The ECB swallowed the market

Around a black hole there is what is called an event horizon. It is the point beyond which you can no longer turn back. In Hollywood films the event is often made rather dramatic with lots of shaking and sirens, as if it was like the lip of an approaching waterfall. It isn’t. In reality there would be nothing to mark it, no sign or apparent change. The Event Horizon would be hard to notice, much like a Tsunami out at sea. Just a small ripple you might not notice until it was passed.

And so it is in debt as well. In even quite large quantities debt can be fairly harmless. But beyond a certain accumulated mass it changes. There is now, I think, enough debt in the Fed, the Bank of Japan and the ECB that each of them is in the process of becoming a debt black hole. That is, the debt in them is so massive that it is gravitational, sucking at any and all of the debt and finance around it pulling more and more in to itself.

The problem is this. The Central banks have chosen to lend to insolvent private banks and to the nations that already bankrupted themselves trying to bail out their unbailable banks. In an attempt to make their lunacy seem sensible, the central banks assured everyone that they would only accept as collateral for the money they were lending out, the best assets the banks possessed. So the best of the insolvent banks’ assets were sucked in and cheap central bank loans flooded out. 

The central banks said that ‘now the banks were stabilized’ they hoped the banks would lend to the market and to each other thus allowing the broader economy and the banks themselves to be funded ‘by the market’. Neither happened. Why? Well the banks continued not to trust the quality of the assets they were offering each other as collateral. Not entirely surprising since the banks had already pledged the best of them to the central banks. Without trust-able assets as collateral – no loans.

So the banks were forced back to the ECB and the Fed for more loans. Of course they had already pledged their best assets. So began the gradual but inexorable loosening of criteria for what the ECB would accept as collateral. At first it was only AAA rated. Then it was bonds from ailing nations. Then it was anything that came to hand.  Which made the ‘market’, AKA other banks, even less keen on accepting as collateral whatever was left. And so on round and round. We have long since reached the point where the central banks like the ECB, either directly or washed first through a national bank such as The bank of Greece or Spain, has begun to accept almost anything as collateral.

When I say washed what I mean is the national bank in Spain or Greece or Ireland may accept some asset which is thoroughly sub-prime in return for a sovereign bond. That bond is then acceptable to the ECB as collateral because it is a Sovereign bond, which as we all know are AAA rated, for sure, for sure never going to default. However the more sub-prime, stinky, slimy paper the national banks are stuffed with, the more the sovereign debt is backed by a national bank which resembles a sewer of rotting rubbish, a nation in the grip of austerity and a contracting economy. Whatever pretty prime-time fictions you get hosed with each evening, this is the reality that dare not be reported. And we all know it. Ireland is in recession, Spain’s economy is contracting and so is Portugal’s. That is why ‘the market’ keeps hiking the interest it insists upon for lending to National banks. 

The result is that the private banks have already pledged anything good they had. They will not therefore lend to each other because they know none of them has any assets left which are worth anything. Thus they are forced to go back to the ECB and Fed for more money and those institutions are forced to take even more ropey assets in return for issuing even more loans.  Each time round, each new QE and new lot of money, sucks in more bad assets and makes any possiblity of private funding even more remote. The Central banks have swallowed the market. All debt and debtors are being drawn into ever tighter orbit. None will escape.

Now you might object that I have simply missed the point of the official policy. Certainly the National banks and the Central Banks have removed huge amounts of the toxic loan/assets from the private banks… and this we are assured is a good thing. This is called ‘cleaning up’ the banks. The rubbish is removed and in its place ‘good’ national and central bank bonds are put in their place, giving the private banks lots of good assets. And it does sound possibly OK when you hear it put that way and don’t think too hard about it.

But we have to remember a couple of things. First the bad assets have not ‘gone’. They still exist. They are still money which was lent out, which itself was often borrowed and thus has to be repaid, but which is not now bringing in any profit. Those losses are still warm and moistly rotting, just doing it in National and Central bank vaults now. Second, for all that the banks do now have sovereign and Central bank bonds to pledge, they are still, all of them, coming back to the ECB and the Fed for more QE easy money loans. This is because even though the banks have used that QE money to speculate on commodities and currencies to try to make a fast and out-sized profit – still chasing high risk and return – they still have huge liabilities (money they owe) not being paid for from income which is  not coming in from yet more bad assets which are nevertheless still  being held at imaginary values so as to make the assets side of the balance sheet look like it might balance out those liabilities.  Imagine a very long turd tied into a knot. 

But I digress.  My main point is that the banks, despite 4 years of never-quite-materializing recovery, still need loans from the central banks and still need to pledge assets to get them. How many more assets do they have? Probably many hundreds of billions. But they are increasingly awful. Which means we have an alleged recovery that must increasingly be fueled by the very debts and worthless dross it is trying to recover from.

Now just for fun imagine how many times any assets were re-hypothecated before they got to the ECB and how many times the ECB bond issued in return for those assets will itself be re-hypothecated. And then feel good about the solidity of the banks, the system and the recovery.

My guess is that as this year progresses banks will quietly bring rubbish back on to their balance sheets from off-balance sheet vehicles just so they can be slipped into the ECB. These would be assets that were declared worthless and written off for a tax rebate in the country of origin, before being moved to an SIV in Ireland where they would be declared at face value so as to be written down again and then pledged to the ECB at far above their real market value in return for an ECB bond which can be used to speculate against various nations and their debts.

 

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141 Responses to The ECB swallowed the market

  1. simoncz March 22, 2012 at 7:01 pm #

    Wonderful article, mainly the voices of Edison and Henry Ford on why on earth does the government borrow from banks?

    http://publicbankinginstitute.org/thomas-edison-article

  2. bill40 March 23, 2012 at 12:14 am #

    Golem,

    This is why I read this blog. The end game can only be to transfer all the toxic assets to central banks to be written off at the expense of national economies. The BoE has around 35% of the UK national debt paying interest to itself. When QE has hoovered up all the bad assets it will be retired. And so on with the Fed and ECB.

    It will be like a hidden debt jubilee. needless to say the debts of lesser mortals will be ruthlessly enforced.

  3. Phil March 23, 2012 at 12:30 am #

    Jesus Christ.

  4. patma2003 March 23, 2012 at 1:50 am #

    Iceland’s decision to camp on the edge of Event Horizon like the USS Palomino is gonna make them a European super power by default… pun intended. Epic win.

    • Jason March 23, 2012 at 3:41 pm #

      Don’t you mean the USS Cygnus?

      • patma2003 March 23, 2012 at 4:22 pm #

        Damn, I knew I’d get it wrong. You are a mental giant Jason. Though if you’ll entertain me, technically the Palomino did dock with the Cygnus, so they were both hanging out on the edge for a while. ;)

        So, hopefully the wonderful mental imagery is not lost. That is, the imagery of a sovereign island democracy who gave the two fingered salute to the offer of ‘nation saving’ loans, with a properly functioning democracy being the heavy, equal and countering force to the all-consuming gravitational pull of a debt black hole.

        Iceland’s voice bought them ringside tickets at Event Horizon, for they know as we all do, that debt is the preferred money of slaves.

        It’s a welcome and needed contrast.

        • Jason March 26, 2012 at 1:11 pm #

          Agree, all of this to save worthless bankers (while the rest of us are tipped over the edge) they just don’t get that without all of the worker bees there will be nothing left to lord over.

  5. The Dork of Cork March 23, 2012 at 3:01 am #

    I keep thinking LTRO is all about denationalizing (at least from the banking viewpoint) the money system.
    I would like to know if only “French” banks were buying French Debt with this new cheap cash , German banks buying on German debt , Irish Banks only buying Irish debt.

    Its hard to figure out how the Euro will break up under the current bank money system without this mechanism of disentangling the euro web of debt. – it would of course be best if Exchequers just produced taxable paper and cut those banks off from the tax spigot entirely but it seems impossible under this current rule by Banks.

  6. The Dork of Cork March 23, 2012 at 3:02 am #

    sorry I ment to say “renationalizing the Euro money system”

  7. Patrick Donnelly March 23, 2012 at 4:06 am #

    Excellent article!

    And this is also the Japanese model! Prices still sliding, interest still low in both senses, and debts increasing: after 23 years!

    But they kept up their employment levels, maybe the west will escape on the bodies of the unemployed and the ill? Death rates in Portugal are up 20%! With growth like that, no economy need worry?

  8. Foucalt Tudoux Wimay March 23, 2012 at 12:40 pm #

    Beautifully written as ever.
    I think they are trying to prolong this forever, problem is they are going to try for a two-tier set of interest rates. 0.5% for their friends, and 10% plus for the rest of us. Mortgages are now Base plus 3.5%…
    Business loans for SME’s are -well, not available.

    • Golem XIV March 23, 2012 at 12:45 pm #

      Clever name! Agree about the two tier interest rates. If people ever twig to what is being done to them….

  9. Joe R March 23, 2012 at 2:41 pm #

    Golem,

    You aren’t right on this regarding Ireland at least. The Central Bank there was accepting dud assets for overnight cash long before the crisis really broke back in 2008.

    10 billion euro was handed out that way to Anglo in overnight loans before it colapsed. Management overode any internal qualms by sayings oh we know those fellas – they are good chaps with a great banking model making wads of cash!

    The narrative read that the Irish State rode in to save poor Anglo at the last minute but in reality it had doled out the cash at the start when Anglo first came looking, on the basis of in-house friendships and with a deliberately blind acceptance of the dud assets offered in exchange. This was not picked up by the media or the opposition.

    I really think this all may be a lot dumber than you currently presume.

    Joe.

    • Golem XIV March 23, 2012 at 2:48 pm #

      Good to hear from you Joe,

      I suspect you’re right. If you have any links I could follow to read up a little more on this I would be grateful. If not don’t worry. I owe you one already.

      • Joe R March 23, 2012 at 6:18 pm #

        Golem – give it up you owe me nothing! Debt jubilee starts here!…

        My knowledge is mainly anecodotal from within the Central Bank in 2008/9. It was reliable and first hand.

        Nothing appeared in the media save a small mention quoted below, by David McWilliams 2 years ago. Journalists were being fed a story which they generally regurgiated. McWilliams on the other hand tries to tell the truth, I think.

        “One of the biggest creditors of Anglo is the Central Bank, which has very quietly lent Anglo over €10bn under something called the “master loan repurchase agreement”. (It doesn’t want you to know about this by the way.)”

        Link as follows;

        http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-moneysucking-anglo-is-our-financial-stalingrad-2086182.html

        As far as I know the money was gone before the Government admitted the scale of the losses and that the taxpayer would be paying for it all. I’m not sure where you will find out more maybe if you can make sense of Central Bank Report. There was an open admiration in the Central Bank for Anglo – for its Chief Exec too and taxpayer cash was exchanged for crap assets on the basis of this big banker love-in.

  10. Debra March 23, 2012 at 10:07 pm #

    A couple of central points here.
    Broadcasting from France, I thought y’all might be interested to learn that our official, national bureau of statistics has informed all French people that according to the numbers, France has narrowly escaped the recession…
    If you think that the big news is that France has escaped the recession, then you are not looking in the right place.
    How did we get to the place where we accept.. on faith and trust that the national bureau of statistics is the tried and true expert on what constitutes a recession or not ?
    Who is authorized and legitimate to say whether it’s a recession or not ? (Take a look at some of our urban ghettos, and try telling the people living there that we’re not in a recession.)
    Second point, more obscure, certainly but not unrelated.
    I vaguely remember that the Protestant Lord’s prayer I learned has this sentence in it
    “and forgive us our DEBTS as we forgive our debtors”.
    I wonder why some people (including the Catholic denomination) say “trespasses”, while others say “debts”.
    The least I can say right now is that “we” are not particularly big on FORGIVING them thar debts…
    Could that have something to do with the deep shit we are in ?
    Don’t doubt it for an instant.

    • laturb March 25, 2012 at 2:44 pm #

      Your reference to the Lord’s Prayer got me thinking, so as it’s Sunday, a bit more obscura here with the emphasis very much on the dark.
      I find the use of ‘debts’ and ‘trespasses’ fascinating, because at some stage in the history (English history of course, because we all know God was English) of developing the Lord’s Prayer land trespass became more important, or more controversial, than debt. I think that from early times we moved from ‘debts’, to emphasising ‘sins’ (about 1100), and then Rome’s influence brought us back to ‘debts’ by the 14th c. Whatever suited the Church was fine for the LP.
      Now, this conjecture is without research, but I would like to believe that the various ‘Tithe’ and ‘Enclosure Acts’ that began in earnest in the 1700s, influenced the wording of the LP because of their contentious nature, and what better way to control the masses than by reintroducing trespass(es) (originally in Luke’s version anyway) as not simply being against the law of the land, but more importantly, against God’s law. Therefore, the implication was that trespass was a sin.
      My point being that all of our current economic and social ills are really to do with land, and who controls it. Didn’t Coleridge proffer: “Property is power, and equal property is equal power.”

      • Debra March 31, 2012 at 1:31 pm #

        Some associations on what you put down…
        I just pulled out the OED, for a reality check. ;-)
        “Trespass” is not just related to the land, BUT… it is related to any form of transgression against THE LAW, particularly concerning persons and goods.
        As Christianity colonized Western Europe, it brought with it… Roman attitudes towards law and property. It brought.. Roman law with it, and Roman law is particularly keen on goods, and property. Rome was built around commerce..
        Sound familiar ? Did Christianity bring Rome, or.. did Rome bring Christianity ? Kind of a chicken/egg question…
        Roman law slowly ended up displacing Celtic, and other Germanic traditions which were much less keen on commerce, AND PROPERTY.
        From my point of view, at least, the world in front of us right now is particularly.. Roman.

        • Geriatrikiter April 3, 2012 at 9:14 pm #

          Not sure that “trespass” as used in the Lord’s prayer has any particular reference to property ownership, or for that matter to attitudes perceived to be Roman. The primary definition in OED is “A transgression; a breach of law or duty; an offence, sin, wrong; a fault.” There’s an illustrative quotation from Blackstone’s Commentaries (1768) to the effect that “Trespass, in its largest and most extensive sense, signifies any transgression or offence against the law of nature, of society, or of the country in which we live.” The verb “trespass” can also denote unlawful entry on someone else’s land, but that is not what Tindal had in mind when he translated Matthew vi. 12 as “forgeve us our treaspases, even as we forgeve them which treaspas us.” He was just referring to wrongs and sins in general.

          • Debra April 4, 2012 at 8:45 am #

            Geriatriker, this is as good a place as any to.. promote my linguistic theories, which are heavily indebted (that word, that word, there it is again…) to my training as a lacanian psychoanalyst in Europe.
            Freud noticed that our minds obeyed a curious logic, picking up on individual WORDS, and bouncing them off each other constantly, both as individuals in our daily lives, but as a species, from one generation to the next. An associative logic.
            A quick look at the etymology of the word “science”, dating back to the year 1000 or so allows us to perceive that while the form of the word remains intact and WE recognize it, that shadowy idea of WHAT IT MEANS, well, that has changed significantly since the year 1000.
            The dictionary has the unfortunate tendancy to cultivate our illusion ? that meanings are fixed (read THE TRUTH..), while it is not because they are written down in a formal document which is granted authority and legitimacy that we limit ourselves to understanding them in the limited manner of the dictionary (yes, even a 14 volume OED will not exhaust all the possible meanings of the words).
            “Trespass” may have meant one thing to Tindal but… to later readers it ALSO acquired supplemental meanings and associations which we are not going to get rid of by trying to stick up fences in our minds. Nevertheless, thanks for the info.

