Why Are The Banks Still Losing Money?

[Timm]

I think he is probably talking about broad money (and has the figures slightly out - 3% cash reserves) - ie. the deposits which were created from the original extension of credit:

1. Person A puts 10 freshly printed £10 notes (£100) in the bank.

2. Person B borrows £97 from the bank and gives it to person C.

3. Person C puts it back in the bank.

Result: Narrow money = £100, broad money = £197.

Rinse and repeat until there are about 33 claims for every £1 of narrow money.

(...)

Fixed.

[The Eagle]

Why are the banks still losing money? I really don’t understand at all!

They had shed-loads of our dosh chucked at them in the last crunch.

The spread in interest rate between their borrowing and lending has never been higher.

They are pushing everyone into debt and making exorbitant amount of money from their charges.

Mortgage borrowers are getting screwed.

Personal loan borrowers are getting screwed

Business over-draft users are getting screwed.

This all adds up to massive profits.

And we are losing our public services to pay for their greed.

So why are they going into the red again? Am I missing something here?

Should we not be out on the streets chucking bricks at them?

I really don’t understand.

Could someone enlighten me here?

　

Maybe you should read this, it contains quite a few answers to your questions:

http://www.neweconomics.org/sites/neweconomics.org/files/Where_did_our_money_go.pdf

See also the related thread:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=152221

[Bloo Loo]

True.

By any normal standards, all banks are permenantly insolvent. If any other business carried on trading while insolvent they would have to answer to the Serious Fraud Office.

no, not normally insolvent...they have assets in terms of unpaid invoices (loans) and liabilities in terms of deposits.

they become insolvent when they cant make a payment....as applies to anyone else.

they have said this is "Illiquidity"....therefore, they were made liquid with further LOANS from the central banks.

They have to be loans, as no-one "owns" money other than the holders right to spend it.

[Injin]

I know your views on this - I wanted show to others what your solution is: A world with no banks of any type.

You're about the only person I have seen calling for this on here. I have seen no economists of any type calling for this. I'd be interested if you started a thread, defining and defending this position, tbh. It's certainly radical.

Fraud is evil, wrong.

We shouldn't have any.

It's hardly a radical proposal to say we shouldn't have any fraud about, banking is just a subset.

[Chris G]

Is it not just the case that with house prices and so on still falling more people are going into negative equity and a percentage of these are going bust, not being able to pay the money back to the bank. As a consequence the banks bad debts are still high, and when the repossessed houses go back on the market the increased supply drops prices again causing a vicious circle.

[Injin]

Is it not just the case that with house prices and so on still falling more people are going into negative equity and a percentage of these are going bust, not being able to pay the money back to the bank. As a consequence the banks bad debts are still high, and when the repossessed houses go back on the market the increased supply drops prices again causing a vicious circle.

House prices are high because banking is fraud.

[Chris G]

House prices are high because banking is fraud.

Would agree totally with you, it was clear for so long that prices were too high. The hope is through this crisis we come out the other end in a better position i.e. getting the right balance on lending, having sufficient competition in the market from banks ( I would like more smaller banks), changing culture a wee bit in terms of valuing people according to what they own, and people thinking owning loads of things will make them happy. I always remind myself that some of the happiest people in society are monks, and how many possessions do they have!?

[Timm]

Fraud is evil, wrong.

We shouldn't have any.

It's hardly a radical proposal to say we shouldn't have any fraud about, banking is just a subset.

It would be possible to have banks without fraud.

[Bloo Loo]

House prices are high because banking is fraud.

IMPO, there should be no finance available for private housing stock...none whatsoever...and that includes BTL of course.

[Injin]

It would be possible to have banks without fraud.

I agree, traktion however doesn't.

[Timm]

I agree, traktion however doesn't.

Gosh.

Hopefully he will explain his thinking.

[Wahoo]

So, to summarise:

The banks are fraudsters. Fraud involves two things.

1. Hiding your tracks for as long as possible

2. Getting the money out from the act asap before you get rumbled.

The quickest way to get the money out is………

Bonuses!

　

QED Sorted.

[Injin]

So, to summarise:

The banks are fraudsters. Fraud involves two things.

1. Hiding your tracks for as long as possible

2. Getting the money out from the act asap before you get rumbled.

The quickest way to get the money out is………

Bonuses!

