Archive for the ‘THE BANKING SCAM’ Category

CORRUPT COUNCILS ACTING ILLEGALLY BY FALSELY CLAIMING HOUSING APPLICANTS ARE ‘INTENTIONALLY HOMELESS’.

March 9, 2015

8th March 2015

http://www.dailymail.co.uk/news/article-2535136/Average-British-family-home-size-shrinks-two-square-metres-decade-increasing-numbers-forced-live-flats.html

I’ve just seen a TV programme about three single mothers being homeless and the utterly filthy way they are treated by their local councils. (BBC one March 3rd 2015 –  ‘No Place to Call Home)  see it here:

http://www.bbc.co.uk/iplayer/episode/b054dvws/no-place-to-call-home

One woman & her two kids had been forced to leave the privately rented flat she was renting because the boiler broke  and the typically nauseating private landlord simply refused to mend it. So this single mother arranged to live with her own mother in the mother’s council house.

But the council found out and told the mother she would be evicted from her own council house herself if she continued to allow her daughter & two kids to stay with her as the council said that made the council house overcrowded.

As the threat from the council now meant the mother, daughter and two kids would all be thrown out on the streets to be homeless by this spiteful and vindictive council, the mother had no choice but to tell her own daughter to leave.

This made the daughter and two kids ‘street homeless’- they had absolutely nowhere to go except live on the streets because they could not find private accommodation they would be able to afford quickly enough, if at all, as rents were nearly all far higher than they had any hope of being to afford – even if they received ‘Housing Benefit’.

Housing benefit has been cunningly arranged by this disgusting Tory Government to be too low for tenants receiving it to have much hope of finding any privately rentable accommodation.

So, this single mother is obliged to inform the council she and her young children will be on the streets, and could the council therefore re-house her as the law says it has a legal obligation to do.

No, said the council. We know we have a statutory duty where an Act of Parliament says councils have a legal obligation to house homeless parents with children, but we’re not going to. And we’re not going to because part of that same Act of Parliament says that if a person has made themselves ‘intentionally homeless’ we are allowed to refuse people we would otherwise have a legal obligation  to re-house.

So we are telling you, single mother with two young kids, that we think you are intentionally homeless and you can go F**k yourself; we’re not going to house you.

The Council used the Alice in Wonderland logic that this single mother was “intentionally homeless’ because she had ‘voluntarily’ left ‘her previous accommodation’ the privately rented accommodation with it’s broken boiler the private landlord refused to mend  with winter approaching.

The council seemed to have a convenient memory lapse in forgetting it was the council itself which had forced her own mother to evict her daughter, throw her out onto the streets with her kids  by threatening to make all of them homeless by taking the council house away from the woman’s own mother. This is a brutally corrupt piece of pure Kafkaesque wickedness on behalf of the council.

Another single mum with three kids had been evicted by her private landlord as revenge because she had asked him to do essential repairs like stop the excessive dampness which was making all the walls and ceilings covered in black mould – which is dangerous to health as it produces lung disease. She was intentionally homeless too, said the council.

I know of another single parent evicted from their house by the fraudulent USA bank Lehmans, who went bankrupt after causing the recent World wide recession by their criminally  dishonest, immoral, grasping and evil banking activities.

The council told that parent too they were ‘intentionally homeless’ on the grounds they shouldn’t have bought their house several years previously by using a mortgage as ‘they ought to have known they would be unlikely ever to work again because they were a single parent’.

I know the councils up and down the country are actually breaking the law ( I’ve checked the legislation) by using this ‘intentional homeless’ nonsense in the way they are, but more of that later.

Then I saw today’s (8th March 2015 BBC) news rabbiting on about the sixty thousand homeless people in New York right now, enduring the coldest winter weather, lots of ice & snow, for decades. New York is always very cold in winter anyway, so this must be awful if you’re living on the streets.

Then the news item featured a single mum in her early thirties working in the financial industry who still didn’t earn enough to afford the stratospheric rents of New York, so she was sharing  hostel accommodation with other homeless families.

This housing crisis is almost entirely caused by the banks ramping up the price of housing so they can lend ever larger sums of money. Housing in the UK is now about eleven times an average salary instead of the three times it was in about 1970 – before the greedy banks got into the business of mortgage lending by destroying most of the building societies.

But what should a house really cost do you think ? The average (slightly approximate) cost of building a new house is about £1200 a square metre. And the average British rabbit hutch of a new house is now only 76 sq metres, not big enough to swing  a cat, (see Daily Mail story here – http://www.dailymail.co.uk/news/article-2535136/Average-British-family-home-size-shrinks-two-square-metres-decade-increasing-numbers-forced-live-flats.html  ).

That would cost £91 200 to build, plus the extra cost of buying the land on which it stands. Agricultural land averages about £10 000 at the moment and with at least 16 tiny little rabbit hutches to the acre the land should cost a miniscule £62 or so, and it did a couple of generations or so ago.

