PM PDT by Proud_USA_Republican ("The problem with socialism is that you eventually run out of other people's money.")
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To: Fingolfin
This is a contradiction with your admission above that this is brand new money.

Loans create new money. I never denied that.

If the money JP Morgan loaned California is brand new money, then JP Morgan's reserves are unaffected if someone cashes a check on California's 1.5 billion account.

The reserves are unchanged. I never denied that.

Your original claim sounded as if JP Morgan makes a loan and gets to keep the original $1.5 billion in deposits. That they make loans without money leaving the bank. That they can make loans, without any deposits. That's not the case.

Every loan must be funded.

23 posted on 08/25/2009 5:40:20 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Sammy67

J p Morgan has been in the business of bailing out the Government since 1913 I think. That was when the main man himself called on President Cleveland in the White house and refusing coffee, bailed out America by putting into place a deal with the Rothchilds that allowed him and America to enter the company of international banking.

The outflow of gold was stopped and the treasury restored


24 posted on 08/25/2009 5:47:14 AM PDT by bert (K.E. N.P. +12 . fasl el-khitab)
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To: Sammy67
Photo accompanying the article:

(Four hot babes, if the pic doesn't show.)

Um...nice picture, but what has it to do with banks bailing out governments?

25 posted on 08/25/2009 5:48:08 AM PDT by ctdonath2 (flag@whitehouse.gov may bounce messages but copies may be kept. Informants are still solicited.)
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To: Toddsterpatriot
Your original claim sounded as if JP Morgan makes a loan and gets to keep the original $1.5 billion in deposits. That they make loans without money leaving the bank. That they can make loans, without any deposits. That's not the case.

JP Morgan does get to keep the original 1.65 billion. We both agree that the 1.5 billion JP Morgan created to loan California is brand new money. Once this is established the only possible outcome is that there is now 3.15 billion dollars between the two: 1.5 billion in California's account, and 1.65 billion in reserves in JP Morgan's account.
26 posted on 08/25/2009 6:36:20 PM PDT by Fingolfin
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To: Fingolfin
JP Morgan does get to keep the original 1.65 billion.

You're wrong.

We both agree that the 1.5 billion JP Morgan created to loan California is brand new money.

Based on the original deposit at JP Morgan.

Once this is established the only possible outcome is that there is now 3.15 billion dollars between the two:

There is $3.15 billion. JP Morgan still has $150 million in their account at the Fed as a reserve. The original depositor has an account statement that shows a $1.5 billion balance. The people who received the checks from the state of California have the $1.5 billion that was originally held by JP Morgan.

JP Morgan simply exchanged the cash (or balance at the Fed) of $1.5 billion for an IOU from the State of California. Still only has assets of $1.65 billion total.

27 posted on 08/25/2009 6:53:46 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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