Are the Bankers & Government the only ones to blame?

true

af_thefragile wrote: »

Banks do that all the time.

hang on a second there. No they do not. Not reputable banks anyway. Banks nowadays do not give out say 30 times yearly income to someone. That would be imprudent lending, and unsustainable. Yet some banks done that during the "bubble" - no surprise the loan is in difficulty now and no monthly capital repayments ever made. Some banks behaved irresponsibely, and the personnel there should be made answer, and take the pain too.

af_thefragile

Sergeant wrote: »

Peter Schiff? A believer in the Austrian School? He believes that the crisis is primarily caused by Government squandering other peoples money and making monumentally stupid decisions as a result.

I wouldn't use his theories as a cornerstone to develop a theory on how to end the fractional reserve system.

Its easy to put him off because he may sound "far off" to most people. But from all the learning I've done on this subject, he is by far the closest that has come to explaining what's happening and how it can be fixed. Fact is he predicted the economic collapse well before anyone else saw it coming and everyone called him crazy like you suggest here only to be proved wrong.

I don't believe in everything he says. I believe in free markets but I don't believe in no taxes and such although I am a strong believer of decentralisation. Anyway he is a very well educated economist and I respect that although I don't listen to him anymore.

For a time I believed through tight regulation a Fiat currency is the perfect form of monetary system as long as the supply is tightly regulated to prevent inflation but now I no longer believe that because at the end of the day a fiat currency is an imaginary currency which no physical basis and will continue to be prone to exploitation.

Thus now I propose a Gold Standard is the best form of monetary system. It is what has been used by kingdoms for centuries and although it can still be exploited, at the end it has physical value and can't be exploited as easily. Bullion gold is going nowhere and neither will it naturally degrade over time like other elements. Mining new gold is an extremely expensive and labour intensive process and thus the money and energy that goes into mining new gold pretty much balances out the value of the "new gold" mined thus keeping gold's value stable and not suffering from inflation. Hoarding gold makes no sense either because physically its of little use to a person and there simply isn't enough for a person to hoard either so its not going to suffer from deflation either. This is what has caused gold's intrinsic value to remain pretty much the same for centuries. You can buy today with 1gm of Gold pretty much exactly how much you could have bought with 1gm of Gold a 1000 years ago.

A gold backed currency with a banking system that works like a credit union on investment profit rather than interest and not on fractional reserve will be as close a perfect monetary and banking system you can get.
One many ask if bank can only give out as much loan as what's in their reserve then how will the bank be able to give out any big loan for people to afford anything that is expensive like a house? The answer to this is that houses wouldn't cost as much in such an economy. Remember sellers can charge only as much as the buyers are willing to pay. If the maximum loan any person can get is €100k of gold back say, then most of the population can only afford a house that costs €100k of gold unless the person has wealth saved up. This will inevitably force sellers to reduce the price of the house to what the market is willing to pay. This prevents property bubbles from forming and property prices to sky rocket only to fall back down again as demand will always remain in check by the amount of wealth in the economy. If Banks are running at 100% reserve then they can only give out a fraction of that as loan at any given moment and this will prevent banks from giving out loans like free candies which lead to the property bubble in the first place. Banks can't give out easy loans means people have to wait to be able to afford to buy a house, this keeps demand in check which in turn keeps supply in check. Result is a stable economy that doesn't undergo boom-bust cycles.


I understand I wrote a lot there so:
tl;dr: Fractional reserve banking is the root of all economic evil. Gold backed currency with a banking system working at 100% reserve is the most stable form of monetary system.

af_thefragile

true wrote: »

hang on a second there. No they do not. Not reputable banks anyway. Banks nowadays do not give out say 30 times yearly income to someone. That would be imprudent lending, and unsustainable. Yet some banks done that during the "bubble" - no surprise the loan is in difficulty now and no monthly capital repayments ever made. Some banks behaved irresponsibely, and the personnel there should be made answer, and take the pain too.

