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Steven D Grumbine's avatar

Great assessment Steve

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Ian Greig's avatar

I'm trying to get my head round a possible route to contagion in the real (rather than financialized) economy with respect to the approach that Benjamin Graham used in valuing securities at the time of the Great Depression. If I recall correctly his approximate method to valuing a security's worth with some margin of safety was essentially (Current Assets) - (Total Liabilities).

Now suppose that we have an 'innocent' profitable company working in the real economy carrying a variety of current assets that include cash (and equivalents), accounts receivable (less bad debt provisions), a bunch of inventory, and some pre-paid expenses.

As I understand the bail-in conditions imposed on creditors by Dodd-Frank of 2010 any depositor holding deposits above $250k now, instead of holding a corporate asset of cash, now holds an equivalently sized corporate liability as it it required by law to bail-in the bad bank.

Am I missing something here or is this just the end-game in which a financialized economy kills off whatever remains of a the US's industrial economy, leaving corporations whose only assets are whatever physical inventory they carry when the merry-go-round stops?

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