An alternative way of banking

smash

IM0 wrote: »

mainly because they made a ****e investment, who in their right mind takes out a mortgage for what they cant afford, no one smart thats for sure, sorry but truth is a bitch isnt it.

You know better than to spout that crap. When most of these loans were taken out, people were on good wages and economies were thriving globally. People could afford it.

IM0

smash wrote: »

You know better than to spout that crap. When most of these loans were taken out, people were on good wages and economies were thriving globally. People could afford it.

what people didnt realise is that economies work in cycles. boom bust - recession anyone can afford a house in a boom, the same way a business can be started in the same way, the trick is keeping it in the downturn

when you buy a house you need to think worst case scenario and then build your needs around that.

Three Seasons

smash wrote: »

Even central banks rarely print money yet every day billions are created globally. Look at the video I posted!

I watched it and banks don't create money, they take money from depositors and give it to those given loans. That's not creating new money. It's passing the same money around.

Krusader

Three Seasons wrote: »

I watched it and banks don't create money, they take money from depositors and give it to those given loans. That's not creating new money. It's passing the same money around.

Have you never heard of fractional reserve lending. Banks can lend up to 10 times more than what they have in their vaults. Essentially creating money from debt. Private banks shouldn't have the right to create money, it should be reserved for sovereign states only

smash

Three Seasons wrote: »

I watched it and banks don't create money, they take money from depositors and give it to those given loans. That's not creating new money. It's passing the same money around.

You clearly did not watch the video then!

Three Seasons

Crosáidí wrote: »

Have you never heard of fractional reserve lending. Banks can lend up to 10 times more than what they have in their vaults. Essentially creating money from debt. Private banks shouldn't have the right to create money, it should be reserved for sovereign states only

Fractional reserve lending doesn't create money.

No new money is created, banks take money from depositors and give it to borrowers. That's not creating new money. I did watch the video, the only instance new money is created is when it's printed. Banks can't do that. They take real money from depositors and give it to borrowers.

smash

Three Seasons wrote: »

Fractional reserve lending doesn't create money.

No new money is created, banks take money from depositors and give it to borrowers. That's not creating new money. I did watch the video, the only instance new money is created is when it's printed. Banks can't do that. They take real money from depositors and give it to borrowers.

From 10bn, 90bn is created. It's done electronically. That's how money is created. If you were to say that the only real money is physical money then nearly everyone in the world would be bankrupt!

Even when the ECB or IMF lend Ireland money, it's not delivered in physical notes ffs!

And even most deposits are electronic transfer too.

bnt

Come on, people. If you watch It's A Wonderful Life (1946), George Bailey explains it succinctly as he tries to stop a run on his bank: "I don't have your money. It's in Tom's house... and Fred's house." That's fractional reserve banking in a nutshell.

When you lend a bank money, it doesn't just sit there in the bank. That would be pointless: not only would it not give you any interest, it would actually lose value due to inflation. (Nobody wants that.)

So banks lend your money back out again, basically putting it to work to earn you interest. In the movie, that was done in the form of mortgages to local people - the "building society" model that no longer exists in Ireland. Of course they expect to make money in the process: they have expenses to cover before they pay you interest on your savings.

The loaned money isn't "gone" from the bank: it's still listed as assets on the balance sheet. Just lending it out doesn't change the bank's financial position i.e. they are no less solvent for lending the money out. They didn't create money by lending it, but neither did they lose any. They do expect to get back more than they lent.

So what's the problem? The above model works in moderation, but we've seen banks stretch it past breaking point, in the pursuit of profits.

1) how much they lend out vs how much they hold back. This reserve requirement is set by law. In the Eurozone (including Ireland) it was 2%, lowered to 1% in Jan 2012. As 2% wasn't already low enough? (NB: banking reserve is not the whole story: to get an idea of a banking system's stabilty, you can look at reserves plus capital, where. Ireland's actually doing OK as of a few weeks ago.)

2) how they lend it out: how risky is the investment. This is what I mentioned above e.g. Cypriot banks buying Greek government bonds that took a major "haircut". ("Scalped" would be a better word for it.)