But of course today, the bureaucracy and corruptions of the entire housing market and in particular that Orwellian gem of corruption ‘planning permission’ has made a nonsense of land value to build housing on and consequently it can cost millions per acre.

Apparently the average cost land with building permission per acre is now about £800 000 which makes one building plot to build a tiny rabbit hutch of a house on with the average of 76 sq metres for this type of house, is now about £50 000.

So after adding that extortionate £50 000 cost of the building plot to the build cost of  £91 200 we get the total cost of a new house for £141 200. Actually the average price is about twice that at present. That will be the £141 000 profit for the house builder then !

But, whatever the price new, shouldn’t the cost of a second hand house decrease at least a bit over time just like other second hand, used goods ?

Errrrrr, yes, I should think it ought to and certainly did before property started to become a good wheeze for Spivs & speculators from about 1950 onwards.

So, take my ordinary four bedroomed London terrace house of 200 square metres which would cost about £240 000 to build new today, plus the average cost of £50 000 for the plot of land, that would be £290 000 built new today. But actually the current value is about £1.4 million.

Anyway, back to the real cost of building it at £290 000. If the house lost just one half per cent a year in value ( about £1500 in the first year) the 135 year old house would have lost 67% of its original cost and would be about £194 300 to buy today. Or that rabbit hutch house costing £141 200 today would cost about £94 604 when 135 years old; (except it will never get to be 135 years old because that type of house is generally built so badly & shoddily it is unlikely to have life of barely more than 20 years).

So this example means over a theoretical life of a house off 200 years each inhabitant pays a modest half percent cost of the total building cost which  is £1 500 a year towards the building cost of the London house costing £290 000 to build in 2015. But instead, if you rent that same house today in London you will be paying the 6% of the 2015 ‘value’ the house has of £1 400 000 that landlords expect to rent homes out to tenants for and this will be a cool £84000 a year rent you will paying instead of £1500 previously mentioned.

That’s what it used to be like for centuries until the modern era, when the banks made houses repositories of value, rather than real homes to live in.

Bastards !

So, what with the builders building revoltingly cheap and nasty miniature homes too small even to contain normal necessary possessions and making extortionate profits of up to 100% and even higher, and the banks making billions of pounds out of expensive, often rip-off loans to people to buy homes, the entire country is in the icily corrupt grip of a bunch of thieving sharks really. And at the bottom are the people being forced to live on the streets or in repulsively inhumane  council ‘emergency accommodation’.

 

 

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MONEY CREATION DEBATE IN PARLIAMENT

November 21, 2014

READ HOW MPs DISCUSS HOW GREEDY, DISHONEST, FRAUDULENT  AND DESTRUCTIVE THE BANKING INDUSTRY IS

 

MONEY CREATION DEBATE PARLIAMENT

COMMONS Thursday November 20th 2014

FROM HANSARD – Read the full debate from the link below:

http://www.publications.parliament.uk/pa/cm201415/cmhansrd/cm141120/debtext/141120-0001.htm#14112048000001

SOME EXTRACTS FROM THE DEBATE

HANSARD 20 Nov 2014 : Column 434

Backbench Business

Money Creation and Society

11.18 am

Steve Baker (Wycombe) (Con): I beg to move,

That this House has considered money creation and society.

The methods of money production in society today are profoundly corrupting in ways that would matter to everyone if they were clearly understood. The essence of this debate is: who should be allowed to create money, how and at whose risk?………

……One of the most memorable quotes about money and banking is usually attributed to Henry Ford:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did I believe there would be a revolution before tomorrow morning.”………..

How is it done? The process is so simple that the mind is repelled. It is this:

“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

I have been told many times that this is ridiculous, even by one employee who had previously worked for the Federal Deposit Insurance Corporation of the United States. The explanation is taken from the Bank of England article, “Money creation in the modern economy”, and it seems to me it is rather hard to dismiss……..

It is a criminal offence to counterfeit bank notes or coins, but a banking licence is formal permission from the Government to create equivalent money at interest…….

There is a wide range of perspectives on whether that is legitimate. The Spanish economist, Jesús Huerta de Soto explains in his book “Money, Bank Credit and Economic Cycles” that it is positively a fraud—a fraud that causes the business cycle. Positive Money, a British campaign group, is campaigning for the complete nationalisation of money production……..

We are in a debt crisis of historic proportions because for far too long profit-maximising banks have been lending money into existence as debt with too few effective restraints on their conduct and all the risks of doing so forced on the taxpayer by the power of the state. A blend of legal privilege, private interest and political necessity has created, over the centuries, a system that today lawfully promotes the excesses for which capitalism is so frequently condemned. It is undermining faith in the market economy on which we rely not merely for our prosperity, but for our lives………….

