Why Are Banks Allowed To Borrow At 0.5%....

[Lepista]

..and I'm not?

[tallguy]

..and I'm not?

Because you are a nobody. A member of the great unwashed. An expendable, dispensable asset and, occassionally, a liability.

Haven't you figured this out yet?

Now, stop complaining, go to back to work, buy useless sh*t, get into debt, do this for 40 or more years of your miserable, irrelevant little life and then quietly shuffle off to the grave.

There's a good chap.

Edited February 25, 2011 by tallguy

[swissy_fit]

Because you are a nobody. A member of the great unwashed. An expendable, dispensable asset and, occassionally, a liability.

Haven't you figured this out yet.

Now, stop complaining, go to work, buy uesless sh*t, get into debt, do this for 40 or more years of your miserable, irrelevant little life and then quietly shuffle off to the grave.

Harsh, but accurate.

Next time remember to be born into the Rothschild family or similar.

[crash2006]

..and I'm not?

and where do you think the bank of England money comes from? they steal if off you, then make a small profit pass it onto their buddies who pass it onto you at a big profit which then gets stolen from you. before it was the monarchy that stole land wealth off you, thats why i dont understand some people inthis country, who think they are wonderful.

Edited February 24, 2011 by crash2006

[Statistician]

Because you are a nobody. A member of the great unwashed. An expendable, dispensable asset and, occassionally, a liability.

Haven't you figured this out yet?

Now, stop complaining, go to back to work, buy useless sh*t, get into debt, do this for 40 or more years of your miserable, irrelevant little life and then quietly shuffle off to the grave.

Well said and completely true, but it requires some sort of wisdom to see it.

[Bloo Loo]

0.5% is the base rate. Its not what banks borrow at....and if they do borrow, they pay a rate according to the collateral offered.

Banks normally borrow from the money markets....thats why the risk of cascade failure is so feared.....they all owe each other a packet...probably nets down to zero.

[tallguy]

0.5% is the base rate. Its not what banks borrow at....and if they do borrow, they pay a rate according to the collateral offered.

Banks normally borrow from the money markets....thats why the risk of cascade failure is so feared.....they all owe each other a packet...probably nets down to zero.

If it all nets down to zero, what's the problem? All they have to do is coordinate a debt-jubilee with each other and they will be no worse off than they are now in terms of their debt to each other.

No?

I don't think it does net down to zero. There is a great big black-hole of debt owed to the banks by the future productive fruits of the borrowers lying at the bottom of the food chain. It is the fact that in the real-world economy, the future says "no", that is the central problem. There is not going to be enough money to cover the debt based promises. That's not zero sum.

Edited February 24, 2011 by tallguy

[tallguy]

What on earth do you think the financial crisis was all about?

The people with the money are not the same as those without.

The people without the money needed to wipe out and reset to zero the people with all the money.

The money is not in the same place. There were rules to make this happen, but they were torn up and instead the taxpayers had to try and pony up.

All that money is still out there and instead of the total assets and total liabilities represented by money and all the prices associated with the volume of money being reduced, there is now more than ever as public deficits rise (the mirror of private surplus).

read the rest of the post please

[Bloo Loo]

Yep - he's right. Just to help this is how it all works in diagram form...

thanks for the simple overview, do you have a more detailed offering

[Statistician]

0.5% is the base rate. Its not what banks borrow at....and if they do borrow, they pay a rate according to the collateral offered.

Banks normally borrow from the money markets....thats why the risk of cascade failure is so feared.....they all owe each other a packet...probably nets down to zero.

Can you expand on this please. Try to explain it in layman terms.

[Bloo Loo]

Can you expand on this please. Try to explain it in layman terms.

which bit, the borrowing from the BoE or the cascade failure?

[Lepista]

thanks for the simple overview, do you have a more detailed offering

[Statistician]

which bit, the borrowing from the BoE or the cascade failure?

The last bit which I believe is completely wrong "...probably nets down to zero."

If that is the case why they pay something between 0-1% interest for savings, but they charge, on average, above 5% interest on mortgages, which is the least expensive debt, and up to 20% interest for other types of debt.

[Stu1]

Can you expand on this please. Try to explain it in layman terms.

http://www.youtube.com/watch?v=vVkFb26u9g8

[Statistician]

Essentially credit money is a credit derivative. It is created in a spontaneous explosion that separates nothing into a credit and a debit, an asset and a liability. It is a thing of beauty, of wonder but ultimately of risk...credit means 'trust', that trust is based on the debit coming back and cancelling the credit, the asset with the liability. If that does not happen and that trust is broken, the laws of nature mean that the asset must be cancelled out with someone else's liability - the shareholder, the depositor, the bond holder....but in this case, the poor tax payer...who has to settle that newly wondrous creation, the public deficit that too has been generated from simply, nothing!

