Debt amnesty. Could this work?

CLAPTON

Marktheshark wrote: »

No they dont, they are allowed to invent new money when someone borrows, the deposits remain as base collateral.

So in your view a bank needs no-one to deposit money at all and could just lend without having any liabilities what so ever :

given the bank don't need any depositors why ever was there a financial crisis ?

Graham_Devon

Far fairer if such a situation were to arise to give everyone, say, 10k each.

That way it's not only those who took on debt who get something for nothing. it's everyone.

This relates to the PPI scandal quite well. Those who racked up the most debt and took even less care of their finances got the biggest payouts. There was a point on the PPI section of this forum where people were somewhat congratulated for being so stupid financially. Worse, they were congratulating themselves due to their bumper payouts.

Anyone who actually researched what they were doing when taking on a loan, or avoided loans altogether missed out.

Wouldn't have been so bad if PPI claims only paid back what had been paid out, but the 8% interest is basically a gift and made a huge difference to the payouts.

purch

Yeah.....all those queues of people at Northern Rock trying to withdraw money was good news as it meant they had more to lend :rotfl:

Thrugelmir

Liverlad67 wrote: »

Since many people got into trouble due to the banking crisis

The banking crisis had nothing to do with the general culture of personal financial mismanagement. Blaming the banks is only one side of the coin.

We've had record low interest rates for 6 years and people are still in trouble.

Loughton_Monkey

TickersPlaysPop wrote: »

To original poster...

This will make you even more angry..... the bank don't have money to lend before a mortgage is created. The money is literally created from thin air when we borrow money from banks. It is called the debt money system, or purposefully named "fractional money system" to confuse us laymen.

https://m.youtube.com/watch?v=_syDOz1NIrw

Only 5mins video and well worth watching.....

I continue to be gobsmacked by the sheer volume of people who fall for this 'money creation' myth. Is it the education system to blame? Or is it just senile confusion on the part of those who are such dinasoars that they fail to understand 'electronic banking'?

These idiots will never understand it until such time as we revert to a system where every £1 of money is printed by the government and every time I want to pay for my gas bill, someone has to physically take a bunch of cash and dump it on British Gas's counter.

theEnd

Marktheshark wrote: »

No they dont, they are allowed to invent new money when someone borrows, the deposits remain as base collateral.

This is technically correct.

Although the 'money is debt' youtube things is deeply misleading (and incorrect) the reality is also not what most people think.

If I want to borrow £1m from BankA, they do not need to have or wait for £1m to be deposited by a saver.

They simply credit my account with £1m. Then by month end they need to up their capital adequacy to cover a proportion of that amount. But the money will just be deposited in another account in BankB, who then need to reduce their capital adequacy by the same amount, so there's a simple switch.

In reality the capital adequacy are the current accounts held at the central bank, which is also the narrow money supply.

CLAPTON

theEnd wrote: »

This is technically correct.

Although the 'money is debt' youtube things is deeply misleading (and incorrect) the reality is also not what most people think.

If I want to borrow £1m from BankA, they do not need to have or wait for £1m to be deposited by a saver.

They simply credit my account with £1m. Then by month end they need to up their capital adequacy to cover a proportion of that amount. But the money will just be deposited in another account in BankB, who then need to reduce their capital adequacy by the same amount, so there's a simple switch.

In reality the capital adequacy are the current accounts held at the central bank, which is also the narrow money supply.

so does a bank need any deposits to operate?

theEnd

CLAPTON wrote: »

so does a bank need any deposits to operate?

A bank will always have deposits. The loans don't really go anywhere, they're just zero sum numbers across many banks, all of which ultimately have a current account with the central bank.

As a loan is created, a deposit is also created. If I move/spend that money, the deposit is simply moved to another account (possibly even in the same bank).

N1AK

Liverlad67 wrote: »

Since many people got into trouble due to the banking crisis instead of ruling people out of credit mortgages etc for six years why not give everyone a clean slate? Surely better than quantative easing etc. did happen but not sure where.

Why do you think it would be better than QE? What do you think the amnesty would achieve?

N1AK

Generali wrote: »

It depends what you mean by 'work' really.

If there's a debt amnesty then you are seizing the assets of banks. Ha! That'll show those greedy bankers right? Only it won't because the banks are owned by their shareholders which is mostly you and I in our pension funds. Banks would all be immediately erm bankrupt so savers would also be wiped out along with most companies as their working capital would disappear so couldn't pay suppliers or workers.

I suppose the Government could print money to buy the debt off the banks but that would unleash an inflation tsunami through the economy I suspect.

Having said all that a partial debt amnesty could work or even simply giving each person £ xx to spend/pay down debts. That's what the Australian Government did at the start of the GFC.

I'm not a huge fan of either blanket debt amnesties or simply handing people money. The former rewards the wrong behaviour, and the latter wouldn't stimulate the economy if most people chose to pay down debt or sit on the money.

I like the idea of giving people money to stimulate economic activity. However I would prefer options like:
> VAT rebates for limited periods, stimulating and rewarding spending.
> Distributing shares purchased during the crisis to individuals, with some restrictions on how quickly they can be redeemed.

The issue is that schemes like this become a headache to administer. You need to register millions of people, distribute the money/shares, check for abuses etc.