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The Ruinous Fiscal Impact Of Big Banks

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Simon Johnson - The banks that will ruin us all

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The newly standard line from big global banks has two components – as seen clearly, for example, in the statements of Jamie Dimon (JP Morgan Chase) and Bob Diamond (Barclays in the UK) at Davos last weekend. First, if you regulate us, we'll move to other countries. And second, the public policy priority should not be banks, but rather the spending cuts needed to get budget deficits under control in the US, UK, and other industrialized countries.

This rhetoric is misleading at best. At worst it represents a blatant attempt to effectively shakedown the public purse.

In this context, the idea that megabanks would move to other countries is simply ludicrous. These behemoths need a public balance sheet to back them up, otherwise they will not be able to borrow anywhere near their current amounts.

Whatever you think of places like Grand Cayman, the Bahamas, or San Marino as off-shore financial centers, there is no way that a JP Morgan Chase or a Barclays could consider moving there. The "national champions" of banking are actually very poorly-run casinos with completely messed-up incentives; they need a deep-pocketed and somewhat dumb sovereign to back them.

The latest credit rating methodology from Standard and Poor's says essentially just this – henceforth, it will evaluate banks not just on their "stand alone" creditworthiness, but also in terms of their ability to attract generous support from a creditworthy government in the event of a crisis.

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If I was supreme leader, I would take the power to issue money away from the private banks and give it to the government solely. Secondly I would have state ran banks that did simple deposits and terms, buying only government debt that were 100% insured. All free market banks would be uninsured for deposits, terms, and such. They could insure each other of course, but not insured from the sovereign.

On the front page of the terms and deposits at these free market banks I would require it to say you are the junior creditor and if the bank goes bust, you will be first in line for losses.

Without their ability to create money ot of thin air, banks would not be such a problem with their casino ways. Just like casinos aren't much of a problem in destabilizing the system. Now if you gave casinos the power to create 20 times the capital they had, and to gamble with that(and insured all losses), then they could destabilize whole sectors of the economy.

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I'm convinced the money lending profession attracts wolves that would sell their own children into slavery for a few extra bucks.

The fact there are so many lemmings willing to get in debt up to their eyeballs means the wolves have no shortage of sheep to sheer if given the chance.

If there was ever an industry that needs tough government oversight, money lending is it. Instead, the money lenders appear to be running government.

We the people need to kick the current set of banker bums and their government stoogies out on the street and start over.

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An excellent article and amazing this gets in the NY Times. Can you imagine the London Evening Standard printing such a thing?

And also the real reason why Cameron and Osborne want the deficit reduced. So the state is better able to step in an underwrite their bankster chums.

I'm all for the deficit being reduced but not to keep those crooks in business.

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If I was supreme leader, I would take the power to issue money away from the private banks and give it to the government solely. Secondly I would have state ran banks that did simple deposits and terms, buying only government debt that were 100% insured. All free market banks would be uninsured for deposits, terms, and such. They could insure each other of course, but not insured from the sovereign.

On the front page of the terms and deposits at these free market banks I would require it to say you are the junior creditor and if the bank goes bust, you will be first in line for losses.

Without their ability to create money ot of thin air, banks would not be such a problem with their casino ways. Just like casinos aren't much of a problem in destabilizing the system. Now if you gave casinos the power to create 20 times the capital they had, and to gamble with that(and insured all losses), then they could destabilize whole sectors of the economy.

Wow, youd simply remove the central bank?...you are a true Austrian at heart.

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I'm convinced the money lending profession attracts wolves that would sell their own children into slavery for a few extra bucks.

The fact there are so many lemmings willing to get in debt up to their eyeballs means the wolves have no shortage of sheep to sheer if given the chance.

If there was ever an industry that needs tough government oversight, money lending is it. Instead, the money lenders appear to be running government.

We the people need to kick the current set of banker bums and their government stoogies out on the street and start over.

while this idea is attractive, the self regulation by removal of the Central Bank would mathematically prevent the Wolves from preying on the Lemmings too much.

As it happens, the Crisis was caused by the amazing sudden availability of risk free capital, created by law avoiding schemes through off balance sheet, ie, non banking , firms, set up and controlled by the banks.

these simply recycled current debt and turned it into better returning, safer than gilts, capital, which banks could again lever up and bet against and for with CDS and other layers of derivatives.