The reserve requirements are there to cushion the bank in the event of losses. The banks in Cyprus offered high interest, but had reserves too low for the gambles it took, and lost.

tl;dr In a safe "alternative" bank, your money will just sit there, losing value against inflation. But that doesn't justify the excesses that banks and investors went to in search of profits. Moderation is good. TANSTAAFL.

Fr_Fitzexactly

schnitzelEater wrote: »

I love this sort of thread. Some conspiracy theory mixed in with half understood concepts and a Walter Mitty / fantasist / Freeman type solution. And a good chunk of naive optimism.

Great reading. Well done OP.

Why is it that you can't criticise fractional reserve banking at all without being accused of freeman / conspiracy nonsense? I have looked in the economy forum and whenever its mentioned it's like they don't wanna hear about it. It is quite clearly a f*ckup of a system but it has been around for so long and so well understood by the economists that they don't want to see change. It's like Microsoft Windows, a pig of an operating system but people keep using it because they're used to it and don't want to hear about anything different.

Fractional reserve lending served society well back in the day because loans created new money and allowed the economy to expand but in recent times it's age is showing. These recent bailouts and ESM and so on are just patching up the old system so it'll be good for another 10-20 years

Three Seasons

Fr_Fitzexactly wrote: »

Why is it that you can't criticise fractional reserve banking at all without being accused of freeman / conspiracy nonsense? I have looked in the economy forum and whenever its mentioned it's like they don't wanna hear about it. It is quite clearly a f*ckup of a system but it has been around for so long and so well understood by the economists that they don't want to see change. It's like Microsoft Windows, a pig of an operating system but people keep using it because they're used to it and don't want to hear about anything different.

Fractional reserve lending served society well back in the day because loans created new money and allowed the economy to expand but in recent times it's age is showing. These recent bailouts and ESM and so on are just patching up the old system so it'll be good for another 10-20 years

What system do you suggest?

Fr_Fitzexactly

Three Seasons wrote: »

What system do you suggest?

First we need to get rid of the possibility of there being a national debt. Don't let the government borrow from other countries or private investors at all. Instead let the government create a limited amount of money every year to spend.

Or else use a fixed amount currency like bitcoin. The only problem with that is that it rewards hoarders and early adopters. Kind of like the system we have now

bnt

Following on from what I wrote above, imagine how things might work without fractional reserve banking i.e. full reserve banking. Yes, there's even a Wikipedia page on that.

- your deposits could not be loaned out. €1000 deposited today would still be €1000 in ten years time.
- but the buying power of €1000 in ten years time will be a fraction what it is today, due to inflation.
- so, how do you stop inflation? That's the only way full reserve banking could make sense.

Some economists have supported the idea for specific cases e.g. Milton Friedman thought it made sense for current accounts. But once you get past such cases, you're basically suggesting:
- an end to inflation, requiring state control of prices;
- an end to investment, since no-one will ever earn interest on their money;
- an end to trade: since prices are fixed, there is no impetus to move goods around to find a better deal;
- an end to capitalism, in other words. Good luck with that. History has shown us that capitalism always emerges in some form even where it is explicitly outlawed e.g. black markets in Soviet Russia.

So I reject 100% reserve banking, but I also think the Eurozone former 2% reserve requirement was way too low. The answer is somewhere in between, but I don't claim to know what the figure should be, or even if there should be a single figure for all cases.

There's nothing wrong with criticism, but you've got to think it through to its logical conclusion ... and not assume that no-one else has ever done that before. Like you're the only person with open eyes, in a world of sleepwalkers? :cool:

smurgen

Three Seasons wrote: »

Fractional reserve lending doesn't create money.

No new money is created, banks take money from depositors and give it to borrowers. That's not creating new money. I did watch the video, the only instance new money is created is when it's printed. Banks can't do that. They take real money from depositors and give it to borrowers.

banks lie about their capital reseve figures and manipulate them accordinly in order to extentend the amound of leverage they can use, a good example of this is in this article I was just reading this morning: http://www.ft.com/cms/s/0/c6588422-8cd3-11e2-8ee0-00144feabdc0.html#axzz2QL7N2LAy the last quote spells out what i'm trying to say more eloquently :

"Senate investigators said JPMorgan manipulated internal risk models in an attempt to intentionally reduce the risk-weightings of its assets and thus the amount of required capital. Global regulators have identified model variations among banks as a key tactic used to dodge capital requirements".