  11. Phil March 23, 2012 at 11:17 pm #

    I’m having difficulty getting head around something:

    bill40 said, ”The end game can only be to transfer all the toxic assets to central banks to be written off at the expense of national economies. The BoE has around 35% of the UK national debt paying interest to itself. When QE has hoovered up all the bad assets it will be retired. And so on with the Fed and ECB.

    It will be like a hidden debt jubilee.”

    Sorry these will be simplistic questions for many on here but:

    How does the BoE pay interest to itself?

    If Mervyn King and Haldane are the good guys some believe them to be, who is making these decisions about secret debt jubilees?

    Can we get some kind of diagram / graphic drawn up to explain visually what’s happening a) in the UK b) in Europe and c) across the globe? If someone could do it – without arrows flowing hither and thither to show the debts (amount and type) it would be of great benefit to those of us less au fait with this hall of mirrors.

    • bill40 March 24, 2012 at 1:46 am #

      Crikey Phil, we all do this for free so diagrams are out of the question. The undisputed fact is that QE purchased some 35% OF OUR NATIONAL DEBT. tHEREFORE THE bOe OWNS THIS DEBT WHICH CARRIES INTEREST. Ooops caps which I can’t be arsed to correct.

      that’s how the BoE takes interest from money it’s lent from itself. I am guessing at the purpose of this. I am assuming it will be swapped with yet more toxic sh1t that the banks hold, which is as good as a debt jubilee.

      The point of this forum, for me, is that we all know something is very wrong. Trying to nail what it actually is, is not so much an artform but a form of astrology.

      We’ll keep guessing until we get it right.

  12. Phil March 23, 2012 at 11:18 pm #

    ‎David said:

    ”My guess is that as this year progresses banks will quietly bring rubbish back on to their balance sheets from off-balance sheet vehicles just so they can be slipped into the ECB. These would be assets that were declared worthless and written off for a tax rebate in the country of origin, before being moved to an SIV in Ireland where they would be declared at face value so as to be written down again and then pledged to the ECB at far above their real market value in return for an ECB bond which can be used to speculate against various nations and their debts.”

    What?? Who’s sanctioning this fraud??

    • Golem XIV March 23, 2012 at 11:27 pm #

      Sanctions? We don’t need no stinking sanctions!

  13. Labled March 24, 2012 at 12:56 am #

    Interesting today, an email has emerged that shows Corzine “may” have sanctioned the clients monies to be used on company accounts.

    http://www.ft.com/cms/s/0/8bc937c4-752e-11e1-90d1-00144feab49a.html#axzz1ptXVdjo2

    I cant see how they think this one’s going to go away…..

    Its a case that is rudely awakening all shareholders now.

    • slackful March 24, 2012 at 5:26 am #

      I think there’s one too many pictures of Barry hugging JC at monster fund raisers, I don’t expect anything too bad to happen to him. The campaign can’t afford that to happen. My bet is that it does go away.

    • Synopticist March 25, 2012 at 1:44 am #

      Corzine has a lot of pwerful friends, and a lot of money.
      I’m sure they’ll find a bit of wriggle room for him.

  14. StevieFinn March 24, 2012 at 1:30 pm #

    Testing – 123,123

  15. StevieFinn March 24, 2012 at 4:25 pm #

    Like Phil I am having difficulty getting my head round this. So I am going to try & imagine the situation in a different way, so here goes:

    I imagine a secret hospital ward, in this ward there are a group of patients that represent the banks. These patients are barely alive but are kept ticking over because they are connected to intravenous drips & drains. These devices are connected to a blood bank which represents the Fed or the equivalent. The blood bank drains the poisonous blood out of the patients, deposits it into the equivalent of a septic tank & replaces it with good blood, but because the patients are so full of poison the doctors who operate this system have to keep this method going continually, in the hope that all the toxicity will eventually be drained away, & the patients will be healthy again. This situation isn’t helped because the patients refuse to tell the truth about how much poison they have taken.

    These patients however are all still being allowed to run their own rigged casinos from their hopital beds using the good blood they have recieved to keep going a variety of games, so that even in their severely weakened state they can operate in, what is to them their normal way of going about their business. This involves artificially inflating the market, to keep the suckers investing & also keeps up the appearance of them being perfectly healthy & also means they can spare enough to gorge themselves, like so many greedy vampires. This situation inevitably increases the further contamination of the blood supply.

    The governors of this hospital value these 1st class ward patients, giving them protection & often looking the other way, when they do not follow hospital rules. After all it is donations of blood from these people that keeps the governors in power.

    There are other wards too, they are inhabited by the general population who have been attached only to intravenous drains. The hopitals marketing team has managed to convince them that this is for their own good, & anyway it serves them right for believing the bullshit about a better future. It is after all their own fault for living beyond their means & are they not lucky to be provided with distactions, like say, a TV over every bed ? These patients for the most part do not even know they are in a hospital, most of them assume that the situation is temporary & things will eventually pick up. Unfortunately these type of hospitals tend to drain more from those patients who were in an already weakened state to start off with.

    So we have the banks getting the 1st class treatment, although they like heroin addicts carry on in the same old way, an increasingly filling septic tank of toxic debt & a population being drained of sustenance to help infuse the banks, which in turn weakens these people, but will profit the banks lapdogs in the government, media etc.

    What I would like to know is: The septic tank filled with toxic assets, what will happen to that, has it been paid for by the Fed & so therefore can it be written off, or does it have to be paid for again by the Fed ( us in other words ) in order to get rid of it.? This is based on the assumption that the QE is money gained from printing not borrowing. If the money is in fact borrowed then obviously interest will have to be paid on it & who was that money borrowed from, the same banks who are being bailed out ? Is all of this to be paid like a mortgage, way into the future, or is inflation expected to do the job ?

    Also from what I understand about MMT it is OK to print money if it is used to produce growth, but the situation is in fact the opposite. Is this proof that TPTB have another agenda based on an IMF, Chicago school type philosophy that is purposely using the crisis in an effort to privatise & force down populations expectancy of pensions, pay & general social conditions. In greece under 25′s are now expected to work for, if I remember rightly, about 225 euro per month. If it’s OK to print, why not do it to benefit everybody ?

    I hope this makes some sense & somebody can give me some answers. My poor head gets pretty muddled sometimes, I think I have a grasp of the fundamentals, but as to the thinking of people like Bernanke, Draghi & the rest of those inhabitants of that den of thieves, I cannot figure out the logic of their actions. My only conclusion is that it is a mixture of greed, corruption, self interest, cock-up & a downright lack of concern for the majority of the human race. I don’t think it is a conspiracy just evil seeing an opportunity to further it’s ends.

    So I have had a good waffle to make up for not being able to comment for a while using my desktop, this is due to a problem with wordpress or whatever. I am using my geriatric laptop at the moment. The last comment I tried to post wouldn’t work, I got a notification informing me that my comment was spam, personally I didn’t think it was that bad, anyway this is my revenge.

    Please contribute to someone whose brain isn’t properly wired to deal with this shit.

  16. Wirplit March 25, 2012 at 2:22 am #

    Forgive me if I am just confusing things more here or just plan wrong but the whole matter of this debt also can easily start to confuse me too. Above all in its more complex unwinding but essentially….

    The way I see it is this.
    Debt was created by the bank’s ability to create new money via credit. If a bank can take a pound and multiply it by 35 or more by lending it again and again then effectively it has created money. But this does not equate to a real increase in productive wealth. Once deregulation kicked in they could really expand this credit creation. They went for it big time.

    For example the number of houses did not greatly increase in the UK from the 1990′s and into the 2000′s but the ease at borrowing increased massively and this in turn drove up the prices. Credit was easy to obtain because the banks were creating it. This in turn created a housing price boom. The same house ( asset ) became much more valuable in money terms. Everyone on the property ladder felt wealthier as the asset was worth more.

    But in this case the actual productive assets had not really increased. Elsewhere, in Spain and Ireland for example a huge construction boom was launched to use up this huge increase in credit. The numbers of properties increased massively but ultimately it was not an actual increase in real productive capacity as Spain and Ireland have learned to their cost.

    At its simplest the bank that gave the loan had the mortgage or similar paper backed by the asset (property) as collateral (although of course we know it got way more complex than this as they sliced and diced with the collateral)

    But to follow the basic line of thought, therefore when the housing boom faltered and the asset value began to be questioned the whole edifice began to collapse. The original 35 to I creation of credit and loan creation had to go into reverse. It is this that is now occurring.

    The assets backing the creation of credit no longer were worth what they had been and given the huge leverage this meant a huge de-leverage. The banks assets ( the collateral that backed the creation of credit) were now worth way less or even nothing at all.

    Somehow the Wealth that had been created had to be destroyed or rather admitted to be an illusion all along… but in an “orderly” way. That is what we are now seeing…

    By passing the bank debts onto the Public purse they could do two things. They could through austerity and cuts reduce the amount of wealth available for the public welfare… at the same time they could create money directly through QE and the like and so inflate money ie reduce its value and try and rebuild the real economy.

    In the EU whole countries are being forced into this wealth retraction through recession, severe contraction, outright depression. Its a wealth destruction of the real economy to make up for what should be a destruction of the Bank’s devalued assets.

    Is this about it?

    • patma2003 March 25, 2012 at 4:57 am #

      “… Its a wealth destruction of the real economy to make up for what should be a destruction of the Bank’s devalued assets… ”

      Beautiful.

    • Golem XIV March 25, 2012 at 10:45 am #

      Wirplit,

      That is about it. All I would add is that the ‘worth’ of the banks and therefore those who own it and have lent to it (its bond holders) all depend on the ‘promise’ to repay the loans it has made and which it(the bank) counts as its assets.

      That loan was the ability to repay a mortgage. When that promise was seen to be broken the worth of all those loans/assets should have decreased accordingly. But that would have destroyed the wealth of the wealthy.

      The bailing out of the banks, by whatever means (direct inevstment/bond buying/QE – it doesn’t matter which) is putting in to the banks pieces of paper which have a very different promise backing them up – namely our promise to pay our taxes.

      As 1 pound of value of the bank’s old paper with its promise to repay a mortgage evaporates public money is being put in to replace it. The net effect is to keep the value of teh banks and the wealth of those who own it teh same.

      So our austerity measures are NOT to rebuild the real economy. They are to keep intact the wealth the value of the banks and wealth of those who own them.

      Austerity is not about helping us at all. Only very indirectly – IF the banks chose to invest some of our austerity derived money back in to our jobs. Which so far they have NOT. They have chosen to parl that moneyin teh central banks where WE pay extra interest to THEM on the money, our money, which our politicians gave to the banks, or they have used it to specualte on food and currency. Now the same banks are specualting on oil.

      The added bonus prize for them is that by starving us, our economy and our public services (by diverting taxes away from public services like health or education puttting it instead into the banks) they are also diggin under the foundations of everything they disliked politically but never had the mandate to destroy. Classic seige warfare. They will dig under it all weakening it until it appears to fall over from inherent weakness.

      Enjoy

  17. backwardsevolution March 25, 2012 at 4:46 am #

    Propublica was the site that broke some of the biggest CDO schemes. An example:

    “Two years before the financial crisis hit, Merrill Lynch confronted a serious problem. No one, not even the bank’s own traders, wanted to buy the supposedly safe portions of the mortgage-backed securities Merrill was creating.

    Bank executives came up with a fix that had short-term benefits and long-term consequences. They formed a new group within Merrill, which took on the bank’s money-losing securities. But how to get the group to accept deals that were otherwise unprofitable? They paid them. The division creating the securities passed portions of their bonuses to the new group…”

    http://www.propublica.org/article/the-subsidy-how-merrill-lynch-traders-helped-blow-up-their-own-firm

    A good read.

  18. backwardsevolution March 25, 2012 at 7:16 am #

    Another good article from ProPublica re the hedge fund, Magnetar, who started it and how it paid off.

    “The guiding force behind Magnetar was Alec Litowitz, a triathlete, astronomy buff and rising star in the investing world. In 2003, Litowitz retired from a Chicago-based hedge fund, Citadel, one of the most successful in the world, where he had spent most of his career and became a top executive. He promised to stay out of the business for two years. [...]

    By spring 2005, Litowitz’s wait was over. Then 38 years old, Litowitz quickly raised money to start his own hedge fund. The fund, Magnetar, attracted $1.7 billion from investors and opened in April.”

    He leaves a great-paying job, waits two years. I’d just love to know who his investors were, but apparently that’s private information.

    “Prusko and his boss at Magnetar, Snyderman, began approaching investment banks, offering to buy the riskiest, highest-yielding portion of CDOs. They always wanted a middleman, known as a CDO manager, on their deals. Many CDOs are operated day to day by such independent firms, who are often brought in by investment banks.

    The managers also played a vital role in creating deals. When an investment bank created a CDO, it would often give what amounted to blueprints to the managers, who would then go out and find the exact bundles of bonds to fill the CDO. The managers had a fiduciary duty to represent the CDO fairly to all investors, ensuring investors got accurate and equal information.

    Magnetar’s deals were numerous and big, and just like for investment banks, the bigger the deal, the larger the fee for managers.

    “Prusko’s job was to butter up the CDO managers and the bankers,” said one banker who dealt with him.

    By relying on a manager rather than managing the deal itself, Magnetar had no legal obligations to the CDO or others who bought it.”

    All of the Magnetar articles on the left side of ProPublica’s page are interesting reading.

    http://www.propublica.org/article/magnetar-gets-started

  19. Charles Wheeler March 25, 2012 at 5:50 pm #

    “Worse, the budget speech was littered with dissimulation and sometimes near-lies that are a black mark on British public life … Nor is it true that Britain has record public debts. It did have a record annual public deficit in 2009/10 as the budget papers say. But that is not debt. Debt is an aggregate figure, the consequence of cumulative deficits over decades. Expressed as a proportion of GDP, debt has been higher than current levels for most of the last 250 years. Indeed, with the cost of servicing public debt at the lowest since the 1890s there have been very few decades since the 1760s when the cost of servicing public debt has been so low. Britain, despite the Orwellian attempt to misuse language, does not have a debt crisis.”
    Will Hutton: http://goo.gl/5GEyJ

    • backwardsevolution March 25, 2012 at 8:10 pm #

      Charles Wheeler – from that article:

      “What he, and other banks, need is the capacity to bundle up new loans into new aggregated investment vehicles that the Treasury can indemnify, and which can then be bought by investors or by the Bank of England’s quantitative easing programme.

      I have argued for this. So has the Breedon report. It is the only secure way to ensure bank lending rises over the years ahead.”