Even before quantitative easing began, we lived in an era of chronic monetary inflation, unprecedented in the industrial age. Between 1991 and 2009, the money supply increased fourfold. It tripled between 1997 and 2010, from £700 billion to £2.2 trillion, and that accelerated into the crisis. It is simply not possible to increase the money supply at such a rate without profound consequences, and they are the consequences that are with us today, but it goes back further. The House of Commons Library and the Office for National Statistics produced a paper tracing consumer price inflation back to 1750. It shows that there was a flat line until about the 20th century, when there was some inflation over the wars, but from 1971 onwards, the value of money collapsed. What had happened?…….

where did all the money that was created as debt go? The sectoral lending figures show that while some of it went into commercial property, and some into personal loans, credit cards and so on, the rise of lending into real productive businesses excluding the financial sector was relatively moderate. Overwhelmingly, the new debt went into mortgages and the financial sector…….

Money is used to buy houses, and we

20 Nov 2014 : Column 438

should not be at all surprised that an increased supply of money into house-buying will boost the price of those homes…………

My point is that if a great fountain of new money gushes up into the financial sector, we should not be surprised to find that the banking system is far wealthier than anyone else. We should not be surprised if financing and housing in London and the south-east are far wealthier than anywhere else. Indeed, I remember that when quantitative easing began, house prices started rising in Chiswick and Islington. Money is not neutral. It redistributes real income from later to earlier owners—that is, from the poor to the rich, on the whole…………

Once the Bank legitimises the idea of money creation and giving it to people in order to get the economy going, the question then arises: if you are going to create it and give it away, why not give it to other people? That then goes to the question: what is money? I think it is the basis of a moral existence, because in our lives we should be exchanging value for value. One problem with the current system is that we are not doing that; something is being created in vast quantities out of nothing and given away. The Bank explains that 40% of the assets that have been inflated are held by 5% of households, with 80% held by people over 45. It seems clear that QE—a policy of the state to intervene deeply in money—is a deliberate policy of increasing the wealth of people who are older and wealthier.

Douglas Carswell (Clacton) (UKIP): I congratulate the hon. Gentleman on bringing this important subject to the attention of the House. Does he agree that, far from shoring up free market capitalism, the candy floss credit system the state is presiding over replaces it with a system of crony corporatism that gives capitalism a bad name and undermines its very foundations?

Steve Baker: I am delighted to agree with my hon. Friend—he is that, despite the fact I will not be seeing Nigel later. We have ended up pretending that the banking system and the financial system is a free market when the truth is that it is the most hideous corporatist mess. What I want is a free market banking system, and I will come on to discuss that.

11.45 am

Mr Michael Meacher (Oldham West and Royton) (Lab):

It is unfortunate that it is so little understood by the public that money is created by the banks every time they make a loan. In effect, the banks have a virtual monopoly—about 97%—over domestic credit creation, so they determine how money is allocated across the economy. That has led to the vast majority of money being channelled into property markets and the financial sector. According to Bank of England figures for the decade to 2007, 31% of additional money created by bank lending went to mortgage lending, 20% to commercial property, and 32% to the financial sector, including to mergers and acquisitions and trading and financial markets. Those are extraordinary figures…

……the overwhelming majority of the money created inflates property prices, pushing up the cost of living.

In a nutshell, the banks have too much power and they have greatly abused it. First, they have been granted enormous privileges since they can create wealth simply by writing an accounting entry on a register. They decide who uses that wealth and for what purpose and they have used their power of credit creation hugely to favour property and consumption lending over business investment because the returns are higher and more secure. Thus the banks maximise their own interests but not the national interest.

Mr Jim Cunningham (Coventry South) (Lab): Given what my right hon. Friend has just said, is there not an argument, in this situation of unlimited credit from banks, for the Bank of England to intervene?

Mr Meacher: My hon. Friend anticipates the main line of my argument, so if he is patient I think I will be able to satisfy him. Crucially, only 8% of the money referred to went to businesses outside the financial sector, with a further 8% funding credit cards and personal loans….

…..The question at the heart of the debate is who should create the money? Would Parliament ever have voted to delegate power to create money to those same banks that caused the horrendous financial crisis that the world is still suffering? I think the answer is unambiguously no. The question that needs to be put is how we should achieve the switch from unbridled consumerism to a framework of productive investment capable of generating a successful and sustainable manufacturing and industrial base that can securely underpin UK living standards….

…Under the current system, around just 80 board members across the largest five banks make decisions that shape the entire UK economy, even though these individuals have no obligation or mandate to consider the needs of society or the economy as a whole, and are not accountable in any way to the public: it is for the maximisation of their own interests, not the national interest. Under sovereign money, the money creation committee would be highly transparent—we have discussed this already—and accountable to Parliament.

Mr MacNeil: I hear what the right hon. Gentleman says about money going into building, housing and mortgages, but is that not because the holders of money reckon that they can get a decent return from that sector? They would invest elsewhere if they thought that they could get a better return. One reason why the UK gets a better return from that area than, say, Germany is that we have no rent controls. As a result, money is more likely to go into property than into developing industry, which is more likely to happen in Germany.

Mr Meacher: 

…………………..The question at the heart of the debate is who should create the money? Would Parliament ever have voted to delegate power to create money to those same banks that caused the horrendous financial crisis that the world is still suffering? I think the answer is unambiguously no.

