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The banks are allowed to issue debt money licensed by the government regulated by the Bank of England with some other watchdogs. The banks engage in two overarching fields Retail and Investment banking. It is their Retail Function that allows them to engage in their Investment Function it is the Retail Function that gives their debt money its value because of the confidence that its customers have in that debt money to buy goods and services. What happens Next is not dis-similar to the concept of Float in the insurance and re insurance business for an excellent explanation of Float go to almost any Warren Buffet letter to Berkshire Hathaway shareholders.
When people Like Lord Rothschild put this down in part to a failure of regulation and management he is of course correct as he is on so many things, what he is incorrect about is that any flexibility in the banking system with respect to Fractional reserves is not sustainable as a model for society as a whole. As a means of exchange it is both expensive and unfair to the banks customers who are after all both the Government and the People ( who are supposed to be the same thing broadly speaking) The banks are creating money from nothing secured against our own wealth and lending it back to us as coin of the realm sounds a bit far fetched?.
What is Investment banking if not the Innovation division of the Fractional Reserve side of the Banking Industry it is there to find ways around the very sensible limits, imposed by regulation ,to the extent to which banks can create Money and Make it disappear literally with a stroke of a pen, most of what is created remains in a loop that never gets into the real Economy quantative easing, the missing Billions look at the loop and connect things like record profits being reported now all coming from investment banking ( what are they investing in exactly) answer in their own merry go round ( some liken it to a roulette wheel ).
Personally putting that power in the hands of a few private organisations run by people clearly motivated by quite extraordinary levels of Greed seems to me to be a rather less appealing choice than The apparatus of the state which whilst unanswerable in so many ways is still constitutionally bound by the law of the land.Where there is separation of the Judiciary and the executive and a system going back to Magna Carta which most people would cherish as the cradle of democracy ( an almost laughable proposition these days, but this is what people believe).
Its definitely time for some fresh thinking on this there is a very real need for rigourous public debate of the fundamental root of the system whilst some people have rather a lot to lose they really should have nothing to hide. Indeed those of us given to poring over report and accounts and so forth kind of know where to look but regulation is both a sword and a shield and human ingenuity will always seek to buck any system and find the loopholes, accounting and reporting is sadly not exempt from this. Investment Banks would not exist without loop holes or indeed without their Retail banks or at least a belief at large that all banks are created equal ( the public have been hoodwinked on the distinctions for too long.)
There are some very helpful explanations of all of this over at the MENSA web site. Here is the link should you be interested on a more cerebral analysis of the concepts and systems in play here
http://www.economania.co.uk/
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Do banks use billions in subsidy wisely?10:44pm on 13 Apr 2011189 Hi Spike,
That’s an interesting stance, why would that be? At least we agree that the banks have failed spectacularly, personally I wouldn’t give them a second bite at the cherry.
I’d fire them straight off the bat. I’d have a different organisation going forward it would be more efficient and cheaper and offer better value to the customers who also happen to be the UK tax payers. There could still be private banking for profit just not a state endorsed one way bet with a heads I win tails I still win but you pay twice deal.
My chosen area of study in my retirement is actually music not economics and finance but the most beautiful Music has a simple elegance that when we hear we instinctively understand and it makes sense things that are not instinctively understood or difficult to explain are generally in my experience flawed.
Does anyone remember Nick Leeson and Barings, these guys are above learning lessons that would send most of us to prison Mr Leeson served his time he is a baby compared to the scale of this lot. Time to take our ball back I’d say by all means lets have another system but one that makes sense and we know what it is costing us. -
Do banks use billions in subsidy wisely?10:02pm on 13 Apr 2011Spike I don’t think it is true to say the banks make anything cheaper I am afraid I sit firmly in the camp that they are not useful in their current form and have pushed their luck way beyond the point of no return.
I understand Debt Money and Credit money distinctions all to well, I am a retired property developer that now lives in Sweden I retired in 2003. I am a capitalist but believe in the idea of businesses producing something useful. As a means of providing a system of exchange the banking system has become divorced from what is useful to society they have priced themselves out of the Market Put them to the Sword I say.
The government is the people and the people the government most people are familiar with the concept of cutting out the middle man why the provision of the means of exchange was outsourced in the first place is a mystery to me it seems I am not alone in wondering why the hell it ever happened in the first place. -
Do banks use billions in subsidy wisely?9:31pm on 13 Apr 2011Well done Robert.