      But isn’t that carrying on with business as usual? Bundling up debt and then offloading the risk onto investors, all indemnified by the government? How about the banks shouldering the risk? How about them demanding a larger deposit, some collateral, or an interest rate that reflected the risk? How about the buyers of debt have a real stake in the game? If they want to use excessive leverage, then how about they pay for that in the form of much higher interest rates?

      It seems the taxpayers are bearing the burden of risk, and that the three entities to the deal (the bank, the debtor, and the investor) are laughing all the way to the bank vault.

      Put the risk back on the BANKS (where it should be). This would slow down the debt assembly line. Asset prices would fall, which would actually help new home buyers.

      • Charles Wheeler March 25, 2012 at 10:40 pm #

        Yes. Hutton is trapped in the defunct paradigm.

        Just thought the section on misinformation worth an airing.

        Truth is – the banks are incapable of bearing the risk.

        Assets were overpriced via a classic Minsky Ponzi-finance asset-price bubble. Consequently the debts that sat on those assets are unrealiseable.

        As Michael Hudson has been reiterating since the crisis blew – ‘Debts that cannot be repaid won’t be repaid’.

        Those running the system MUST know this – which is why they’re buying time (at interest) to secure as many tangible assets as possible before the ship goes down – and lowering expectations in the process – not allowing a good crisis to go to waste in classic ‘shock doctrine’ style.

        There was a time, not so long ago, when people expected a ‘job for life’, a decent home (owned of rented from council or rent-regulated landlord), a holiday and a car, a debt-free university and free-at-point-of-use healthcare, with an adequate state pension at 60/65 and social care in old age which was non-means-tested (i.e. those who were brought up under a regime of social democracy).

        Those growing up under neoliberalism can expect a massive debt for HE, short-term, insecure work (if they’re lucky), a damp, privately rented rabbit hutch for extortionate ‘market’ rents, no chance of running a car (insurance at £3k pa) even if they could afford the petrol, co-payment or insurance-based healthcare – if they can afford cover and are eligible (and can fight the small print in court), no pension until they are in their 70s (assuming they live that long under these conditions), and having any assets they do manage to retain wiped out by a few months incapacity in old age. God forbid they should become disabled and enter the Kafkaesque world of the Atos revolving ‘fitness to workfare’ tests, and the permanent destitution that ensures.

        Meanwhile the 1% have never had it so good – increasing their income by 30% and 50% in the last two years as the whole system implodes in an orgy of greed.

        http://youtu.be/3IBGgWLF5qE?t=8m56s

        • backwardsevolution March 26, 2012 at 2:23 am #

          Charles Wheeler – very well said. I agree.

  20. backwardsevolution March 25, 2012 at 8:39 pm #

    RISK and CONSEQUENCE:

    “If we understand risk cannot be eliminated, it can only be transferred, then we will understand why the current financial trickery in Europe and elsewhere is doomed to fail.
    The entire global economy’s fundamental financial instability can be traced back to one simple rule of Nature: risk cannot be eliminated, it can only be transferred to others or masked. And when it is transferred to others or masked, then the causal feedback between risk and consequence is severed.

    Once risk has been disconnected from consequence, then it is impossible to discover the price of capital and risk. Once capital and risk have been mispriced, then the inevitable result is misallocation of capital and a positive feedback loop of self-referential, self-reinforcing risk.

    Once the causal negative feedback of the real world–consequence–is no longer available to those taking on risk, then only positive feedback remains. Positive feedback inevitably leads to runaway reactions that self-destruct.

    This can be illustrated by imagining yourself in a casino where a consortium will guarantee your losses up to $1 million. We call the disconnect of risk from the resulting gain/loss “moral hazard,” and to understand the ramifications of moral hazard, we need only compare the actions of two gamblers in the casino: one is using his own money, the other has none of his own capital at risk, and his losses will be covered up to $1 million.

    How much risk will you take on in gaming if you can lose $1 million without any loss to yourself? Obviously, we will accept enormous risks because if we win the high-risk bet, the gain will be ours to keep. Low-risk bets yield low returns but high-risk bets yield high returns.

    If our losses will be transferred to others, then why waste time betting on low-risk, low-return “red” at the roulette wheel? Let’s bet on single numbers because the payoff will be astronomical.”

    http://www.oftwominds.com/blogfeb12/risk-consequence2-12.html

    • Charles Wheeler March 26, 2012 at 4:06 pm #

      Quite right. The pretence that CDS eliminated risk was simply a fig-leaf to justify the taking on of more and more risk through fake ‘insurance’.

    • Debra April 3, 2012 at 8:59 am #

      There’s a name for this. An old name… it’s called.. drum roll.. PASSING THE BUCK.

  21. Phil March 26, 2012 at 7:59 am #

    ”“The largest banks know, however, that they are literally ‘too big to fail’ and can count on a helping hand from government if the worst comes to the worst. America’s political leaders would step in to prevent the crash of a major financial institution on the grounds that it could set off a lethal chain reaction culminating in widespread disaster. … Thus, in yet another intriguing but ominous irony of history, 10 years of ultra-liberalism have resulted in a US financial system whose future may only be assured with the help of federal government handouts” Michel Albert.

    He wrote that in 1991.

    So against that 2008 doesn’t look like such a surprise does it?

    Or austerity.

  22. simoncz March 26, 2012 at 12:49 pm #

    Does “mis-selling” need to be added to the Liar’s Lexicon section? There seems to be a lot of it about these days.

    • Charles Wheeler March 26, 2012 at 4:07 pm #

      Just a euphemism for ‘fraud’.

  23. Phil March 26, 2012 at 6:35 pm #

    I’ve taken the liberty of tidying up a couple of things in David’s overview. This has been sent to many, many people.

    ”The ‘value’ of the banks and therefore those who own it and the bond holders who have lent to it all depend on the ‘promise’ to repay the loans it has made and which it (the bank) counts as its assets. That loan was the ability to repay a mortgage. When that promise was seen to be broken the worth of all those loans/assets should have decreased accordingly. But that would have destroyed the wealth of the wealthy.

    The bailing out of the banks, by whatever means (direct investment/bond buying/QE – it doesn’t matter which) is putting into the banks pieces of paper which have a very different promise backing them up – namely our promise to pay our taxes. As 1 pound of value of the bank’s old paper, with its promise to repay a mortgage, evaporates public money is being put in to replace it. The net effect is to keep the value of the banks and the wealth of those who own it the same. So our austerity measures are NOT to rebuild the real economy. They are to keep intact the value of the banks and the wealth of those who own them.

    Austerity is not about helping us at all. Only very indirectly – IF the banks chose to invest some of our austerity derived money back in to our jobs. Which so far they have NOT. They have chosen to parlay that money in the central banks where WE pay extra interest to THEM on the money, our money, which our politicians gave to the banks, or they have used it to speculate on food and currency. Now the same banks are speculating on oil.

    The added bonus prize for them is that by starving us, our economy and our public services (by diverting taxes away from public services like health or education putting it instead into the banks) they are also digging under the foundations of everything they disliked politically but never had the mandate to destroy. Classic siege warfare. They will dig under it all weakening it until it appears to fall over from inherent weakness.”

    • Charles Wheeler March 26, 2012 at 7:56 pm #

      … and takes their short-sighted ar*** down with it.

      Meanwhile, emanating from another murky corner of the money markets:

      ‘The Wall Street multibillion-dollar scandal no one is talking about’
      “Consider what went on here. Banks took a rate that they artificially set themselves, and then went out and convinced municipalities and pension funds and others to bet against them on the rate. LIBOR rates were supposed to be set by bank treasurers reflecting what it cost them to borrow from other banks. But reportedly a number of bank treasurers consulted traders when deciding what rate to report to the organization in London that collected and posted the rates. (LIBOR stands for the London InterBank Offered Rate) What’s more, traders at a number of banks were given access to the systems that bank officials used to enter the rate so they could overwrite the rates with ones that would better suit them. When the rate went the way Wall Street traders programed it to do, the banks cashed in millions.”
      http://goo.gl/JoKzN

  24. 24K March 26, 2012 at 9:14 pm #

    It’s a year to the day that we filmed our first video. It was all very promising then, I watched blac bloc kick off while I sang in front of riot cops, chatted with riot cops who essentially are just people. I had a peak cap copper tell me I had the best costume…. I did not have the heart to tell him he had the best costume….

    A year later and where are we? It seems that it’s now natural for banks to be crap. Everybody seems to have accepted this. Ya’ see I have a fear which is much worse than the collapse of the dollar (giggle) or the banking system (LOL) or even the Euro (“.)

    My fear is that shit stays the same (no ! in shit, this is serious). All the ECB or whoever quotes in the world and even if bill40 (who’s doing this for free remember (lmao) could be bothered doing a graph, nothing is changing. Or will ever.

    That my friends is my chill to the bone fear.

    These suit wearing bunga bunga party A holes get up every morning and instantly think of gaming the system or spinning words on their head in this spoken reality.

    We don’t get up and start throwing spanners as that isn’t our life, but their whole lives are about being A holes. That’s hard to fight, especially when we still can’t figure out a decent worldwide ad campaign. Occupy is ok, still had no worldwide logo but it did have a worldwide smear campaign.

    Zombie Bank Death Squad isn’t it but should be. I have a mate who suggested I change the name to Family Values to appeal more but he sorta missed the point.

    This banking thing stinks to high heaven but where’s the pea? Keep watching the pea….

    meh. Unless we catch one with his hand in the safe live on telly it’s like it never happened. But we do have stuff to look forward too….

    More cuts, more austerity, it hasn’t really got going yet so yippee. If it gets too bad they’ll take a haircut and then more cuts, more austerity. Don’t kill that goose that lays that egg.

    Man that’s doom and gloomy. On the plus side I just renewed my domain name. zombiebankdeathsquad.com is here for another year.

    Now that class A taking (allegedly), bum slapping, naked stretching Kony film dude had one thing right. A worldwide nicely designed ad campaign. We could do that without the mental breakdown bit, an ad that transcends language, culture, spin.

    Finney, if you can do that I owe you a pint. bill40 sort that graph out too, Finney needs visuals.

    • Phil March 26, 2012 at 10:42 pm #

      it was me that asked for the visuals…

      by jingo i think the KONY idea has got wings!!!! a miniature ‘Inside Job’…

      who do we know who makes films…? ; )

      • 24K March 28, 2012 at 5:09 pm #

        Aye, it’s just the more stuff we can give the resident artist the better :D

        • Roger March 31, 2012 at 3:09 pm #

          Google gamesalad. HTML 5 and get the message into the hands of the palm worshiping generation. I have started working on a pasty hurling thing for Ian Bones little party on the 12th at Osbourne and Little.
          http://gamesalad.com/

          A zombie bank death squad levels game to explain money etc is a good shout.

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

          Zombie drop is a start. I am teaching ,myself to use this as I go someone alreadyt aufait with HTML 5 could implememnt a narrative spinning as you suggest also a good thing to add some excellent music too as well loved that first vid of yours.

          • 24K March 31, 2012 at 7:04 pm #

            That’s genius.

            I do not have a mac which is a shame. Going on a zombie rampage with a debt jubilee gun would be great! Glad you likes the vid.

            ZBDS The Game would be fun. Using a bank a level mixed up with regulator and politition levels with final levels of rich turned poor with raggety designer clothes like wailing banshees.

          • Roger G Lewis April 1, 2012 at 4:15 am #

            I think there is a windows version its all HTML based I work with Linux when ever I can and it is easy enough to partition your hard disc and have several operating systems on one machine.
            It would be great to see a ZBDS debt jubilee game I’d more than happily help with any programming scripting mixing or graphics. I am teaching myself how to do it but what I lack in speed I make up for with enthusiasm it would be a fun worthwhile project. Ping me an e mail if you would like to get something going on this.

            rogerglewis13@gmail.com

          • 24K April 2, 2012 at 6:48 pm #

            Sweet dude :D

            I will

    • patma2003 March 28, 2012 at 4:03 am #

      i have often thought of trawling the comments sections of all blog posts by Golem, copying all the sharp, edgy one liners and other moments of sublime clarity… catergorising them somehow… and then see what comes up… for sure there would have to be some simple, appealing themes for the masses that would crop up…

      it’s just such a great blog this one, and the contributors have helped to make this part of my daily diet…

      answers have to be found in the collective mind that bind us together already

      i just fear such an intake of the extended global f*** up could cause me a great mental sickness

      • StevieFinn March 28, 2012 at 11:26 pm #

        You & me both, I sometimes wonder if ignorance really is bliss, but I would prefer to know if there is a wolf coming, why it is coming & what it wants for breakfast.

        I post stuff on facebook which I know annoys a lot of people. I try to post things that pre-empt an event so that when the event takes place, it might click a cog in a someones brain, & they might maybe connect the post with the event. I suppose it’s a way of trying to establish to people that there is something credible behind this information.

        A friend of mine who has some grasp on the present situation complained to me that I only put up political posts on facebook. I asked him if he would rather not know the truth of what’s going on ? He simply replied, that it was depressing. My sister is worried about such posts & imagines that I am sitting in some corner getting depressed by it all & she also labels them as political. I try to explain that the posts reflect that the problem is above political & will prove the downfall of the majority whatever their political outlook.

        It seems to me unfortunately that for the majority of people, that until it effects them directly they will not change their views. A good example of this was illustrated by a photo I saw, of a bunch of attractive young ladies standing with two hippy types. The girls worked for a lingerie chain called ” La Senza ” which had gone into receivership. They had enlisted the assistance of these two unlikely knights in armour to try to get wages owed to them which KPMG refused to pay. A sit-in was organised & they were eventually paid. I am sure but for these damsels being in distress, they would never have given occupy Dame st. much attention. I hope that’s not too unkind.

        I know It all sounds pretty negative, but I honestly think that amongst our best allies are the perpetrators themselves. They are making a pigs ear of patching up the sinking boat & it is starting to hit people where it hurts. Thanks to the likes of G an awareness that something is drastically wrong, seems to be seeping into national consciousness. I am also heartened by the fact that people of different political persuasions are putting aside their differences to focus on the greater evil, thanks to factual persuasion from sources such as this one.

        I although naturally a bit of an old leftie, now consider myself apolitical, this is why I get so pissed off by labels that only seek to divide. I can imagine someone like Bob Diamond laughing as we squabble amongst ourselves & turn on scapegoats like the very latest invention, that a whole generation is to blame for all our woes. We have to put aside our differences, hippies & poor people don’t scare them, but a combination of those two groups & enlightened middle classes sure as hell would.

  25. Phil March 26, 2012 at 11:03 pm #

    BBC speculation that RBS is being sold to Abu Dhabi:

    http://www.bbc.co.uk/news/business-17514390

    WSJ says it’s not ‘imminent’:

    http://online.wsj.com/article/BT-CO-20120326-712513.html

    • Synopticist March 27, 2012 at 12:24 am #

      They need the money to cut top rate income, corporation and inheritance tax.
      Pity we can’t get rich arab princes to guarentee all RBS’s toxic off sheet mis-investments.