For all those reasons, the examination of the merits of a sovereign monetary system is now urgently needed, and I call on the Government to set up a commission on money and credit, with particular reference to the potential benefits of sovereign money, which offers a way out of

20 Nov 2014 : Column 449

the continuing and worsening financial crises that have blighted this country and the whole international economy for decades……..

12.13 pm

Mr Peter Lilley (Hitchin and Harpenden) (Con): 

…………A lot has been made of the ignorance of Members of Parliament of how money is created. I suspect that that ignorance, not just in Members of Parliament but in the intellectual elite in this country, explains many things, not least why we entered the financial crisis with a regulatory system that was so unprepared for a banking crisis……….

First, all bankers—not just rogue bankers but even the best, the most honourable and the most honest—do things that would land the rest of us in jail. Near my house in France is a large grain silo. After the harvest, farmers deposit grain in it. The silo gives them a certificate for every tonne of grain that they deposit. They can withdraw that amount of grain whenever they want by presenting that certificate. If the silo owner issued more certificates than there was grain kept in his silo, he would go to jail, but that is effectively what bankers do. They keep as reserves only a fraction of the money deposited with them, which is why we call the system the fractional reserve banking system. Murray Rothbard, a much neglected Austrian economist in this country, said very flatly that banking is therefore fraud: fractional reserve banking is fraud; it should be outlawed; banks should be required to keep 100% reserves against the money they lend out. ……….

If a bank lends a company £10 million, it does not need to go and borrow that money from a saver; it simply creates an extra £10 million by electronically crediting the company’s bank account with that sum. It creates £10 million out of thin air. By contrast, when a bank loan is repaid, that extinguishes money; it disappears into thin air. The total money supply increases when banks create new loans faster than old loans are repaid…….

spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 731-32.]

Bob Stewart (Beckenham) (Con): I am listening carefully to my right hon. Friend. Does that mean that the banks are uncontrollable, as things stand?

 

 

MODERNISING MONEY

October 9, 2014

Money creation should only be used in the public interest

 

The same banks that caused the financial crisis currently have the power to create 97% of the UK’s money. They’ve used this power recklessly, putting most of the money they create into property bubbles and financial markets. And now they’re back to their old ways.

We need a change. The power to create money should only be used in the public interest, in a democratic, transparent and accountable way. The 1844 law that makes it illegal for anyone other than the Bank of England to create paper money should be updated to apply to the electronic money currently created by banks.

Banks create new money, in the form of the numbers (deposits) that appear in bank accounts, through the accounting process used when they make loans. In the words of the Bank of England:

“When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” (Bank of England Quarterly Bulletin, 2014 Q1)

Conversely, when people use those deposits to repay loans, the process is reversed and money effectively disappears from the economy. As the Bank of England describes:

“Just as taking out a loan creates new money, the repayment of bank loans destroys money. … Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.” (Bank of England Quarterly Bulletin, 2014 Q1)

When new money is created, it should be used to fund vital public services or provide finance to businesses, creating jobs where they’re needed, instead of being used to push up house prices or speculate on the financial markets.

 

Creating a Sovereign Monetary System

 

This proposal for reform of the banking system explains, in plain English, how we can prevent commercial banks from being able to create money, and move this power to create money into the hands of a transparent and accountable body.

 

It is based on the proposals outlined in Modernising Money (2013) by Andrew Jackson and Ben Dyson, which in turn builds on the work of Irving Fisher in the 1930s, James Robertson and Joseph Huber in Creating New Money (2000), and a submission made to the Independent Commission on Banking by Positive Money, New Economics Foundation and Professor Richard Werner (2010).

Taking the power to create money out of the hands of banks would end the instability and boom-and-bust cycles that are caused when banks create too much money in a short period of time. It would also ensure that banks could be allowed to fail without bailouts from taxpayers. It would ensure that newly created money is spent into the economy, so that it can reduce the overall debt burden of the public, rather than being lent into existence as happens currently.

PDF Download:

Download Here (Free, PDF, 56 pages)

 

BELOW IS AN EXTRACT FROM THE ABOVE PDF

 

SOCIAL & ENVIRONMENTAL BENEFITS

7. TACKLING UNAFFORDABLE HOUSING

Problem: Around a third of the money created by banks goes towards mortgage lending (and a further significant proportion goes towards commercial property). This creation of money to buy pre-existing assets (i.e. houses in limited supply, and the underlying land which is in fixed supply) leads to prices rising. Rising house prices make banks even more confident about lending further amounts for mortgages (since rising prices mean that they are unlikely to lose money even in the event of a default and repossession). This becomes a highly pro-cyclical process, leading to house price bubbles.

Sovereign money as a solution: There is a need for a number of policy and tax reforms to address the problem of unaffordable housing (particularly in the UK). However, removing the ability of banks to create money will remove much of the fuel for house price inflation. House prices that rise at a lower rate than growth in wages will mean that housing becomes more affordable over time.

