Biggest financial scam in history

purch

Do you still love our current system?

Did I ever say I did ?

Our "current system" is rotten to the core, and greed and corruption have been allowed to take us to the brink of disaster.

We think that we have avoided disaster, but believe me, there are many more shocks and surprises in store over the coming months and years.

But that doesn't mean that the concept of Fractional Reserve is wrong, or that Fractional Reserve Banking properly regulated shouldn't be the monetary system that we use..

A publicly owned body like the Treasury creates all our money and puts it in circulation for all our normal living and commerce,

Put the State in control of everything. :T

That has always worked wonderfully wherever that has been tried.

lemonjelly

purch wrote: »

Did I ever say I did ?

Our "current system" is rotten to the core, and greed and corruption have been allowed to take us to the brink of disaster.

We think that we have avoided disaster, but believe me, there are many more shocks and surprises in store over the coming months and years.

But that doesn't mean that the concept of Fractional Reserve is wrong, or that Fractional Reserve Banking properly regulated shouldn't be the monetary system that we use..



Put the State in control of everything. :T

That has always worked wonderfully wherever that has been tried.

This kinda post highlights the value of this board. Occasionally, you come across a gem like nugget of information on here that is real important & insightful.

Conrad

samclam wrote: »

Aren't you guys interested in securing your financial future? The current level of government debt is something like £50k or more per household.

Every household in the UK was 'saddled' with the debt of WW2, founding the NHS and costs to rebuild the nation.

You no doubt benefited from all that debt - you had a local swimming pool, library, roads, school, GP, all of which made you what you are today.

We've just hopefuly averted a massive full scale meltdown that would have lead to electricity companies switching off, salaries not being paid, errosion of wealth etc.

Ok so we all need to step up to the plate and cough up a contribution - so be it. Stop thinking of your Tax bill and welcome the fact you are contributing to the well being of the nation hence fourth.

Generali

Conrad wrote: »

Ok so we all need to step up to the plate and cough up a contribution - so be it. Stop thinking of your Tax bill and welcome the fact you are contributing to the well being of the nation hence fourth.

You're not contributing to the wealth of the nation however, you're paying off the debts of companies and individuals who borrowed imprudently for the most part.

That's before you have to pay for the pension and PFI bills that previous Governments ran up in your name and never accounted for.

samclam

@ Thrugelmir

You mention to the loop back aspect of it. If you buy my house for £250k, I put £250k in the bank. The bank keeps 9% £22.5k & lends £227.5k to people for whatever and those people deposit their money in other banks who lend out 91% of that and so it goes on. Basically around 99%, of all money is created by the Fractional system. Now that's a lot of leverage and a lot instability if anything goes wrong.

I know what you mean, all credit becomes deposits somewhere. My meaning of Tax is the difference between interest payed to depositors and interest payed by borrowers. Don't forget some borrowers pay massive amounts in interest like 25% credit cards, then there's all those penalties and clauses to catch you out. So 99% of all the money in our economy pays the difference in these 2 rates, that's a lot of revenue for just multiplying new money on some digital machine. I suspect way beyond the pure administration costs. And a very unstable system to boot.

The system is also unstable because there is never enough money currently in circulation to pay the difference in interest I called Tax.

The real failure in the system is we could print up new money without owing it or paying interest on it.

@ Conrad

Paying the debts of irresponsible banking activities is not contributing to a solution it's contributing to a problem and a damed unfair one. Considering we could have solved the problems for far less cash by helping regular people not banks. Let some banks and some of their departments fail and they might start behaving sensibly again.

@ lemonjelly

I agree there must be more bad stuff to come when you have policies that haven't solved anything, just bought a little time.

@ Purch

Yep, agree more bad to come.

I used the Treasury as an example but really we would need an organisation that was wholly owned by the public, fully transparent and which we could call to account at any time. I agree a government in control of everything is not good but neither are a few too large & powerful corporations.