  26. Phil March 26, 2012 at 11:05 pm #

    I THINK I’M GOING TO FUCKING HIT SOMETHING

  27. BobRocket March 27, 2012 at 1:16 am #

    OT

    If you can make it, this has to be the event of the year (so far) Steve Keen and Paul Mason

    http://www2.lse.ac.uk/publicEvents/events/2012/04/20120403t1830vOT.aspx

    for those that can’t make it in person, the podcast/twitter feed/all the multimedia cacophony will be available during/after the event.

    /OT

    thankyou for your indulgence.

  28. BobRocket March 27, 2012 at 3:25 am #

    24K

    This is the calm before the (pseudo) storm, the 1% (actually 0.001%, the next tranche of .004% have the potential of rising, the rest of the 0.95% are just deluded wannabe’s/never2be’s).
    The infighting has already started, that jostling for position, the piece in the Times about Crude Arse, do you think the paper got lucky or do you think someone was whispering in their ear ?

    The rich will eat themselves, and they will eat you too. (if you let them)

    The only way to win is to not play their game.

    Do not indulge them in rational discourse (this only validates their existence), if you must engage them then do it through parody, sarcasm or wit.

    Ignore them, they are irrelevant (this is their worst nightmare).

    Do you really need rich people to carry out your daily lives ?
    Would the world as you know it come to a standstill if the rich were abducted by aliens ?

    Rich in money, poor in life.

    The world changed when they debased the lowly coins, all that glisters is a steel blank coated with copper.

    The game is up. (but they can’t admit it)

    Give it up, there are no assets, only liabilities, winner takes all, let them have it. And when they are done, when they have amassed all of the liabilities then be magnanimous, welcome them back in, it was not their fault that they had become corrupted, it was the nature of the state.

    And this time, when we create a new state, let it be pure, not conceived in iniquity, let vested interests declare, we all have a stake.

    • 24K March 28, 2012 at 5:53 pm #

      “It was the nature of the state”.

      Nice.

      I remember talking to G about how negative vibes are a waste of time. Infact I’ve posted this a couple of times now.

      My fear is that it’s the state of nature, it’s a human alpha male do what the f I like thing and anyone with that attitude in the right position automatically slips into that style of thought and action. The meek shall inherit the earth when I’m good and done with it thanks.

      We all give tacit consent to this, but this is never spoken. It is masked with facts and figures the give reason or prove that they’re A holes.

      You know it, I know it, they know it. But their spoken arrogance paints over it.

      Don’t get me wrong though, my fears are not my hopes, they are just thoughts. G if you’re listening, I really miss your more spiritual (if that’s the word) musings. The sun is back and we need Spring thoughts.

      Occupy has shed it’s tents and the buds of discontent are swelling.

      The garden will grow the same if we do the same. This needs to be more like permaculture. Everything needs to allign and connect. With permaculture you take the rough with the smooth. Which means the MMT bunch and the free marketeers need to get over themselves. If neither can meet in the middle it’s obvious it’s doomed.

      Why can’t we have an amount of money in supply that is figured out by a reasonably simple equation and small government?

      The games not up, if anything it’s just getting started.

      The meek have gotta get fired up.

      Revalujah!!

      And stop watching the televalium.

      Revalujah!

      And start a facebook page.

      • StevieFinn March 28, 2012 at 10:18 pm #

        Debt Generation did have a facebook page which I think, unfortunately didn’t get much of a response. I would imagine that with all G’s other commitments it was thought best to concentrate his efforts on other things.

        From what I have seen of FB pages, unless they are very high profile, they tend to get drowned in a myriad of loony conspiracy ones & others that freak out on symptoms rather than the underlying sickness.

        • 24K March 29, 2012 at 1:47 am #

          I was sorta joking :D

          Rat Ta Ta Taa Ta Taa

          You keep standing ‘em up :D

          Facebook is good for meeting zombies and santas. For my loathing of facebook two of my vids are made from facebook.

          I was looking for a zombie banker protest on Friday night and found out via facebook that Saturday was World Zombie Day so had to finish the song right then, to sync too and go.

          The Resident Evil dude I circle invited me to Santacon and Zombiecon was born.

          All three are filmed with people acting as one to capture what the song is including What Ya Gonna Do.

          I don’t know where to ‘film’ from here other than convoluted head up there music videos that I don’t have time for really.

          One day, done.

          Although I have all the time in the world really…..
          I have a plan for next World Zombie Day but that’s it.

          Maybe that’s why I’m grumpy :(

          It’s not though. You know what it is ’cause i’ve rambled on about off topic for so long. If you don’t, you really haven’t been paying attention.

          I do have a Boubley or Boublay type number that might be fun. I’m singing it now but you can’t hear it. It’s fine though. Like a chrome polished bumper.

    • Debra March 31, 2012 at 1:40 pm #

      Do you think that “they” didn’t say that during the French Revolution ?
      Do you have any idea what the world looked like during, and after, the French Revolution ?
      The man says.. the more things change, the more they stay the same.
      That is why the wise man has something to fall back on, and he knows that before Christ was born, people were saying what you are saying, in a different context, certainly, but the same things.
      A quick peek at Aristophanes’ later plays will blow you away. You will think that they were written yesterday.
      The question is… why don’t these observations make more people really turn their neurons on ??
      Voltaire who was a particularly wise man, advocated cultivating one’s garden at the end…
      I agree.
      The more you get all excited, and get revved up to carry the pitchforks, the worse things will be. For you, for your children, for my children, too.
      I HAVE noticed after all, that the great majority of people reading the economic blogs are of the masculine sex, after all…
      Which is not to say that I cannot be an Amazon at times, but…
      truly intelligent people have noticed that violently combating something is one of the best ways of perpetuating it.
      Ironic.

      • 24K March 31, 2012 at 8:54 pm #

        The question is… why don’t these observations make more people really turn their neurons on ??

        I’m not everybody else but I’m sure everybody thinks about it, excusing the gorging on emotion that masks alot of stuff, I’m not sure if it’s because folk think they’re not important enough or it’s a leave it too experts as I know nothing, or I don’t know where to start so would rather ignore it and watch telly. Maybe to get some closure watch Question Time.

        I had the Lib Dems at the door today. He tried to sweet talk me with talk of his +box and Star Trek for some reason. I asked him if he knew of such things as CDOs or CDS?

        SLAM.

        What is worth taking note of is that he was knocking on peoples doors, admittedly talking whatever he thought necessary to get their vote but still knocking on real peoples doors.

        Have you heard of the Pirate Party in Germany? That’s what we need, our own Political Party.

        Protesting government is pointless unless you have enough people and then it’s pointless because you wouldn’t need too, unless the protest is actually an advertisment in disguise. Talking to the people is the one. Like G does here. Imagine if we had a vision, let’s blag Positive Money’s one for arguments sake, and then we spent the year like Mormons knocking on doors. They believe in their God so much they’re willing to put time in for him. Do we believe enough to put time in?

        The Socialists do, they even do it with rubbish handouts. I went to a meeting once and pointed out that nowhere on their leaflets did it mention bankers and they all looked at me blank. The world is an advertisment. Still blank.
        I never went again. Alot of them just like the banter between themselves and local councils. I don’t wanna talk to the monkey or the organ grinder. I wanna talk to the guy that puts the coin in the hat.

        Why can’t all the folk that hate this scam agree to some degree and give out the same polished handout. Mary Portas when asked to solve the problem in the high street never said the banking system. She does get image, advertising and how important it is.

        38 Degrees are winding me up now too. Why waste all the donations on adverts about stuff you can’t stop? Why can’t we give that money to Satchi & Satchi? Let them figure out some good brainwashing. I swear it would be better spent. We need to dance with the Devil.

        Debra, The fact you commented is way cool girlfriend. The more honeys that join the converstion the better. For a lot of these economic geeks it’s the first time they’ve had the chance to speak to a girl.
        Seriously though, your side of the race is more balanced and likely to come to a middle ground than most of us.

        Aristophane is one funny dude! Thanks for the history lesson. It does seem like commentary while the mankeys loop the same old same old.

        I bumped into this last week Permaculture in Costa Rica

        Coming?

        • Labled March 31, 2012 at 10:42 pm #

          If it helps, im also a “honey”, though i cant remember a time ever called it.
          Re Positive Money, ive been to a few meetings, but they are not well attended and in all honesty im sure they complicate a very simple issue, but at least they are trying to attempt to educate Joe Public.
          Unless we can create a new party in the next 12 months, which im not entirely ruling out as more people are becoming disillusioned, i think good local Independent candidates are the way forward. I am seriously contemplating finding that candidate in my own area and helping out as much as possible.
          We cant get demoralised and as much as id like to put a torch to the City of London and the Houses of Parliament, it wont achieve anything.
          This week has been a big week in politics and both parties have taken a drumming. It will continue.

          • 24K April 2, 2012 at 6:39 pm #

            I like the fact they bother to knock on doors. Burning stuff is wasteful. The funny thing is that to bring about MMT or Bills of Exchange (which I also quite like the idea of), or anything else it requires real withdrawl of consent and awareness but if we had that it wouldn’t matter what system it was really.

            Yeah if it goes so bad that they can’t wriggle out of it may force the issue but that can is there to be kicked.

            I’m not demoralised honey babe, playing devils advocate slightly and highlighting the pavlovian feeling I get. I was at my monitor one day and realised I was that chicken pressing the button. Charles said it too. If experts can’t agree when the greedy always can agree as it’s an automatic natural thing for them it makes me wonder. Being caught up in the dependancy of city life. I have mates with corner shops and all the people that come in to said corner shops would hang a banker if given the chance. Some come in and spend way to much money on fags. These people could correct these things but if the experts can’t agree what chance have folk hooked on legal crack that the mafia don takes 80% of the money. Crack dealers get a better cut than shop owners. Same for the hang a banker situation.

            Don’t be a stranger now, I like groupies :D

        • Debra April 1, 2012 at 2:38 pm #

          24k, from my obviously biased perspective, “we” are almost to the 100% CONCENTRATION of.. the “democratic” experience on the planet…
          That tower is trembling and tottering way up there in the sky…
          “We” have evangelized the occidental way of looking at the world so far and wide (yes, well, we are experts at evangelizing, look at the 24 hour good NEWS that our technology spews out everywhere…) that the absence of any kind of difference is making our own model blow up in our faces.
          Top heavy. Inflated. Hot air.
          The only place we are not looking for, and broadcasting.. salvation is in our own backyard.
          We are not honestly sitting down and asking ourselves, as INDIVIDUALS… what’s all the plastic FOR ??
          With what can I be SATISFIED in my own little daily life ?
          Our eyes are trained on where WE have invested the power : far far away from US, in ivory towers that we fantasize owning, or destroying, according to our violent passions.
          We have given up on our history, and our traditions, while running to keep up with.. the Joneses, still ?
          At the same time we have handed over all the power to THEM in our own personal fantasies, we have destituted OURSELVES individually of our own liberty and responsibility.
          A long time ago I learned that it is much much easier to look elsewhere and accuse THEM than it is to sit down, and examine one’s own life.
          Even if we hear “we don’t have the choice” 24 hours a day… we will still always have choices. Not all of us can be Napoleons, of course, but, frankly, what do you think the world would look like with 9 billion Napoleons in it ?
          A little advice : start looking for power where you can really find it, and not elsewhere.. if more people did, the world would look very different…
          I have an election coming up, and for the second time in five years, I am not going to put a ballot in the urn. THIS is an individual CHOICE, because I no longer wish to participate in a form of government that I do not believe in. I refuse to look at it in terms of being “right” or “wrong”, but prefer to look at it according to the schema : acts (and refusing to act, too…) have consequences. I do not intend to gripe about, or criticize the person who is elected, while I chose NOT to participate.
          On the other hand… I do volunteer work in my community, and am actually working… for free, doing stuff that others can not, or will not do, so don’t jump to any conclusions about my lazy, unsociable nature…
          In short.. I prefer to ACT in places, and areas where I notice, and feel that I have power.
          End of speech.

          • 24K April 2, 2012 at 6:46 pm #

            I agree ignoring them is a great idea but like you say people are dependant on them and the other problem that ‘they’ know much about is that you can’t keep a good race down.

            Humans are like rats, survivors, we are all Bear Grylls.

            Be a thing to see, empty polling booths. Spin that.

            They would too.

  29. cynicalHighlander March 27, 2012 at 8:38 pm #

    Collapse Dynamics: Phase Transitions in Complex Social Systems

    Here are the original slides and video from my first lecture at the LSE complexity programme, exploring the underlying mechanisms of phase transition and non-linear change in social systems.

    This talk focused heavily on the underlying mechanisms of collapse and non-linear transitions. The evidence suggests that systems become vulnerable to phase transition (i.e., collapse) when they experience exponential growth, increased connectivity, decreased reserves, and increased imitative behaviour. Put simply, too much connectivity, too much interactivity and too little resilience means even a tiny change can lead to massive fluctuation and collapse.

  30. Charles Wheeler March 27, 2012 at 9:00 pm #

    Steve Keen’s Minsky primer (or why neoclassical models – and Paul Krugman – have a blind spot on debt): http://goo.gl/xdKx5

  31. patma2003 March 28, 2012 at 3:53 am #

    Posted by Phil:

    ”“The largest banks know, however, that they are literally ‘too big to fail’ and can count on a helping hand from government if the worst comes to the worst. America’s political leaders would step in to prevent the crash of a major financial institution on the grounds that it could set off a lethal chain reaction culminating in widespread disaster. … Thus, in yet another intriguing but ominous irony of history, 10 years of ultra-liberalism have resulted in a US financial system whose future may only be assured with the help of federal government handouts” Michel Albert.

    He wrote that in 1991.

    So against that 2008 doesn’t look like such a surprise does it?

    Or austerity…”

    * * *

    Thanks for that mate, I can never, ever seem to get my fill of these prophetic words and others like them. Like a bread trail left throughout time, just to let us know there were/are others like-minded and the fight was always real and ongoing.

    But yeah, it is insidious. The way that each government has become the cash collecting front, the loan shark, of each of their respective central banks. Really clever, really twisted from the banks to be able to fail so badly that they ultimately manage to force the entire electorate to make mandatory deposits.

    Heavy retail, revolving door style promotion in order to get people walking in the door to create debt just wasn’t enough.

    I wonder if Albert envisaged government intervention on behalf of the taxpayer on such an international scale though – or the human cost.

  32. John Souter March 28, 2012 at 11:19 am #

    Reference the ‘leaked’ sale of RBS – I have purloined this from today’s Herald.

    “It is a breach of trust to sell stake in RBS to Abu Dhabi

    Ian Bell
    Columnist

    When next I am at dinner in the flat above Number 11 Downing Street – the Lottery having come up and the revolution having been accomplished – I might ask the Prime Minister a question in exchange for my modest donation.

    “Dave,” I might say, “how is it that when the First Minister of Scotland, your favourite mad Scotsman, advocates a sovereign wealth fund based on a country’s oil and gas resources, he gets derided, yet when any Gulf oil fund turns up you are – so to speak – all over them?”

    When the reasonably priced dessert is being served, I might manage a few more questions. Why does selling-off Liverpool (more or less) to the Chinese never seem to involve a human rights argument? Why is it wise to market England’s highways to foreign wealth funds – your latest wheeze, Dave – while ignoring the possibility of British investment, state or private, when the latter sector is hoarding cash?