8. SLOWING THE RISE IN INEQUALITY

Problem: House price bubbles have the effect of transferring wealth from the young to the old, and from those who cannot get on the property ‘ladder’ to those who can. This is a significant channel through which wealth inequality is further increased.

Furthermore, the fact that the nation’s money supply must be borrowed from banks means that we are having to pay interest on the entire money supply. Household income data surveys show that this has the effect of transferring income from the bottom 90% of the population to the top 10%. (See Chapter 5 of Modernising Money for further details).

Sovereign money as a solution: As discussed above, removing the ability of banks to create money should have a dampening effect on house price rises, which in turn will reduce the rate of growth in wealth inequality.

The creation, by the central bank, of money that has no corresponding interest-bearing debt, means that there is a stock of money that is effectively ‘debt free’, and no need for members of the public to borrow simply to ensure that there is money available in the economy. The resulting lower levels of private debt will mean that less interest is paid overall, and therefore less income is transferred to the top 10% of the population. Again, this will slow the rate of growth in inequality.

 

 

ONLY ONE IN TEN MPs KNOW THAT MONEY IS CREATED AND DESTROYED BY THE BANKS

September 20, 2014

http://www.positivemoney.org/2014/08/7-10-mps-dont-know-creates-money-uk/

 

WRITTEN BY BEN DYSON (POSITIVE MONEY) ON AUGUST 19, 2014.

MPs lack basic knowledge about the fundamentals of money, leaving them ill-equipped to understand the impending dangers of another house price boom or a second credit bubble, according to an exclusive Dods Monitoring poll commissioned by Positive Money, the campaign body calling for fundamental reform of our money and banking system.

When asked questions about who creates the nation’s money in the UK, nearly three quarters got the wrong answer. 71% of MPs believed that only the government has the power to create money. In reality, the government now only creates coins and notes, which make up just 3% of all the money in the economy. The other 97% of money exists as bank deposits – the electronic numbers in your bank account). This type of money is created by high-street banks – not by the government.

Just over 1 in 10 MP accurately understood that banks create new money every time they make a loan, or that money is destroyed whenever individuals or businesses repay loans.

………….Read the rest of this interesting article from this lPositive Money website link  below

http://www.positivemoney.org/2014/08/7-10-mps-dont-know-creates-money-uk/

And I include just two of the comments here because they reveal some astonishing information about what banks get up to. (you can see the rest when you read the full article via the Positive Money website link above).

simonthorpe • a month ago
One way to illustrate the role played by banks is to look at the amount of Assets that Banks have relative to capital. It is commonly believed that banks can only lend around 10 times their capital. But the most recent figures show that while the 50 largest banks in the world have $67.6 trillion in assets, they only have $722 billion in capital – an overall ratio of about 88 to 1. Indeed, several banks have more than 1000 times more assets than capital (see http://simonthorpesideas.blogs…
How do they do it? Well, the Basel II and III rules say that when banks create money to lend to AAA to AA- rated governments, such loans have a risk weighting of 0% – meaning that they need no capital at all to make the loans. It’s not surprising that Europe’s governments now owe over $11.4 trillion to the financial system, and that last year European taxpayers paid €365 billion in interest payments, bringing the total amount of interest paid to €6.2 trillion since 1995. These are interest payments made to a financial sector that didn’t even have the money that they lent. (see http://simonthorpesideas.blogs… )
This insane situation is likely to continue while 7 out of 10 MPs have not understood that when the UK government borrows money from the markets, that money is created out of thin air. Well done Positive Money for showing how ignorant our leaders are.

 

bankster01 • a month ago
Robert Peston in his book “How do we fix this mess ?” on page 183 I think, says ” Only the bank of England can create money”. This book describes very well how the financial crisis occurred, I have not got to his proposed solutions, which probably mainly involves separating risky investment banks from boring retail banks. He is a top economist and journalist, but in his book he gives no adequate explanation as to how the UK money supply tripled in 10 years from 1997. He seems to imply that central banks created, then lent money at very low rates to the commercial banks who then lent it on to us. Some banks used securitisation, or sold on their existing loans so they could further increase their lending. I do not think over £1 trillion pounds was created in 10 years by the Bank of England for commercial banks to lend on, or a wall of foreign money was used by the commercial banks to increase lending either. The Bank of England has provided cheap credit for schemes like “Funding for lending”, in the hope that commercial banks would lend it on when the economy was on it’s knees, but it was not doing that in the boom years. It was simply all the banks increasing their lending in step, knowing that new deposits would then flow back to them, to support further lending. Peston writes a lot of good stuff, but he implies like a lot of economists that money is just “oil” for the economic machine, when really it is petrol, fuel for the fire.

BANK ROBBERY – HOW BANKS STEAL FROM EVERYONE

February 1, 2014

Article from the Positive Money Website – the campaign to reform the corrupt and self evidently broken monetary system

http://www.positivemoney.org.uk/wp-content/uploads/2012/06/Banking_Vs_Democracy_Web.pdf

Written By: Andrew Jackson and Ben Dyson 

Special thanks to: Anthony Molloy

Produced with the support of The JRSST Charitable Trust

© February 2012 Positive Money

PRIVATISATION BY STEALTH

The common misconception of how banks work is

that they take people’s savings and lend them out

in the form of loans. In this vision, banks merely

operate as the middlemen between savers and

borrowers, but this is simply not what happens.

