Liquidity

From the outset of the financial crisis that our country is still working it's way through I have heard the term "inject liquidity into the system" used quite a bit.  Let me be honest, when I listen to or read financial reporting I probably understand 30% of it.  It goes by so fast that I feel like I can kind of put the pieces together and get the jist.  I feel like I should really understand what they are talking about if I'm going to pretend to pay attention to such things.  So, I googled it.  Here is a short and to the point answer to what bank liquidity is:

"Liquidity for a bank means the ability to meet its financial obligations as they come due.  Bank lending finances investments in relatively illiquid assets, but it funds its loans with mostly short term liabilities.  Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. "


Wow, so simple!  I did a little more reading and have come up with what I think is bank liquidity in uberlamens terms:

Liquidity is a short term loan (think of it like a credit card) for a bank to be able to use to pay off another short term loan. 


Hopefully that makes a little more sense.  Also I hope that I'm right.  Apparently, what a lot of big banks do is loan really large sums of money to big corporations or countries or very wealthy individuals.  They do this by borrowing that money from somebody else at a smaller interest rate than what they are lending it at.  That is how they make money.  Seems kind of weird doesn't it?  I always thought that a big takes in deposits from people like you and me and maybe from businesses then loans that money out and charges interest on it.  That was probably how it was done 50 years ago, but not today.  That method of banking probably kept a lot of people out of trouble.


I saw an article today about some rally happening on Wall St.  Occupy Wall St, I think it was called.  Something like 5000 people got together and staged a "sit in" in front of some big bank or maybe the stock exchange.  I'm sure it will come and go as a minor nuisance to those who have to move around in Manhattan today.  I wonder if any of those people know what bank liquidity is.


I mapped out a 6.5 mile route around Signal Hill that takes me down Cherry to PCH, then down to the river bed, then to Willow and finally back to Cherry.  I think I saw a homeless guy taking a picture of himself with his smart phone.  It was a nice day for a run.

The Willow St bridge around 8am.