I really don't think banks like JPMorgan,Barclays and all the rest can be fully trusted. I work in a private bank and i'm not some leftist conspiracy theorist. I just think that the lack of stability being created by the banks in detrimental to the global economy and I think the banks need to be put on a very tight chain from now on because you actually cannot believe any of the figures they are printing regarding their financial situation and it's eroding confidence in the system.

coffee_cake

Fr_Fitzexactly wrote: »

First we need to get rid of the possibility of there being a national debt. Don't let the government borrow from other countries or private investors at all. Instead let the government create a limited amount of money every year to spend.

Or else use a fixed amount currency like bitcoin. The only problem with that is that it rewards hoarders and early adopters. Kind of like the system we have now

And when they can't pay SW or public workers?

sock puppet

smurgen wrote: »

banks lie about their capital reseve figures and manipulate them accordinly in order to extentend the amound of leverage they can use, a good example of this is in this article I was just reading this morning: http://www.ft.com/cms/s/0/c6588422-8cd3-11e2-8ee0-00144feabdc0.html#axzz2QL7N2LAy the last quote spells out what i'm trying to say more eloquently :

"Senate investigators said JPMorgan manipulated internal risk models in an attempt to intentionally reduce the risk-weightings of its assets and thus the amount of required capital. Global regulators have identified model variations among banks as a key tactic used to dodge capital requirements".

I really don't think banks like JPMorgan,Barclays and all the rest can be fully trusted. I work in a private bank and i'm not some leftist conspiracy theorist. I just think that the lack of stability being created by the banks in detrimental to the global economy and I think the banks need to be put on a very tight chain from now on because you actually cannot believe any of the figures they are printing regarding their financial situation and it's eroding confidence in the system.

You're thinking of capital requirements which are different to reserve requirements.

Kevin Bacon

smurgen wrote: »

banks lie about their capital reseve figures and manipulate them accordinly in order to extentend the amound of leverage they can use, a good example of this is in this article I was just reading this morning: http://www.ft.com/cms/s/0/c6588422-8cd3-11e2-8ee0-00144feabdc0.html#axzz2QL7N2LAy the last quote spells out what i'm trying to say more eloquently :

"Senate investigators said JPMorgan manipulated internal risk models in an attempt to intentionally reduce the risk-weightings of its assets and thus the amount of required capital. Global regulators have identified model variations among banks as a key tactic used to dodge capital requirements".

I really don't think banks like JPMorgan,Barclays and all the rest can be fully trusted. I work in a private bank and i'm not some leftist conspiracy theorist. I just think that the lack of stability being created by the banks in detrimental to the global economy and I think the banks need to be put on a very tight chain from now on because you actually cannot believe any of the figures they are printing regarding their financial situation and it's eroding confidence in the system.

Would this not be a regulation issue rather than the system itself? Corruption would be prevalent in any system you would care to create, unfortunate fact of life.

hatrickpatrick

IM0 wrote: »

mainly because they made a ****e investment, who in their right mind takes out a mortgage for what they cant afford, no one smart thats for sure, sorry but truth is a bitch isnt it.

now I hear your reply coming " so burn the bondholders then!!"

well the reality is the bondholders keep society afloat in many ways, they are the ones who fuel the system and FUND the banks, its people who buy stuff THEY CANT AFFORD!! who make a mockery of the banking system and society as a whole.

taking out a loan for a TV isnt the same thing as taking out a mortgage for a house of 100's of thousands yet they pretty much treated it the same way

Utterly ignorning my question. Perhaps read it again.
I'm not talking about principle, I'm talking about interest. As in, people who could just about afford their repayments until some eejit decided to increase the interest rates on their loans.

Again, how does this in any way serve society's best interest? If people are already struggling, who actually benefits from dumping MORE of a burden on them through a higher rate of interest?

hatrickpatrick

Three Seasons wrote: »

What system do you suggest?