When a bank makes a loan it does not take the

money out of anyone else’s account. Instead, it

simply creates a new account for the customer and

types a number into it.

When a customer is approved for a loan (of say

£1,000), she signs a contract with the bank obliging

her to pay back £1,000 plus interest over a period

of time. According to accounting conventions, the

£1,000 loan can then be recorded as an asset of the

bank. At the same time the bank opens an account

for the customer and types £1,000 into it. As the

bank owes the customer this money, it is recorded

on the liabilities side of the bank’s balance sheet. By

this process, the bank has simultaneously created

new money in the borrowing customer’s account

and a corresponding debt. The bank’s new asset

(the debt) balances out the new liability (the newly

created money) so that in accounting terms, the

books balance.

The customer now has £1,000 of new money to

spend on whatever they choose. No money was

taken out of anyone else’s bank account. New

money has been created out of nothing.

In the UK, over 97% of the entire money supply was

created in this way and exists in the form of ‘digital’

money, numbers in the bank accounts of members

of the public and businesses.

NO ACCOUNTABILITY TO CUSTOMERS

Unlike pension funds, banks are not required to

disclose how they will use their customers’ money.

As 97% of the UK’s money supply is effectively held

with banks, this allows them to allocate a larger

sum of money than either the entire pension fund

industry or the elected government itself. Conse-

quently the UK economy is shaped by the invest-

ment priorities of the banking sector, rather than

the priorities of society.

Just five banks hold 85% of the UK’s money, and

these five banks are steered by just 78 board

members whose decisions shape the UK economy.

This is a huge amount of power concentrated in very

few hands, with next to no transparency or account-

ability to wider society.

******

It is common knowledge that anyone found printing

their own bank notes can expect to find the police

kicking down the door at two o’clock in the morning.

However, it has only been illegal for individuals and

companies to create their own £5 or £10 notes since

1844.

Prior to 1844, the state had a legal monopoly only

over the creation of metal coins dating from the

time when this had been the only form of money.

But keeping lots of metal and carrying it around was

inconvenient so customers would typically deposit

their metal coins with the local jeweller or goldsmith

who would have secure storage facilities. Eventually

these goldsmiths started to focus more on holding

money and valuables on behalf of customers rather

than on actually working with gold, and thereby

became the first bankers.

A customer depositing coins would be given a piece

of paper stating the value of coins deposited. If the

customer wanted to spend his money, he could take

the piece of paper to the bank, get the coins back,

and then spend them in the high street. However,

the shopkeeper who received the coins would then

most likely take them straight back to the bank. To

avoid this hassle, shopkeepers would simply accept

the paper receipts as payment instead. As long as

the bank that issued the receipts was trusted, busi-

nesses and individuals would be happy to accept the

receipts, safe in the knowledge that they would be

able to get the coins out of the bank whenever they

needed to.

Over time, the paper receipts came to be accepted

as being as good as metal money. People effectively

forgot that they were just a substitute for money

and saw them as being equivalent to the coins.

The goldsmiths then noticed that the bulk of the

coins placed in their vaults would be gathering dust,

suggesting that they were never being taken out.

In fact, only a small percentage of all the deposits

were ever being claimed at any particular time. This

opened up a profit opportunity—if the bank had

£100 in the vault, but customers only ever withdrew

a maximum of £10 on any one day, then the other

£90 in the vault was effectively idle. The goldsmith could lend out that extra £90 to borrowers.

However, the borrowers again would choose to use

the paper receipts as money rather than taking out

the metal coins from the bank. This meant that the

bank could issue paper receipts to other borrowers

without necessarily needing to have many—or even

any—coins in the vault.

The banks had acquired the power to create a substitute for money which people would accept as being money. In effect, they had acquired the power to create money: perhaps this is when the goldsmiths became real bankers.

The profit potential drove bankers to over-issue

their paper receipts and lend excessive amounts,

creating masses of new paper money quite out of

proportion to the actual quantity of state-issued

metal money. As it always inevitably will, blowing

up the money supply pushed up prices and destabi-

lised the economy (of the many crises, particularly

galling was the Bank of England having to borrow £2

million from France in 1839). In 1844, the Conserva-

tive government of the day, led by Sir Robert Peel,

recognised that the problem was that they had

allowed the power to create money to slip into irre-

sponsible private hands and legislated to take back

control over the creation of bank notes through the

Bank Charter Act. This curtailed the private sector’s

right to print money (and eventually phased it out

altogether), transferring this power to the Bank of

England.

However, the 1844 Bank Charter Act only addressed

the creation of paper bank notes. It did not refer to

other substitutes for money. With growth in the use

of cheques, the banks had found another substitute.