    If vintage port is being offered, and the cheque has been written, I would probably be warming up. “Tell me this, Dave,” I would probably say. “Would the royal house of Abu Dhabi want to buy a big piece of Royal Bank of Scotland if they didn’t think they could turn a profit?

    “If that’s the case, why would we sell them that big piece at a fire-sale price? And why couldn’t we, the people who paid £45.5 billion for the piece, also turn a profit from the remnants of one of the biggest banks in the world?”

    It’s entirely possible, of course, that the Government and UK Financial Investments Ltd (UKFI), the taxpayer’s “arms-length” owners of British banking, have a cunning plan. That would explain the decision to leak news of talks with Abu Dhabi over RBS. Commercial confidentiality is forgotten if you intend to promote a loss-leader. In some circles, it’s known as ramping the share price.

    Even as an outside bet, however, that’s unlikely to realise the average of 50.2p a share we paid for RBS. As with Barclays, an astoundingly rich Gulf family – through personal endeavour, of course – will pick up another under-priced asset for their engorged portfolio. A nice deal for them. In what shape or form will it benefit the British taxpayer, or enhance Britain’s economic security?

    We should be more specific. A lot of shareholders, small and large, lost a great deal of money when RBS collapsed. Some contend – court cases are proceeding – that they were misled by Fred Goodwin and other executives over the true state of the bank at the time of a £12bn rights issue. Reducing Treasury borrowing is one thing. How many of these shareholders would benefit from a cut-price sale to Abu Dhabi?

    Often the people who bought the shares were ordinary RBS employees. They thought they were securing their pensions and their futures. Many have since lost their jobs, and lost a lot of money. The Treasury can boast of returning RBS “to full health”, the better to “support the UK economy”. Where would a quick sale to a foreign wealth fund leave those – to use a technical term – who got screwed?

    The argument being floated is that 31.75p for an RBS share would be a justifiable deal because, first, it would be close to the bottom price when the taxpayer came to the rescue, and second, because it would enliven the interest of markets generally. The first claim is preposterous. The bank is emerging from intensive care; the price couldn’t become worse.

    The fact that it is being stripped down for sale, rather than developed, leads to the second point. So intense is the fanatical, free-market short-termism of all those involved, no-one will even discuss the obvious. Why sell it at all? If Abu Dhabi wants to own part of a balance sheet that is bigger, still, than the entire British economy, doesn’t that constitute a clue?

    The short answer is that not a single lesson of 2008-2009 has been learned. In the corridors of real power, there is a determination to restore each of the old, failed financial and economic models simply because they represent big money. George Osborne’s wilfully insulting Budget was proof enough. They have not given up on this version of market theology.

    After the crash, there was a general belief – some of it sincere, some apparent – that state-owned banking might not be a bad idea. We would get security against cowboys, credit where it was needed and a decent profit for “the taxpayer”, to be used as required. That rational idea has been discarded.

    If a tranche of RBS is to go to Abu Dhabi, all of Vince Cable’s rhetoric over “national” banks can, as usual, be forgotten. The truth is that this asset is not worthless. In fact, according to our home-grown oligarchs, this asset is too valuable to be left in the hands of the people who spent £45.5bn to keep it alive, and who still foot the bill. You are not allowed – simple as that – to own such a thing.

    Still, why should a hard-pressed Chancellor with books to balance sell such a thing cheap? Among the things reasserted since 2008, when the banks and the politicians were cowed, is the belief that money should always be footless. Once again, they argue that it doesn’t matter who owns something. Sub-prime and the derivatives game taught them nothing. Wealth moves, magnetically, towards wealth. Nations and communities don’t count.

    RBS is fundamental to the British economy: that’s why it was nationalised. To advocate that it should therefore be sold cheap to the Al Nahyan family, whose right to run their statelet as a franchise meets no definition of democracy, is worse than a breach of trust. It is as irrational and dangerous as selling a government for the price of a meal.

    A Gulf Arab would say, of course, that no-one in Britain complained when Fred Goodwin was making his flag-waving global acquisitions for UK plc. This is indisputably true. Look, though, at where that led, and look at the cost, and how the cost was met.”

    It say’s it all really. But that said, the “All” it covers doesn’t say enough.

    The ownership of a bank is secondary to the system it operates and the universal system it operates within.

    Fundamentally the universal system has perverted logic by giving a ‘concept’ (money – electronic, digital or paper) superiority over real and tangible resources.

    The greatest of these tangible resources is without doubt the very air we breath. The second is our ability as a species to innovate, motivate, recognise and utilise the minor resources nature has made available for our use.

    In the course of incorporating these minor resources in our lifestyles and environments we begin to realise they are not infinite in their quantity; that we need to get our innovative caps on to both ration the the use of the resources we presently rely on while creating sustainable alternatives.

    Money, under the present chaos it claims as a system, completely distorts the relationship between innovation and sustainability. As a concept it has no finite restriction. No real relationship between source and growth; and because of this surreal existence it has an infinitely variable ability to distort and manipulate value.

    A micro example of this can be seen in the recent budget price hikes on fuel. These had little or nothing to do with direct supply or demand but more to do with keeping the cash- take to the exchequer level. Cars are more fuel efficient = good for the environment but less to the exchequer. Answer: hike the tax to make up the shortfall.

    Assimilate this inverted logic throughout a society, nation or groups of nations and the ‘con’ of ‘cept’ becomes the ‘ALL’ of the concept.

    There’s nothing new in the ability of our species to be diverted by the surreal – superstitions, religions and hierarchies – have all played a role in the manufacturing of a society.

    Question is, none have ‘worked’ forever and only few have worked at all.

    I’ll leave it to you to decide which category you would place the present system in.

    • Debra April 5, 2012 at 8:07 pm #

      People ? governments ? companies ? who hate themselves end up selling themselves… short, don’t they ?
      No need to talk about superstition and irrationality when a good dose of psychology will do the trick…
      But then again, turning reason into a religion hasn’t really worked very well for us, either.
      That’s what the faith in economy and the numbers is built upon : the premise that we ARE rational, reasonable animals because we should be…
      Since I am a rather… scholastic person ? I posit that the current bottoming out of our symbolic systems (money/numbers is one, but language is another..) has a lot to do with the way we have managed to EXCLUDE God as an outside guarantee for the system. For example… take a look at those American coins, and that paper money…they still have “In God we TRUST” printed on them, but… do you think we trust anything or anyone these days ?
      Can’t DO BUSINESS if you don’t trust anybody.
      And your society goes down the toilet too, while we’re at it.
      When “God” is not in his proper place, “he” invades all the other places.. and then nothing gets done anymore.

  33. Charles Wheeler March 28, 2012 at 12:53 pm #

    It’s all kicking off: KRUGMAN v. MMT

    “For in the end, banks don’t change the basic notion of interest rates as determined by liquidity preference and loanable funds — yes, both, because the message of IS-LM is that both views, properly understood, are correct. Banks don’t create demand out of thin air any more than anyone does by choosing to spend more; and banks are just one channel linking lenders to borrowers. I know I’ll get the usual barrage of claims that I don’t understand banking; actually, I think I do, and it’s the mystics who have it wrong.”
    http://goo.gl/Qml6w & http://goo.gl/UisP8

    Response:
    Credit Writedowns: http://goo.gl/NYbDE

    Philip Pilkington: http://goo.gl/nwnYn

    Would love to see a face-to-face debate on this.

    • StevieFinn March 28, 2012 at 9:57 pm #

      I wouldn’t mind seeing Mike Hall vs Krugman.

  34. Charles Wheeler March 28, 2012 at 4:01 pm #

    Bill Mitchell weighs in: http://goo.gl/f5Oel

  35. Phil March 28, 2012 at 8:39 pm #

    On thing I’ve become aware of in this sickening story of greed and callousness is the role that the offshore tax havens and the City of London play. This is a good article:

    http://www.aljazeera.com/indepth/opinion/2012/03/201232710859674817.html

    ”London, United Kingdom – Historians tell us that there were two quite distinct British empires – the first an Atlantic empire built on North American colonies and Caribbean possessions and the second an Asian empire, built on control of India and coercive trade with China. These two empires were deeply criminal projects, in the specific sense that they relied heavily on profits from slavery and the sale of narcotics. Empire on the British model was a moneymaking venture, where moral considerations took second place to the lure of super profits.

    “Having given up the appearance of empire, the British have sought to reclaim its substance.”

    The first British Empire came to an end when the Americans fought a revolutionary war for independence in the 1770s. The second British Empire began to fall apart with Indian independence in 1947. Arab and African nationalism progressively undermined British influence in the years that followed. At some point, perhaps with defeat in Suez in 1956, or when Britain withdrew from its last significant overseas possession, Hong Kong, in 1997, the game was finally up.

    Nowadays, if you believe what you’re told by respectable historians and broadcasters, Britain has turned its back on its imperial past and is trying as best it can to make its way as an ordinary nation. The reality is somewhat more complicated. One day, perhaps history will describe a third British Empire, organised around the country’s offshore financial infrastructure and its substantial diplomatic, intelligence and communications resources. Having given up the appearance of empire, the British have sought to reclaim its substance.

    Banking on billionaries

    Two news stories from last week help us sketch the outlines of this third, offshore empire. On Tuesday, March 20, a Russian banker was shot and seriously wounded outside his flat in Canary Wharf. On Sunday, March 25, the co-treasurer of the Conservative Party resigned after the Sunday Times claimed that he had been soliciting donations to his party from what he thought was a wealth fund based in Liechtenstein. These two apparently unrelated events together tell us quite a lot about contemporary Britain.

    The United Kingdom allows foreign residents to hold their funds offshore and only taxes them on money they bring into the country. This approach, a relic from the days of openly declared empire, makes the country a popular place of residence for billionaires from all over the world, from Africa, mainland Europe and India.

    Once in London, a sophisticated legal and financial apparatus arranges for foreign funds to be deposited in a network of offshore jurisdictions. In his groundbreaking book, Treasure Islands, Nicholas Shaxson describes London as the centre of a spider web that links to the Channel Islands, the Isle of Man and the Caribbean. With impressive frugality, the British have reinvented the scattered remnants of formal empire as instruments for serving the needs of global capital.

    When the Soviet Union broke up, those who secured control of the privatised Russian economy flocked to London. They had little in the way of a social base in their own country and their position was chronically insecure. They needed a way to channel profits overseas, and London offered them access to a world-class financial centre and favourable tax rates.

    The city also gave some of them a public profile outside Russia. In buying Chelsea Football Club and the Evening Standard, Roman Abramovich and Alexander Lebedev respectively have made themselves international figures. Moves against them by opponents back home are thereby made that much more difficult.

    The British state does more than provide a hospitable, low-tax jurisdiction and the means to acquire a higher profile abroad. It puts its diplomatic resources at the disposal of favoured foreign residents.

    For example, in July 2001, Tony Blair wrote a letter to Romanian Prime Minister Adrian Nastase to support Lakshmi Mittal’s efforts to buy up the state-owned steel company, Sidex. Though Mittal had offices in London, the company making the bid was registered offshore, in the Dutch Antilles. But while Mittal did not employ many people in Britain, or pay much tax there, he did make a significant contribution to the Labour Party.

    In May 2001, two months before Blair wrote his letter, the Indian magnate had given them £125,000 ($199,750). It is hardly surprising that Peter Cruddas was happy to talk with financiers from Liechtenstein about donations to the Conservative Party. Donations from foreigners are illegal, but it is a relatively simple matter to set up a company registered in the UK to handle the transaction. Offshore blurs the distinction between domestic and foreign.

    Capital of capitalism

    All this is part of a much larger imperial project, whose full scale and significance is difficult to appreciate. This is not an empire that advertises itself widely. Indeed, it tries to hide the very fact of its existence. But there is no doubting the ambition. For decades now, Britain’s rulers have sought to make London the capital of global capitalism.

    “The third British empire is not an industrial or military superpower. Indeed, it is intensely vulnerable.”

    The state has reorganised itself to this end. Privatisation was tested in the UK and then exported around the world. Deregulation brought foreign banks to London. The financial sector, the intelligence establishment and the political parties are committed to a project that the major media can scarcely bring themselves to discuss. Elections become ever more hallucinatory exercises, in which shallow differences in tone and detail obscure a far deeper complicity.

    Occasionally, the dynamics of the offshore empire become visible as scandals or sensational crimes. Power struggles cause ripples that can’t be missed. A foreign businessman is shot in the street. The sheer strangeness jolts us for a moment out of our obliviousness. A politician is caught soliciting donations and resigns.

    Rupert Murdoch, a significant figure in Britain’s revived imperialism, owns the Sunday Times, the paper that broke the Peter Cruddas story. One faction in the empire is sending a message to another. For a moment what cannot be discussed is mentioned, obliquely, as is the way of empire.

    The third British Empire is not an industrial or military superpower. Indeed, it is intensely vulnerable. The United States and the great powers of Europe could do a great deal to hamper it, if they chose to do so.

    The empire is a standing temptation to betray the local or the national for the sake of membership of a far more exclusive and elusive entity – an entity whose allure is intimately linked to its tact, its capacity to avoid straightforward description. Empire prospers to the extent that it can exploit, and where possible foster, corruption elsewhere.

    Much of the old bombast is gone. There are fewer flags and trumpets. But in other respects, the third empire closely resembles its predecessors. Like them, it must do all it can to prevent effective democracy from breaking out at home, as it profits from tyranny abroad.

    The dedication to the needs of global capitalism benefits only a tiny minority of the population. The rest face a future of steepening inequality and shrinking prospects. Besides, as in previous centuries the people at home must pay up when adventures abroad turn expensive.

    And like the first two British empires, the current one is a criminal enterprise. But having specialised in slavery and drug trafficking, perhaps the empire’s current, signature crime is tax evasion.”

    • Phil March 28, 2012 at 8:41 pm #

      I ran this article passed an ex-fraud squad officer I’ve become acquainted with. He commented:

      ”This is an excellent piece by Dan Hind. He makes the point very well that the City of London is an Oligopoly, that is a market dominated by a small number of participants who are able to collectively exert control over supply and market prices. It operates with complete disregard for the ordinary rules of engagement that the rest of us have to live by, and it gets its way by holding successive Governments to a form of financial ransom, by the implicit threat that unless they do its bidding, when and where they want, they will undermine the political system and the Government as well. Look back to the early Wilson Government.

      They pay of form of light lip-service to the rules and regulations, secure in the knowledge that when push comes to shove, they are a ‘protected species’, that chilling phrase which was once said to me by a very senior board member of one of our biggest (and most egregious) banks. He was only telling the truth, very sadly, and he allowed his words to hang in the air. The offshore sector, which the Americans would love to see closed down, but which even they have failed to control completely, still exercises enormous influence for the purveyors of global funny money. HM Government will not press too hard because too many of our banks are kept afloat by the proceeds of global drug trafficking, fraud, and corruption.

