Tag Archives: endogenous money

5 Years After The Financial Crisis, The Big Banks Are Still Committing Massive Crimes

22 Sep

usury

Cross-posted from Zero Hedge:

Preface: Not all banks are criminal enterprises. The wrongdoing of a particular bank cannot be attributed to other banks without proof. But – as documented below – many of the biggest banks have engaged in unimaginably bad behavior.

You Won’t Believe What They’ve Done …

Here are just some of the improprieties by big banks over the last century (you’ll see that many shenanigans are continuing today):

  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here
  • Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Participating in various Ponzi schemes. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees. But studies show that most of the fraud is committed by management.

Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud. See this, this and this.

Even the bank with the reputation as being the “best managed bank” in the U.S., JP Morgan, has engaged in massive fraud. For example, the Senate’s Permanent Subcommittee on Investigations released a report today quoting an examiner at the Office of Comptroller of the Currency – JPMorgan’s regulator – saying he felt the bank had “lied to” and “deceived” the agency over the question of whether the bank had mismarked its books to hide the extent of losses. And Joshua Rosner – noted bond analyst, and Managing Director at independent research consultancy Graham Fisher & Co – notes that JP Morgan had many similar anti money laundering laws violations as HSBC, failed to segregate accounts a la MF Global, and paid almost 12% of its 2009-12 net income on regulatory and legal settlements.

But at least the big banks do good things for society, like loaning money to Main Street, right?

Actually:

  • The big banks have slashed lending since they were bailed out by taxpayers … while smaller banks have increased lending. See this, this and this

Indeed, top experts say that fraud caused the Great Depression and the 2008 crisis, and that failing to rein in fraud is dooming our economy.

We can almost understand why Thomas Jefferson warned:

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies ….

John Adams said:

Banks have done more injury to religion, morality, tranquillity, prosperity, and even wealth of the nation than they have done or ever will do good.

And Lord Acton argued:

The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.

No wonder a stunning list of prominent economists, financial experts and bankers say we need to break up the big banks.

Advertisements

IMF Admits Usury Is The Root Problem Of The Global Financial System

6 Sep

usury

There is much of interest in the IMF’s Financial System Stability Assessment of Australia, published in November 2012.  The following line in particular caught my eye, and is worthy of comment. The context is the IMF’s consideration of what are the “key risks” to our banking system (page 10-11):

Pressure on the net interest margin, which accounts for almost two-thirds of operating income, has the potential to encourage more risk-taking by banks in order to preserve profitability.

Thoughtful readers will observe that this statement unintentionally lends direct support to a fundamental argument your humble blogger has made — that usury is the root problem of the global monetary system, and that fractional reserve banking (or endogenous money creation) is only a secondary problem.

Consider again the conclusion to my recent post, IMF Economist Says Banks’ Key Function Is To CREATE Money:

As we have oft-repeated here at barnabyisright.com, while this power to “create money” ex nihilo (out of nothing) is a key problem, it is not THE root problem.

The power to create “money” (in the form of debt) out of nothing, simply gives banks leverage.

What they leverage, is Usury.

The “net interest income” — that is, the difference (or “spread” or “margin”) between the interest % they give on deposits, and the interest % they take on loans — is the heart of the banks’ profit (and power) business model.

The power to create more and more money (“credit”), simply allows them to magnify (or leverage) their “returns” (profits) on that difference between usury paid, and usury taken.

It deeply saddens your humble blogger that there are so many highly intelligent (far moreso than I), sincere, well-meaning, altruistic men and women in the world who are keenly interested in reforming the financial system for the betterment of humanity … and yet, almost none have yet recognised that usury is the root problem.

The IMF has directly admitted that the root of banks’ profit-making model is net interest income, and that pressure on the “margin” between what they charge in interest for loans, and must offer in interest on deposits, “has the potential to encourage more risk-taking by banks in order to preserve profitability”.

What exactly is meant by “more risk-taking”?

In the footnote (3) to the IMF’s comment, we are told that:

“Riskier activities could include, for example, loosening underwriting standards or expanding too quickly into new business or geographic regions.”

In other words, making it easier for more people to borrow more debt.

Using the leverage of increased fractional reserve / endogenous money creation.

Barnaby Is Right … is right.

