wonderpup

Debt Is Money! ....until It's Not.

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The linked articles give the clearest account yet of how the banksters employed securitisation and leverage to create their own debt based 'money' system via the magic of turning MBS's into collateral for loans- thus debt begat debt- with the inevitable biblical apocalypse as an outcome.

It makes the case that simply repairing the current system won't work- because it's the current system that's the problem.

The most common argument heard about the ‘crisis’, is that something simply broke down/went wrong/ran amok. The break down caused a systemic malfunction of an otherwise fine system. Thus what we need to do is ‘fix’ whatever caused the breakage in the first place and adjust things so the same thing can’t happen again.

Fixing it will require a few trillion of cash injections. And then a combination of better ‘regulation’ and a few technical adjustments such as a bit more capital here and a bit better ratings there.

The argument I have offered you is totally different. It says that we have NOT, will not, CANNOT and SHOULD NOT fix the present financial system back to its former state.

For the simple reason that the present catastrophic situation we find ourselves in, was not due to a break down in the system, but is an inevitable consequence of how that system works in the first place.

Read Part 1 here. http://www.golemxiv.co.uk/liars-lexicon/securitization-the-undead-heart-of-the-shadow-banking-machine/

Part 2. http://www.golemxiv.co.uk/liars-lexicon/the-undead-heart-part-two/

Part 3. http://www.golemxiv.co.uk/liars-lexicon/the-undead-heart-part-three/

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The linked articles give the clearest account yet of how the banksters employed securitisation and leverage to create their own debt based 'money' system via the magic of turning MBS's into collateral for loans- thus debt begat debt- with the inevitable biblical apocalypse as an outcome.

It makes the case that simply repairing the current system won't work- because it's the current system that's the problem.

Read Part 1 here. http://www.golemxiv.co.uk/liars-lexicon/securitization-the-undead-heart-of-the-shadow-banking-machine/

Part 2. http://www.golemxiv.co.uk/liars-lexicon/the-undead-heart-part-two/

Part 3. http://www.golemxiv.co.uk/liars-lexicon/the-undead-heart-part-three/

AFAIK MBSes and all those oh-so-wonderful 'new financial instruments' were designed to circumvent conventional safeguards on extending bank credit. Seems that most regulators and financial authorities simply didn't understand them well enough to say 'stop'. But then neither did very many people including most of those who bought the turd sandwiches. Magic money for nothing!

But of course, since the idiot banksters ended up extending trillions that they didn't have that money is going to end up being printed by the central banks as per government policy of keeping the banks afloat against all principles of capitalism and free markets. That will be how they 'fix' the system with everyone else paying through seeing their savings annihilated and salaries severely clipped by inflation. (assuming the whole mess doesn't implode after hyperinflation and collapse)

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oh god someone left the door open and the MCLs wandered in again.

Everyone please note:

DEBT IS NOT MONEY. The MCLs are referring to the idea of EXCHANGING packages (known as Mortgage Backed Securities) of debt FOR money. The packages of debt don't BECOME money, no money have been created, they have simple put all the debts in a box and SOLD them to someone else who already has money.

There is an element of confusion in relation to the fact that *anything* can be "used" as money, (many eons ago people used shells for example,) and somehow the MCLs became convinced that that meant anything that had a value was "money". It's not a huge leap to then claim that banks "create money" by creating MBSs and then only a small leap to believing that banks can just add zeros to account to "create money". Only a few years ago people on here were trying to convince people that a banking licences allowed to to "create money out of thin air". Most of the MCLs wandered of when the first bank went bust and needed a bailout as that proved the whole thing was utter crap.

To clear it up:

A has a £1, B has nothing, C has £1. B borrows £1 from A, giving A an IOU (the debt). A sells the IOU to C for £1. A now has £1, B has £1 and C has a £1 IOU. £1 has not been create however... the IOU isn't money, it is merely a promise that B will pay C £1. The way to see this is that the value of the IOU will vary depending on how likely it is B will repay the debt. The likelihood of B repaying the debt does not effect the value of the actual money - the £1 held by A and the £1 held by B - as those £1s are money and the £1IOU is just a debt. If B tells C to get lost the IOU is worthless. For the IOU to be realised B has to give C the pound he has, at which point you are back where you started.

The only way the amount of money can increase is if the central bank (the Bank of England) issues new money and uses that money to buy the IOU and then tears the IOU up... writing it off.... but it's not the act of buying the IOU that increases the amount of money, it's the issuing of new money to BUY the IOU that creates the new money. Of course if the central bank buys the IOU and then B pays it back, the central bank can tear up the £1 it got from B and then we are back where we started again.