That's because the economy is going through a depression.
Wait till the next bubble and you'll see banks doing that once again. Banks need to do that to get bigger. Bankers are always waiting for the right time for the economy to stabalise before they can start giving out easy loans again and start another economic boom. This is why economies go through Boom-Bust cycles. Its the Banks that create and run these cycles.

af_thefragile

srsly78 wrote: »

You seem to be confused about a lot of things. Hedge funds are not the same as banks. Leverage is not the same as fractional reserve lending.

I'm not an economist so yeah I may have gotten some things messed up.
But I do understand how fractional reserve lending works and leveraging is a separate thing.

Lending out €10K on a reserve on €1k is fractional reserve banking.
And Banks use many other techniques through which they can lend a lot more on that €1K reserve and make lots of money on the interest they amass from these loans.




P.S. **** I've just wasted the past two hours writing all this crap. That's enough internet for me today!

Frank Black

true wrote: »

you forget people were told that Irish bank hares were " blue chip" shares. People were told the Irish banks were properly funded and properly regulated. People who thought or suggested there may be a drop in property values were told by the Taoiseach of the day to " go off and commit suicide".

Not surprising some people put their savings ( for their rainy day, retirement, kids education or whatever ) in some or all of the different Irish bank shares, as the banks made up most of the value of the Irish stock market, and anyway they were supposed to be the ones who were experts at financial matters.

For your info, some banks sshares are worth less than 1% of what they once were.

And some bank managers still give themselves 800,000 a year.

Yes indeed, as someone who purchased BOI shares when they were at €6 a share (thinking I was getting a bargain), I know exactly what it's like to see those shares worth a tiny fraction of what I paid for them.

The thing is though, I don't blame Bertie or anyone else for this. It was my decision to purchase and I take the consequences of the loss in value.

Now, perhaps you'll say I'm lucky that I didn't invest my life savings in these shares, but what kind of fool would put thier entire savings into one particular stock (or even one particular sector). You spread your risk by investing in shares in different sectors, different countries, different currencies, into commodities, into cash etc..

I feel sorry for people who've lost out, up to a point, but put away the violin, we're talking about fully grown adults who've made very un-wise investment decisions with their money - and it's them that bear the ultimate responsibility.

Dave!

This thread got very technical all of a sudden. Can we go back to the rabble rousing please? I was enjoying that

Frank Black

Frank Black wrote: »

I feel sorry for people who've lost out, up to a point, but put away the violin, we're talking about fully grown adults who've made very un-wise investment decisions with their money - and it's them that bear the ultimate responsibility.

The mistake you are making (and this says a lot about the mindset of modern day Ireland) is seeing buying a house to live in as 'an investment'.

It should be a priority of government to make property speculation a thing of the past and thus make accommodation affordable for all. This would of course also make our economy much more competitive as wages could fall.

This would actually be really easy to do - a punitive tax on the profits from speculation would do it. Nobody ever proposes it, I wonder why?

KyussBishop

af_thefragile wrote: »

Lots of economists have written a lot about a monetary system that doesn't rely on the fractional reserve system of banking.
Boom-Bust cycles are a property of the interest dependant fractional reserve monetary system that primarily exists to exploit people and make the bankers wealthier. Again people at this point will scream out "conspiracy theory boo boo!!!" as if the current system that's in place is so perfect that there is no room for implementing an alternate monetary system and see if it may work better.


On a side note bitcoin is a prime example of why a gold backed monetary system works best. The key is regulation of the supply. Bitcoin has gotten the attention of many economics because it seems to present a kind of a "perfect" monetary system that is self regulated and in theory can never suffer from inflation. This is because the supply of bitcoins is tightly regulated to the degree where again in theory, it shouldn't experience any runaway deflation or inflation and it is virtually impossible at this moment to replicate it. But at the end of the day bitcoin is a virtual currency. It only exists as binary numbers on hard-drives somewhere. If someone were to "pull the plug" or mess with the program, it has the potential of being exploited, which is why economists are still very skeptical at taking bitcoin as a serious from of currency that'll last.