　

QED Sorted.

[Traktion]

It would be possible to have banks without fraud.

How are you going to have fraud free banking when the person receiving the loan, and giving the cash to someone else, is considered fraud in Injin's book? Injin says that it is not your money to give to someone else - you have just borrowed it to hold on to it. Which would, ofc, be pointless.

I agree, traktion however doesn't.

To clarify, I mean banking which provides credit/loans, as you well know.

Banking as in a money warehouse could exist, but that isn't what I would call 'banking'.

[Injin]

How are you going to have fraud free banking when the person receiving the loan, and giving the cash to someone else, is considered fraud in Injin's book? Injin says that it is not your money to give to someone else - you have just borrowed it to hold on to it. Which would, ofc, be pointless.

Not if the thing itself had value or use to you.

You can borrow the neighbours lawnmower and repay him it later and that works.

To clarify, I mean banking which provides credit/loans, as you well know.

Banking as in a money warehouse could exist, but that isn't what I would call 'banking'.

Shame, it's what pretty nearly everyone else thinks banking is.

And you are wrong, as shown above. Banks which had something people genuinely wanted or could use for a time could indeed make loans.

[Traktion]

House prices are high because banking is fraud.

It would be possible to have banks without fraud.

I agree, traktion however doesn't.

[Traktion]

Not if the thing itself had value or use to you.

You can borrow the neighbours lawnmower and repay him it later and that works.

That's hardly 'banking', is it?

Shame, it's what pretty nearly everyone else thinks banking is.

And you are wrong, as shown above. Banks which had something people genuinely wanted or could use for a time could indeed make loans.

There are many shops which provide rental services. I wouldn't call the owners bankers or what they do banking.

[Injin]

That's hardly 'banking', is it?

Ofc it is. You have loans and stored items. hel you could evne charge a fee.

There are many shops which provide rental services. I wouldn't call the owners bankers or what they do banking.

That's because they aren't allowed to pretend to do things and then charge like it's happened.

But you can have banks without fraud - in fact you've just admitted theres loads of them already.

All we have to do is shut down the fraud based ones.

Banks solve all the problems that exist because we have banks.

[Riedquat]

That's because they aren't allowed to pretend to do things and then charge like it's happened.

Yes, that just about sums up the problem I have with it.

[Traktion]

Ofc it is. You have loans and stored items. hel you could evne charge a fee.

That's because they aren't allowed to pretend to do things and then charge like it's happened.

But you can have banks without fraud - in fact you've just admitted theres loads of them already.

All we have to do is shut down the fraud based ones.

Banks solve all the problems that exist because we have banks.

I wouldn't call rental shops, banks. Therefore, I wouldn't consider them to be providing 'fraud free' banking. As you said 'all banking is fraud' a few posts ago, you implicitly agree.

There may be a case for an economy which revolves purely around trust (for invoicing etc) and the rental of stuff (real capital etc) which you need. In such an economy, you could say that you need no banks. This is the sort of thing I would like to discuss in that thread I mentioned. Is it feasible? What would be the benefits, the negative effects etc. It may be an interesting debate.

However, let's call a spade a spade - rental shops really aren't banks in the traditional or modern sense. My definition would involve banks only serving transactions with interchangeable, fungible items (ie. money - coinage, notes, numbers etc), while providing loans/credit services. In other words, the stuff you call fraudulent.

[Riedquat]

EDIT: BTW, if your concern is with the chains of credit, full reserve banking* would have exactly the same problem. Are you saying this is fraud too? If so, you would essentially be saying any banking is fraud. That's fair enough, but I'd like to hear your views on this.

* Assuming there are timed savings accounts, where 'your' money is loaned out to others for a time period.

That's the part. The problem is that it boils down to having lent money out that you never had in the first place, yet expecting it all to be paid back to you. Ultimately you're lending out, say, £10, then expecting £330 (or however many times it is) to be paid back, before you even consider interest. I just don't see how that could possible not be fraud.

Why would full reserve banking have the same problem? I suppose that in reality it's probably impossible to avoid unless you scrutinise the history of every penny deposited (e.g. where's the money that's paid my wages come from that I've then deposited in the bank?) Is that why you're suggesting that you can't have banking without it?

