Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 09, 2012 5:00 pm  

LeighGionaire wrote:

Just because his solution wouldn't necessarily be the same as mine we both agree on the fundamental problem at the heart of this crisis.

Really?

He states the problem is that lack of regulation on banks lead to too much lending and thus private sector over-leveraging. To repair this he says we should increase banking regulation. He explicitly says that the current fractional reserve banking system shouldn't be got rid of

You say banks are perpetrating a 'money from nothing fraud', you think all debt is inherently evil, so you want to replace the current banking system.

If you genuinely think he is backing up your point then you're more crazy than I thought.

LeighGionaire wrote:

Anyway I'm still waiting for you to explain how the U.K money supply doubled in the last 8 years if banks don't create money when they give out new loans . . .

I have explicitly stated that banks create money, just not in a 'money out of nothing fraud'

I'll try once more to explain the difference between our position.

When I walk into my local Barclay's bank and ask for a £100k loan to buy a house from you, if I'm successful they will credit my account with £100k. They wont transfer money deposited from someone else's account into mine, they will simply credit my account with the money, I think we agree with this part.

But, when I successfully buy the house and the transaction goes through, what do you think happens? Do you think my bank simply transfers this newly created money into your (say Santander) bank account., and Santander accept this? This isn't what happens, they transfer money from their account with the central bank, into Santander's central bank account. They CANNOT create 'central bank money'.

As I previously stated banks can deposit as much money into people's accounts as they like. But as soon as the person tries to spend it or withdraw it, they need 'central bank money' to back it up - and they cannot create this type of money.

So yes banks can create as much money as they like, as long as they don't care about becoming insolvent. Barclays could deposit £100 trillion in my account right now, but as soon as I tried to spend it the bank would be insolvent.

I have a few questions I would like to ask you.

a) you state that ' there is NEVER enough Money/Credit in the system to pay back all the loans because the extra money needed to pay the interest isn't created at the same time as the loan'.

Where do you think the money from the interest repayments goes? Do you think banks horde all their interest repayments in big underground vault. Or do you think this money is simply income for the bank, which is used to pay the salary of its employees, and dividends to its shareholders?

b) You say governments can never pay off their debts. But governments can ensure that they run a surplus, this means debt decreases. At what point would the magic boundary come into play and stop governments reducing debt so much it became 0?

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 09, 2012 5:05 pm  

We all lived it up on cheap credit. Now we are being asked to pay it off.

[Kosh]

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 09, 2012 5:11 pm  

LeighGionaire wrote: How about YOU buy any of these books instead http://www.positivemoney.org.uk/books/ and enlighten yourself instead of misguidedly sniping at me about a subject you obviously don't understand. You probably still think banks loan out grannys savings Any book written by people who can so blatantly misrepresent the Adaire speech with selective quoting and wilful misinterpretation is fundamentally worthless.

LeighGionaire wrote: How about YOU buy any of these books instead http://www.positivemoney.org.uk/books/ and enlighten yourself instead of misguidedly sniping at me about a subject you obviously don't understand. You probably still think banks loan out grannys savings Any book written by people who can so blatantly misrepresent the Adaire speech with selective quoting and wilful misinterpretation is fundamentally worthless.

[Kosh]

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 09, 2012 5:14 pm  

The Video Ref wrote:

We all lived it up on cheap credit. Now we are being asked to pay it off.

No. No we 'all' didn't. And the cheapness or otherwise of the credit is irrelevant.

Re: The Clearest Explanation of the Cause of Financial Crisi : Fri Nov 09, 2012 6:12 pm  

The Video Ref wrote:

We all lived it up on cheap credit. Now we are being asked to pay it off.

I didn't. But, I am. Moral hazard doesn't begin to explain it.

Re: The Clearest Explanation of the Cause of Financial Crisi : Sat Nov 10, 2012 9:24 pm  

Adair Turner's speech gives good explanation of the benefits of fractional reserve banking, which is what Leigionnaire and his mates are always arguing should be scrapped. http://www.fsa.gov.uk/static/pubs/speeches/1102-at.pdf (p16-17) 1. Banks allow maturity transformation. This means you can hold liabilities over a longer term than your assets. In other words you can buy a house and borrow over 25 years, but you can hold savings (ie you lending to someone else) over short term, so you can have quicker access. The only reason you can do this, is because the bank is taking the risk by lending out more than it has. If you had 100% reserve banking then there would be no maturity transformation, the total amount a bank lent out would have to equal the total amount deposited in the bank, and they could only lend out over the same length as the savers are depositing in. So to lend mortgages over 25 years they would need an equal amount of depositors willing to tie their money in 25 year savings accounts, which is not going to happen. This maturity transformation is also beneficial to businesses and UK economic development was enhanced by having a more advanced form of maturity transformation system in its banks, which encouraged more business investment. 2. Maturity transformation allows for lifecycle consumption smoothing. As most people are going to see their earnings increase over time in their lifetimes, being allowed to take out a mortgage to buy a house and pay back over 25 years, means you can enjoy the benefits of that house over 25 years. If you had to squat in a shack whilst saving up that money over 25 years before buying it, you have missed out on 25 years of house. Similar analogies apply to businesses particularly start ups. Without maturity transformation you wouldn't get start up businesses, apart from amongst the already wealthy. Hence Adair Turner concludes "we should I believe accept the existence of fractional reserve banking as a given fact of modern economies". Turner is a good bloke, and would be a good Governor of the Bank of England, he would be my second preferred choice after Gus O'Donnell.