This is the very reason gold was the monetary standard for centuries. Gold is a physical substance that has a unique property in which it undergoes virtually no corrosion over time and thus gold that was mined centuries ago still exists in the same form as it did back then. Its value has remained nearly constant through centuries because its supply has been very limited, due to it being a precious metal. Gold works best because anything more precious like Platinum would be too scarce to be practically used as a currency and anything such as Iron and Copper is too abundant for its supply to be tightly regulated.

There are two factors that destabilise markets. Its either a run away inflation or deflation (such as a "gold rush") and the second factor is interest based fractional reserve banking. Any further than this, its becomes quite complicated to explain how interest leads to market collapse which then leads to inflation and how Bankers take advantage of these to grow bigger through stimulating boom-bust market cycles.

While I agree fully on the problems of the current monetary system, and promote monetary reform myself, Bitcoin and the gold standard are actually quite bad systems; here is a brilliant article explaining why:
http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/

Also, there is enough gold in the ocean to dwarf the current mined gold stock by roughly 120x times, and extracting that affordably is only a matter of the right technological advances (particularly in nanotechnology), at which point the value of gold will plummet, which ironically means a gold standard ensures hyperinflation in the future.


A fiat currency, but used for public (government) purposes, instead of for private banks, can help unlock 100% of the productive capacity of economies, 100% of the time; this is something a gold standard can't do.
So, the necessary monetary reform is taking money creation out of private hands, and putting it to use for public purpose (cue hyperinflation scaremongers - they always seem to ignore 'public spending limited by inflation targets' though, which makes hyperinflation inherently impossible).

Where private banks would put money into the economies through loans, government would put it in through public spending, and where private banks would take money out of the economy through debt repayments + interest, government would take it out through taxes.

This would remove the need for national debt, and government would not have to 'fund' itself through taxes, only utilize taxes to manage for inflation (and other social purposes, like disinsentivizing fraud, and wealth redistribution); one effect of this, is that no government spending has to return a profit (thus social purposes of spending can be prioritized), because only debt-based money put out by private banks, requires running a profit in order to repay debts + interest (government money from public spending would not be debt based).

So while you're right on the need for monetary reform, it's worth another look at the type of reform needed public money creation, with non-debt-based money, would supercharge economies and unlock their full potential (allowing constant full employment, even during economic troubles), where a gold standard would put restrictions on the economy.

This site does some good writing on it: www.positivemoney.org
This one also, has a good intro: http://www.webofdebt.com/articles/energy-costs.php

These ones are also good, but often a lot more technical:
www.neweconomicperspectives.org (including this)
https://modernmoney.wordpress.com/index/


One of the more prominent economists who holds these views, is Steve Keen, who is one of the few economists to predict the economic crisis well in advance, and (from what I know) the only one to actually model it well in advance as well.

He is from the Post-Keynesian school, which tries to build economics on a more empirical basis (that school actually has nothing to do with 'Keynesian' economics as it is known today - Post-Keynesian is more true to Keyne's original views, whereas 'Keynesian' economics is actually a bastardized chimera of Keyne's views mixed with classical economics, that is not representative of Keyne's); here is a very good article from him, on endogenous money, and how fractional reserve + the money multiplier is a myth:
www.businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

Three Seasons

Three Seasons wrote: »

If they didn't break any laws then why "shoot them"?

People make bad decisions, that's what happened at the banks the owners of the banks suffered the consequences.

The banks don't exist as a public service, they exist to make profit. If you don't like their products then take your business elsewhere.

This is nothing to do with where anyone 'takes their business'.

I never took my business to Anglo. But I am paying their debts. I never took my business to AIB. But I am paying their debts. I never took my business to Irish Nationwise. But I am paying their debts.

The bailout was NOT triggered by mortgage and personal loan default. Why do you keep trying to pretend it was? Why do you keep bringing it back to people who borrowed too much and are now having difficulty paying it back?

If all we had to worry about was mortgage default on the part of owner occupiers we would be out of this mess in no time.

Frank Black

Deleted User wrote: »

The mistake you are making (and this says a lot about the mindset of modern day Ireland) is seeing buying a house to live in as 'an investment'.

I think the mistake you are making is not reading a post before responding to it, or else responding to the wrong post in error. Where exactly did I mention anything about buying a house, never mind buying a house as an investment?