Create money as goods and services are produced, without interest. No for profit banking system - banks would exist only to serve society and nothing else. All they should be for is facilitating trade. Remove the ability to trade in currency which doesn't actually exist as hard currency. Read my post for example about bitcoin. No interest on each new coin when created, and nobody can do anything with a bitcoin which hasn't actually been generated as a hard currency. The system has no mechanism by which to create "credit" - if a coin hasn't been created it can't be used, end of.

hatrickpatrick

bluewolf wrote: »

And when they can't pay SW or public workers?

Public workers are providing a service. Money in circulation is qupposed to equal value of goods and services. What's actually wrong with creating a little more currency for these services if there isn't enough in circulation already?

And I mean actually creating it. Not lending it with interest.
Don't just dismiss my post with a generic answer, can you actually explain how this is a bad idea? Supply and demand should be based on what's physically possible to do (number of skiled people, amount of raw material etc) and not on a bunch of artificial mathematical theory on paper.

ArseLtd

schnitzelEater wrote: »

Silly question I know, but where does this public bank get the money it lends to the public from?

Like Abraham Lincolm said ""The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity."

Sure a bank creates it from no where for private interest why can't the government make it for public interest. "Government of the people, by the people, for the people."

People in this thread need an overhaul of their thinking. You have been led to believe there needs to be banks and that there needs to be debt but once you educate yourself properly, the very idea is absurd. The founding fathers of America had this in mind and interestingly enough, Hitler funded Germany from 1933 up until the end of WWII with interest free government money. The American war of independence was fought because the colonies wanted to use their own money (which was interest free, based on their constitution) but the British Empire wanted them to lend money from them and then as they were indebted, the colonies had to send gold and raw materials over to pay this debt.

Money is just a reciept for work done. Its just paper. It does not need to be borrowed. It is not socialism, its capitalism the way it was meant to be.

Dean0088 wrote: »

Your misunderstanding the principles behind finance and economics.

It's not a mathematical formula that operates in a straight undeviating line.

Ok Mr Economist, how come the Federal Reserve hasn't ever in history been audited? How come an audit is only being talked about in congress now?

Yes it's not mathematical because the current system is hidden behind what you call economics which is designed to turn people off economics. As Henry Ford said "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning"

KyussBishop

bnt wrote: »

Following on from what I wrote above, imagine how things might work without fractional reserve banking i.e. full reserve banking. Yes, there's even a Wikipedia page on that.

- your deposits could not be loaned out. €1000 deposited today would still be €1000 in ten years time.
- but the buying power of €1000 in ten years time will be a fraction what it is today, due to inflation.
- so, how do you stop inflation? That's the only way full reserve banking could make sense.

Some economists have supported the idea for specific cases e.g. Milton Friedman thought it made sense for current accounts. But once you get past such cases, you're basically suggesting:
- an end to inflation, requiring state control of prices;
- an end to investment, since no-one will ever earn interest on their money;
- an end to trade: since prices are fixed, there is no impetus to move goods around to find a better deal;
- an end to capitalism, in other words. Good luck with that. History has shown us that capitalism always emerges in some form even where it is explicitly outlawed e.g. black markets in Soviet Russia.

So I reject 100% reserve banking, but I also think the Eurozone former 2% reserve requirement was way too low. The answer is somewhere in between, but I don't claim to know what the figure should be, or even if there should be a single figure for all cases.

There's nothing wrong with criticism, but you've got to think it through to its logical conclusion ... and not assume that no-one else has ever done that before. Like you're the only person with open eyes, in a world of sleepwalkers? :cool:

Consider though, the difference between public vs private use of money creation, which this explains well:
http://www.webofdebt.com/excerpts/introduction.php

Basically, when you use money creation for public spending (and recognize that private bank loans can lead to money creation), then government spending is to bank loans, what taxes are to repayment of bank debt+interest.

Government spending and bank loans would put money into the economy, taxes and repayment of debt+interest would take money out; money given out by banks would be debt-based (taken out of the economy after a limited time, and in excess of what was put in), but money spent by government stays in the economy until it is taxed out (which means no unsustainable debt).


So, this makes full-reserve banking fully functional, because government can spend the excess money into the economy instead (government spending would be limited by inflation targets though)

You can even make all private banks full reserve, and setup a public bank, which gives out loans using money creation (regulated properly to avoid malinvestment, like how it's already supposed to be), and which can never become insolvent (deposits are never lent out).