Thanks for this. Although I am not an expert, I am aware of this to some extent. I just wanted to point out something else which I did in another post above.

Thanks for providing this enlightenment anyway.

[erranta]

and where do you think the bank of England money comes from? they steal if off you, then make a small profit pass it onto their buddies who pass it onto you at a big profit which then gets stolen from you. before it was the monarchy that stole land wealth off you, thats why i dont understand some people inthis country, who think they are wonderful.

Yep

The Barons originally ganged up on the Monarchy to limit their power and theft thru excess taxation etc!

But the Banker/Big Business Barons of the modern age have turned into the greed ridden persecutors of the peoples of the land!

[Stu1]

nnnOOOOOOOOOOOOOOOOOOOOOOOOOOOO

This video has done more to spread that rubbish than anything else.

Read my edit...this explains!

EDIT: Interest helps generate profits for the banks. Debts walk out the front door, the surplus walks out the back as pay, retained profits, dividends. There are NEVER more liabilities than assets. But it is always true there is never enough to pay for everything in the world all at once. Does that help?

LOL

[Bloo Loo]

The last bit which I believe is completely wrong "...probably nets down to zero."

If that is the case why they pay something between 0-1% interest for savings, but they charge, on average, above 5% interest on mortgages, which is the least expensive debt, and up to 20% interest for other types of debt.

well, there is x amount of money issued...ie BoE credits in the form of £1 units, electronic and paper or metal.

at teh end of the day all the credit must net down to this x amount...its only movement of money that keeps the credit from defaulting.

Of course, the interest part is the profit for the mover....and relies on someone, somewhere creating new wealth with which to pay it back.

If all the money stopped flowing, everyone would have.....some cash, some bank credit owed to them, and some debt they owe.

some wont have sufficient cash to pay the debt they owe, so they will default....banks, who have a merrygo round of debt between themselves could probably net much of the ir debt and credit to a small figure. this is the very argument used to say that CDS neednt be done on an exchange, as it all nets down to zero despite the huge sums of face value contracts....quadrillions I beleive.

[Bloo Loo]

nnnOOOOOOOOOOOOOOOOOOOOOOOOOOOO

This video has done more to spread that rubbish than anything else.

Read my edit...this explains!

EDIT: Interest helps generate profits for the banks. Debts walk out the front door, the surplus walks out the back as pay, retained profits, dividends. There are NEVER more liabilities than assets. But it is always true there is never enough to pay for everything in the world all at once. Does that help?

well, apart from money printing central banks.

[Bloo Loo]

Essentially credit money is a credit derivative. It is created in a spontaneous explosion that separates nothing into a credit and a debit, an asset and a liability. It is a thing of beauty, of wonder but ultimately of risk...credit means 'trust', that trust is based on the debit coming back and cancelling the credit, the asset with the liability. If that does not happen and that trust is broken, the laws of nature mean that the asset must be cancelled out with someone else's liability - the shareholder, the depositor, the bond holder....but in this case, the poor tax payer...who has to settle that newly wondrous creation, the public deficit that too has been generated from simply, nothing!

in the case of the greedy goldsmith, he has issued more reciepts than he has gold.

in the case of current banks, they issued credit based on credit backed securities.....

the first case is a easy crime and is regulated. the second case is a crime on a crime and wasnt regulated at all.

[Bloo Loo]

gold

I'm saying it should come back to net assets really.

you mean comedy gold....central bank reserves....

[mfp123]

..and I'm not?

if you setup your own bank and have enough reserves - you can.

[Lepista]

if you setup your own bank and have enough reserves - you can.

So you're saying that

(1) To borrow money, I need to have some money?

(2) To lend to me is inefficient, it's only the economy of scale that lets them lend hage suma at such a low rates?

Surely (1) is a nonsense, and (2) could easily be overcome - it's only bits on a computer screen, right?

[easy2012]

0.5% is the base rate. Its not what banks borrow at....and if they do borrow, they pay a rate according to the collateral offered.

Banks normally borrow from the money markets....thats why the risk of cascade failure is so feared.....they all owe each other a packet...probably nets down to zero.

They do borrow some at close to base, circa 0.7% or so from BoE.

I can offer some collateral too but for some reason, toxic MBS is better than the paper with my name on it... I will be happy to borrow at 0.8%...

[Ben is Back]

correct me if I'm wrong but I don;t think banks borrow at 0.5% from BoE.

the base rate is what interest-rate the banks get from BoE for money on deposit there. It therefore sets the interest rate accross the country because it is the rate that they can deposit money knowing for sure that they will get their money back plus interest, as the BoE can just print it if needed.