When the cash ( real stuff) stopped flowing fast enough to cover all the debt payments they had committed to, instead of many going bust through the insolvency process, the merry go round was allowed to carry on through Public handouts and worst of all, Central banks lending good money on these worthless derivatives to oil the banks through their "liquidity" crisis, and last of all, with a reversion of makr to model accounting for the same rubbish.

So, there we have it, criminal banks, useless and compliant regulators, happy government with voters getting rich, and a central bank system ready to keep their pals in work and bonuses.

Knighthoods all round.

Oh, and nothing at all has changed.

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while this idea is attractive, the self regulation by removal of the Central Bank would mathematically prevent the Wolves from preying on the Lemmings too much.

As it happens, the Crisis was caused by the amazing sudden availability of risk free capital, created by law avoiding schemes through off balance sheet, ie, non banking , firms, set up and controlled by the banks.

these simply recycled current debt and turned it into better returning, safer than gilts, capital, which banks could again lever up and bet against and for with CDS and other layers of derivatives.

When the cash ( real stuff) stopped flowing fast enough to cover all the debt payments they had committed to, instead of many going bust through the insolvency process, the merry go round was allowed to carry on through Public handouts and worst of all, Central banks lending good money on these worthless derivatives to oil the banks through their "liquidity" crisis, and last of all, with a reversion of makr to model accounting for the same rubbish.

So, there we have it, criminal banks, useless and compliant regulators, happy government with voters getting rich, and a central bank system ready to keep their pals in work and bonuses.

Knighthoods all round.

Oh, and nothing at all has changed.

People talk of the decline of the west and the rise of chindia.

IMO - it is the fact that western governments are held captive by unproductive big finance that makes this so inevitable.

I guess it was the same in Rome - I bet many elite Romans could see that their society was doing suicidal things but just couldn't stop themselves as the decadence (and those orgies) were just too enjoyable....

Better take my daughter to her Mandarin lessons ....

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Guest sillybear2

The central bank exists to steal from ordinary workers via inflation and provide an unlimited backstop and virtually free money to their bankster chums via endless liquidity schemes. In a properly regulated banking system a central bank would be nothing but a clearing house, you could keep deposit insurance if you wanted, just make it self-funding and seperate from the state.

The BoE is an imposition on the citizen and the government by a powerful special interest group, they are not there to help anyone but themselves, even though they like to cloak themselves as an organ of the state. There's a good reason federal income tax was introduced the same year the Federal Reserve was founded, they needed a bunch of idiots to pay the interest on the bills and bonds they create out of thin air.

That said, nothing will change, when the cartel banks bankrupt us again within a decade they will remain as unreformed and inherently crooked as they are today. They will buy off enough politicos, regulators and useful idiots in order to guarantee this.

Edited by sillybear2

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People talk of the decline of the west and the rise of chindia.

IMO - it is the fact that western governments are held captive by unproductive big finance that makes this so inevitable.

I guess it was the same in Rome - I bet many elite Romans could see that their society was doing suicidal things but just couldn't stop themselves as the decadence (and those orgies) were just too enjoyable....

Better take my daughter to her Mandarin lessons ....

Yes in China the big 4 banks are all state owned. And do their lending to carry out the broader goals of the state. They can also act in a co-ordinated fashion, say funding the development of an industry, its supplier chains and infastructure to get materials in and products out.

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The central bank exists to steal from ordinary workers via inflation and provide an unlimited backstop and virtually free money to their bankster chums via endless liquidity schemes. In a properly regulated banking system a central bank would be nothing but a clearing house, you could keep deposit insurance if you wanted, just make it self-funding and seperate from the state.

The BoE is an imposition on the citizen and the government by a powerful special interest group, they are not there to help anyone but themselves, even though they like to cloak themselves as an organ of the state. There's a good reason federal income tax was introduced the same year the Federal Reserve was founded, they needed a bunch of idiots to pay the interest on the bills and bonds they create out of thin air.

That said, nothing will change, when the cartel banks bankrupt us again within a decade they will remain as unreformed and inherently crooked as they are today. They will buy off enough politicos, regulators and useful idiots in order to guarantee this.

I'm not even sure a democratic society can reform the banks. Considering they can with a flick of a pen create enough money to buy all the media companies, and fund any political campaign. The only way I can think of to stop their power is to use force.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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