      The insiders within the City establishment are an organised crime ring by any definition, and the money they manipulate is designed for their benefit. We have been told the big lie that it benefits UK plc for so long, but I didn’t believe it before, and I don’t believe it now. These people don’t do this out of altruism but out of pure greed, and the money never stays here very long before its electronic value is deposited in another jurisidiction, in another time zone. it should be a matter for great shame, but these people don’t do shame. Money alleviates the stigma of shaming, and as long as you are in the special club, no-one thinks any the less of you.”

      • Phil March 28, 2012 at 8:49 pm #

        He continued:

        ”All Governments are in the same club, the club of being in power. No Government in this country is going to try and become too heavy with the off-shores, for a start they are mostly all independent sovereign territories, despite the fact that somewhere in the dim and distant they flew the British flag. It is not in HMG’s interests to see these islands shut down, because as Bill and I have said, our banking community and that of the Americans depends upon the dirty money that slushes around the system, to stay afloat. It helps to fund inter-bank lending (when the banks start lending to each other again), and it provides liquidity to the international money supply system.

        Governments ultimately enforce those laws they want to see enforced, and if the people breaking them don’t quite fit the category of ‘those whom we want to see criminalised’, then they won’t get nicked. It’s really very simple. Why do you think when I was an ordinary street detective, I could charge a criminal with an offence say of murder, carrying life imprisonment, without any need for recourse to any form of higher authority? But if I wanted to charge a City fatcat with any of the myriad of offences under the Companies Act or the Prevention of Fraud Act, which only carried a maximum of 2 years imprisonment, I had to seek the authority of the Secretary of State for Trade and Industry before any charges could be laid. A wonderful means of preventing nasty Mr Plod from banging up City businessmen.”

        • Gary March 29, 2012 at 8:42 am #

          That is the truth Phil. And the MMT people want the criminal govt in control of the money supply ?! Don’t they have a clue what is going on, or worse, are they in on it and they are agents of this enterprise ? The only way to put a stop to this is the people take back control of the money with Bills of Exchange arising out of commerce itself.

          Knuth knew about this so called third empire many decades ago when he wrote “Empire of the City”. Download it free.

      • Charles Wheeler March 29, 2012 at 11:57 am #

        ”Oligarchy is always the enemy of general prosperity’ Dan Hind ‘Common Sense’
        http://goo.gl/xuCWg

        • Labled March 31, 2012 at 10:41 pm #

          Treasure Islands by Nicholas Shaxton is an amazing read about the history of our havens and how its controlled via the City of London. His scathing attacks on our complicit Government & the finance industry alone makes it a must read. I must admit im only half way through it, having lost it twice on 2 plane journeys!

  36. ch-ch-changes March 29, 2012 at 12:38 pm #

    Interesting comment on ZerHedge from a regular, Buckaroo Banzai – thought worth bringing over in full. Gives an interesting historical perspective and relates to this thread.

    “It is maintained by some that the bank is a means of executing the constitutional power “to coin money and regulate the value thereof.” Congress have established a mint to coin money and passed laws to regulate the value thereof. The money so coined, with its value so regulated, and such foreign coins as Congress may adopt are the only currency known to the Constitution. But if they have other power to regulate the currency, it was conferred to be exercised by themselves, and not to be transferred to a corporation. If the bank be established for that purpose, with a charter unalterable without its consent, Congress have parted with their power for a term of years, during which the Constitution is a dead letter. It is neither necessary nor proper to transfer its legislative power to such a bank, and therefore unconstitutional” — Andrew Jackson, Veto Message Regarding the Bank of the United States (10 July 1832)

    “It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing.” — Andrew Jackson, Veto Message Regarding the Bank of the United States (10 July 1832)

    “Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!” — From the original minutes of the Philadelphia committee of citizens sent to meet with President Jackson (February 1834), according to Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels – online PDF

    http://www.zerohedge.com/news/summarizing-true-sad-state-world-two-charts

    No sign of an Andrew Jackson – fear that Msr Hollande might not quite be up to that level :)

  37. Joe Taylor March 29, 2012 at 11:22 pm #

    Hate to but in here guys but what does this move by BRICS mean, if anything?
    http://en.wikipedia.org/wiki/2012_BRICS_summit

    • Hawkeye March 30, 2012 at 3:36 pm #

      Joe

      I didn’t hear much about this on the UK media, but RT covered it the other day. The key things that they were overt about, is that the BRICS are looking at a rival lending institution (i.e. a BRIC IMF / World Bank), plus planning for a post Dollar Reserve Currency world.

      This is big strategic / world changing stuff, but not a squeek about it here.

      But its OK, because all the West’s leaders and media have their heads safely embedded in sand.

      • Joe Taylor March 30, 2012 at 6:52 pm #

        Thanks Hawkey

        It seemed pretty important to me and certainly to the person who put me onto it. Thought I’d ask you guys who are a bit more on the ball than me.
        I’m going to do the Postitive Money training tomorrow and try to do my bit that way.

        • simoncz March 31, 2012 at 9:53 am #

          I love to hear how that training goes. I am going to volunteer for it myself if/when I return to UK. Please let us know via this post.

          • Joe Taylor April 1, 2012 at 1:09 pm #

            It went pretty well as far as I’m concerned Simon. Ben Dyson ran the day well there wasn’t much time wasting. Paul Moore, the HBOS Whistleblower, was there and he’s an interesting bloke – http://nationalcan.ning.com/video/hbos-whistleblower-paul-moore-on-banking-reform

            What got me was the range of people there from all walks of life. It shows me that it’s not just people on this blog that are deeply worried about what’s going on; people know in their hearts that there’s something wrong with the way banks operate and they want to know in language they understand. Bank reform would be more likely to happen if the general public were demanding it from their politicians and instead of being fobbed off by ‘what would you do’ were able to say what is wrong with the system and what should be done about it. Positive Money are going about providing the general public with that information and good on them.

            I just spoke to one of the other people who took the training in Leeds yesterdayand we are going to set up a Positive Money Speakers Group on NatCAN. http://nationalcan.ning.com/

            Cheers, Joe

        • simoncz April 1, 2012 at 10:36 pm #

          Thanks very much for that Joe. I’m glad to hear so many people from different backgrounds took part. All the best.

  38. Charles Wheeler March 30, 2012 at 10:34 pm #

    Krugman v. MMT (Round 4)

    “First of all, any individual bank does, in fact, have to lend out the money it receives in deposits. Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand. I hope this isn’t controversial, although given what usually happens when we discuss banks, I assume that even this proposition will spur outrage.

    But the usual claim runs like this: sure, this is true of any individual bank, but the money banks lend just ends up being deposited in other banks, so there is no actual balance-sheet constraint on bank lending, and no reserve constraint worth mentioning either.

    That sounds more like it — but it’s also all wrong.

    Yes, a loan normally gets deposited in another bank — but the recipient of the loan can and sometimes does quickly withdraw the funds, not as a check, but in currency. And currency is in limited supply — with the limit set by Fed decisions. So there is in fact no automatic process by which an increase in bank loans produces a sufficient rise in deposits to back those loans, and a key limiting factor in the size of bank balance sheets is the amount of monetary base the Fed creates — even if banks hold no reserves.

    So how much currency does the public choose to hold, as opposed to stashing funds in bank deposits? Well, that’s an economic decision, which responds to things like income, prices, interest rates, etc.. In other words, we’re firmly back in the domain of ordinary economics, in which decisions get made at the margin and all that. Banks are important, but they don’t take us into an alternative economic universe.”
    http://goo.gl/KQsDc

    • Desmond Dillon March 31, 2012 at 11:54 am #

      Krugman v. MMT (round 4) re: Charles Wheeler

      You failed to mention leverage (to any amount) or off shoring or mark to the unicorn for audit purposes. But mostly you forgot to mention that because they were not allowed to go bust they are no longer capitalist undertakings being zombies and all they can only create more and endless debt which is just what we don’t need.

      Debt CAN BE the same as a cancer in economic terms. But you may write your piece just to spur outrage. It makes me feel sad to see the realms currency trashed by those who should know better.

      • Charles Wheeler March 31, 2012 at 2:05 pm #

        @Desmond

        Not sure who your ire is directed at – I was simply quoting Krugman’s latest salvo in his ongoing battle with MMT.

        Will post the response anon.

        Don’t shoot the messenger.

        • Jim M. April 1, 2012 at 4:49 pm #

          @Desmond:

          Your ire is, imho, fully justified.

          You might, however, do better to focus it on Mr Krugman and leave poor Charlie alone!

          Keep them links comin’, Charles.

    • Mike Hall March 31, 2012 at 8:04 pm #

      As far as I’m concerned Krugman is now just embarrassing himself. Waffing on about customers withdrawing loans in banknotes being some sort of limit to lending is just getting rediculous – only around 3% of ‘money’ is in ‘cash’ these days. Even so, it’s laughable to suggest some constraint there.

      I would like Krugman (or anyone else) to present us with just one customer (otherwise creditworthy) who has been refused a loan on the grounds that the bank did not have sufficient funds to lend.

      Anyhow, Marshal Auerback (whose entire carreer is inside the financial sector) responds to PK in the comments. (Naturally, Krugman refuses to engage directly with any primary MMT proponent.)

      “Paul, at an individual bank level, banks make loans as they like, and then either borrow the reserves they need at the discount window or overnight market, OR the grow their deposit base to meet their reserve requirements. But the banks make the loans first, and then do whatever to hit their reserve target at the end of the day.

      At a macro level, if the system as a whole is short of reserves? then the banks who are short on reserves borrow directly from the Fed’s discount window.

      Suppose the system as a whole has excess reserves? In this case, the Fed sells treasury securities, which enable banks to transfer assets from their reserve accounts (at the Fed) to their treasury accounts (also at the Fed). The Fed sells treasuries not to “finance” the deficit, but to drain the system of excess reserves, so there will be overnight lending, and thus, a non-zero interest rate. If the Fed did not drain extra reserves from the system, banks would not lend, and the overnight lending rate would be zero.

      Again, loans create deposits. Credit is limited by the availability of creditworthy customers and capital buffers, nothing more.”

      Plenty of other comments too showing what a clown Krugman is. Talk about naked emperors….

  39. Desmond Dillon March 31, 2012 at 5:40 pm #

    apologies i thought it was you.. i didn’t mean to but in…
    .@charles wheeler

    • Charles Wheeler March 31, 2012 at 6:20 pm #

      @Desmond

      You’re as entitled to ‘but in’ as the rest of us :-)

      I should’ve added a qualifying comment otherwise it did look like in endorsement!

      What I find amazing is that there can be economists who’ve spent their lives studying the subject who can’t agree on how the monetary ‘system’ works.

      What hope for the rest of us?

  40. Labled March 31, 2012 at 10:59 pm #

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9178285/Nursing-homes-caught-up-in-bank-rate-swap-scandal.html

    Barclays and RBS robbing care homes with hedged products. You have to wonder sometimes, with so many people being thieved by these parasites, the clock must be ticking for their demise. One can hope.

    • Phil April 2, 2012 at 1:02 pm #

      Unreal.

      It seems to me that many people are still desperate to believe that these banks, because their representatives look like them and talk like them, have their interests at heart.

  41. backwardsevolution April 1, 2012 at 11:25 am #

    Globalization:

    “Transnational megacompanies not only tell so called emerging market countries (most of the world) what they will produce, how it will be produced, when it will be sold, and at what price, but they also influence local working conditions, wages, benefits, and labor laws. They often dictate local government monetary, fiscal, trade, and banking policies. International money managers decide which foreign currencies are overvalued and which are not, as well as which countries should be punished for not playing by their arbitrary, self-serving rules. This is truly a one-size-fits-all game. [...]

    The U.S. government, Federal Reserve Bank, International Monetary Fund, World Bank, and World Trade Organization are all committed to transforming the world economy into a giant global growth machine regulated by an international gambling casino in which resource allocation decisions are driven by a high-speed, multinational, high-tech crap shoot. Satellite communications, fiber optics, and the Internet make it possible to transform small, manageable local problems into unmanageable global problems overnight.

    President Bill Clinton called for a New Global Financial Architecture. But what he proposed was nothing new at all—more trade, more budget cuts, more privatization, more foreign investment, more megamergers, more computer networks, less government control, lower interest rates, more IMF bailouts, and, as always, more economic growth. He wanted everything to be bigger, more complex, more high-tech, and more interdependent—bigger markets, bigger trade agreements, bigger loans, bigger bailouts, bigger banks and financial institutions, and bigger telecommunication networks. Our government’s cryptic message to the rest of the world is, “Just be like us.” One-size-fits-all!”

    http://www.counterpunch.org/2012/03/23/occupy-world-street/

    • Charles Wheeler April 1, 2012 at 7:29 pm #

      Reminds me of the East India Company!

    • Joe Taylor April 2, 2012 at 12:08 pm #

      Just ordered the book – thanks for the tip

  42. Phil April 2, 2012 at 1:21 pm #

    Good article in the HuffPo:

    ”Irish Deal Simply Recycles Zombie Debts”

    http://www.huffingtonpost.co.uk/nick-dearden/irish-deal-simply-recycle_b_1391450.html

    ”Ireland’s complex proposal for renegotiating its debts today recalls the many years of debt restructuring experienced by Third World countries over the last three decades. Far from giving those countries a fresh start, these negotiations kicked the problem down the road.

    So will the debt negotiations in Ireland. Ireland has been brought to its knees by a debt, which originated not with excessive public spending, but a footloose financial sector that gambled with the future of the country. Standing astride Ireland’s notorious property bubble is the Anglo Irish bank – which lent money to rich speculators to inflate a property bubble….”

  43. Charles Wheeler April 2, 2012 at 3:27 pm #

    Scott Fullwiler’s (MMT) response to Krugman:

    “Krugman wants to argue that banks aren’t important since they can’t “do” anything more than occurs in a model without banks. Again, that’s not even close to true. As above, banks create loans without regard to the quantity of reserve balances they are holding; they obtain any reserve balances needed at the federal funds rate or roughly equal to it. Their ability to replace withdrawals with other deposits merely affects the profitability of lending, not the ability to do so. Consider, for instance Canada, which has no reserve requirements and where the central bank is so good at forecasting banks’ demand for reserve balances (due to how the interbank market functions there) that banks actually desire to hold no reserve balances overnight—reserve balances only exist on an intraday basis. What if the Canadian public decided also to stop using currency? (There was in fact a good deal of research on this possibility related to the so-called e-money revolution back in the late 1990s and early 2000s.) This would mean the monetary base was zero. Would this stop banks from lending? No. Now, add reserve requirements to this—which we’ve already shown above do not constrain banks—and a desire to hold currency by the public—which we’ve explained is met on demand by the central bank. Nothing’s changed. The size of the monetary base is a result or an outcome, not a cause.

