MSE News: Consumers urged to join Which? banking debate

Former_MSE_Wendy · 26 January 2010 at 6:44PM

This is the discussion thread for the following MSE News Story:

"Consumers will get the chance to help shape the banking world at a public debate next week in London ..."

Read the full story:
Consumers urged to join Which? banking debate

Joe_Bloggs · 26 January 2010 at 8:37PM

That is an impressive line up. In the words of Mrs Merton 'Lets have a mass debate!'.
J_B.

BenS1 · 27 January 2010 at 12:55AM

Very tempted to go. It's easily reachable for me. For me, it's the whole thing on bank charges that needs shaping up. I.e, the banks paid claimants prior to the Supreme Court ruling. It's not only that, but the fact that the RBS bankers got their bonuses dispute being owned by the tax payer that peeves me off.

dots_thots · 29 January 2010 at 10:59AM

I've written the following letter to Martin. I figured it's worth posting here also, in case the letter doesn't make it and because it may be of use to others...

Dear Martin,

I am writing to you about an enormous injustice of the financial status quo that transcends the narrower remit of your site but one which absolutely shares the fundamental principles that I believe guide you.

I have watched you on television and followed your website and I know you have a deep conviction to upholding justice and taking up the common cause. You have fearlessly “rattled” many proverbial cage and you're not in a position where the banking system in some way benefits you personally. To push for change won't be kicking away the ladder from under your own feet like it would for so many politicians. It is these myriad attributes that make me believe you are perfectly positioned to make a real difference.

The recent news story and associated thread on your forum about the hearings regarding changes to the banking system piqued my interest. Not so much because changes are needed, which is obvious to most people, but because whenever banking reform is mentioned, one hundred percent of the debate by the government and the financial establishment et al. is about the nuances and minutiae of the regular functions of the banking system and how it affects consumers. Not one single thought is ever given to the system itself from a macro perspective. Deliberately or otherwise, the result is a managed debate. We get to choose which fairly minor adjustments to the system we wish to try out; ultimately it doesn't matter because the system lives to fight another day.

Money is important because it is one half of every trade. Money was the most marketable commodity and was meant to represent honesty. An honest day's work converted to a store of value for redemption at a later date. It is the evolution of money that has enabled us to become the civilisation we are through the division of labour.

In a historical context it is only fairly recently that governments have changed our money into currency. The real purpose of this letter is to discuss fractional reserve banking, fiat currency and legal tender laws, inflation and controlled interest rates and central planning and to show how corrupt, immoral, and in my opinion unlawful, the system is that employs these practices.

We have a situation now where government and those who directly benefit can steal, no - embezzle, the value of our hard-earned cash, debasing our money via “money printing” such as direct quantitative easing and operations used to influence interest rates lower than the free-market would otherwise allow. This money is spent into existence by governments, owed back with interest, and then enters the fractional reserve system we operate today. It is at that point, the money-multiplier effect allows this money to be expanded further, by roughly ten times or by whatever the fractional reserve requirements set by the host country's central bank allows.

Firstly we have the issue of money creation and lending it with interest. As you are aware money, like every other commodity, derives its value from supply and demand. If you double the supply of money without an equal increase in production the money then represents half the production it once did. Keynesian economists like to change the classical definition of inflation from an increase in the monetary base to rising consumer prices, as if wet streets somehow cause rain. Every time the government borrows money into existence and spends it, they directly tax the money in our pockets, savings accounts and pensions. The inflation tax is the most insidious and devious of all taxes, silent and undetectable to most people. And we have legal tender laws to force us to comply with the situation and to stop us choosing to use something else as money if we figure it out.

As John Maynard Keynes himself once remarked in the “The Economic Consequences of the Peace”

"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society (destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose."

Fredrik. Von Hayek won a Nobel peace prize for his work on interest rates. He showed the price of money plays a very important function, that of sending signals to entrepreneurs. When people have a lot of capital from saving, the cost of borrowing money is low and that just happens to be at a time when people are saving for the future and choosing not to consume now. Entrepreneurs can borrow that capital to start various ventures. As this pool of capital is depleted interest rates rise and cool the expansion down. When savings are scarce and therefore interest rates are high, it just happens to be at the time when people are not saving and are consuming instead. Free market interest rates therefore are a huge factor in moderating the economy, encouraging expansion at the right time and discouraging malinvestment and bubbles or what Alan Greenspan once called “irrational exuberance”.

The fact is, one of the primary causes of our woes today is the interference with this valuable signalling mechanism. Attempting to fix the price of capital through money creation is dangerous and morally bankrupt at best. Our problems today could never have occurred with interest rates set by the free market. Perversely, one of the most depressing things now is how capitalism and the free market are frequently blamed for our problems, when actually it is central banking and governments, diametrically opposed to the free market that have brought us to this crisis. I'm not sure we've ever really had true capitalism, what people call capitalism today may be called state-capitalism, crony-capitalism or perhaps even neo-feudalism.

When our currency was tied to a commodity there was at least some discipline but fiat money, deposit insurance and implied public bailouts for the “too big to fails” create the most outrageous moral hazard. The issues du jour put that clearly beyond question.

Even with fractional reserve banking, there was a time when private banks were accountable and could be bankrupted by a lack of confidence and a resulting bank run. Rather than outlawing fractional reserve practices, deposit insurance was dreamed up. And so it goes on, ad nauseam.

Most people don't realise that if they deposit £100 in a bank, the banking system can effectively loan £900 into existence based on that deposit. If they charge that at 5% to someone via a mortgage or loan etc., they can make £45 per year interest based on that phantom money alone, obviously reducing as the loan is repaid and the credit is destroyed.

