Banks. What are they for?

Nice post at the Cobden Centre:  Herewith below an extract:

 (From Punch)

 Q: What are banks for?

A: To make money.

Q: For the customers?

A: For the banks.

Q: Why doesn’t bank advertising mention this ?

A: It wouldn’t be in good taste. But it is mentioned by implication in references to reserves of $249,000,000 or thereabouts. That is the money they have made.

Q: Out of the customers?

A: I suppose so.

Q: They also mention Assets of $500,000,000 or thereabouts. Have they made that too ? 

A: Not exactly. That is the money they use to make money.

Q: I see. And they keep it in a safe somewhere?

A: Not at all. They lend it to customers.

Q: Then they haven’t got it?

A: No.

Q: Then how is it Assets?

A: They maintain that it would be if they got it back.

Q: But they must have some money in a safe somewhere?

A: Yes, usually $500,000,000 or thereabouts. This is called Liabilities.

Q: But if they’ve got it, how can they be liable for it?

A: Because it isn’t theirs.

Q: Then why do they have it?

A: It has been lent to them by customers.

Q: You mean customers lend banks money?

A: In effect. They put money into their accounts, so it is really lent to the banks.

Q: And what do the banks do with it?

A: Lend it to other customers.

Q: But you said that money they lent to other people was Assets?

A: Yes.

Q: Then Assets and Liabilities must be the same thing.

A: You can’t really say that.

Q: But you’ve just said it. If I put $100 into my account the bank is liable to have to pay it back, so it’s Liabilities. But they go and lend it to someone else, and he is liable to pay it back, so it’s Assets. It’s the same $100, isn’t it?

A: Yes, but..

Q: Then it cancels out. It means, doesn’t it, that banks don’t really have any money at all?

A: Theoretically..

Q: Never mind theoretically. And if they haven’t any money, where do they get their Reserves of $249,000,000 or thereabouts?

A: I told you. That is the money they’ve made.

Q: How?

A: Well, when they lend your $100 to someone they charge him interest.

Q: How much?

A: It depends on the Bank rate. Say five and a half percent. That’s their profit.

Q: Why isn’t it my profit ? Isn’t it my money ?

A: It’s the theory of banking practice that..

Q: When I lend them my $100 why don’t I charge them interest?

A: You do.

Q: You don’t say. How much?

A: It depends on the Bank rate. Say half a percent.

Q: Grasping of me, rather?

A: But that’s only if you’re not going to draw the money out again.

Q: But of course I’m going to draw it out again. If I hadn’t wanted to draw it out again I could have buried it in the garden, couldn’t I ?

A: They wouldn’t like you to draw it out again.

Q: Why not? If I keep it there you say it’s a Liability. Wouldn’t they be glad if I reduced their Liabilities by removing it?

A: No. Because if you remove it they can’t lend it to anyone else.

Q: But if I wanted to remove it they’d have to let me?

A: Certainly.

Q: But suppose they’ve already lent it to another customer?

A: Then they’ll let you have someone else’s money.

Q: But suppose he wants his too.. and they’ve let me have it?

A: You’re being purposely obtuse.

Q: I think I’m being acute. What if everyone wanted their money at once?

A: It’s the theory of banking practice that they never would.

Q: So what banks bank on is not having to meet their commitments?

A: I wouldn’t say that.

Q: Naturally. Well, if there’s nothing else you think you can tell me..

A: Quite so. Now you can go off and open a banking account.

Q: Just one last question.

A: Of course.

Q: Wouldn’t I do better to go off and open up a bank?

*Cited in G. Edward Griffin’s history of the Fed, ‘The Creature From Jekyll Island’.

Life Copies Satire

James Frayne in this morning's City AM:

[Ed] Miliband has a very narrow mission this week. He must deal with concerns in Westminster about his character to end speculation about his leadership. Nothing more. And this requires a speech designed to appeal purely to Westminster elites.

These elites only care about style. Miliband will therefore almost certainly be working on a speech to be delivered with no visible notes, and with decent jokes, surprising personal stories, emotional moments, and a cameo by his impressive wife. A few announcements will bulk out the coverage.

From this afternoon's Daily Mail:

Justine Miliband... has vowed to break with convention and speak out publicly about why she thinks Mr Miliband should be Prime Minister. The child actress-turned-barrister has begun making a public appearances and speeches at the Labour party conference to 'humanise' her husband.

Mr Miliband repeatedly said he would not copy David Cameron's habit of eye-catching photo opportunities while opposition leader, and would instead focus on policies.

"The House That £100k Built"

Is a new series on BBC2.

Episode 1/6 featured "A young pizza van owner from Leeds [who] has an ambitious plan to build a four-bedroom house." 

In the end, he was really struggling to stick to the budget of course, and ended up cutting corners, making do with second hand materials and so on.

The programme also briefly explained that he'd obtained the land "cheaply" because it was an infill site just big enough for one or two houses and thus of no interest to large developers (it only had a narrow access road between two rows of terraced houses, or through the middle of a longer row).

And even more briefly, it mentioned that he'd managed to acquire the land for "only" £100,000 - as much again as the entire construction cost of the house, which makes a bit of a mockery of the whole concept.

