Last weekend's Fun Online Poll asked "Which is the better way to help businesses?". I normally wait until a hundred people have voted, but so far 73 have chose "Cut Taxes" and nobody has chosen "Bail out the banks, in the hope they'll increase lending", so I'm going to call it early.
Which begs the question, why on earth does our government insist on bailing out the banks time and time again? I would assume that this is a desperate measure to prop up house prices, or possibly because our government is so dumb they think that the banks are important, or maybe even because the members of this government are hoping for well-paid non-jobs with UK banks after they get voted out next year.
Sure, the existence of a banking system (payments, direct debits, cash machines) is vitally important, as is the general idea that banks match savings with borrowing to the mutual benefit of all concerned. But banks are just middlemen, and have very little capital of their own. So if one lot go out of business, the staff, the branches, computer networks etc are still there; and the savings and the mortgages are still there, so why not let somebody else come and have a go?
For a real life example, see the transfer of most of B&B's assets/liabilities to Santander a year ago. Sure, somebody has to face up to the losses (which are already there), but they can be divvied up between reckless borrowers, bondholders and shareholders, there's no point burying our heads in the sand.
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Moving on, this week's Fun Online Poll asks "What should income-related benefit withdrawal try to achieve?"
In case that sounds a bit technical, what I mean is the fact that somebody on Income Support etc loses £1 in benefits for every £1 he earns; and households on Tax Credits lose around 70p in Tax Credits/PAYE for every £1 they earn. Those are "income-related benefits withdrawal" rates of 100% and 70% respectively.
For a graphic representation of what I mean, see here.
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Wednesday, 11 November 2009
Fun Online Poll Results: What are we missing?
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9 comments:
> Which begs the question, why on earth does our government insist on bailing out the banks time and time again?
Because the Bond Holders own us. They didn't really bail out the banks (they're now zombies) they used taxpayers tp bail out the bondholders.
"banks match savings with borrowing" Since reserve ratios (savings )are 3% and loans( borrowings) are 97% how come they "match"?
DBC, don't use the word "reserves" as it has two entirely opposite meanings!
"Reserves" on the 'financed by' or 'liabilities' side of the balance sheet = share capital-plus-retained profits, which is really just a balancing figure between 'assets' (£100) and 'repayable liabilities' (i.e. £97 deposits).
"Reserves" on the 'invested in' or 'assets' side means physical cash or near cash that you can use to pay out to depositors who make withdrawals in the next few hours or days. It may well be that banks have £3 in 'cash reserves' and have lent out £97 (total assets £100).
The fact that the "reserves" on each side of the balance sheet are a similar figure is purely coincidental.
They, that is New Labour, propped up the banks because if they had not Brown would have been toast and they would have had to call an election and that would have meant that the Tories would have got in and they would have held the promised Lisbon referendum. We would have voted, not No, but 'Up Fucking Yours' to the EU and that would have precipitated the collapse of the whole EU super quango leftyish rule by bureaucracy 'project'. Plus new Labour are epically economically incompetent. You can take cl 4.4. out of the manifesto but you cannot take it out of socialists, well certainly not totalitarian socialists.
Your explanation states that savings match borrowings: borrowing from the banks is equal to the savings on deposit.This is clearly not the case or else a bank could not grant a loan until somebody made a new deposit.The system would be at a standstill.What is your defence of fractional reserve banking if you don't recognise it exists?You seem to be suggesting that all the bank loans with the well known pyramid or multiplier effect are matched by assets (buildings ,goodwill?) ,cash in the tills,retained profits,or recourse to the interbank loan market.Not even the banks make this hopeful claim.
DBC...
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"What is your defence of fractional reserve banking if you don't recognise it exists?"
I'm neither 'defending' it or 'attacking' it, I am describing it. Again, the 'fraction' can relate to two entirely separate things:
a) The coins and notes (or near-cash) that banks keep ready to pay depositors who want to withdraw money. This is on the assets side
b) The amount of the financing side that has to be shareholder's capital. This is on the liabilities side.
Obviously, the higher the fraction, on either side, the 'safer' the bank.
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"You seem to be suggesting that all the bank loans with the well known pyramid or multiplier effect are matched by assets (buildings ,goodwill?), cash in the tills, retained profits, or recourse to the interbank loan market. Not even the banks make this hopeful claim."
You seem to be unclear as to what a 'bank loan' is. From the banks' point of view, a loan is an asset - it is money that is paid out that generates a profit for them (i.e. interest). Buildings, computer systems, cash in the tills and a good team of employees ('goodwill') are also assets.
From the point of view of the bank, 'savings' are a liablity! Your bank balance represents an amount of money that the bank has to pay to YOU when you ask for it.
In principle, the amount of money in = the amount of money out. It's basic bookkeeping. Savings go in and loans come out.
The banks' big mistake was to lend money out willy nilly on vastly overinflated property prices; some of these loans are irrecoverable, which means that the people who put money in (shareholders, bondholders, depositors) will not all get their money back (unless the government bails out the banks yet again).
And yes, the banks are going round saying "Woe is me! Woe is me! We need loadsamoney or the economy will collapse" because they know if they ham it up, they'll get loads of lovely free money courtesy of Timmy Taxpayer. This is rubbish of course, the banks are coining it in even now.
The government are irredeemably stupid and give in to this blackmail, rather than telling them to f*** off, which would have been a much cheaper and better option all round ... but house prices might have taken a knock, which is why the government didn't dare call their bluff.
It does seem pretty clearly indicated, doesn't it?
To develop MW points central bank(er)s and their clientele cartel commercial banks are the problem, not the solution. I look at it in feudal terms. All we have achieved since Magna Carta is to replace feudal slavery with wage slavery dependent upon the trap of personal credit, specifically the House Purchase Mortgage con. The only democratic defence or method of controlling this is either to scrap central banks money supply monopoly and / or to let banks go bust. Returning to commercial banks the right to issue their own currency would make them more 'prudent' and to switch from gaining deposits on 'rate' to gaining deposits on 'security'. At the same time the rate paid and charged would be genuine market rates, not the faux manipulative rate set by the central bank under the delusion that they are 'running the economy'. No-one 'runs the economy', especially and particularly not New Labour or any socialist come to that. The economy runs itself, thank you very much, without the interference of politicians or their client central banks. The crucial first step to genuine prudency and the destruction of moral hazard is to let banks go bust. All the State might want to do, by consensus, is to compensate domestic individuals and corporations who may hold money on deposit (an unsecured loan to the bank). In fact once people realised that their wealth was at risk they may well start demanding security from the bank for money on deposit. I know I would. As you can see this reverses the power. It switches it from the bank to the individual. The banks of course would hate it. They would not be able to create credit to such an extent and their returns would be much lower. It would also drive proper account charging which if the ludicrous stay on the penalty charges challenge was removed would soon regularise.
But the banks have a powerful lobby. And politicians like Brown are vulnerable to manipulation through their deceitful politics that does not admit of them standing up for us.
It's going to take a revolution methinks. Anyone for the barricades?
Lola, welcome back. You're on top form today. Wouldn't it be nice to be in charge and watch their faces turn grey when you explain exactly how banks are going to be run in future?
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