See also:

Looking For A Root

A Tale Of Usury, Explosions, And A Used Car Salesman

A History Of The Legal Case Against Usury

An Historical Warning For Proponents Of A Modern Debt Jubilee

IMF Economist Says Banks’ Key Function Is To CREATE Money

9 Aug

Cross-posted from neweconomics.net.nz (my bold added) –

Today I made the mistake of going to a Georgist website where there was a sentence which made me mad. It said that in New Zealand, banks like finance companies can only lend out deposits made with them. Well I rarely get mad these days but I don’t like untruths being perpetrated. So I thought the best way to recover would go and transcribe the first seven minutes of a talk Michael Kumhof, economist from the IMF made to a seminar in January 2013.  It is on youtube here and here is my transcript, give or take the odd aside I left out.

“Virtually all money is bank deposits.

The key function of banks is money creation not intermediation. The entire economics literature that you see out there today is that it is intermediation, taking the money from granny, storing it up and then when someone comes and needs it I can lend it out to them. That is complete nonsense. Intermediation of course exists, but it is incidental and secondary and it comes after the actual money creation. Banks do not have to attract deposits before they create money. I’m a former bank manager. I worked for Barclays for five years. I’ve created those book entries. That is how it works. And if a leading light economist like Paul Krugman tries to tell you otherwise, he does not know what he is talking about.

When you approve a loan, as a bank manager you enter on the asset side of your balance sheet the loan, which is your claim against this guy and at the exact same time you create a new deposit on the liability side. You have created new money because this gives this guy purchasing power to go out and buy something with it. Banks have created money at that point. No intermediation, because the asset and liability are in the same name at that moment. What happens afterwards is that that guy can spend it somewhere else later but it is still in the banking system. I care about the aggregate banking system. Looking at the microeconomy and transferring the logic to the macroeconomy is really wrong. Someone will accept that payment.

money

What that means is that it becomes very, very easy for banks to start or lead a lending boom even though policy makers might not, because if they feel that the time is right, they simply expand the money supply. There is no third party involved, just the bank and the customer and I make the loan. The only thing that is required is that someone else will accept that deposit, say as payment for a machine, and he knows that is acceptable because it is legal fiat.

There is an important corollary to this story. A lot of loans are not for investment purposes, in physical capital. Loans that are for investment purposes are a small fraction. The story that is often told in development economics is that first you need to have savings, then once you have the savings, you can have investment. So a country needs to have sufficient savings in order to have enough investment. Nonsense too – at least for the part of investment that is financed through banks because when a bank makes a new loan it creates new purchasing power for the investment to go ahead. The investment goes ahead. Then the investor takes his new bank deposit and gives it to someone else In the end someone is going to leave that new deposit in the bank. That is saving.  The saving is created along with the investment. It’s not that saving has to come before investment. Saving comes after investment, not before. This is important for development economics.

The deposit multiplier that is taught in economics textbooks is a fairytale. I could use less polite terms. The story goes that central bank creates narrow money and there is a multiplier because banks can lend out a fraction. It is actually exactly the opposite. Broad monetary aggregates lead the cycle and narrow monetary aggregates lag the cycle.”

***********

As we have oft-repeated here at barnabyisright.com, while this power to “create money” ex nihilo (out of nothing) is a key problem, it is not THE root problem.

The power to create “money” (in the form of debt) out of nothing, simply gives banks leverage.

What they leverage, is Usury.

The “net interest income” — that is, the difference (or “spread” or “margin”) between the interest % they give on deposits, and the interest % they take on loans — is the heart of the banks’ profit (and power) business model.

The power to create more and more money (“credit”), simply allows them to magnify (or leverage) their “returns” (profits) on that difference between usury paid, and usury taken.

It deeply saddens your humble blogger that there are so many highly intelligent (far moreso than I), sincere, well-meaning, altruistic men and women in the world who are keenly interested in reforming the financial system for the betterment of humanity … and yet, almost none have yet recognised that usury is the root problem.

One that must be dug up entirely, and killed off, else all other “reforms” are a waste of time.

The evil tree will simply regrow.

Full Reserve Banking Advocates Are Myopic: Here’s Why

23 Jul

myopic-lasik

From central bank governors, to the IMF, to brilliant contrarian economists, to well-intentioned activist groups, there is a growing chorus of voices calling for an end to fractional reserve banking … or, more correctly, fractional reserve lending.

These voices are of those suffering from myopia.

Their complaint is this; that the root cause of the world’s ongoing economic ills is that, due to fractional reserve lending, private banks have been permitted to create too much “money” (debt) out of nothing, and lend it for profit.