    Instead, Krugman argues that these at least in the aggregate do constrain banks’ abilities to lend, as in the traditional money multiplier model or the loanable funds view. But in fact a world with banks is quite different if the size of the monetary base doesn’t matter, ever. On the way up, this is particularly so in a world in which the largest banks can exist on ever smaller margins between their lending rates and rates paid on liabilities (given scale and also increasing revenues from non-interest sources), while also providing the revolving fund of financing for institutions investing in the money markets. As such, banks can provide the financing for an asset price bubble while the monetary base responds in kind, rather than vice versa; on the way down, as the desire for bank credit relative to income slows, increasing reserve balances or currency don’t necessitate spending. And those paying back debt simply destroy bank deposits (since the repayment results in a debit to the payor’s deposits and a debit to the bank’s loan); there is no transfer from those repaying debt to lenders (and it wouldn’t work that way anyway—debt repayment is out of income for the debtor, but the transfer is a portfolio shift for the owner of the debt, not income aside from the interest payment).

    In short (!), the money multiplier model is wrong because it has the causation backwards—banks create loans based on the demand by borrowers, perceived profitability, and capital they are holding. The quantity of currency held or in circulation and quantity of reserve balances held or in circulation at the time of the decision to create the loan have nothing to do with it. If there are reserve requirements, then the quantity of reserve balances may increase as lending may increase reserve requirements and the central bank will have to raise the quantity of reserve balances circulating to achieve its target. Similarly, if credit creation raises the public’s demand for currency, then the central bank will have to increase currency in circulation, as well. It also means that the loanable funds model is wrong. Banks are not constrained by deposits whatsoever, but the quantity of deposits they can raise after making a loan to replace a withdrawal will affect the profitability of the loan. Again, the constraint is a price constraint, not a quantity constraint.”
    http://goo.gl/DnSj6

    • Debra April 4, 2012 at 8:59 am #

      You’re probably gonna think I’m crazy but…
      YOU can make a difference in all this mess..
      By slaloming and keeping your filthy lucre as far away from the bank as possible.
      By keeping it circulating between INDIVIDUALS. Use cash whenever possible. Using anything else just gives more power to.. the banking system, right ??
      My guess at this point is that there is an entire black market economy revving which is not controlled by the banks, because cash is changing hands INDIVIDUALLY.
      Yes, well, we’re not gonna make the system go bust, I fear, but bypassing it in great numbers will continue weakening it.
      One of the biggest ways of ensuring the perennity of the system is continuing to use YOUR PLASTIC.
      Get rid of it.
      Encourage your kids, and others, to get rid of theirs.
      Then.. you will stop funding the banks AND FEEL POWERFUL, because you will have done something besides go drop that ballot into the box, (oops, it’s all electronic now…), or sign an electronic petition over Internet, or even… endlessly chat or gripe on the blogs….
      The need to create more currency corresponds to the insatiable nature of the CONSUMER SOCIETY, and ONCE YOU STOP CONSUMING (as much) that bubble will deflate like a man’s …. after ejaculation. Promise. Good luck.

  44. Gary April 2, 2012 at 3:32 pm #

    And who set up and funds the IMF , World Bank and assorted related quangos ? Our govts. The same crowd of hucksters that MMT and Positive Money want to put in charge of the money supply. Why would they want to do something that daft ? Could it be that they know the banksters own the govt, and they APPEAR to be appeasing the people, but in fact they are going behind their backs to keep control for the banksters ?

    If they trusted the people they would put the money creation directly into the control of the people with bills if exchange.

    The American constitution did not trust the govt to NOT counterfeit the money, so they stipulated that the money had to be in gold and silver. That is fine, but MMT and Positive Money will not accept that constraint. Why not ? I have my suspicions. Be very careful of these people.

    • Synopticist April 2, 2012 at 5:44 pm #

      Be even more careful of taking retarded libertarians seriously.

      • Gary April 3, 2012 at 7:03 am #

        It would be constructive if you displayed even a smidgeon, an iota, of understanding of anything except issuing fact-free ad hominems. I suppose it goes with the territory ?

        • Synopticist April 3, 2012 at 5:30 pm #

          Engaging retards like you seriously is like talking to 9-11 truffers.
          There’s no middle ground.

    • Phil April 2, 2012 at 6:45 pm #

      Points taken Gary, but what did private control of the money supply achieve? TWO global depressions.

      Were government to retake control it would have to be in full-sight of the people/ electorate. As David has always contended as much as anything else we are suffering from a crisis of democracy.

      While I may take heed of libertarian perspectives I do not view the state as something completely bad. It is a structure for whose command we can contest and win.

      I fail to see how further roll back will do anything to help us. The Right is always utterly disingenuous in its pronouncements on wanting a ‘small state’. Under Thatcher and Reagan it GREW and became MORE centralised. Hayek and the attendees of Mont Pelerin didn’t want to return to classical liberalism – they wanted to use the newly expanded state for their own ends to shape markets.

      What I see the modern Libertarian movement doing is being used as a battering ram by conservatives to shorn off the bits of the state they don’t like (health/ social security) while keeping the bits they do (police/ courts/ military). This is surely the path they will take. I wonder how those Libertarians will react when they realise theyve been duped? Like western communists who emmigrated to the Soviet paradise to find all was not as they had believed?

      • Charles Wheeler April 2, 2012 at 7:22 pm #

        ‘would have to be in full-sight of the people’

        That’s the key point. The current system is designed to confuse – and the fact that many expert economists with Phds coming out of their ears can’t agree on how it works underlines the point.

        But to say that democratic government is the culprit because it has been subverted by powerful corporate interests – ironically driven by acolytes of Ayn Rand libertarianism with John Galt complexes – and therefore requires some sort of libertarian solution seems perverse.

        Democratic government, and democratic control of the monetary system is the only defence against exhorbitant power and wealth – which will crush democrats and libertarians excluded from their orbit alike – they’re not fussy.

        Without the countervailing protections offered by democratic government, economic liberalism leads inexorably to concentrations of wealth and power.

        Libertarianism is the Trojan Horse of oligarchy.

        • Phil April 3, 2012 at 1:40 am #

          ”Libertarianism is the Trojan Horse of oligarchy.”

          I agree absolutely, Charles.

        • John Souter April 3, 2012 at 5:43 pm #

          Well said Charles.

          In truth it’s not the top 1% or the bottom 10% that are the problem, it’s the remaining 89% fractured by ‘I’m all rights, F. U. jacks, head in the sand and what do I knows, who let democracy set then sink into the slough of apathy.

          It is my contention that any monitory system will distort and depress democracy if its allowed to take command and control of it – the cliché of knowing the price of everything and the value of nothing -is a refined truth in this respect.

          But the blame doesn’t lie with the 1%, nor does the solution rest with the economists, only the empirical advance of democracy will provide the bedrock for a sustainable society with aspirations towards contentment.

          To my mind, if we allow this idiocy to continue, troubles will not only come in legions but will be backed by governments.

  45. Gary April 3, 2012 at 6:37 am #

    Your beloved govt at work

    The surveillance state. All emails , voice and web traffic to be monitored and stored.

    http://www.guardian.co.uk We/commentisfree/2012/apr/02/surveillance-state-coalition-email-social-media?mobile-redirect=false

    Your beloved govt protecting the bankers :

    http://www.guardian.co.uk/world/2011/dec/07/cameron-threatens-veto-eu-treaty?mobile-redirect=false

    And you cannot touch the govt for at least 5 years, by their own decree:

    http://en.m.wikipedia.org/wiki/Fixed-term_Parliaments_Act_2011

    And mmt and Positive Money want to trust these people with our money supply ?!

    They cannot even be trusted with their own expenses !

    Read this carefully and understand how putting the money supply directly into the hands of the people can, has and is working. Only autocrats won’t accept this:

    http://www.goldstandardinstitute.net/2010/06/what-is-a-real-bill/

    Govt has been colluding and protecting the central and commercial banks to buy the gilts. It is fascism.

    • Richard Boulton April 3, 2012 at 7:45 am #

      “,,,and Positive Money want to trust these people with our money supply ?!”

      Not exactly Gary. Positive Money’s proposals are that the Monetary Policy Committee of the Bank of England should determine, month by month, whether there should be additional, debt free money created and spent into the economy via the government’s spending programme. These are the people who set the bank rate for some years past, and have also more recently been advising on quantitative easing. These people are about as independent as you can get. There are rules governing the appointment of members to the committee which are transparent and ensure their independence from the city and the government.

      Why not get up to speed on Positive Money’s proposals with their plain English guide here.

      http://www.positivemoney.org.uk/2012/02/full-reserve-banking-plain-english/

      • Joe Taylor April 3, 2012 at 10:49 am #

        I agree with Richard, in fact I know Richard slightly as we were both part of a group that took Positive Money training last weekend.

        When the latest financial crises started to loom on the horizon back in 2007, I realised that my basic economic education wasn’t enough for me to understand what was really going on and determined to find out. I started by asking advice from people I respected and was referred to Helen Brown’s book, ‘Web Of Debt’.
        Since then I’ve read everything I’ve been able get my hands on concerning the issue, including: The Money Mandarins, The Enigma of Capital, A Brief History of Neoliberalism, The Debt Generation, The No-Nonsense Guild to Global Finance, Economyths, Paper Promises, Where Does Money Come From, Capital As Power, In and Out of Crisis, Capitalist Realism, The Neoliberal Crisis – among others – and Occupy World Street is on it’s way from Amazon.

        Since reading The Debt Generation and listening to David’s talks through my involvement with the Equality Trust and the National Community Activists Network, I’ve been following this blog, and others, to broaden my perspective on financial matters.

        From what I’ve been able to gather, a very real problem is that commercial banks create most of the money in circulation and determine, to a very large degree, how that money is spent/invested – result this crisis!

        Even a blind man going past on a galloping horse can see that banks can’t be trusted to perform that absolutely critical function – nor politicians. The temptations are too great – to maximise profits on one hand and to curry political favour on the other.

        So someone has to decide how much money is circulating in the system for the betterment of society at large, not vested interest – yes?

        Positive Money propose that the Monetary Policy Committee of the Bank of England should perform that function, with all the necessary legal constraints put in place to ensure transparency, complete independence and any possibility that MPC members can gain from their policy decisions.

        It make sense to me, but I’m just an interested amateur.

        Over to you guys.

    • Charles Wheeler April 3, 2012 at 1:12 pm #

      Yes. But a government commandeered by corporate interests – which, in turn, are driven by the ‘libertarian’ right.

      Simon Johnson’s ‘The Quiet Coup’ gives a pretty good run down of the process; Frontline’s ‘The Warning’ exposes the machinations of Greenspan et al; Robert Sherrill’s coruscating overview of the S&L debacle – ‘The Looting Decade’ – gives another account of ‘small government’ degregulators at work. Why do Jamie Dimon, Lloyd Blankfein et al crave getting government ‘out of the way’ of business? Read ‘Atlas Shrugged’ for a vision of what libertarianism means for the masses (never could understand why so many of the 99% identify with the 1%).

      Of course the government we have now offers little protection – as we see in the UK with the privatisation of the NHS and welfare, policy is now written by corporations and lobbyists (McKinsey in the case of ‘Lansley’s’ bill, with Unum writing the Welfare Reform Bill in their own interests). In the US, banks ‘own’ Congress while billionaires fund astro-turf groups like the Tea Party. The mainstream media – itself in hock to corporations and owned or controlled by the mega-rich – frames the debate and concentrates on the superficial at the expense of real issues and underlying economic processes that have resulted in accelerating inequality, shifting the focus from the ‘winners’ to the ‘losers’ as governments crackdown on the poorest while the wealthiest siphon off as much as they can before the re-set.

      But to say that this travesty of government proves the inadequacy of true democracy is to throw the baby out with the bathwater. Democracy has been subverted and must be restored if there is to be any protection against the corporate state.

  46. Gary April 3, 2012 at 8:09 am #

    Demand and supply is
    reflected by price. Price
    indicates where there are
    shortages or surpluses.
    Economic investments can
    be made accordingly. When
    price is distorted by inflating
    the money supply, economic
    investments cannot be
    made, shortages and
    surpluses are masked, and
    investment is misdirected.
    Not only is inflation a theft,
    it screws up the entire
    economy. Only the bankers
    benefit. Whose side is the
    BoE on ? What about the govt, does it even know what inflation is, is it RPI or CPI or what you and me see in our daily costs ? The govt indexes its salary payments to the lower and its bond values to the higher. It is a crooked scam. And the MMT and positive money crowd want to trust these people to withdraw money from concussion by taxation based on this voodoo ?

    • bill40 April 3, 2012 at 8:52 am #

      Gary,

      I agree with you about governments in that they’re none the worse for watching, but your phobia is bordering on paranoia.. There is a lot wrong with our democracy but you fail to identify who should control the money supply. I’m afraid if your reply is the same guys as last time, you’ll get short thrift on here.

      I think the problem has mostly been about what people demand from their politicians, ably helped by the MSM and Murdoch in particular. We have a hope of reclaiming government for public purpose, we have no hope in hell of ever influencing the banking cartel.

      It is obvious to any observer that politicians make legislation for their donors and are ignoring the voter. However, your very American demonisation of government is not helpful. There is some truth in what you say but government is the only hope we have.

      We can only start winning when investment and retail banks are totally seperated and the too big to fails broken up. Our problems were caused entirely in the private sector because bought and paid for politicians neglected their regulatory duties.

      MMT is one step towards restoring responsible government for the 99%.

      • Gary April 4, 2012 at 8:30 am #

        You obviously did not read this or did not understand it, read it again:
        http://www.goldstandardinstitute.net/2010/06/what-is-a-real-bill/

        And since there seems to be a general deafness here, or worse, i will shout it : THE. MONEY SHOULD COME FROM THE PEOPLE IN THE ECONOMY DOING THE TRANSACTIONS , USING BILLS OF EXCHANGE, THAT ARE BACKED UP FRONT BY THE ABILITY TO PAY.

        NO GOVT INVOLVED, NO BANKERS !

        got it? .

        .against various nations and their debts

        Subscribe Responses to The ECB 128

        swallowed the market g g g , ] [ p ] [ , p / / / p // g] [ / , ] [ p / / / p // g ] [ p /

        ] [ p

        # pm7:01 at 2012, 22simoncz March Wonderful article, mainly the voices of Edison and Henry Ford on why on earth

        ?does the government borrow from banks -http://publicbankinginstitute.org/thomas

        edison-article

        # am12:14 at 2012, 23 March 40REPLY

        bill

        ,Golem This is why I read this blog. The end game can only be to transfer all the toxic assets to central banks to be written off at the expense of national economies. The BoE has around of the UK national debt paying interest to %35 itself. When QE has hoovered up all the bad assets it will be retired. And so on with the

        .Fed and ECB It will be like a hidden debt jubilee. needless to say the debts of lesser mortals will be

        .ruthlessly enforced

        # am12:30 at 2012, 23REPLY

        Phil March

        .Jesus Christ

        # am1:50 at 2012, 23 March 2003REPLY

        patma Iceland’s decision to camp on the edge of Event Horizon like the USS Palomino is gonna make them a European super power by

        .default… pun intended. Epic win

        # pm3:41 at 2012, 23REPLY

        Jason March

        ?Don’t you mean the USS Cygnus

        # pm4:22 at 2012, 23 March 2003REPLY

        patma Damn, I knew I’d get it wrong. You are a mental giant Jason. Though if you’ll entertain me, technically the Palomino did dock with the Cygnus, so they were both

        .hanging out on the edge for a while So, hopefully the wonderful mental imagery is not lost. That is, the imagery of a sovereign island democracy who gave the two fingered ,salute to the offer of ‘nation saving’ loans with a properly functioning democracy being the heavy, equal and countering

        • Gary April 4, 2012 at 8:44 am #

          Don’t know what went wrong with the post above. Looks like another post gotmixed in with my post. cannot edit it.

          my post ends with “got it?”