People complain about bank charges and I've heard people defending the practice by saying how banks used to charge for facilities and services and have to pay for paper statements etc. Given that we no longer have sight and time deposits and banks aren't actually safe-keeping our money, the idea is ridiculous. If we had honest money, I would be happy to pay a bank for banking services and for keeping my money safe.

We repeatedly hear about confidence in the system. Why? Because the money isn't there! What other industry requires confidence to operate. The whole thing is a sham. Most people involved don't know it is, they just assume everything is fine because it's how it's always been. But ever since the goldsmiths of England invented paper promises and then expanded them beyond their reserves we've had dishonest money.

I think the goldsmiths of old would marvel at how much larger, bolder and more organised the fraud is today with our layers of system protection from commercial banks right through to the BIS and the IMF. Other countries and civilisations have trodden the same path also and met with a sticky, hyper-inflated end. In fact there have been more than 3500 fiat currencies and they have all failed. The de facto debt default by Richard Nixon in 1971 severed the last tie to discipline and the resulting super currency bubble is beginning to deflate. How are we responding? We are desperately trying to re-inflate it to prop up property prices and to stop the banks from being forced to admit they are completely insolvent. The government talks about people needing a better financial education, they are the worst offenders of all. At least the recession has made people realise that living beyond your means is a bad situation to be in. Now we the public aren't spending, the government is doing it for us. You can't solve debt and inflation with more debt and inflation. How has anyone fallen for the mantra of borrowing our way of debt? Insane! And, in most discussions of blame the Bank of England seems to escape scrutiny far more often than it should. I'd like to see the Bank of England's royal charter revoked and the institution abolished. Wall street and the London financial district got drunk. Yes, but it was the Bank of England and the Federal Reserve who supplied the alcohol.

I have touched upon various subjects that I know from what I've heard you say that you'll definitely know and understand but I wonder how much of the evolution of money and banking you've studied and whether you've ever studied the Austrian school started by Ludwig Von Mises, the only school of economic thinking that has consistently been correct since it was started? If you haven't, I really hope you will take a look.

I realise this letter is long. This is a topic astonishingly simple in principle, but one with so much history, intrigue and obfuscation it's difficult not to waffle endlessly. It is for precisely that reason I contacted you to try and pique your interest.

With your economic background, consistent track-record and position as the champion of financially downtrodden, I'm sincerely hoping the magnitude of the situation will win your time and consideration, and I'm particularly hoping you can ask and publicise some difficult questions. Our banking system is largely an illusion and one that can be ended by someone with a voice pointing out the emperor isn't wearing clothes. I'm hoping you'll be that someone.

I am available at any time should you or one of your staff wish to discuss this in more detail. Whilst I genuinely hope you will contact me, I've included some material and resources with this letter which I hope you will find both useful and enlightening!

Yours sincerely,

esmerellda · 5 February 2010 at 1:33PM

It was a great night (if you are interested in what people want for the future of banking that is)

Around 250 people attended the evening at the Royal Horticultural Halls between 5pm and 8pm last night. We arrived for Coffee, and nibbles

, and were seated on round tables of around 10 per table each table with a 'facilitator' from Which?.

It was a fantastic way for the 'future of banking commission' to collect data from a range of consumers about their thoughts on banking.

Speaking were Dermot Murnahan(newsreader chappy), David Davies MP, Peter Vicary Smith (head of Which?), David Pitt-Watson (David Pitt-Watson - Wikipedia, the free encyclopedia) and Philip Augar (ex banker turned writer @ FSA) and another couple peeps who I forget their names.

The overall messages which came out of the evening were

People want the ''UTILITY'' banks (that word was used a lot!) ie the RETAIL side of banking seperated from the Investment side of banking. (read The Turner Report and google Glass-Steagall if u want more info on this idea)
People want banks to be broken back up to smaller units.
People want a return to proper customer service and the traditional 'bank manager'
People want Fairer Charges, greater control and better transparency.
People want better Regulation.

We heard from people who have never had problems with their banks and who are primarily in credit, who don't want to see an end to free banking (something being addressed in the Financial Services Bill forcing every bank to offer at least ONE freeifincredit current account and ONE free savings account which pays interest) and people who have lost their homes through the actions of the banks.

A LOT of ideas were put forward, one being an independant 'consumer' on the board of each bank, banks billing people for their accounts rather than taking their fees directly, better education in schools and universitys, plain english contracts (being address by the OFT market study announced yesterday) and so on. I presume Which? will be writing up the event and I'll link to that when they do.

We also spoke to Dominic Lindley who has request we put our submissions into the commission (so this will tie in with the work we are doing for the OFT PCA future of banking reports).

There was a 'comments' board which we wrote a fair few of our issues on, all our notes and discussions have gone to the commission to be compiled to go to 'the next government'. There was also a VOXBox thingy (where you talk into a camera with your views)

Yes it might of been a 'marketing' event and to make it look like something could be done when really not a lot can, but I think it was worthwhile and is worth keeping an eye on the Future of Banking commission.

On the way out we had a glass of wine and got given a goody bag of which? stuff and vouchers

Did anyone else go ?

dots_thots · 5 February 2010 at 3:28PM

Did anyone there talk about or even mention the fraudulent practice of fractional reserve banking that creates moral hazard and systemic risk?

It seems to be the elephant in the room, no-one wants to talk about it and yet everything else is a footnote!

Fire_Fox · 6 February 2010 at 1:20PM

Shame these sort of events are always held in London - why not somewhere like Leeds which is easily accessible from London as well as Scotland? I attended the Power2010 event a few weeks ago and it was full of white middle aged men from the south, one or two token Irish and Scots (didn't meet anyone Welsh).

MSE News: Consumers urged to join Which? banking debate

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