You still don't understand my distinction between Full Reserve & Fractional Reserve, so here's a simple example:

Your Fractional system - someone offers you £20k but says you have to pay interest on it at 10% pa and that they can potentially demand it back and any time.

My Full Reserve system - someone gives you £20k with no interest and no debt but you only get it because you have earned it or you plan to use it for a project that agrees with.

The Full Reserve system is more stable because you cannot have sudden credit contractions which directly cause recessions and you don't have a bubbles fueled by ever more debt to pay the interest on old debt.

I think everyone is so used to the status quo that they can't think out of the box and see our system's obvious flaws, even though we're experiencing them right now.

Thrugelmir

samclam wrote: »

@ Thrugelmir

I know what you mean, all credit becomes deposits somewhere. My meaning of Tax is the difference between interest payed to depositors and interest payed by borrowers. Don't forget some borrowers pay massive amounts in interest like 25% credit cards, then there's all those penalties and clauses to catch you out. So 99% of all the money in our economy pays the difference in these 2 rates, that's a lot of revenue for just multiplying new money on some digital machine. I suspect way beyond the pure administration costs. And a very unstable system to boot.

Firstly the Fractional Reserve Sytem fails when you withdraw all your money in cash. The bank has to claw the money back. Can only do this by recalling the loan it has made. Think back to the queues outside NR. The BOE is aware of this and tighter capital requirements will be imposed starting next June ( banks will be required to hold more liquid deposits cash and specified government bonds), through to 2012. When far tighter regs will be imposed. Or at least it is.

Difference between interest income and expense. Is used to run the bank, pay dividends, pay FSA fees and corporation tax. Banks make a small net % return on assets. Far below trading companies on turnover.

Credit cards reflect risk, and cost of the operation. Fraud departments etc. Not a cheap operation to run. With high bad debts and recovery costs.

samclam

Thrugelmir wrote: »

Firstly the Fractional Reserve Sytem fails when you withdraw all your money in cash. ...

Difference between interest income and expense. Is used to run the bank, pay dividends, pay FSA fees and corporation tax. Banks make a small net % return on assets. Far below trading companies on turnover.

Credit cards reflect risk, and cost of the operation. Fraud departments etc. Not a cheap operation to run. With high bad debts and recovery costs.

What you say makes sense & I didn't mention the vulnerability to sudden large cash withdrawals. But if the difference between interest rates paid and received only makes the banks a small %age then how come they were making such record multi £ Billion profits before the crash?

I think we both agree that Fractional Banking, at least at present, is an unstable system. Can you explain what happens from the banks point of view when borrowers default on their loans, are they able to right those loans off?

One point I can't be convinced otherwise about is that the Quantitative Easing could come from completely new debt free money instead of money we as tax payers have to repay & pay interest on. Considering the money comes out of thin air why should we be paying for it? Not that I agree we should be paying the banksters debts anyway.

Thrugelmir

samclam wrote: »

What you say makes sense & I didn't mention the vulnerability to sudden large cash withdrawals. But if the difference between interest rates paid and received only makes the banks a small %age then how come they were making such record multi £ Billion profits before the crash?

I think we both agree that Fractional Banking, at least at present, is an unstable system. Can you explain what happens from the banks point of view when borrowers default on their loans, are they able to right those loans off?

One point I can't be convinced otherwise about is that the Quantitative Easing could come from completely new debt free money instead of money we as tax payers have to repay & pay interest on. Considering the money comes out of thin air why should we be paying for it? Not that I agree we should be paying the banksters debts anyway.

Taking 2007 - RBS the biggest bank in the world made £10.3 billion pre tax and pre dividend. Using its Assets ( money lent ) at Oct 2008 (which I happen to know) of £1,600 billion. Thats a pretax profit % of 0.64%.

Puts into perspective banks real rate of return.

