Fire-Sale (Asphodel Chronicles)

“But you have to admit” Jana said to Bob “that it is obscene for one person to have $330 Billion when there are people getting evicted because they cannot pay their rent!”

“Why do you think that is obscene?” Bob asked. He had his suspicions but didn’t want to be guilty of making her arguments for her. He wanted her to WORK for them.

“Well, it is obvious” Jana declared, mystified by why Bob couldn’t see it. “Prometheus Lunge has a net-worth lf $330 billion and if it was evenly distributed to the 330 million Americans they could all have a million dollars each!”

Bob frowned. “Slow down a second” he told Jana. “I am not sure your math is right.”

Jana rolled her eyes. Details!

“A billion is a thousand millions, so it wouldn’t be every American getting a million dollars but a thousand dollars” Bob said after scratching out a few calculations on the paper napkin.

“That is still a lot of money” Jana said.

“If you are worried about wealth inequity, why are you stopping at the border?” Bob asked. “If there are 6.6 billion people on earth, then that would be $50 for every person alive.”

“Well, there is no point in doing that” Jana said, shaking her head. “That is not enough money to make a difference in anybody’s life.”

“Might be enough to feed a family in the Dominican Republic for a month. Is that nothing?” Bob asked.

“For most people, $50 wouldn’t be enough to make a difference. The whole point of redistributing wealth is to make people’s lives better. It has to be enough to make a difference” Jana insisted.

“Are you sure it is not just to punish a person who was more successful than you were?” Bob asked.

“How can you even ask that!” Jana exclaimed. “That is really offensive.”

“Then let’s talk about the nuts-and-bolts of what you are proposing” Bob said.

“How quickly do you want Mr Lunge to liquidate his wealth and give it to the poor people?” Bob asked.

“Oh, that’s easy. He has to do it in less than a year. Otherwise he will weasel and find a way to hide it. I know about those hundreds of accountants he has on his payroll” Jana said.

“OK” Bob said. “Hold that thought.”

“Prometheus Lunge owns very large blocks of stock in electric vehicles, battery technology, solar power, software and social media companies. What do you think will happen if he has to sell all of that in less than a year?” Bob asked.

Jana shrugged. The stock-market was something that bored her and that she didn’t understand. “Why don’t you tell me.”

“The prices of those companies will crash. Everybody knows that Mr. Lunge is a micro-manager and knows what is happening in those companies down to the cellular level of his companies. If he is perceived as ‘dumping’ his stock, all of the other share-holders will panic and dump their stock too” Bob said. “They will all lose a bundle.”

“I am not sure that bothers me all that much” Jana admitted.

“So it doesn’t bother you that Prometheus Lunge’s fortune might only be worth $33 Billion in a fire-sale?” Bob asked.

“Again. I am not sure that bothers me all that much” Jana said.

“But that means that everybody in the world only gets $5 instead of $50, or if you just distributed it in the US, they would only get $100 instead of $1000 or the $1,000,000 you originally estimated” Bob said.

And then he drove the wooden stake into the heart.

“You say you are ‘all-about making a difference for other people’ and yet you don’t seem to have any qualms about destroying ninety-cents out of every dollar the poor might get as long as it sticks-it to the rich guy” Bob pointed out.

Jana back-pedaled.

“I never said I was an economist” Jana said.

“I am saying that degree of wealth inequity is obscene and immoral, especially since Prometheus Lunge never did anything to earn that money. All he does is move money around and post loose-cannon comments on Teeter-Totter.” Jana said. “What I really meant is that everybody with more than $10 million in the bank should have to share that money.”

Bob drummed his fingers on the laminate table-top. He was torn. How hard to press? How hard to press?

Decision made, he continued on.

“Miss Jana, do you own a house?” Bob asked.

“Well, yes, I do” Jana said. She was not disarmed. She knew that Bob was signaling an attack from a different direction.

“If I may ask, did you pay cash or do you have a mortgage?” Bob asked.

