Biggest financial scam in history

Thrugelmir

samclam wrote: »

Ok, not that it's a new concept to me anyway, explain to me in your own words what Fractional Reserve Banking is and how it works? And if you feel that it is a fair system?

Why is it an unfair system?

purch

explain to me in your own words what Fractional Reserve Banking is and how it works?

It's the way Banks expand their illiquid assets, above and beyond their liquid liabilities.

samclam

Thrugelmir wrote: »

I wasn't saying all our problems were imported from the US.

So why are our Banks & Building Soc's in so much trouble? Our banks do more than just lend surely? At least this article implies they are involved in other risky activities
telegraph.co.uk/finance/economics/6389906/Megirvyn-King-bail-outs-created-biggest-moral-hazard-in-history.html

I kind of disagree about discussions to reform FR Banking because it's been in existence for the last few hundred years and those that profit from the interest on debt are not going to want to give it up.

I agree you can't change the system all at once but I do believe the level of bailouts is unwarranted. And if they truly wanted to stimulate the economy they would either force the banks to lend or put the money directly into the economy. I believe the recession is much more down to the credit contraction than a few bad mortgages. As we know we could have paid those mortgages for far less than we've given to the banks. And I don't care if the derivatives world implodes it shouldn't be our responsibility.

Yeah when you really can't do anything there's no point in worrying but I've got a nasty feeling everyone is way to apathetic. I'm not religious but that saying "all it takes for evil to flourish is for good men to stand by and do nothing" keeps coming to mind. Substitute corruption for evil if you like.

samclam

purch wrote: »

It's the way Banks expand their illiquid assets, above and beyond their liquid liabilities.

can you elaborate. like what are the implications for regular people and do you think it is a fair system. can you put it in layman's terms so other people can understand.

purch

And if you feel that it is a fair system?

Fair to whom ?

Fair to the business owners who are able to borrow money, in amounts and/or at rates that would be impossible otherwise, in order to expand their businesses and create employment opportunities ?

Fair to the young couples who are able to borrow money, in amounts and/or at rates that would be impossible otherwise, in order to put a roof over their head and house their family ?

Or is your point, that it's unfair to you, because it allows other people to make themselves lots and lots of money ?

purch

what are the implications for regular people

If we had Full Reserve Banking for the last century, then I doubt whether the Intergoogle would exist, nor the computers we are using.

So probably it would be a good thing, cos the Internet Blogger fraternity would not exist :T

samclam

purch wrote: »

Fair to whom ?
?

No, you don't understand it.

The way FR Banking has it is to keep 90% of the money in circulation in the form of Debt. So the banks receive interest on nearly all money. They are basically taxing us for using money. Does that sound like a fair system? I mean fair to 99% of the population?

It's not like the banks have any unique abilitly. They have just secured a weird privilege to create money by multiplying their reserves. That sure sounds unfair to me.

Now here's the fair version. Privately owned banks do not create our money in the form of debt. A publicly owned body like the Treasury creates all our money and puts it in circulation for all our normal living and commerce, same world, no debt.

The FR system is inherently unstable because there isn't enough money to pay both the debt and the interest. Hence these bubbles and busts. That does not facilitate progress or well being.

To my knowledge we've had a Fractional Reserve system for the last few Centuries so what are you talking about?

purch

No, you don't understand it.

I don't understand it, because I asked a simple question ?.

Fair to whom ?

You asked is it fair ?

Fair to the 99.999999999999999999999999 % of the populations who aren't Banks ?

Yes it's really unfair for people to have access to credit that wouldn't otherwise exist. Totally unfair for people to be able to better themselves. Unfair to us all that the economy can grow and we can all in part benefit.

Are you telling me that you've never had a credit card, never had a mortgage, never borrowed any of this money 'created' by Banks ?

Or are you a hypocrite, happy to take the 'funny' money, but secretly mad because someone else is profiting more than you are, from the system.

It was great for the 'saintly' Founding Fathers to dream up their wonderfully idealistic view of money. Great for them, they were all rich and powerful landowners. If they needed to borrow a few thousand dollars to buy a few more slaves to toil on their plantations, no problem. Not so great for the rest of the population. No chance of any 'credit' no chance to be able to borrow to buy some seeds to plant, livestock to rear, no chance to improve their lives.

Where would we be today if there had been Full Reserve Banking for the last 250 years ??

samclam

You're still missing the point.

A Full Reserve system doesn't have to be static. You put as much money into the system as the system needs to run optimally. A full reserve system doesn't have to keep growing and growing endlessly just to pay all that interest because their isn't any interest. It is not prone to bubble and bust. It is a stable system and an untaxed system. Therefore it is fairer.

The funny money is the the debt money because it's actually negative money, although all Fiat paper money is a bit funny. You're also forgetting that an absolute quantity of money eg £1000 is only worth what it will buy. Our money has been constantly eroding due to inflation, but I'm trying to keep the principals simple.

The Full Reserve system I'm talking about would not stifle economic growth as you are misunderstanding.

As for the Founding Fathers, what ever their financial status, what they said about money was very sound. It was motivated by the desire to be free of the financial shackles of England. We never broke free from ours and sadly the Americans are shackled again too. Government debt now around £50k per household - shackles. Do you still love our current system?

Thrugelmir

samclam wrote: »

No, you don't understand it.

The way FR Banking has it is to keep 90% of the money in circulation in the form of Debt. So the banks receive interest on nearly all money. They are basically taxing us for using money. Does that sound like a fair system? I mean fair to 99% of the population?

At the most basic level the money the banks use to lend belongs to someone.

I have £250k of cash.

I buy your house for that sum.

You deposit the money in your bank account. You earn interest.

The bank retains 9% as a capital reserve. The bank lends £227.5 k for a mortgage. The banks earns interest.

Out of the earnt interest the bank pays your interest, the cost of running the bank, corporation tax and a shareholders dividends. Retaining a little for its own capital reserve.

The person with £227.5k to spend on a house, follows on from the steps above. The circle continues.

Where are the banks taxing us?

The failure in the system is the 9% requirement held as capital reserve. The talk is of moving this progessively up to 15%.

FR banking failed when lenders such as NR in the UK securitised their mortgage books to create more funding for mortgages. In the end there wasn't the market for the paper, (and the quality of the paper was poor). It was Lehmans that spliced and diced and marketed NR mortgage debt. Including its infamous 125% mortgages.