Frank Black

Frank Black wrote: »

I think the mistake you are making is not reading a post before responding to it, or else responding to the wrong post in error. Where exactly did I mention anything about buying a house, never mind buying a house as an investment?

Apologies, all your posts have the same tone, I am just replying to the most recent one.

If you don't think that people who bought houses at massively inflated prices (enriching developers and banks in the process) have only themselves to blame, I apologise. That was the tone I picked up on.

Frank Black

Deleted User wrote: »

Apologies, all your posts have the same tone, I am just replying to the most recent one.

If you don't think that people who bought houses at massively inflated prices (enriching developers and banks in the process) have only themselves to blame, I apologise. That was the tone I picked up on.

They may not have 'only' themselves to blame, but one must accept responsibility for ones own actions at the end of the day.

There's plenty of blame to go around for everyone.

dub_skav

Frank Black wrote: »

They may not have 'only' themselves to blame, but one must accept responsibility for ones own actions at the end of the day.

There's plenty of blame to go around for everyone.

What "blame" do you want home owners to take?
If they paid too much for their house, are now in negative equity and are servicing their mortgage, than what other blame lies with them?
They are responsible for their own debt certainly, but that didn't cause a financial meltdown.

People are looking to blame somebody for Ireland requiring a bailout and being at the mercy of the Troika.
As I stated earlier (and indeed others have stated), if the only thing we were worried about was personal debt, there would be far less "blame" to go around.

So, banks (mostly Anglo to be fair), the government and regulators are to blame for us being completely in the ****s and home owners are to "blame" for themselves having high levels of personal debt.
That about fair?

Frank Black

dub_skav wrote: »

What "blame" do you want home owners to take?
If they paid too much for their house, are now in negative equity and are servicing their mortgage, than what other blame lies with them?
They are responsible for their own debt certainly, but that didn't cause a financial meltdown.

People are looking to blame somebody for Ireland requiring a bailout and being at the mercy of the Troika.
As I stated earlier (and indeed others have stated), if the only thing we were worried about was personal debt, there would be far less "blame" to go around.

So, banks (mostly Anglo to be fair), the government and regulators are to blame for us being completely in the ****s and home owners are to "blame" for themselves having high levels of personal debt.
That about fair?

I never said home owners should bear the blame for the entire financial meltdown and I'd suggest you re-read my posts before making such suggestions.
But don't tell me it's Bertie's fault that you put all your savings into Bank of Ireland shares or that it's the bank managers fault that you paid €400k for the apartment on the outskirts of Longford.

Frank Black

Frank Black wrote: »

I never said home owners should bear the blame for the entire financial meltdown and I'd suggest you re-read my posts before making such suggestions.
But don't tell me it's Bertie's fault that you put all your savings into Bank of Ireland shares or that it's the banl mangers fault that you paid €400k for the apartment on the outskirts of Longford.

Well that's another matter. Whose fault is it that people were paying 400k for apartments on the outskirts of Longford?

In a narrow sense of course you could argue the price is simple what the seller will pay and the buyer will take. But people have to live somewhere. It's no use saying to a man and woman with a young family "don't buy a house". They have to live their life and I don't blame them if they would prefer not to rent (not that renting was a particularly cheap option).

Nobody WANTS to spend a lot on a house. They simply had to if they wanted the security that comes with being a home owner.

I think the 'cui bono?' question is worth answering here. The fact is that landowners, developers and bankers - three sets of people with significant political influence in this country - made an awful lot of money out of rampant property inflation.

If you think that house prices increased 'naturally' in response to demand, and it wasn't a bubble stoked quite deliberately by vested interests who made a lot of money out of it - I think with respect you are a little naive.

And lastly - the 'people knew what they were getting into' line is unrealistic. You are asking for one of two things. Either nobody borrows money unless they know they can pay back the loan no matter what, or each borrower performs a full stress test of the global economy, their employment prospects, the potential issues with modern derivatives trading, the likelihood of a rogue bank going under and them being asked to pay taxes to cover the debts of others etc etc.