Frowning somewhat, Jana replied “We upgraded and the equity from our previous house didn’t cover it all. We had to borrow a little bit of money to cover the difference.”

Being back in debt still rankled.

“That money you borrowed, where do you think it came from?” Bob asked.

“The bank” Jana replied without thinking.

“Who put the money in the bank?” Bob asked.

Suddenly, Jana knew where Bob was going.

“From lots of people, I suppose” Jana said, trying to deflect what Bob’s line of reasoning.

“What do you know about ‘Fractional Banking System’?” Bob asked.

Jana was relieved to tell him “Nothing at all. I am not a math-kind-of-person”.

Bob had a ray of hope. Perhaps there was a chance he might actually be able to educate an ignorant person rather than beat heads with a stupid one.

“At the risk of boring you to tears, may I give you a short lesson on it?” Bob asked.

“Whatever” Jana replied. She really didn’t want to hear anything Bob wanted to tell her, but she did appreciate Bob’s courtesy in asking first.

“The whole idea of Fractional Banking is that when somebody makes a deposit, the bank can turn around and loan that money to people who want to borrow money” Bob said, warming up to his argument. “In other words, most of the money gets recycled and reused like the hot water in a dishwasher while some fraction gets held back for security.

“The person who borrows the money usually deposits the money into a savings or checking account to draw-down as they need it. Those deposits in the savings or checking accounts also count as ‘deposits’ which the bank uses as a basis for making even more loans” Bob said.

“Depending on the “fraction” the bank is required to hold-back, the original deposit can have a small or an astronomical multiplier in the real economy” he said.

“The economy melted-down in 2009 and banks were failing right-and-left. The government required banks to increase their reserves to 25% which locked up the economy. The banks could not make loans until they had enough deposits to cover them. The only thing that saved us from a Depression is that Obama injected trillions of dollars into the economy to pump up the bank reserves to the required levels so they could resume lending again.”

Jana nodded. She had great confidence in Obama’s steady, guiding hand.

“So what’s the problem?” Jana asked.

“When Covid hit, Trump erased all reserve requirements” Bob said. “Most banks are voluntarily holding back 2%, maybe 2.5% as loan-loss reserves but there is no requirement at the national level. That means that every dollar of deposits has the potential to create 40-to-50 times of add-on economic activity” Bob said. “At 25% reserve levels, that same amount of deposits could only create 4 times add-on activity.” 

"We are very literally many times more vulnerable to a banking-system crash than we were in 2009" he said.

Jana frowned. She didn’t much care for Trump. So brusque and so crude! “I don’t see what the problem is if each dollar can create 45 times as much economic activity.”

“The problem is that if you require every person with significant amounts of bank deposits to pull them out then there will be a huge...a 40X times impact to the economy. Banks will have to immediately stop making loans” Bob said.

“Your car died and you need to buy a new one so you can drive to work? Sucks to be you. You cannot get a loan” Bob said.

“You have a balloon mortgage and have to refinance when your balloon ends...you cannot get a loan.”

“You run a business…” Bob slowly scanned around his dining room “...and you need to tap your revolving line of credit to make payroll because business is slow...No go. You cannot make payroll and make payments to the IRS for taxes then you have to close the business.” Bob said. 

"Then the President can just tell the government to inject more money into the banking system, just like Obama did!" Jana said.

"That was tried in the Housing Loan sector between 2000-and-2009. That is what CAUSED the 2009 meltdown. Because banks didn't have any skin-in-the-game they loaned huge amounts of money to people who would never be able to pay it back. The banks didn't care. They knew the Government would cover their losses. The banks also knew that they would be taken to court for 'discrimination' if they used their standard, risk-based metrics to determine who should or should-not get a loan" Bob said

“So you say we are all screwed” Jana said, a bitter grimace on her face.

“No! Not at all” Bob said.

“You are only screwed if you focus on punishing the successful. You can still be successful if you focus on changing the self-defeating habits of the less-successful. There is a road-map to being successful, you know” Bob said.