Additionally, it's worth noting that fractional reserve banking and the 'money multiplier' is not correct:
www.businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

KyussBishop

bluewolf wrote: »

And when they can't pay SW or public workers?

That was answered in his post; government creates a limited amount of money every year to spend.

I usually further limit that based on inflation targets (even if just to preempt the hyperinflation scaremongers).

KyussBishop

hatrickpatrick wrote: »

Public workers are providing a service. Money in circulation is qupposed to equal value of goods and services. What's actually wrong with creating a little more currency for these services if there isn't enough in circulation already?

And I mean actually creating it. Not lending it with interest.
Don't just dismiss my post with a generic answer, can you actually explain how this is a bad idea? Supply and demand should be based on what's physically possible to do (number of skiled people, amount of raw material etc) and not on a bunch of artificial mathematical theory on paper.

Indeed, this is one of the most facially insane things about current economic theory: People would have us believe that when we have 1: People sitting idle (unemployment; every day it continues, productive potential is permanently wasted - an actual physically real loss to the economy), and 2: Idle industry/resources, or understaffed services, that can be put to good economic or social use.

We would be expected to believe, that putting the two of these together, idle labour with idle industry/resources, would be a bad thing, would be disastrous for the economy, and this when economics is all about efficient resource management in the first place (which obviously the above, idle labour/industry/resources, is incredibly inefficient).

We're told that somehow, creating the money to put these together is going to somehow lead to hyperinflation, when that seems to betray a total lack of understanding of inflation (it is basically all about resource bottlenecks; when the supply of something is lacking, its price inflates), and is ignorant to the concept that these unemployed people can be used to counteract inflation in any number of ways (either by working to ease supply shortages, or building infrastructure that avoids future inflation, such as from future shortages of energy sources like oil), or can simply be put to work in non-inflationary areas.

KyussBishop

ArseLtd wrote: »

As Henry Ford said "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning"

Here are some other good quotes on the topic (from an Austrian site no less):
http://www.themoneymasters.com/the-money-masters/famous-quotations-on-banking/

Good quotes backing the fact that banks create money:
http://www.positivemoney.org/how-banks-create-money/proof-that-banks-create-money/

Iwasfrozen

StewartGriffin wrote: »

Imagine, for example, you are self building your own house. How naive do you look when you take that first scoop of muck out of the big empty field?

The first step off the path is always naive - (why would anyone go there into the rough?) but with work it develops.

That analogy doesn't work because the plans for building houses are well designed. Building a house alone requires only perseverance not innovation.

smash

Iwasfrozen wrote: »

Building a house alone requires only perseverance not innovation.

What if it was a flying house?

:pac:

IM0

Fr_Fitzexactly wrote: »

First we need to get rid of the possibility of there being a national debt. Don't let the government borrow from other countries or private investors at all. Instead let the government create a limited amount of money every year to spend.

Or else use a fixed amount currency like bitcoin. The only problem with that is that it rewards hoarders and early adopters. Kind of like the system we have now

so in short you have no alternative!

Iwasfrozen

smash wrote: »

What if it was a flying house?

:pac:

Then you wouldn't be scooping muck out of an empty field. :P

ArseLtd

Another good site

http://www.publiccentralbank.com/

hatrickpatrick

IM0 wrote: »

so in short you have no alternative!

What about getting a team of economists with NO vested interest in anything whatsoever beyond providing a public service, and letting them decide on interest free money supply? In terms of interest for deposits, banks could be allowed to create a certain amount of currency based on inflation levels. If those banks were also NFP public services they would have no vested interest in manipulating that system.

Once again I pose the question nobody is willing to try and answer: banks are currently increasing interest rates on loans of people already struggling. How does this benefit society? Who benefits? Who gains? What logical sense does it make whatsoever? How is it serving the greater good in any way whatsoever beyond the profits of bank managers, to raise loan repayment interest at a time when money supply is plummeting? Honestly, it'd be like me saying to a friend who couldn't afford to pay me back a rennet I'd lent him that he now owes me 20. Not only does this crush him financially, it also makes it far less likely that he'll eer actually pay me back.

To sum up... WTF?