The former would mean capitalism grinding to a halt, the latter is completely impractical. Despite what economists like to believe, people do not have 'perfect information' or anything close to it, and they never will.

dub_skav

Frank Black wrote: »

I never said home owners should bear the blame for the entire financial meltdown and I'd suggest you re-read my posts before making such suggestions.
But don't tell me it's Bertie's fault that you put all your savings into Bank of Ireland shares or that it's the bank managers fault that you paid €400k for the apartment on the outskirts of Longford.

Fair enough, I haven't been paying attention to who posted what or picking on you in particular, apologies.
It's just that I see far too much - I didn't buy a house, I'm a genius, the homeowners got us into this. Which to be honest gets on my tits

Certainly you are correct, being moronic enough to put all your money in shares, or paying more than you could afford is your own problem, but it is a personal problem, not the reason the whole country is screwed is my point.

Latchy

dub_skav wrote: »

Fair enough, I haven't been paying attention to who posted what or picking on you in particular, apologies.
It's just that I see far too much - I didn't buy a house, I'm a genius, the homeowners got us into this. Which to be honest gets on my tits

Certainly you are correct, being moronic enough to put all your money in shares, or paying more than you could afford is your own problem, but it is a personal problem, not the reason the whole country is screwed is my point.

We can sympathise but that in a nutshell is the difference .

Noreen1

Frank Black wrote: »

I never said home owners should bear the blame for the entire financial meltdown and I'd suggest you re-read my posts before making such suggestions.
But don't tell me it's Bertie's fault that you put all your savings into Bank of Ireland shares or that it's the bank managers fault that you paid €400k for the apartment on the outskirts of Longford.

What about the people who didn't take out big loans (quite aside from the fact that most people are servicing their loans) - didn't invest in the Banks, and didn't vote for FF?

Should these people suck it up, and pay up - or do they have a right to look for change?

Frank Black

Noreen1 wrote: »

What about the people who didn't take out big loans (quite aside from the fact that most people are servicing their loans) - didn't invest in the Banks, and didn't vote for FF?

Should these people suck it up, and pay up - or do they have a right to look for change?

Sorry Noreen, you're on my list of people I don't bother to argue with - mainly because you tend to spectacularly miss the point or construct strawman arguments or deliberately mis-reprepresent my arguments

Haven't the energy or enthusiasm to even begin replying to your post and life's too short.

Noreen1

Frank Black wrote: »

They may not have 'only' themselves to blame, but one must accept responsibility for ones own actions at the end of the day.

There's plenty of blame to go around for everyone.

Frank Black wrote: »

Yes indeed, as someone who purchased BOI shares when they were at €6 a share (thinking I was getting a bargain), I know exactly what it's like to see those shares worth a tiny fraction of what I paid for them.

The thing is though, I don't blame Bertie or anyone else for this. It was my decision to purchase and I take the consequences of the loss in value.

Now, perhaps you'll say I'm lucky that I didn't invest my life savings in these shares, but what kind of fool would put thier entire savings into one particular stock (or even one particular sector). You spread your risk by investing in shares in different sectors, different countries, different currencies, into commodities, into cash etc..

I feel sorry for people who've lost out, up to a point, but put away the violin, we're talking about fully grown adults who've made very un-wise investment decisions with their money - and it's them that bear the ultimate responsibility.

Frank Black wrote: »

And what about the people who drew down such loans?
Should they be charged and jailed too for reckless borrowing if they are unable to meet their repayments?

I don't make decisions on the size of loan I'm going to take out on the basis of the amount some bank employee is willing to lend me. I'm going to look at how afforadable it is for me to make the re-payments. I'm going to stress-test the re-payments for higher interest rates, drops in income and changes in my personal circumstances.
A mortgage is most likely the largest sum of money you will ever borrow and you'd want to be very sure as to your capacity to meet the repayments before you draw it down.

Am I just a weirdo for doing this? Did most people just drop into thier lending institute and ask them the maximum amount they would lend them?
For every reckless loan advanced there was a reckless borrower involved.