[Injin]

I wouldn't call rental shops, banks. Therefore, I wouldn't consider them to be providing 'fraud free' banking. As you said 'all banking is fraud' a few posts ago, you implicitly agree.

There may be a case for an economy which revolves purely around trust (for invoicing etc) and the rental of stuff (real capital etc) which you need. In such an economy, you could say that you need no banks. This is the sort of thing I would like to discuss in that thread I mentioned. Is it feasible? What would be the benefits, the negative effects etc. It may be an interesting debate.

However, let's call a spade a spade - rental shops really aren't banks in the traditional or modern sense. My definition would involve banks only serving transactions with interchangeable, fungible items (ie. money - coinage, notes, numbers etc), while providing loans/credit services. In other words, the stuff you call fraudulent.

Rental shops are banks in the sense that everyone thinks of banks - i.e. they actually do what they appear to do.

Fungible items?

Just another word for shit accounting. No need for it in this day and age.

Edit - if you wanna do the discussion in another thread, i'm in.

Edited October 5, 2010 by Injin

[Traktion]

That's the part. The problem is that it boils down to having lent money out that you never had in the first place, yet expecting it all to be paid back to you. Ultimately you're lending out, say, £10, then expecting £330 (or however many times it is) to be paid back, before you even consider interest. I just don't see how that could possible not be fraud.

It's because the £330 is a chain of credit (or debt, or promises - whichever you prefer). That's what broad* money is. One person borrowing to pay another creates multiple claims on the original money.

Why would full reserve banking have the same problem? I suppose that in reality it's probably impossible to avoid unless you scrutinise the history of every penny deposited (e.g. where's the money that's paid my wages come from that I've then deposited in the bank?) Is that why you're suggesting that you can't have banking without it?

Referring to post #14, much of it still holds with full reserve banking. For example (the italics are the full reserve bit):

1. Person A puts 10 freshly printed £10 notes (£100) in the bank. £3 he chose to keep 'safe' and on demand. £97 he chose to allow the banks to lend to others.

2. Person B borrows £97 from the bank and gives it to person C.

3. Person C puts it back in the bank.

Result: Narrow money = £100, broad money* = £197.

Rinse and repeat until there are about 33 claims for every £1 of narrow money.

You will see it's very similar to post #14, except that the individual decides their reserve levels, rather than the banks. You still have multiple claims on the money, relying on other people to repay their debts for the credit chain to remain in tact. In short, it's still 'debt based' and just as fraudulent.

* Some call the above 'unitary' money, when you define your own reserve levels, instead of the bank. In principle, it's the same concept as broad money as explained above too.

Edited October 5, 2010 by Traktion

[Injin]

It's because the £330 is a chain of credit (or debt, or promises - whichever you prefer). That's what broad* money is. One person borrowing to pay another creates multiple claims on the original money.

Referring to post #14, much of it still holds with full reserve banking. For example (the italics are the full reserve bit):

1. Person A puts 10 freshly printed £10 notes (£100) in the bank. £3 he chose to keep 'safe' and on demand. £97 he chose to allow the banks to lend to others.

2. Person B borrows £97 from the bank and gives it to person C.

3. Person C puts it back in the bank.

Result: Narrow money = £100, broad money = £197.

Rinse and repeat until there are about 33 claims for every £1 of narrow money.

You will see it's very similar to post #14, except that the individual decides their reserve levels, rather than the banks. You still have multiple claims on the money, relying on other people to repay their debts for the credit chain to remain in tact. In short, it's still 'debt based' and just as fraudulent.

* Some call the above 'unitary' money, when you define your own reserve levels, instead of the bank. In principle, it's the same concept as broad money as explained above too.

Very well explained, imo.

Still a fraud and crucially, if morals arent your thing, still ******s with the economy due to the static it will generate in the price signal.

So yea, "full reserve" banking just becomes FRB banking after a very short period of time.

You can't have "multiple claims" on anything without either a mistake or fraud. From the POV of planning in an economy, it's pretty much the same thing.

[Traktion]

Rental shops are banks in the sense that everyone thinks of banks - i.e. they actually do what they appear to do.

Fungible items?

Just another word for shit accounting. No need for it in this day and age.

Edit - if you wanna do the discussion in another thread, i'm in.

Ok, I'll stick something up later (I should get a bit of work done now) - I'm genuinely interested to see where it goes!