Posts Tagged ‘Extortion’

Criminal Courts Charge from a Criminally Inclined Government

May 5, 2015

May 5th  2015


It seems this country is hurtling towards being  a fascist State with most of the population denied any sort of proper justice as a corrupt Government steamrollers over citizens by tightening the screws of oppression little by little so people barely notice until it is too late.

The two articles below aptly described my own first hand experiences  and so I copied them from solicitors Clarke Kiernan website:

Criminal Courts Charge

The Lord Chancellor introduced a measure that will impact significantly on any person who finds themselves involved with the Magistrates’ Courts on any road traffic matter such as speeding, careless driving, or any other technical or low level breach of the law where the incident occurs after 12th April 2015. The idea was said to be ‘to make criminals pay for the criminal justice system’. He called it the Criminal Courts Charge.

In reality, the people who will be paying will be those ordinary working people who make a simple error and who, because they are normally law abiding, will have the income or assets to pay this extra cost. Regular offenders will tend not to have any income or assets to meet the payment. Non payment of this penalty is punishable by imprisonment no matter how low level the allegation.

If your case goes to court and you fight the allegation believing in your innocence or simply wanting to explain the circumstances to reduce the penatly, if the magistrates disagree with you they must order you to pay an extra £520 for the privilege of having the case tested, no matter how brief the hearing. The charges increase if the case gets to the crown court no matter how it gets there.

Nowadays ordinary law abiding people will have to make decisions on whether to accept a fixed penalty or whether to make false admissions for a police caution based on financial considerations rather than guilt due to the clear threat that now exists of a large extra financial penalty no matter how low level the misdemeanour or punishment.

Often people will not have taken legal advice and will not understand that taking a police caution for an allegation of eg common assault or petty theft will be recorded as a criminal record by the police and will disqualify you from many occupations, from helping out at your child’s school, restrict travel to other countries…

This is not an idea to make criminals pay, it is a way to make ordinary people pay for a system that is part of the State and payable by the State. It is an indirect further tax on working families. It is tarring people with the ‘criminal’ label indiscriminately. The impact is to convict more people, more easily and more cheaply whether or not they are guilty of a crime.

The item below was also copied from solicitors website :


Excuse us if we rant in a direction you do not agree with. A quote from Megarry J in the case of  John v Rees [1970] Ch. 345, Ch D and which was re-used in Moss v The Queen [2013] 1 WLR 3884, PC sets out a philosophy that we like:

“It may be that there are some who would decry the importance which the courts attach to the observance of the rules of natural justice. ‘When something is obvious,’ they may say, ‘why force everybody to go through the tiresome waste of time involved in framing charges and giving an opportunity to be heard? The result is obvious from the start.’ Those who take this view do not, I think, do themselves justice. As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of fixed and unalterable determinations that, by discussion, suffered a change.”

If you look at what has been happening to the Criminal Justice System (as well as the civil system) for some years you ought to wonder how consecutive Governments can get away with concentrating on the administration of the systems to the undoubted detriment of Justice. It has become more important to Government to convict members of the public quickly and cheaply. Not only are defendants and their lawyers put under pressure to prepare the cases against them rather than trust the crown prosecution service and police to do their jobs. No longer are the prosecutors expected to do their job; Government seems to have given up on them and decided that the best, easiest, cheapest way of convicting people is to get the people to carrry  out sufficient work for the prosecution that they evenutally convict themselves – guilty or not.

The protection people had was with defence lawyers who would stand up for and protect the person’s rights. Government sorted that one out. The legal aid system is being destroyed so that those who cannot afford to pay for representation have to make use of lawyers who are underpaid and overworked. It might be denied by Government and by legal aid lawyers but it is simple business sense that you get what you paid for.

Not only has Government reduced remuneration for the legal aid lawyer to a ridiculous level but they intend to do the same again and also to reduce the number of firms able to carry out the work on legal aid. The service is to be reduced to a level most people will not believe until they (unexpectedly) find themselves in need of the assistance and discover that if they want to see their solicitor outside of the Court to prepare their case and take advice so that you are ready for the hearing then you will probably find you have to travel to the other end of your county where you will see a young, inexperienced, support staff member because the firm will not be able to afford to employ enough solicitors of quality to service the work at the level people will need in order to assert their rights.

In order to achieve what the government wants to see happen to criminal defence work it is essential that they not only reduce the number of firms, they also need to ensure firms have the minimum number of solicitors and maximum unqualified support staff and then to get the price even lower the firms will not be required to have any offices. Those who can afford to instruct good firms like ours will do so much better than those who have to manage on legal aid. That is not in fact the criminal justice system we like to see. It is not the system our government should be forcing upon us.