When a cheque is used to make a payment, the

actual cash is not withdrawn from the bank. Instead,

the paying bank periodically communicates with the

receiving bank to settle any net difference remaining

between them once all customers’ payments in both

directions have been cancelled out against each

other. This means that payments can be made even

if the bank has only a fraction of the money that

depositors believe they have in their accounts.

Following on in the spirit of financial innovation,

after cheques came credit and debit cards, elec-

tronic fund transfers and internet banking. Cheques

are now almost irrelevant as a means of payment

but over 99% of payments[b] (by value) are made

electronically.

Today the electronic numbers in your bank account

do not represent real money. They simply give you a

right to demand that the bank gives you the physical

cash or makes an electronic payment on your

behalf.

In fact, if you and a lot of other customers

demanded your money back at the same time—a

bank run—it would soon become apparent that

the bank does not actually have your money.

For example, on the 31st of January 2007 banks held

just £12.50 of real money (in the form of electronic

money held at the Bank of England) for every £1000

shown in their customers’ accounts. Even among

those who are aware that what banks do is more

complicated than merely operating as middlemen

between savers and borrowers, there is a wide-

spread belief that banks are obliged to possess a

sum corresponding to a significant fraction of their

liabilities (their customers’ deposits) in liquid assets,

i.e. in cash or a form that can be rapidly converted

into cash. In fact, such laws were emasculated in

the 1980s in response to lobbying from the industry

(although some effort is now being made to

re-impose such rules in the aftermath of the crisis).

When a run starts (like the one on Northern Rock

on the 14th September 2007) it becomes almost

impossible to stop.

Once the bank has paid out any cash which it holds in the branch to individuals (and transferred all of its reserves to other banks) other depositors will have to wait for the bank to sell off its remaining assets before they see their money.

And because the bank has to sell these assets

quickly, it will find it hard to receive a fair price.

Because of this it is unlikely the proceeds from these

sales will cover the value of their deposits and other

liabilities, and therefore most customers are likely to

lose a large proportion of their savings. Because this

type of personal ruin is a tragedy and, even more

importantly, because one bank run is likely to lead

to others (as confidence in the banking system falls

through the floor) the government insures deposits,

guaranteeing some level of payback in the event of

bank failure. Thus, because the system is inherently

unstable, and because almost all of our money

exists on banks’ balance sheets, the banking sector

has to be underwritten and rescued by the taxpayer,

all as a result of the failure of legislation to keep up

with technology and financial innovation since 1844.

******

When money is created, it can be put into the

economy in two ways: it can either be spent in

exchange for goods and services or lent out. When

banks create money, they put most of it into the

economy through lending. Exactly who this newly-

created money is given to is crucial because it will

determine the shape of the economy.

Over the decade leading up to the 2008 financial

crisis, the amount of money lent out by banks

tripled but this steep rise is largely accounted for by

loans advanced for the purposes of buying property

and for financial speculation. The amount dedicated

to productive investment remained more or less

constant throughout this period meaning that the

proportion of the money supply that was dedicated

to enhancing production steadily waned.

*****

Between November 1982 and November 2006 the

banking sector increased the money supply—by

creating new money through lending—by an

average of 10% a year.

Between November 2007 and November

2008, £258 billion of new money was created. If

government were to increase the money supply

at this rate, it would be accused of following the

policies of Zimbabwe, but because few people

understand that banks create money via lending,

this is completely overlooked.

This huge growth in the money supply is hardly

surprising when we consider the incentives that

banks have to increase their lending. In confident

times, all of a banker’s incentives push him to

lend as much as possible: by lending more, they

maximise short-term profits and, more specifically

their own bonuses, commissions and prospects

of promotion and profits. There is no reward for

bankers who are prudent and choose not to lend

or only lend judicious sums. In short, the supply

of money into the economy depends on the confi-

dence and incentives of bankers rather than what is

best for society as a whole.

Investing in machinery to make factories

more efficient is productive investment whilst

lending to buy existing property through mortgages

is non-productive as it simply pushes up house

prices without increasing production.

The £1.16 trillion of new money created by

the banks over the last ten years could have been

used to: pay off the national debt (which currently

stands at around £977 billion); invest in public

transport, hospitals, schools or renewable energy;

or exempt the poorest ten per cent of the popula-

tion from tax. Instead, it has been used by the

banking sector to fuel a housing bubble that has

made buying a home unaffordable for all but the

very rich.

The last few years have proven the business model that enables banks to create money is fundamentally unstable, requiring rescue by the government from time to time.

When this happens, taxpayer funds are diverted

from public spending and spent on salvaging failing

corporations. This further reduces the power of

government to do what it was democratically

elected to do, weakening democracy in the process.

By handing the power to create money over to

the banks, the government reduces its revenue,

compromises its capacity to carry out the activities

that it has been mandated to carry out and under-

mines the potential of the democratic system to

change society for the better.

THE HIDDEN TAX THAT BANKS POCKET

Giving banks the power to create money results in

two hidden and undemocratic ‘taxes’ being levied

on the public.

