JP Morgan Bails Out California

BusinessInsider ^ | 8/19/09 | John Carney

[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

[Fingolfin]

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

[Proud_USA_Republican]

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......

[Toddsterpatriot]

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.

[bert]

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

[ctdonath2]

Photo accompanying the article:

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

[Fingolfin]

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.

[Toddsterpatriot]

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.