In order to see the ways in which Government has managed to increase the burdens on defendants to convict themselves you only need to study the Criminal Procedure Rules that are carefully drafted to add to burdens for defendants in a way that ignores and overrides their statutory protections. Notwithstanding that the prosecution takes months usually to bring a case to court for the first hearing, they are encouraged to give minimum disclosure of the case the defendant is expected to meet at the first hearing but the defendant is then expected (compelled) to identify all issues they will want to rely upon notwithstanding the disclosure is inadequate and there has been no opportunity to investigate matters, check availability of witnesses, seek any expert evidence or just generally give decent instructions and take good advice. There is no leeway given for people whose first language is not English or have mental health and/or learning difficulties.


What are banks for?

January 18, 2013

– from ‘Punch’ Magazine – 3rd April 1957

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 would not be in good taste. But it is mentioned by implication in references to reserves of £249,000,000,000 or thereabouts. That is the money they have made.

Q: Out of the customers?
A: I suppose so.

Q: They also mention Assets of £500,000,000,000 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 £500,000,000,000 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 have 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 haven’t really any money at all?
A: Theoretically..

Q: Never mind theoretically! And if they haven’t any money, where do they get their Reserves of £249,000,000,000 or thereabouts??
A: I told you. That is the money they have 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 a half 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 the money out again! If I hadn’t wanted to draw it out again I could have buried it in the garden!
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 some other customers money.

Q: But suppose he wants his too…and they’ve already let me have it?
A: You’re being purposely obtuse.

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

– from ‘Punch’ Magazine – 3rd April 1957


September 21, 2012

I just thought this story about how the Consumer Action Group was started was quite interesting – read on and judge for yourselves.

The Consumer Action Group – About Us

One day in 2004 I found that my career was going nowhere and I decided to change job.

I found a job that would enable me to follow a career path that was better suited to me and more ‘future proof’. It did, however mean a small cut in pay.

To cut a long story short, when I arrived at my new job, I found that although the contract of employment stated that I would be paid on a given date by ‘direct transfer’ the translation into English went along these lines:

“We’ll pay you around that date if we can be bothered and by cheque – usually on a Friday afternoon at 17.30, so no hope of receiving the money for another 4-5 days.”

I had, of course, upon receipt of my new employment contract, changed my Direct Debits and Standing Orders to leave my account a couple of days after the new pay day.

This meant that I was charged £32 for each of the 12 Direct Debits I had set up on my account – as the bank simply refused to cancel them – I was charged £15 for a late payment to a loan I had at the time – I was charged £30 for NOT paying a Standing Order for £3 to the Children’s Society, and £32 a few days later for paying it. And the £20 fine for not paying my Barclaycard on time as well.

Total: £481

I mentioned this to my new employer who replied “tell them you’re not paying!”.

Very constructive. For a variety of reasons I left this firm after a short period – just before they went bust in fact – hence I couldn’t go after them for the money.

The £481 taken from my account of course left me £461 down the following month – again this caused a host of DD’s to bounce etc… including one to my partners account for ‘housekeeping’, and for taking the kids out etc… In turn this meant that DD’s from her account were ‘bouncing’ too.

Over a period of 13 months, Abbey took nearly £5000 from our accounts, and the loan company about £500.

The final straw came once I had borrowed, saved(???) and generally fought to pay off these charges so we could get back on our feet.

My eldest daughter needed new shoes (their feet grow fast you know), and of course when I checked my balance it seemed Abbey (despite my pleading with them, begging, and trying a variety of ways to stop the charges and/or Direct Debit payments etc…) STILL wanted a final £120. So no shoes for my little girl then. So long as the shareholders are happy – that’s all that matters.

Again, although I knew the form by now, I phoned them, and asked that they do not take it – could they not see that I have struggled hard to pay their charges in the past and was making a HUGE effort to get back on my feet?

No, of course not. They wanted cash and didn’t care if people got hurt in the pursuit of it.

I told the lady on the phone, politely, that I WOULD be getting that money back, and not just that either – everything they had ever taken from me – somehow!

At the same time, I was being harassed by the loan company – 6-7 phone calls a day and a letter from them every other day. I went to see them in their branch – they suggested taking a secured loan to pay of the existing loan (of course they did) – They threatened legal action unless “I do SOMETHING” – I reluctantly completed the Secured Loan application form and was told it would be processed. I was told by their adviser not to worry about paying the existing loan payment as a note would be made on the account about the outstanding loan application.