I assume that the programme makers don't even consider the £100,000 which disappeared into the Land Monopoly Black Hole to be a "cost".

"The Devil Wears Pravda"

From Wiki and Wiki:

Andrea "Andy" Sachs (Anne Hathaway) is an aspiring journalist fresh out of Northwestern University. Despite ridiculing the shallowness of the Communist Party of the Soviet Union, she lands the job "a million girls would commit genocide for": junior personal assistant at Pravda, a Russian political newspaper started by the Russian Revolutionaries during the pre-World War I days.

Miranda Priestly (Meryl Streep), the icy editor-in-chief of the leading newspaper of the Soviet Union after the Russian Revolution subjects Andy to bizarre and humiliating treatment which Andy tolerates in the hopes of getting a job as a reporter or writer somewhere else.

At first, Andy fumbles with her job and fits in poorly with her gossipy co-workers, especially Miranda's senior assistant Emily Charlton (Emily Blunt). However, after the dissolution of the USSR, Pravda is closed down by the then Russian President Boris Yeltsin.

With the help of art director Nigel (Stanley Tucci), who loans her designer clothes, she suffers a huge economic downfall and is sold to a Greek business family.  She also meets the attractive young Communist Party of Russian Federation (Simon Baker) who re-acquire her in 1997 and established her as their principal mouthpiece.

Problems arise in her relationships with her college friends and her boyfriend Nate (Adrian Grenier), a chef working from the same headquarters on Pravda Street in Moscow where Pravda was published in the Soviet days.

During its heyday Pravda was selling millions of copies per day compared to the current print run of just one treasured "Book", a mock up of the current edition, delivered to Miranda's home along with her dry cleaning.

Andy finally succumbs to the Communist Party's charms after spending the night with them and becomes well known in the West for her pronouncements as the official voice of Russian Federal Socialism.

Fun Online Polls: The BBC & Help To Buy Sell

The responses to last week's Fun Online Poll, as suggested by Ralph Musgrave, were as follows:

What do you appreciate most about the BBC? Multiple selections allowed

Dragging climate change into every issue - 65 votes
Air time given to Islamo-thugs - 58 votes
Bankster remuneration for pseudo leftie staff - 54 votes
The “house price increases” are good message - 38 votes
Promotion of paedophilia - 35 votes
All is forgiven. I love the BBC - 11 votes
Other. Please specify - 16 votes

101 voters

So now we know.
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According to politicians, UK house prices - i.e. UK house prices in the South East, which is all they care about or are even aware of - are not in bubble territory and so the Help To Buy Sell subsidy is not doing any harm.

Surely - and unless I am very much mistaken - if houses were easily affordable for the sensible purchaser, then there would be no excuse for such a subsidy?

Surely, the very existence of the subsidy - or the fact that somebody would seriously have the nerve to even suggest it - is proof that houses are unaffordable?

But maybe I've missed something.

Vote here or use the widget in the sidebar.

An Ed Milliband Whizzo Plan

From the Independent

Companies will be forced to train a British apprentice for every foreign worker they take on if Labour win the next election, party leader Ed Miliband has said.

Speaking in Brighton, where Labour is holding its party conference, Mr Miliband said the proposal was designed to reduce low-skill immigration and help create a “high wage economy”.

The party's plan would compel firms that hire workers from outside the EU to take on a similar number of apprentices from the UK. It claims that the policy would create up to 125,000 high quality apprenticeships over the next parliament.

“In our first year in office we will legislate for an immigration bill which has secure control of our borders, cracks down on exploitation of workers coming here undercutting workers already here, and says to big companies that bring in people from outside the EU that they can do that, within a cap, but they have got to train the next generation,” Mr Miliband said.

I'm not sure if Ed actually said it, but companies can't be forced to train a British apprentice. That would be against EU law. He could force companies to train up an apprentice from within the EU.

But how is this going to reduce low-skill immigration?

Let's imagine you're a software company and you want to bring over an experienced guy from India, especially someone with some rare skills. We're honestly going to force companies to spend money training up a software development apprentice, despite the fact that it then costs that company thousands, perhaps 10s of thousands to do so (after which the person can leave)? Reality: the work will be subcontracted out to India instead.

Or if you're a restaurant and bring over a bangladeshi chef, are we saying they have to now hire another member of staff, even though they only have jobs for one more?

If we want to have more people in jobs with good skills, the solution is as follows-

• Replace benefits with CI, which will encourage people to take jobs.
• Introduce LVT which will encourage more companies to set up in cheaper parts of the UK rather than offshore.
• Convert the old polytechnics back into polytechnics, remove their ability to grant degrees, and instead run more work related courses (e.g. C&G, BTEC) that provide the skills that employers want.
• Link part-time work and polytechnic education. So, either people can go to poly and get a course, or can get a job where 2 days a week, they go to college and learn skills that can be brought into the job.

Desperate Straw Man Found. Now It's Idi Amin

I thought I'd post this link to an academic paper written by Zachary Gochenour and Bryan Caplan of George Mason University here, titled "A Search Theory Critique of Georgism".