Now we are getting somewhere. Some excellent points in the foregoing comments the only constructive comment I can add is to urge all of those of you who are sufficiently interested to try and foster an interest in this matter amongst all of those people you know and come into contact with day to day. The British people have been condescended too and taken for granted for too long given all the facts they would not be supportive of huge subsidies to Banks that have served them so badly. The whole fractional reserve debate deserves to be thrown open to the floor the coalition Government wasn’t elected on a lets give the banks big subsidies ticket most people think its the treasury that controls the money supply Lets have the debate, it is long over due if there is to be austerity( which there is clearly going to be ) lets know all the facts and all the alternatives and let the electorate decide.
These are questions that even we the plebiscite should have a say on they are fundamental to the nature of universal suffrage. -
Banking Commission: retail banking must be ring-fenced10:15am on 12 Apr 2011Have you considered that ultimately so called Investment Banking relies on the concept, and a concept is what it is, of Debt Money.
That is a money supply based in a system of IOU’s that are accepted by FIAT( not the Italian Car Giant) as currency. We as the general population accept this Debt Money and it is the fact that we can exchange it for food and shelter that we accept it in payment for our work.
At the most fundamental level investment banking needs retail Banking and the Debt money fractional reserve system that is licensed by those who Govern Us , it has been this way more or less from the time of George 1.There is a rather overblown and pompous tail (Investment Banking) wagging a once proud and loyal Dog( Just about everyone else including the extinct breed of wonderful hardworking executive Branch bank managers)In business my first Bank manager was Called Bill Turner he worked for Nat West in the Westferry Road Branch in the East End of London.( He was pensioned of in the mid Nineties ).
Now although considered cruel in some circles you really want to Doc, the Tail of your Gun Dog.
Time to Doc the Tail of the banking system. Without docing the tail the dog will be destroyed having been driven half mad.In this case it may well be that this Dog has to be destroyed and we will have to train another one. -
Banking Commission wants firewall around retail banking07:59am on 12 Apr 2011124. At 08:32am 11th Apr 2011, Robin Joy wrote:
I find your comment interesting. Have you considered that ultimately so called Investment Banking relies on the concept, and a concept is what it is, of Debt Money.
That is a money supply based in a system of IOU’s that are accepted by FIAT( not the Italian Car Giant) as currency. We as the general population accept this Debt Money and it is the fact that we can exchange it for food and shelter that we accept it in payment for our work.
At the most fundamental level investment banking needs retail Banking and the Debt money fractional reserve system that is licensed by those who Govern Us , it has been this way more or less from the time of George 1.There is a rather overblown and pompous tail (Investment Banking) wagging a once proud and loyal Dog( Just about everyone else including the extinct breed of wonderful hardworking executive Branch bank managers)In business my first Bank manager was Called Bill Turner he worked for Nat West in the Westferry Road Branch in the East End of London.( He was pensioned of in the mid Nineties ).
Now although considered cruel in some circles you really want to Doc, the Tail of your Gun Dog.
Time to Doc the Tail of the banking system. Without docing the tail the dog will be destroyed having been driven half mad.In this case it may well be that this Dog has to be destroyed and we will have to train another one. -
Banking Commission: retail banking must be ring-fenced07:21am on 12 Apr 2011Hi Robert,
I thought it would be a good idea to read the report in full, thank you for posting the link, It is also a time consuming but necessary job to read the other contributions of your other readers.
The commissions recommendations whilst welcome in that the banks are being placed under scrutiny does fall short of a comprehensive analysis of the problem.
The tone of the report seems to be “what can we do to keep as close to business as usual” as opposed to ” there has been a catastrophic failure here what is structurally amiss”.Douglas Carswell tabled a private members bill in Parliament in September its second reading I think has been delayed I am trying to find out what happened to it. Mr Carswell I do feel is asking the right questions and would have been an excellent member for the Commission. Here is footage of his Bill being voted on under the ten minute rule.
http://www.youtube.com/watch?v=HMGr-OuXihgThere is a lot of reading to do here and so much going on elsewhere in the world and peoples daily lives and yet this is perhaps one of the most important issues of our time with profound effects on what all of our futures will bring. I can’t help but think that all those of you still living in the UK and who have an MP should ask them to speak with Mr Carswell and offer him some support. Mr Carswell the MP for Clacton is a Conservative ember of parliament, not my own stripe admittedly but it does seem to me that his question is important to democracy and to a fair and even playing field. The system as it currently stands does not represent that.