  47. backwardsevolution April 3, 2012 at 9:23 am #

    Excerpts from “Tragedy and Hope” by Carroll Quigley in 1964:

    “There does exist … an international Anglophile network … which we may identify as the Round Table Groups. I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960′s, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. I have objected … to a few of its policies … but in general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known.”

    And:

    “The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.

    Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”

    A very good read!

    http://www.wanttoknow.info/articles/quigley_carroll.tragedy_hope_banking_money_history.shtml#quote2

    • Joe Taylor April 3, 2012 at 1:09 pm #

      Thanks for that link to “Tragedy and Hope”

  48. Charles Wheeler April 3, 2012 at 3:51 pm #

    Philip Pilkington on Keen v Krugman:

    “Oh, its a dark day, my friends. A pall has been cast over the econoblogosphere. Yes, Paul Krugman has just used the New York Times website to undertake a vicious stitch-up on an intellectual opponent who should have, by rights, won the original argument.

    Here’s how it went down. Post-Keynesian economist and sometimes Naked Capitalism contributor Steve Keen wrote a cogent article critiquing a Paul Krugman paper on Minsky and debt deflation. The key issue was that the so-called money multiplier does not function to restrict credit growth in modern economies operating on a floating exchange rate with a central bank that targets interest rate. We dealt with this briefly the other day and pointed out the flaw in Krugman’s argument.

    Krugman then started to get overwhelmingly negative comments from his usually receptive audience. Many were people who worked in banks trying to appeal to Krugman’s good sense so that he might consider that he failed to understand some fundamental things about modern banking. No luck there.

    Then Scott Fulwiller ran a comprehensive rebuttal here on Naked Capitalism yesterday. It was a one-two punch. Krugman fell back on a post written by Nick Rowe. Rowe’s post was dodgy in the extreme. He made up a quote — specifically that “the money supply is demand-determined” — called it gibberish and then undertook a ‘deconstruction’ of the quote… that he had made up. I called his rhetorical tactics sophistical in the comments section. He called me rude.

    Fine. All in good fun, right? But then Krugman did something outwardly nasty and underhanded. He put up a quote from Keen’s second post about DSGE models that he took completely out of context so that Keen would appear ignorant of the matter he was discussing. You can find Krugman’s original post here, but just in case he decides to take it down here is a screenshot.

    It’s a short post and everyone should read it. It’s not hard to see what Krugman is doing. He lifts a quote from Steve Keen about DSGE models in order to make out that Keen doesn’t know what he’s talking about. Keen basically says that DSGE models assume equilibrium. But Krugman counters that…

    Point 1 [of Keen's post] is all wrong — NK models are all about sticky prices, so what’s that about “instantaneous adjustments”? (And who said anything about rapid return to equilibrium?) Point 3 is also completely wrong: NK models almost always assume imperfect competition, so that we can talk about price-setting agents. This is all in Eggertsson and Krugman, by the way.

    He then goes on to allude that Keen is talking through his you-know-what. But look what is to be found just two paragraphs under Krugman’s torn-out-of-context quote in Keen’s piece:

    So economists like Krugman—who describe themselves as “New Keynesians”—have tweaked the base case to derive models that “ape” real-world data, with “sticky” prices rather than perfectly flexible ones, “frictions” that slow down quantity adjustments, and imperfect competition to generate less-than-optimal social outcomes.

    Oh dear, oh dear, Mr. Krugman. For shame. This is not very professional at all.

    On a positive note however, a lot of his readers seemed quite perplexed by Krugman’s evasiveness on the original topic — that of endogenous money. I saw one comment that said something along the lines that “I come to this with no prejudices, in fact my main prejudice would be to try to see sense in what Krugman is saying. But I’m finding it hard to understand how he refutes Keen’s/Fulwiller’s critique.” And that, as Keen always says, pace Max Planck, is how science advances: one funeral at a time.
    http://goo.gl/w9j9q

    • Synopticist April 3, 2012 at 5:40 pm #

      I’ve been following that debate, and Krugman doesn’t come out at all well. On both banks creating money and on the economic effect of debt, keen seems to be winning the argument.
      Personally i would prefer it if they both attacked the idioicies of the ultra-free market Freshwater scool. They’ve been completelly proven wrong by events, yet they still dominate most of the conversation.

      • Charles Wheeler April 3, 2012 at 10:31 pm #

        Yes, it’s frustrating to see two economists who’ve both been hammering at the idiocies of the Chicago School at loggerheads.

        It must bring cheer to the neoliberals to see two opponents coming to blows, particularly given the dismissive attitude of each to the other. A shame they couldn’t meet up and hammer out their differences and misunderstandings to find common ground and recognise where and why they disagree.

        At the moment it seems like Krugman isn’t willing to spend the time to find out what Keen is actually saying, preferring to create straw man arguments he can then deride. But there are too many well informed economists and bankers convinced of the endogenous money argument for that to come across as anything more than bluster. And now that Mark Thoma has waded in on Twitter (not the best vehicle for a reasoned discussion), lobbing insults, it’s beginning to resemble a playground bundle. I suppose if everything you’ve been teaching your students for years is in danger of being revealed as hogwash it does breed a certain defensiveness.

        But: at least it’s putting MMT and the issue of money/debt creation and the role of private and central banks on the map – perhaps some synthesis will result?

        Weird, though, to find that the argument over whether the sun revolves around the earth or vice-versa is still being waged – and it explains a lot about why we are in this mess!

    • Gary April 4, 2012 at 9:04 am #

      They are both wrong imo.

      Keen , instead of shrinking the debt by defaults back in line with the economy, wants to increase the money supply up to the level of the debt, of which there is not enough economic activity to back it for probably the next 50 years. Krugman says debt is not a problem because there is a bookkeeping debit for every credit and it all balances out ie. The debt problem is a mirage !

  49. Charles Wheeler April 3, 2012 at 3:55 pm #

    Andrew Lainton backs Keen:

    “I hope people have spotted that Krugman isnt simply proposing a loanable funds approach to banks, where loans are based on the inflow and outflow of savings by saying that banks ‘must buy assets with funds they have on hand’ he is going back to a mid 19th century wages fund theory. Krugmans world isn’t even Ptolemaic, the world doesn’t even turn and time doesn’t exist.

    In such doctrines transactions are all paid out of a pot of money ‘on hand’. A stock. But this doctrine was disproven as early ago as the 1870s by Krugmans equivalent as America’s most famous economist, Francis Amasa Walker:
    http://www.econlib.org/library/YPDBooks/Walker/wlkWQ.html

    Walker proved that it is future anticipated cash flows rather than initial stocks of cash which form the basis for economic decisions. Investment decisions are based on anticipated profits. Furthermore investment allows for the creation of additional employment to be employed in activities which generate growth. Rational economic decisions therefore are not constrained by cash on hand but by the ability to see cash advanced to be repaid by growth and future cash flows to the investor and his creditors.

    This led to his successor FW Taussig Developing the modern theory of credit money ( independently of Hawtry in the same year 1919):
    http://archive.org/stream/principleseconom01tausuoft#page/n23/mode/2up
    Page 357: ’Money Means are created, and the command of capital is supplied, without cost or sacrifice on the part of any saver’

    It is precisely because of the payment of interest from future cash flows that bankers can credit credit with accounting operations only, all a bank needs to do is ensure that overnight it remains net cash positive, and if it would not be various interbank and central bank means are available.

    It is if Krugman had regressed to the mid 19th Century forgetting most of the advances since. Even the most basic banking 101 book published in the last century has this balance sheet model of banking. Some with sophisticated mathematics, and yet since the 60s most mainstream economic textbook dont even have a chapter on banking.

    The version of the multiplier so vociferously defended by Krugman is known as the Friedman-Swartz-Cagan Model – it is a monetarist idea and if you read Richard Koo you will see that the research that caused economists to use it – the claim that government high powered money drives the money supply is bunkum. Friedman-Swartz-Cagan is based on a mathematical identity, but makes a false assumption about the direction of causation. It became popular precisely because it enabled simplified treatment of money in macro. Indeed it could simply be assumed away by being folded into the IS/LM model. Thats why Krugman loves it it is simple but dangerous and wrong.
    Ironically Phillip Cagan, who perfected the math of the model later estimated that 91% of US money was endogenous rather than government created.

    What Krugman doesnt like his his favourite macro tools being slagged. But if he could be presented with new tools, or demonstrations of how old ones such as the Cagan identity could be recast he might be less grumpy. Steve needs to confront Krugman on his own ground, not Steves, Krugman ain’t going to go there.
    http://goo.gl/6TL6

  50. Gary April 4, 2012 at 10:25 am #

    Money creation without the govt or the bankers involvement.

    I repeat :

    ” In effect, the bill has a
    limited and temporary
    monetary role. It plays the
    role of cash money, serving
    as a means of exchange, but
    only if there was a real
    consumer good that had a
    bill drawn against it. When
    the bill comes due, it is paid
    off and disappears… the
    opposite of printed money.
    As consumer demand waxes
    and wanes, so the supply of
    bills grows and shrinks with
    it. The monetary effect of
    the real bill is driven by
    consumer demand, not by a
    greedy banker’s or a corrupt
    politician’s decision!”

    http://www.goldstandardinstitute.net/2010/06/what-is-a-real-bill/

  51. Gary April 4, 2012 at 10:29 am #

    There seems to be chronic misunderstanding here.

    I repeat:

    Money creation without the govt or the bankers involvement.

    ” In effect, the bill has a
    limited and temporary
    monetary role. It plays the
    role of cash money, serving
    as a means of exchange, but
    only if there was a real
    consumer good that had a
    bill drawn against it. When
    the bill comes due, it is paid
    off and disappears… the
    opposite of printed money.
    As consumer demand waxes
    and wanes, so the supply of
    bills grows and shrinks with
    it. The monetary effect of
    the real bill is driven by
    consumer demand, not by a
    greedy banker’s or a corrupt
    politician’s decision!”

    http://www.goldstandardinstitute.net/2010/06/what-is-a-real-bill/

    • Gary April 4, 2012 at 11:59 am #

      Apologies for the double post. Posting here from a mobile phone is challenging, to say the least

  52. Gary April 4, 2012 at 12:24 pm #

    We are powerless against the govt. Ireland citizens took the govt to court, the supreme court, not the common law court of jurors, claiming the bank bailouts were illegal, the govt court threw the claim out.

    http://www.housepricecrash.co.uk/forum/index.php?showtopic=177130

    • Charles Wheeler April 4, 2012 at 9:34 pm #

      Michael Hudson explains why the monetary system is designed to serve bankers rather than citizens:

      “Prior to the Federal Reserve’s founding in 1913, U.S. monetary policy was conducted by the Treasury. Like the Fed, it had district sub-treasuries that performed nearly all the financial functions that the Fed later took over: providing credit to move the crops in autumn, managing government debt, and so forth.

      But after the severe 1907 financial crisis, a National Monetary Commission was reformed. Under the then-Republican administration, it recognized a need for more active government intervention to prevent future financial crises. It also recognized the desirability of moving away from the Anglo-Dutch-American system of “merchant banking” based on short-term lending against collateral in place, or for shipping of goods already produced. The National Monetary Commission’s longest volumes were on the great German industrial banks, and Republican policy aimed at bringing banking into the industrial era, to provide long-term funding after the model of German and other Central European banks.

      However, the leading bankers sought to use the crisis as an opportunity to grab power for Wall Street, away from the Treasury. In this sense, the Fed was founded in large part to take monetary control away from Washington’s elected officials and appointees, and privatize the supply of money and credit.

      So its place in the U.S. financial and economic structure is to allocate credit, primarily to serve Wall Street financial interests. That explains the insistence on the financial class here and abroad in insisting on an “independent” central bank. It means that instead of serving the public interest, it serves the interests of the banking class. The hoped-for transformation of commercial banking into long-term industrial banking was not achieved.

      The Federal Reserve is private in name only. Its heads are appointed by Washington, but Wall Street has veto power over it (as it has over the appointment of major Treasury and other regulatory agency officials). So the problem is not that the Fed is technically owned by its stockholders, but that Wall Street has gained overpowering control over government itself.

      The financial sector has sought to dismantle checks and balances, making it protect Wall Street even as financial interests diverge from the promoting of economic growth and rising living standards.

      Under Mr. Greenspan’s tenure and that of his successor, Ben Bernanke, the Fed has overseen the greatest shift of wealth n American history since the Robber Barons.

      Finally, the Fed has taken over the functions of government by threatening to close down the economy if the government does not bail out the banks at taxpayer expense, and protect the wealthy 1% against losing money.”
      http://goo.gl/iu5jT

      Same thing happened at Bretton Woods, where Keynes’ and Dexter White’s plans were scuppered to ensure $ role as reserve currency and put Wall St. back in the driving seat.

    • Mike Hall April 5, 2012 at 2:21 pm #

      “…the govt court…” ???

      There’s astonishing mental contortions & cognitive dissonance that people with your ideological blindness can come out with Gary, but hat’s off for this one :)

      What we hear ad nauseam from ‘get rid of gubmint’ types like yourself is that, hey, we don’t need no gubmint, just the ‘law’.

      Not worked out too well there eh. Gary? And pullease don’t give me some laughable nonsense that the gov control the legal profession in Ireland – I live there. Everybody here knows that the lawyers here are a law unto themselves. And by the way, recourse to law here is purely for the rich. I have many stories I could recount where civil & contract law here isn’t worth a bean if you can’t throw 6 figures at a lawyer.

      Of course, in a democracy, there really isn’t much bar general oversight (& writing good laws in the first place) that an elected government can do. No one has yet come up with any solution to ensure integrity in applying the law other than having the judiciary as independent as possible & hoping for the best. (Tho’ greater legal aid would improve things a lot.)

      But we can & should do our best to get democratic governments to look after the interests of the majority of ordinary citizens. Because, simply, there is no better or more legitimate structure. Hollowing it out is not reform or improvement – it’s full capitulation to the corruption that has already stormed the ramparts & is busy screwing your wife.

      We are in a class war, the top few percent vs the rest, and losing just now, but that’s no excuse to offer full surrender.

      • Gary April 5, 2012 at 4:34 pm #

        Mike Hall

        You don’t understand money and you don’t understand govt or the law.

        “Five out of six
        judges appointed
        have connections
        to Fine Gael or
        Labour
        PAUL CULLEN, Political Staff
        JUDICIARY: THE GOVERNMENT
        has nominated six judges to
        date – and five have a personal,
        family or funding link to Fine
        Gael or Labour. ”

        http://www.irishtimes.com/newspaper/ireland/2011/1114/1224307527505.html

        You are pushing a dangerous agenda.

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