When loans are written off. Then it hits straight through to the bottom line and is deducted from profit. The bank still owes somebody this money , on a simple level a depositor. Banks can absorb losses as long as hold sufficent capital reserves. Such as issued share capital. Thats in essence why the Government was forced to take shares in the banks. The bad debt write offs were more than the banks could afford.

Having said that. Banks are regulated by far tighter rules, than other businessess, to provide for doubtful debts. So although the picture looks bleak. Over time if the debts that appear bad aren't then these provisions can be released at some point. An accounting technicality.

Thats why Barclays has done so well from the trading book they acquired from Lehmans. The recovery of debt has been better than envisaged.

By buying assets from pension funds, life funds and insurance companies the BOE was able to inject and ultimately control the liquidity in the system introduced through QE. When the time comes the cash will be withdrawn from the market. The majority of QE is held in Gilts with under a 2 year maturity. Be interesting to see what the BOE buys next. As it already owns 80-90% of under 2 year gilts .

harryhound

I've been away from this part of the forum for the last few months; too busy and out of my depth, now that the crisis is being "resolved" by currency devaluation and quantitative easing.

I really have enjoyed getting back up to speed with this debate. It just about avoided getting into the sterile name calling that put me off the forum.

To sum up: We have a system where the government creates money and a banking system that multiplies it. Interest rates act as an efficient mechanism for allocating the money to the most profitable "investments" in the economy (:rolleyes::rolleyes::rolleyes:)

The reality is that politicians deficit finance to grand stand and buy votes and are proud to expand the economy.

The banks think the most profitable use of the extra credit is to stoke up consumerism by lending on credit cards and mortgages to the greedy & foolish, who are happy to sign up as debt slaves for the rest of their lives, in order to live beyond their means.

Some soon fall into debt and bankruptcy hell, at the slightest change in their personal lives. They join the hand to mouth existence of the "can't pay won't pay" underclass (they have their own forum where they can meet fellow "victims" and perhaps see a way out of their folly).
Another group use increasing debt to climb the ever growing asset bubble and convince themselves they are being enriched by the system out of all proportion to their efforts. Some of them, smart enough to realise a bubble profit when they see one and able to step sideways, certainly have. The majority are at risk of deflating back to where they started.

So that was the situation two years ago - hot money scrabbling for short term returns. But where was the real investment needed to keep up with population growth and resource depletion on a finite planet? As the bubble, stoked up the most by the "Anglo Saxon" deficit financed warring consumer economies, looked like bursting; the reality of the situation dawned and started to freeze the money system: What was the "solution"?

Business as usual. Devalue the currency. Force interest rates down to virtually zero (impoverishing the debt free "drones" in society who live on savings interest.) and when that does not work stuff the banks with liquidity. Result: The show is sort of back on the road again, only this time it is "he who hath can borrow" and the divide in society gets larger as asset prices recover while real risk taking entrepreneurial investment runs out of credit.

Meanwhile the government has created a massive deficit on our behalf. Where to now?
Default and tear down the system? I think the Soviet revolution tried that to create a more rational society.
Let inflation write off the debt 1970's style.
Have a "lost decade" of growing taxes and stagnant economy?

Where do we go from here in the cycle of "party" - "hangover" - "rebuild".
How are we going to get into the rebuild phase this time?
Something went very badly wrong with the financial system but I doubt bureaucratic state regulation is the answer

Thrugelmir

harryhound wrote: »

Something went very badly wrong with the financial system but I doubt bureaucratic state regulation is the answer

Regulation is exactly what is required. Merely by increasing capital liquidity requirements for banks, the amount of credit in the financial system can by slashed at a stroke.

The problem with this as identified by the BOE earlier this year, is that you can't do this in the middle of a recession. The regression has to be implemented over a period of time to allow both consumers and business to correct their own balance sheets.

The additional problem is that a number banks have overlent on their asset bases, and there isn't the necessary wholesale funds in the market that they can borrow to keep themselves solvent.

The credit contraction will therefore take some years to take effect. With the UK Government acting as guarantor for 2 of the biggest banks in the world.