I continued to be harassed by the loan firm – the people on the phone seemed to have no idea about a secured loan application. They promised to update their records so I wouldn’t be called any more. In fact, they all did – all 6-7 phone calls per day.

After 7 weeks, I was told that due to the charges incurred for late payments on the account my application for the secured loan had been turned down (thank God for small mercy).

I wrote to the company and informed them that now I had incurred extra interest due to being informed NOT to pay the monthly payment – AND, of course charged a further 30 odd quid.

After 8 weeks, I had heard nothing, and so I wrote to the Financial Ombudsman. They wrote to the loan company and duly, I received a reply stating that they had read my letter (in which I had a line pertaining to the legalities of forcing me into more debt – I had no idea of the legal position at the time and this was pure guesswork) and in light of the ‘misunderstanding’ they would credit the account with the full amount taken in charges over my period of difficulty.

Well, that was a turn up for the books. I must have hit the nail on the head!

I re-read the letter that I had sent them, and the only bit I found that could have been responsible for them returning the charges was the line about the legalities of such charging/forcing into debt. I started to research the law regarding penalties.

The letter from the loan company asked me to inform the Ombudsman that the matter was closed.

I didn’t. Not yet.

The loan company phoned me. I said that I wasn’t prepared to do so unless they wiped the WHOLE debt out – about £500. I was pushing my luck, and I had no real basis for doing so apart from being mis-informed about the payments – i.e. I was told NOT to pay it and was nearly forced into securing a loan against our home.

They replied that they would ‘knock off’ an extra £50 as a ‘goodwill’ gesture.

I refused. They ‘knocked-off’ an extra £100.

I was on a roll.

Eventually they agreed to write the whole debt off and to remove the records of late payments with the credit agencies if I sent them a cheque for £100!!

Seven weeks later, I received another phone call from them asking when the cheque would be sent. I told them it would be in another 2 weeks time. They asked why it would be taking so long.

I told them that they had taken 9 weeks to reply to my letter – I would be taking the same amount of time to reply to theirs.

I sent the cheque.

I heard no more from them.

By this time I had found lots of case law where punitive charges were not upheld for a breach of contract.

I wrote to Abbey asking a full refund of the charges.

They refused. I took action through the county court.

They acknowledged my claim, and eventually (at the last minute allowed) entered a defence, claiming that their charges were legal and a true reflection of their costs.

Shortly after this, I received a letter from an externally appointed solicitors firm saying, in essence, “stop suing us and we will agree not to pursue you for our legal costs.”

I replied stating that it was extremely unlikely I would lose, and therefore not liable for their costs, and that in the unlikely event that I did lose, it would have to be an extreme case for a judge to award them costs as the amount was less than £5000 and therefore likely to be heard in the Small Claim Court.

I also told them that if they wrote off my overdraft (the exact amount they had charged me) and sent me a cheque for my court costs so far, that I would then stop suing them.

The next letter from their appointed solicitor agreed to this and requested confidentiality. I refused unless they were intending to pay for this extra ‘service’ that I would be providing their client. They refused and they did not mention the condifentiality again.

A week later, I received a cheque for the full court costs and a letter explaining that my account had been closed.

We then started legal action for my partner – Abbey settled out of court for the full amount claimed plus interest and the court costs incurred so far.

I was then featured in the Money section of the Guardian newspaper and on BBC2’s ‘Working Lunch’.

I was inundated with emails from people in a similar position, and soon realised that this was abuse on a national scale.

I, and a like minded individual (BankFodder to forum users), then started this site to bring this information to the masses and with a mission to bring down this unlawful charging.


The Banks’ Abuse of the Credit Register

The banks have traded on their reputation for integrity to foist their penalty charges onto an acquiescent public. Most people consider that “Yes, I did overspend, therefore I do deserve this slap on the wrist. I’ll try harder not to get it wrong next time.”

But the truth is that these penalty charges are unlawful

UK High Street Banks profit out of the ordinary British bank customers sense of decency and moral responsibility. The ordinary British Bank Customer believes that this sense of moral decency is characterised by mutuality.

How wrong we all are.

Retaliatory action by the banks includes peremptory account closure, immediate demand for repayment of overdraft and defaulting the customer on the credit register. This creates a credit ‘Hell’ for the customer for the next 6 years.

A default on the credit register means that your life becomes extremely difficult for at least 6 years – and yet very often the default is placed on the register precisely because the customer could not pay the banks own unlawful charges!

You might ask yourself if there isn’t something fundamentally corrupt when a bank has the right to default a customer FOR ITS OWN PURPOSES without any court action and with no control.