Recently, the ECB has been issuing new money and lending it to people, using the IOUs as security, but it's important to note why this is different. Is the loans aren't repaid, the ECB can sell the IOUs or collect from them, however, if the IOUs turn out to be worthless the ECB can still chase the banks that used the IOUs as security for the negative equity. This is a very important fact that everyone has been ignoring as banks have appeared to "rebuild their balance sheets" by borrowing money from the ECB using worthless Greek etc debt as security. Eventually the banks will still be liable for any difference, and will be even more bankrupt than before.

Edited by RufflesTheGuineaPig

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MCLs? Sorry, my acronym memory is failing me.

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MCLs? Sorry, my acronym memory is failing me.

Muesli Chewing Liberals

Merrily Cavorting Librarians

Money Creating Lobbyists?

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snip

To clear it up:

A has a £1, B has nothing, C has £1. B borrows £1 from A, giving A an IOU (the debt). A sells the IOU to C for £1. A now has £1, B has £1 and C has a £1 IOU. £1 has not been create however... the IOU isn't money, it is merely a promise that B will pay C £1. The way to see this is that the value of the IOU will vary depending on how likely it is B will repay the debt. The likelihood of B repaying the debt does not effect the value of the actual money - the £1 held by A and the £1 held by B - as those £1s are money and the £1IOU is just a debt. If B tells C to get lost the IOU is worthless. For the IOU to be realised B has to give C the pound he has, at which point you are back where you started.

snip

Nothing wrong with your ABC. thats logical and correct....

In the bankers eyes, the IOU is an asset on their balance sheet, so if C is a bank, it doesnt have £1, it has an asset worth £1.

Now lets add in the scam element...the OFF BALANCE SHEET VEHICLE....Lets make A a client, B a Bank and C the SIV or off balance sheet "vehicle" owned by B.

A lends his £1 to B who now issues an IOU to A. B lend his £1 to a third party and has a new IOU.

A is concerned ( if he was to look) that the person owing him £1 has nothing and seeks his money back. C meanwhile, has borrowed £1 in capital from somewhere in return for a great interest rate. C buys the IOU from B....B is able to pay A.

A is satisfied that B has the cash, and deposits £1. B lends out his £1 again and sells the IOU to C, who sells it to investors.

and so it goes round and round till someone in the chain cant sell their "product".

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Nothing wrong with your ABC. thats logical and correct....

In the bankers eyes, the IOU is an asset on their balance sheet, so if C is a bank, it doesnt have £1, it has an asset worth £1.

Now lets add in the scam element...the OFF BALANCE SHEET VEHICLE....Lets make A a client, B a Bank and C the SIV or off balance sheet "vehicle" owned by B.

A lends his £1 to B who now issues an IOU to A. B lend his £1 to a third party and has a new IOU.

A is concerned ( if he was to look) that the person owing him £1 has nothing and seeks his money back. C meanwhile, has borrowed £1 in capital from somewhere in return for a great interest rate. C buys the IOU from B....B is able to pay A.

A is satisfied that B has the cash, and deposits £1. B lends out his £1 again and sells the IOU to C, who sells it to investors.

and so it goes round and round till someone in the chain cant sell their "product".

So, an asset as defined by honest people is something one actually owns?

Whereas the devious / dishonest / liar banking people declare, being owed an asset the value of an asset is exactly the same as owning it?

Is this true?

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So, an asset as defined by honest people is something one actually owns?

Whereas the devious / dishonest / liar banking people declare, being owed an asset the value of an asset is exactly the same as owning it?

Is this true?

Not legally, but you are only owed the contents of your bank account, it is not legally your money, but you can function as if it is, so what is the difference.

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The way I see it with a securred loan, say on a house is the have 2 assets on their books

1 the property

2 the mortgage

The could lend more money bassed on both assets

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Not legally, but you are only owed the contents of your bank account, it is not legally your money, but you can function as if it is, so what is the difference?

Amazing! (to the most people, I guess).

BTW, has this always been the case?

I mean, there once was a time when your money at your bank was yours.

When did that change?

edit to add...... what is the difference??!! ....... the difference is reflected in the banks have behaved ........ and here we are.

Edited by nixy

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oh god someone left the door open and the MCLs wandered in again.

Everyone please note:

DEBT IS NOT MONEY. The MCLs are referring to the idea of EXCHANGING packages (known as Mortgage Backed Securities) of debt FOR money. The packages of debt don't BECOME money, no money have been created, they have simple put all the debts in a box and SOLD them to someone else who already has money.

There is an element of confusion in relation to the fact that *anything* can be "used" as money, (many eons ago people used shells for example,) and somehow the MCLs became convinced that that meant anything that had a value was "money". It's not a huge leap to then claim that banks "create money" by creating MBSs and then only a small leap to believing that banks can just add zeros to account to "create money". Only a few years ago people on here were trying to convince people that a banking licences allowed to to "create money out of thin air". Most of the MCLs wandered of when the first bank went bust and needed a bailout as that proved the whole thing was utter crap.