Adair Turner's speech gives good explanation of the benefits of fractional reserve banking, which is what Leigionnaire and his mates are always arguing should be scrapped. http://www.fsa.gov.uk/static/pubs/speeches/1102-at.pdf (p16-17) 1. Banks allow maturity transformation. This means you can hold liabilities over a longer term than your assets. In other words you can buy a house and borrow over 25 years, but you can hold savings (ie you lending to someone else) over short term, so you can have quicker access. The only reason you can do this, is because the bank is taking the risk by lending out more than it has. If you had 100% reserve banking then there would be no maturity transformation, the total amount a bank lent out would have to equal the total amount deposited in the bank, and they could only lend out over the same length as the savers are depositing in. So to lend mortgages over 25 years they would need an equal amount of depositors willing to tie their money in 25 year savings accounts, which is not going to happen. This maturity transformation is also beneficial to businesses and UK economic development was enhanced by having a more advanced form of maturity transformation system in its banks, which encouraged more business investment. 2. Maturity transformation allows for lifecycle consumption smoothing. As most people are going to see their earnings increase over time in their lifetimes, being allowed to take out a mortgage to buy a house and pay back over 25 years, means you can enjoy the benefits of that house over 25 years. If you had to squat in a shack whilst saving up that money over 25 years before buying it, you have missed out on 25 years of house. Similar analogies apply to businesses particularly start ups. Without maturity transformation you wouldn't get start up businesses, apart from amongst the already wealthy. Hence Adair Turner concludes "we should I believe accept the existence of fractional reserve banking as a given fact of modern economies". Turner is a good bloke, and would be a good Governor of the Bank of England, he would be my second preferred choice after Gus O'Donnell.

Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 12:31 am  

sally cinnamon wrote:

2. Maturity transformation allows for lifecycle consumption smoothing. As most people are going to see their earnings increase over time in their lifetimes, being allowed to take out a mortgage to buy a house and pay back over 25 years, means you can enjoy the benefits of that house over 25 years. If you had to squat in a shack whilst saving up that money over 25 years before buying it, you have missed out on 25 years of house. Similar analogies apply to businesses particularly start ups. Without maturity transformation you wouldn't get start up businesses, apart from amongst the already wealthy.

This might have been true a generation or so ago. But these days for the overwhelming majority of people beyond the age of 25 (when training, apprenticeships etc. have ceased and the employee is drawing full pay) the emphasis is on capping rises or cutting wages completely. Personally, I've lost count of the number of people bemoaning the fact that they were both better paid and better off ten or even fifteen years ago (often under the same company). I mean, in REAL TERMS, any person not pulling in 5%+ per annum increase is almost certainly taking a pay cut year after year. According to the government inflation is currently running at 2.7% - but the methods of calculating inflation have fallen victim to political inveiglment and thus aren't what they were in, say, the seventies when today's figure would be significantly higher.

Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 4:20 am  

The Video Ref wrote:

We all lived it up on cheap credit. Now we are being asked to pay it off.

talk about sweeping generalisations ?

Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 8:19 am  

Mugwump wrote:

Personally, I've lost count of the number of people bemoaning the fact that they were both better paid and better off ten or even fifteen years ago (often under the same company). I mean, in REAL TERMS, any person not pulling in 5%+ per annum increase is almost certainly taking a pay cut year after year. According to the government inflation is currently running at 2.7% - but the methods of calculating inflation have fallen victim to political inveiglment and thus aren't what they were in, say, the seventies when today's figure would be significantly higher.

What you mean is you are basing this all on anecdotal evidence and you don't want to believe official measures of inflation so you just say "well the government fixes the figures".

I bet you don't know how the inflation indices are calculated, or what changes have been made over the past 'generation' in calculating RPI or CPI. You are just making up that they are faked.

Politicians don't legislate on how inflation is calculated anyway. It's done by statisticians in the civil service following guidelines that come from the International Labour Office to ensure measures are comparable across different countries.

Re: The Clearest Explanation of the Cause of Financial Crisi : Thu Nov 15, 2012 12:21 pm  

sally cinnamon wrote:

What you mean is you are basing this all on anecdotal evidence and you don't want to believe official measures of inflation so you just say "well the government fixes the figures".

This is ridiculous. I and just about anyone around the age of 40 can recall a time when excluding mortgages and other services from inflation statistics was - at the very least - uncommon. It was during the eighties that this method gained serious traction within the media. Even though I think it's utterly ridiculous to use this exclusive calculation I could at least handle the media quoting old and new side by side. But now they regularly refer only to the new method and without any qualification whatsoever.

So yes - the way inflation is calculated has changed. If you want to deny this and claim we have always excluded mortgages etc. from the sums I really can't help.