🚀 go-pugleaf

On Jan 13, "Fergus O'Rourke" <callasberrGANS...@tinet.ie> wrote:
> > In the Wall Street Journal recently, there have appeared
> > several good opinion pieces on the sub-prime fiasco.
>
> > One discussed the way in which CDO mechanism enabled
> > the creation of new credit, a big factor in the flood of liquidity
> > during the latest boom.  Apparently, securing these loans, and
> > moving them 'off balance sheet', allowed the banks to continually
> > create new credit.  Now, after widespread market collapse, the
> > banks are forced to move them back 'on sheet', taking losses,
> > and evaporating credit.
>
> > The author distinguished between the creation of money - which
> > only central banks can do - and creation of credit.
>
> > I'm no accountant, so I'm looking for some explanation of this
> > on/off balance sheet magic.  Anybody know anything about
> > financial accounting?
>
> This was discussed in ie.general and uk.finance last year
> http://groups.google.ie/group/uk.finance/browse_thread/thread/af9a5d3...

That's instructive, regarding how banks create credit.
However, it does not address the issues raised in
the WSJ piece: collateralization of loans enables
'off balance sheet', which effectively creates credit, and
sour loans forces them 'on balance sheet'.

Anyone here know any accounting, what is this
balance sheet smoke?

The column also distinguished between money and
credit; total demand is determined by the amount of
money in circulation.

--
Rich