To clear it up:

A has a £1, B has nothing, C has £1. B borrows £1 from A, giving A an IOU (the debt). A sells the IOU to C for £1. A now has £1, B has £1 and C has a £1 IOU. £1 has not been create however... the IOU isn't money, it is merely a promise that B will pay C £1. The way to see this is that the value of the IOU will vary depending on how likely it is B will repay the debt. The likelihood of B repaying the debt does not effect the value of the actual money - the £1 held by A and the £1 held by B - as those £1s are money and the £1IOU is just a debt. If B tells C to get lost the IOU is worthless. For the IOU to be realised B has to give C the pound he has, at which point you are back where you started.

The only way the amount of money can increase is if the central bank (the Bank of England) issues new money and uses that money to buy the IOU and then tears the IOU up... writing it off.... but it's not the act of buying the IOU that increases the amount of money, it's the issuing of new money to BUY the IOU that creates the new money. Of course if the central bank buys the IOU and then B pays it back, the central bank can tear up the £1 it got from B and then we are back where we started again.

Recently, the ECB has been issuing new money and lending it to people, using the IOUs as security, but it's important to note why this is different. Is the loans aren't repaid, the ECB can sell the IOUs or collect from them, however, if the IOUs turn out to be worthless the ECB can still chase the banks that used the IOUs as security for the negative equity. This is a very important fact that everyone has been ignoring as banks have appeared to "rebuild their balance sheets" by borrowing money from the ECB using worthless Greek etc debt as security. Eventually the banks will still be liable for any difference, and will be even more bankrupt than before.

Umm... £1 is simply an IOU - the physical notes even go so far as to say as much.

As such, you start the process with 2 IOUs and in the mid point you have 3IOUs.

But nothing is created?

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Amazing! (to the most people, I guess).

BTW, has this always been the case?

I mean, there once was a time when your money at your bank was yours.

When did that change?

edit to add...... what is the difference??!! ....... the difference is reflected in the banks have behaved ........ and here we are.

As far as I know it was always this way at least back to Babylonian times.

What you have in you bank account is an IOU, the banks debt. When you borrow you give the bank an IOU and they swap that for IOUs in your bank account. All IOUs = money.

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Umm... £1 is simply an IOU - the physical notes even go so far as to say as much.

As such, you start the process with 2 IOUs and in the mid point you have 3IOUs.

But nothing is created?

sure they are all IOUs,

but the question you should be asking, and this is why QE is such a big issue, is just what is the IOU backed by...someone should have pledged the return of something for the IOU to be issued.

In normal banking, a loan is made against A: a real asset that can be realised and B: a clear ability and LIKELYHOOD of repayment....with both of these, the IOU has some value.

With QE, no asset was pledged to create the IOUs in the first place. They were simply created IN EXCHANGE for an asset.

This is a small but subtle difference.....the issuer of the IOU has no liability whatsoever to repay anything, the IOUs were payment in full and cant be redeemed. However, they do enter the pool of already and properly issued IOUs, against which the BoE Does have a duty to repay....so the new QE simply dilutes the value of the pool by making more available for the current available redeemable wealth.

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Ah the flat earthists are back...

Read the quotes at the link below for further proof

http://www.positivemoney.org.uk/how-banks-create-money/proof-that-banks-create-money/

Promises are not money, but rather just promises of money.

It's not complicated. However, the likes of Positive Money seem to be obsessed with pretending that bank credit is money. They then come up with a whole 'solution' based on this misunderstanding.

I don't blame the layman for getting confused over this. The state has done its best to ignore and paper over the activity of the bankers, as long is it boosted the economy and their coffers. However, supposed 'experts' who are calling for a change in the system should know better.

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Not legally, but you are only owed the contents of your bank account, it is not legally your money, but you can function as if it is, so what is the difference.

Yup and the fact that most people don't know this, shows that the contract with the bank was fraudulent - there was no meeting of minds, even on the basics.

When you think you're depositing money at the bank, you're really just swapping your cash for IOUs.

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As far as I know it was always this way at least back to Babylonian times.

What you have in you bank account is an IOU, the banks debt. When you borrow you give the bank an IOU and they swap that for IOUs in your bank account. All IOUs = money.

Well, there have always been custodial banks, but many are unlikely to know the difference. That they don't, is a big part of the problem (fraud).

However, the first banks to become non-custodial was also likely to have been through fraud. People thought their deposits were safe, when really they were being given to others.

edit: typo

Edited by Traktion

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Well, there have always been custodial banks, but many most are unlikely to know the difference. That they don't, is a big part of the problem (fraud).