If someone owed you money and didn’t pay you, could you go and put a default entry in the credit register? No of course you couldn’t. You would need a court judgment to do it.

The banks have a privileged access to the default register which they abuse. There is no scrutiny and there is no control.

When the scandal of the banks’ abuse of their dominant and fiduciary position is brought to an end, watch out for the defamation actions – Lots of them.


September 11, 2012


Dear Sirs,

On July 30th you charged me £15 because my rent standing order for £850 on June 28th was not paid because I was short of about 79 pence in my account.

First of all, I would say that it is incredible that you would not make that payment and simply allow the account to go into the red by that 79 pence. When I first started using banks  many years ago it would have been unthinkable for any bank to have not made such a standing order for the want of just 79 pence.

I could write a thesis on all the why’s & wherefores of just why it would be the right thing to do to make such a payment and allow such a tiny ‘overdraft’, but   I hope you have the good sense to see the point without suffocating me in the mindless bureaucratic gibberish spewed out by computers to justify every bit of  extraordinary behaviour inflicted by banks on consumers in modern times.

This charge of £15 is doubly offensive because the lack of funds was not actually my fault and I thought there was at least an additional credit of about £162 in the account at the time – in which case was there would not have been a shortfall of 79 pence and there would have been sufficient funds to pay the standing order.

The sole cause of the lack of funds was that Spark Energy, an entirely dishonest energy supplier (subject to an OFGEM complaint about a lot of appalling behaviour) , had increased my direct debit of £100 monthly to them by 54% without any justification and without telling me.

This matter was dealt with by you when I contacted you about it and several months of that direct debit clawed back according to the rules relating to direct debits.

According to normal principles of law and logic this means that there would therefore have been sufficient funds available to pay my rent standing order of £850 and I am amazed that you have appeared to have dismissed this and gone ahead and just charged me £15 anyway.

And in addition to all the above, I cannot fathom why it is that banks make charges for things like this which have incurred absolutely no cost whatever to your selves as it is simply an automated  computer generated figure out of an account and back again to indicate a non payment.

Or, rather, I know that banks make these charges to make extra profit; but what is just so grossly offensive  is the high handed pomposity of the concept of ‘penalty’ charges  inflicted on customers and treating them as though they were delinquent idiots when it is entirely inappropriate.

It is also the case that this ghastly energy company, Spark Energy, have also had the cheek to charge me £15 for my having to stop the direct debit by which they were fraudulently milking me of unauthorised funds they were not entitled to. If this charge of £15  by Spark Energy isn’t an act of sheer arrogant fraud that has not the slightest shred of justification, I would be completely at a loss as to how else to describe it.

Consequently I find it really, really offensive that I have to waste time writing to you and to Spark Energy to recoup this total of £30 weaseled out of me by the entirely dishonest and fraudulent nature of the aggressively unpleasant and bullying, thug like behaviour of many commercial organisations these days.

There is no justification whatever for treating people like this. And it is this mindlessly greedy pursuit of profit which the financial industry has constructed in recent times which has directly led to the worldwide collapse of the financial system, economic chaos and  tens of millions of people losing their jobs.


June 29, 2012

This is an edited overview of a new report from the campaigning group POSITIVE MONEY

Click on the link below to read the report in full


How power shifted from Parliament to the banking sector

by positive money

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



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.

Click here to see chart showing proportion of money created by banks via loans they make


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


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


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


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


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.


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


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


April 6, 2012

Ever Wondered Why There’s So Much Debt?

Bank of England: “Creating Money Gives you “Value for Nothing”

Here’s a quote from Paul Fisher (Executive Director of the BoE and member of the MPC) broadcast on Sunday April 1st (April Fools day !) (in a programme called “What is Money?” in the Radio 4 series “Analysis”):

Presenter: Would you mind if I printed my own money – it wouldn’t look anything like yours from the Bank of England.

Paul Fisher (Bank of England): Yes we would mind. When you start printing money, you create value for yourself. If you could issue one thousand pounds worth of IOUs, you’ve got a thousand pounds for nothing. And so we do restrict people’s ability to create their own notes in that way.

Presenter: You’re protecting us against ourselves.

Fisher: We’re protecting you from charlatans.

So if someone can create money out of nothing, they get value for nothing? And are charlatans? Does this only apply if you’re printing paper money, or does it also apply to the banks that have created over £2trillion of money out of nothing electronically? Did they get £2trillion of value for nothing? Something for us all (and especially the Bank of England) to ponder! 
Listen to the original here (29 min; right towards the end)