My view is that the present system is past its sell by date those running it would have forfeited their right to continue with the trust of the Government long before 2007 ( their continued arrogance since should be all the evidence anyone needs), there is a very big public service element of Fractional reserve Banking, it is licensed it is institutionalised, supposedly for the greater good. The bail outs are not serving the greater good and the Bankers have taken their privileged position granted to them when they were being useful for granted for to long.The price we are being asked to pay for a System that does have an alternative ( a Credit not Debt Based Money Supply system) Is far to high. Let them leave if they don’t like the Ratios, The Bank of England isn’t going anywhere and Neither are Llyods or RBS. Heres a populist suggestion Fully Nationalise Lloyds and RBS Merge them and put Alan Sugar in charge with a board of directors made up of Leaders from our Manufacturing and innovation sectors Like James Dyson.
Sadly I agree with this readers analysis of what the purpose of the commission is.
24. At 09:22am 11th Apr 2011, nautonier wrote: -
Banking Commission wants firewall around retail banking4:46pm on 10 Apr 2011Hi Robert, How about some background on this Private Members Bill, What’s this all about?
Douglas Carswell MP announced a bill that would end fractional reserve banking. It’s produced below in full (directly from Hansard), but I’ve added some explanatory comments in [brackets]. The bolding is mine. The bill passed to a second reading, which will be held on Friday 19th November 2010.
http://www.youtube.com/watch?v=HMGr-OuXihg&feature=player_embedded
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Explanation time for the Bank09:14am on 17 Feb 2011I agree with Thomas Paine and his comment at no28.
Ordinary Savers and ordinary Mortgage holders are equally badly served by the Banking System and the astonishingly narrow minded de-regulation of the same. The objectives of policy should be to safeguard Savers, Pensions and Work . Pandering to the international money markets seemingly pays very little regard to interests of the wider population of the UK and their average daily experiences and needs.
The problem is that we are all being referred to the wrong page by the narrow interests at the top which ignore the needs of the many.
1. Savers
For Savers why don’t the government introduce a Savings Bond for all , with a reasonable rate of interest paid this can surely be done at a lower cost to the government than what it pays to raise its borrowing through the Markets , the current system is a syphon of the hard earned wealth of ordinary people into the Global Banking Bonus pot.
2. Work. ( most people need to work to pay their Mortgage)
On the Mortgage market part of the reason interest rates are such a good control of demand is that home ownership has become the aspiration for most since the 80’s, there is already a nationalised Mortgage Bank, Northern Rock and another candidate in RBS. Why not just be honest rename them the National British first time buyers mortgage bank set them sensible lending guide lines and prevent the current position whereby another whole groups savings, represented by their investment in home ownership, are written off. Presently we have a system that has no reference point in the wider needs of the society it should be serving. The current system has us all held hostage to the fortunes of International Robber Barons, some one comments above that of course the traders love it, but I question how much it benefits the vast majority of us.
3. Savers , Pensions and Work.
There needs to be a change in priorities for those who lead our country away from Globalism and to considerations of sustainability at a national policy level. We all simply have to include measures appropriate to where we are and the direction in which we want to go not measures forced upon us designed to promote the short term paper profits of a system that simply does not take into account what as a society most agree is more important. Comparing us to China or India and their rates of growth is just not relevant. Stephanie mentions the international terms of Trade in her article the truth is international markets compare apples with oranges all the time as they are following narrow key indicators( for them) that only matter over very short term horizons( again only to them).
Perhaps Mr King is taking some wider considerations into account and is what could be termed more of the Old School on which he would have my vote on the Monetary Policy Committee every time. Maybe Mr King feels it is time for the tail to stop wagging the dog.
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Hi Roger,
I followed the lead (link) given by you at your Linkedin post on 'democracy and Hypocrisy' , and landed up here at your blog spot ! Thanks.
You seems to have gone deep into the basics of global economy and studied how it works. Appreciate ! The nutshell was here at your first link; the study of Zurich University that says 147 families control 40% of he wealth of the wold. The recent Oxfam study also supports it; it says about 80 wealthy families control almost 50% of the world's wealth.
That is the reason why world is so rightist, and there is no place for any original thought or idea. Rightists want the world to run unchanged, or else their supremacy will be lost. We must dare having children and leaving them at he mercy of these masters. It is not important who the master is, and how many of them are there to control you; it is a matter of a master attitude…that believe in controlling everyone around you, wither for you, or for your masters above. You need not own any wealth to have such an attitude. This attitude itself will ensure you everything in life. It is LOYALTY towards the masters . There are millions in the world with this wining attitude, and that is why the empire of 1% will remain ever safe for them, and dangerous for the other 99%.
Share my blogs that depicts the above world reality, at links: http://originofestablishment.blogspot.in/, http://closedmodernworlddespitedemocracy.blogspot.in/
http://understandinginflationinanewlight.blogspot.in/