In it, like all NCEists their main argument revolves around the fact the optimum use of any plot of land needs to be discovered, and that discovery has costs, which must be capital costs, therefore any tax upon land acts like any tax on capital i.e. there is no such thing as land rent.

Never mind there are dozens of examples of oil producing nations (including of course the UK, Norway, Libya, in fact, just about all of them) that have tax regimes in place that do tax this land rent for use as public revenue. That's ignored. Obviously.

More amusing is Caplan's assertion that any attempt to install a Georgist tax will result in a situation akin to Uganda under Idi Amin. Good KLN that. Original at least.

Anyway, the paper is littered with plenty of KLN's to keep us all entertained. But one did catch my eye, and perhaps worthy of comment.

"We do not mean to suggest that there is no merit in the idea of taxing relatively inelastic products as opposed to relatively elastic ones. However, we propose that there is nothing inherently special about land in this regard, and suggest that taxing of negative externalities (Pigou 1920, Baumol 1972) is plainly superior from an efficiency perspective."

Ignore the first KLN concerning the taxation of other inelastic products and consider his recommendation that Pigouvian taxes are plainly superior.

The thing is, LVT can be regarded as such a tax. It is the right to exclude under the law that gives land its value. We are all excluded equally (negative externalities). Under LVT we are all equally compensated.

Or we can regard monopolies as causing negative externalities. Again, LVT is just compensation for this.

Economists like Caplan flip flop around desperately trying to discredit LVT, but all they do is ultimately reveal the paucity of their arguments. It's all about protecting greed and privilege. Nothing else.

Using infra red for area bombing

I've seen lots of TV programmes about are bombing campaigns during World War II, to sum up, they didn't like bombing in the day time because that made it too easy for enemy fighters, but the problem at night was actually finding the target.

An obvious counter-measure was having a blackout, it's fairly easy to get everybody to turn the lights off, have black out blinds etc. So they invented all manner of radio guidance systems, all of which were then jammed by the other side.

But you cannot just cool down a whole city. According to Wiki, the heat island effect was known about since 1810 and the temperature difference is "several degrees". And according to this, the Germans had been working on infra red scopes for tanks and so on.

So assuming the technology existed, if you had an infra red scope in the lead bomber pointing downwards, he'd be able to find his way across enemy territory in complete darkness by comparing the brighter/warmer smudges against where towns and cities are on a normal map, drop a few incendiaries to get the party started and hey presto.

The other good news about using an infra red scope, compared to radio guidance or radar, is that it doesn't emit anything which the enemy can detect from a distance.
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Which brings me on to another topic.

It was very difficult shooting down an aeroplane using ground based artillery, it is pure guesswork and the calculations are too complicated. But shining a searchlight on an aeroplane is a lot easier. If you can get two searchlights (or even better three searchlights) to lock on to and track an aeroplane, then using triangulation and so on, you can work out where it is and how fast it is moving.

All you'd have to do then is co-ordinate this with the artillery so that they are firing shells exactly where the aeroplane is going to be after however many seconds it will take it to reach that spot.

I was once talking to an old German guy who had to assist the anti-aircraft people in his youth. He told me that he'd asked the same question and the boss of the battery told him to shut the f- up about it, the military were actually doing top secret research into exactly that approach.

Citizen's income in practice

From Le Monde Diplomatique, via Moneyweek, we get a report of a practical demonstration of the benefits of a basic, un-means-tested income for everyone:

A new pilot study at Panthbadodiya could significantly change living conditions for the poor, and India’s approach to fighting poverty. The village is taking part in the Madhya Pradesh Unconditional Cash Transfer Initiative, a project run by the Self Employed Women’s Association (Sewa; a trade union that has defended the rights of women with low incomes in India for 40 years), with subsidies from Unicef (United Nations Children’s Fund) India.

The research director, Sarath Dewala, explained: “The experiment involves giving individuals a small sum of money, at regular intervals, as a supplement to all other forms of income, and observing what happens to their families if this sum is given unconditionally.”

There were no conditions regarding wages, employment, caste, gender or age, and the recipients could use the money as they saw fit. Besides social security benefits, adults received 200 rupees ($3.65) a month, and mothers were given 100 rupees for each child. Four of the villages had had help from Sewa for some years, with the organisation of support groups, savings cooperatives, bank loans, training in financial management and support during visits to local officials. Twelve non-participant villages served as controls for comparative study.

The idea of giving money to the poor without asking for anything in return startled some. “They told us the men would use the money to get drunk, and the women to buy jewellery and saris,” said Dewala. “But it’s a middle-class prejudice that the poor don’t know how to use money sensibly. The study showed that a regular income allows people to act responsibly. They know their priorities.

Studies at the beginning, mid-point and end of the project confirmed that, in villages receiving payments, people spent more on eggs, meat and fish, and on healthcare. Children’s school marks improved in 68% of families, and the time they spent at school nearly tripled. Saving also tripled, and twice as many people were able to start a new business.

Well, that's one prejudice disproved. Now we have to get over the "Giving money to the undeserving" one.

Little George was sad because nobody wanted to play with him