However, the first banks to become non-custodial was also likely to have been through fraud. People thought their deposits were safe, when really they were being given ..............without consent...........to others.

edit: typo

Just a minor edit. Hope you don't mind.

Edited by nixy

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Muesli Chewing Liberals

Merrily Cavorting Librarians

Money Creating Lobbyists?

Money Creation Loonies

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Umm... £1 is simply an IOU - the physical notes even go so far as to say as much.

As such, you start the process with 2 IOUs and in the mid point you have 3IOUs.

The difference is the 2 IOUS at the start are IOUs from the Bank Of England and are legal tender. The new IOU created is not legal tender - it's not MONEY it's just an IOU.

Promises are not money, but rather just promises of money.

It's not complicated. However, the likes of Positive Money seem to be obsessed with pretending that bank credit is money. They then come up with a whole 'solution' based on this misunderstanding.

I often wonder if the people creating the Money Creation myths are doing so to deliberate distract from the actual cause of the problem - house prices.

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Amazing! (to the most people, I guess).

BTW, has this always been the case?

I mean, there once was a time when your money at your bank was yours.

When did that change?

edit to add...... what is the difference??!! ....... the difference is reflected in the banks have behaved ........ and here we are.

You are correct there was a time where it was ASSUMED your deposit was yours.

I havent got time now to find it, but there was an important legal case where a client wanted their notes back from the bank...the bank provided them with notes, but not the ones the plaintive had deposited.

The ruling was that the notes were not YOUR property, and the bank had no obligation to return YOUR notes, other notes of equal value would do.The effect of this was that the bearer of cash was the "owner".

so you deposit £50 cash, it is, by law, no longer yours.

Edited by Bloo Loo

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So, an asset as defined by honest people is something one actually owns?

Whereas the devious / dishonest / liar banking people declare, being owed an asset the value of an asset is exactly the same as owning it?

Is this true?

It's much worse than that.

Money is a means of exchange, a store of value and unit of account.

The fact that asset values in accounts are not established by conducting sales and recording the proceeds means that you can have a significant difference between the "book value" of an asset in your accounts, i.e. Harry Monk's £45,000 Rover and its net realisable value, i.e. what you could get it you sold it, i.e. webuyanycar-dot-com, webuyanycar-dot-com etc

In the HPC context the crucial thing would be that Lloyds Group are probably carrying their mortgage book at a "book value" of £350bn. If we imagine that Goldman Sachs wouldn't buy it for more than £305bn, then really if it was correctly impaired in the accounts to take account of all the mortgages on houses that were already in negative equity and are going to end up repo'd and sold of for 60% of the outstanding mortgage, then the "book value" should be £315bn.

However, that would require Lloyds Group to book the difference, £35bn, as a loss, and they have enough of a problem booking losses that they can't hide and have no desire to start booking losses that they can hide.

Hence they inclined to say that they can't sell the mortgage book because the market is illiquid, (sound familiar?), so they instead use crappy models to "calculate" what it is "worth", and that goes in the accounts, which is probably gives them an impairment of the value of the asset of about 1.5% of the £350bn, rather than a more prudent 10%, and the mortgage book only pushes £5.25bn of losses into their P&L account.

Allied Irish Bank appear to have loan books, (not all mortgages), that are 20% impaired and still falling...

Happy days.

Edited by ChairmanOfTheBored

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You are correct there was a time where it was ASSUMED your deposit was yours.

I havent got time now to find it, but there was an important legal case where a client wanted their notes back from the bank...the bank provided them with notes, but not the ones the plaintive had deposited.

The ruling was that the notes were not YOUR property, and the bank had no obligation to return YOUR notes, other notes of equal value would do.The effect of this was that the bearer of cash was the "owner".

so you deposit £50 cash, it is, by law, no longer yours.

I wonder why there wasn't a counter case. If the above ruling was accepted, the original contract was still fraudulent.

If there is a change of ownership of the item being deposited, this should be clear to both the banker and the depositor.

If someone appropriates your property, without your consent, there is a term for this - it's called theft.

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The difference is the 2 IOUS at the start are IOUs from the Bank Of England and are legal tender. The new IOU created is not legal tender - it's not MONEY it's just an IOU.

I often wonder if the people creating the Money Creation myths are doing so to deliberate distract from the actual cause of the problem - house prices.

Inflated by bank credit (IOUs) diluting the purchasing power of existing legal tender.

QE inflates the price of the instruments it is used to buy and increases money supply as it is used to buy newly created treasuries and not existing ones.

QE will never get sterilised/reversed, any instrument used to remove money from the supply will always need interest and redemption paying on it. (i.e. The BOE will never 'tear up' the money it gets from the initial issue). And in any case you are replacing cash with near cash - as good as cash - asset against which banks can extend bank credit, assuming reserves mean anything these days.

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