The first of these ‘taxes’ is inflation, when increases

in the amount of money in the economy feed

through into higher prices. If the money supply

is increased quickly then the new money pushes

up prices, especially in housing to where much of the new lending is destined.

Of course, it is now banks that create the vast

majority of new money. They have increased the

amount of money in the economy at an average of

10% a year between 1981 and 2007, (by lending)

and pumped this money mainly into the housing

market.

As a result, house prices shot out of the

reach of ordinary people, whereas those who got

the ‘first use’ of the money (by borrowing first)

received most of the benefit. Meanwhile those who

were not already on the housing ladder became

significantly poorer, in real terms, because the

relative cost of housing doubled in just 10 years

(between 1997 and 2007).

Consequently, the inflation caused by allowing banks to create money is also effectively a ‘tax’ accruing to the banks (through their increased interest income on ever greater mortgages) and those who borrow early on (to buy property and other assets).

The second of these hidden taxes corresponds to

interest. Because banks create 97% of the UK’s

money supply, essentially through making loans,

the entire money supply is ‘on loan’ from the

banking sector. For every pound created, somebody

somewhere goes one pound into debt and starts

paying interest on it. By virtue of their power

to create money, banks have the right to collect

interest on nearly every pound in existence.

A hidden tax collected by private corporations

because they have a power that most people would

consider—and believe—to be a prerogative of the

state can hardly be considered democratic.

Written By: Andrew Jackson and Ben Dyson

Special thanks to: Anthony Molloy

Produced with the support of The JRSST Charitable Trust

© February 2012 Positive Money

DYSFUNCTIONAL BANKING – DOESN’T THAT MEAN CORRUPT BANKING ?

December 31, 2013

According to the New Economics Foundation a dysfunctional financial sector led us to the brink of disaster in 2008, and yet bank reforms aren’t going far enough to tackle the root causes of the economic crisis. The New Economics Foundation goes on to explain our four big banks remain too big to fail, and continue to engage in the risky and unproductive activities that caused the crash. We need to establish a more stable, sustainable and socially useful banking system.

Key Facts

The UK government pledged 89% of GDP to bail-out out our banks.

45% of Americans are members of their local credit union, compared to 2% of Britons.

The UK banking sector is one of the least diverse in the developed world – local banks make up just 3%, compared to 67% in Germany and 34% in the USA.

Read more from the New Economics Foundation about the dysfunctional financial sector here

*********************

BOZ  THINKS THE NEW ECONOMICS FOUNDATION PROBABLY REALLY MEANT TO SAY………..

– All the banking problems are caused by the stranglehold, or monopoly, banks have over absolutely everyone – the Government, businesses and all individuals.

– This allows the banks to become increasingly extortionate by constantly increasing the boundaries of what they charge to their customers for handling any kind of  financial transaction and also increasing rates of interest they charge for lending money.

– As they set increasingly higher boundaries for all their charges and discover they get can actually get away with it, they also become more confident in justifying increasing bank employee ‘bonuses’ to completely obscene levels on the basis the employees made all that extra profit for the bank, therefore they deserve to get a percentage of it.

– But that also just encourages bank employees to constantly invent new ways of charging bank customers even more money as well as perpetually increase bank lending as much as possible at all times, thus making it more and more risky, dangerous, often misleading borrowers and even behaving fraudulently and downright dishonestly.

– If you look at the interest rates bank customers were paying for overdraft, or credit cards and so on about forty years ago, the rates were vastly lower than they have been now and in the past two decades.

Some bank charges today are just obscene – just look at overdraft rates at least twice as high as they used to be and credit card interest rates even higher than twice as much as they used to be, now  hurtling past 30% and surreptitiously sidling up towards 40% and all this at a time when the Bank of England  base rate has been it’s lowest in  how many hundred years ?

– If there were lots of small banking type businesses taking in customer’s money, giving them  attractive rates of interest while making sure the savings deposited were always safe, and then using those savings deposits to lend safely, reliably and carefully to small businesses and individuals, all these smaller banking operations would reduce and hopefully completely destroy the ruthlessly extortionate  monopoly of the current banking system.

– But this can’t happen because the morass of controlling regulations and bureaucracy the banks have connived at conjuring up in conjunction with the official, Government inspired regulatory authorities which were supposed to be there to help the customers of the banking system and make sure their money was looked after safely, honestly and carefully.

In fact all this regulation is cunningly used by the existing banks to stifle any possible competition by preventing anyone else from setting up a rival bank to challenge their predatory behaviour towards bank customers.

– My oh my and haven’t those industrious little dears at the regulatory authorities been ever so busy during the past century or so !

Apparently, there has only been just one new High Street Bank license granted by them in the last 150 years !

– That’s a bit funny when there are only about five banks  controllinng the entire UK market  and there is such a desperate need for probably hundreds of small, local banks, isn’t it?

Are the regulatory Authorities  just bureaucratic lunatics or have they just been stuffed with people who used to work, or even still do work within the existing banks ?

Whatever the answer is, Does that actually just mean the system is completely corrupt ?

I think so . What do you think ?