Rallying cries of charging and jailing bankers are all well and good to release a bit of frustration, but what are you charging them with exactly? How will you prove these charges in a court of law?

By all means let's introduce appropriate regulation and legislation to try to prevent this from happening again. But it would be nice to see Irish people learning from this mess as well. How about an electorate that rewards Governments for prudent economic management of the country as opposed to one that elects the chancers that promise the most? Look at the Shinners, out there whispering in people's ears about how they'll burn the bond holders and abolish the property tax and won't cut Social Welfare or public servant pay. Seems to me that this kind of bull**** works on enough people to make it worth their while.

Unless this changes, we'll probably make the same mistakes in the future.

But sure if it does happen, we'll just charge and jail a few bankers and we'll be grand.

Frank Black wrote: »

Lax regulation and excessive/high risk lending in the banking sector along with populist funding decisions by politicians more concerned with winning votes than sound economic management were huge factors in the boom and bust we experienced.

However, a lot of Irish people drew down the loans on offer from the banks and elected the politicans who promised them the most.

There is no one person or sector or reason at which we can lay the blame. A lot of people were complicit in the general madness that went on.

Anyway - the issue of blame is only useful in trying to put in place systems to try to ensure it doesn't happen again. By all means prosecute those bankers or politicans who have broken the law - but, it won't change the current economic situation we find ourselves in.

I'd prefer if there was more focus on solutions.

Frank Black wrote: »

Sorry Noreen, you're on my list of people I don't bother to argue with - mainly because you tend to spectacularly miss the point or construct strawman arguments or deliberately mis-reprepresent my arguments

Haven't the energy or enthusiasm to even begin replying to your post and life's too short.

I've just checked several of your posts, both in this thread, and here:
http://www.boards.ie/vbulletin/showthread.php?t=2056925406

The common theme is that, while you appear to acknowledge that people are not entirely to blame for the financial crises - you then promptly find lots of reasons to lay as much blame as possible (IYO) on people - for the financial crises.

When you're asked to clarify your position - your response is to accuse me of spectacularly missing the point, etc.

Just to prove my point, re: requiring clarification, I've highlighted your acknowledgement of excessive lending etc. in blue - and your er, acknowledgement of peoples perceived failures in black.
Spot the reason for a need for clarification yet?

By all means feel free to ignore this post if you can't be bothered to argue, though.:)

Grayson

Deleted User wrote: »

And lastly - the 'people knew what they were getting into' line is unrealistic. You are asking for one of two things. Either nobody borrows money unless they know they can pay back the loan no matter what, or each borrower performs a full stress test of the global economy, their employment prospects, the potential issues with modern derivatives trading, the likelihood of a rogue bank going under and them being asked to pay taxes to cover the debts of others etc etc.

Or how about a global recession? Not like that hasn't happened twice since 1980.

People over borrowed. Most of the ones that didn't aren't over extended now. If they are over extended it's because they got sick, were made redundant etc... These are things that could have happened anyway and they should have planned for it.

Frank Black

Noreen1 wrote: »

I've just checked several of your posts, both in this thread, and here:
http://www.boards.ie/vbulletin/showthread.php?t=2056925406

The common theme is that, while you appear to acknowledge that people are not entirely to blame for the financial crises - you then promptly find lots of reasons to lay as much blame as possible (IYO) on people - for the financial crises.

When you're asked to clarify your position - your response is to accuse me of spectacularly missing the point, etc.

Just to prove my point, re: requiring clarification, I've highlighted your acknowledgement of excessive lending etc. in blue - and your er, acknowledgement of peoples perceived failures in black.
Spot the reason for a need for clarification yet?

By all means feel free to ignore this post if you can't be bothered to argue, though.:)

Cheers, knew you'd understand.

Noreen1

Frank Black wrote: »

Cheers, knew you'd understand.

I understand perfectly.
I'm pretty sure anyone else who reads your posts also understands the lip service to regulatory, lending and Governmental failures, before transparently concentrating on "people" - and how they (allegedly) failed - while refusing to acknowledge the fact that most people are servicing their loans, and therefore are not mainly responsible for the current crises.