Alas, they are only seeing what is immediately in front of their eyes.

The creation of “money” out of nothing, is only a lever.

Usury (ie, net interest income), is what is being lever-aged.

Consider the words of the National Australia Bank:

How Banks Work

…Their profit is the difference between what they pay in interest on your deposits and what you pay them in interest for the loan they made you.

Creating money — debt — out of nothing, does not make profits for bankers.

Charging interest on money (debt) created out of nothing, is what makes profits for bankers.

For those with full vision, the Big Picture is clear.

Every “solution” to the economic crisis that does not focus on the real problem — usury — is a short-sighted, and inevitably short-lived, non-solution.

4,500 years of recorded economic history prove it so.

See An Historical Warning For Proponents Of A Modern Debt Jubilee

Looking For A Root

28 May

one-root-to-rule-them-all-fa41dc-e1341482332407

“In Keynes’s view capitalism’s driving force is a vice which he called ‘love of money’ … in the General Theory ‘the propensity to hoard’ or ‘liquidity preference’ plays a vital part in the mechanics of an economy’s rundown, once something has happened to make investment less attractive. And this links up with Keynes’s sense that, at some level too deep to be captured by mathematics, ‘love of money’ as an end, not a means, is at the root of the world’s economic problem.”

Robert Skidelsky; “John Maynard Keynes: Vol. 2, The Economist As Saviour 1920-1937″ (1994)

“There are a thousand hacking at the branches of evil to one striking at the root.”

– Henry David Thoreau

Would you be inclined to agree, that the best way to solve a problem, is to begin by looking for a root?

Economy

Definition of economy

1. the state of a country or region in terms of the production and consumption of goods and services and the supply of money

Oxford Dictionary

Who is responsible for the “supply of money”?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

– Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion

How is “money” supplied?

The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

– Federal Reserve Bank of Chicago, Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion

Why is money supplied (by banks)?

…banks basically make money…

Investopedia

How do banks “make money” (ie, make profits)?

by lending money at rates higher than the cost of the money they lend. More specifically, banks collect interest on loans and interest payments from the debt securities they own, and pay interest on deposits, CDs, and short-term borrowings. The difference is known as the “spread,” or the net interest income…

Investopedia

Er… let’s hear that again … HOW do banks “make money” (profits)?

They make money just like any other business. The difference is that their product is money. In other words banks sell money, mostly in the form of loans. Their profit is the difference between what they pay in interest on your deposits and what you pay them in interest for the loan they made you. Banks also charge fees for services.

National Australia Bank, How Banks Work

What is “interest”?

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

Investopedia

Is interest on money natural?

The most hated sort (of money-making), and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural use of it. For money was intended merely for exchange, not for increase at interest. And this term interest (“tokos”, i.e., “children”), which implies the birth of money from money, is applied to the breeding of money, because the offspring resembles the parent. Wherefore of all modes of money-making, this is the most unnatural.

– Aristotle, Politics, Book One, Part X (c. 350 BC)

DIGGING DOWN

  • The global economy has a problem.
  • The supply of money is a defining component in the functioning of the economy.
  • Banks supply the money in the economy.
  • Banks supply the money by creating it ex nihilo (“out of nothing”).
  • Banks create new money when they make loans.
  • Banks make loans in order to make profits.
  • Banks make profits by charging interest on money they create.
  • Banks make profits by charging more in interest, than they pay in interest.
  • Interest is a charge for the “privilege” of borrowing money.
  • Making money out of money, by charging “interest” / usury on money … is not natural.

Would you be inclined to agree, that it is not a “privilege” but a burden, to have to borrow money at interest?

Would you be inclined to agree, that it is banks who have an incredibly privileged position and role in the functioning of the economy?

Would you be inclined to agree, that it is immoral and unjust to charge “interest” for the “privilege” of “borrowing” something that was created out of nothing — mere electronic digits, typed into a computer?

Would you be inclined to agree, that because banks are legally permitted to make profits from the production of money“their product is money” — that bankers are likely to have a vested interest in selling as much of their product — that is, creating as much debt — as they can get away with?

Is it possible that usury — the making of gains (profit) on the lending of money; the unnatural “birth of money from money” — is the root of the problem in the global economy?

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

– St. Paul, 1 Timothy 6:10

…no one shall deposit money with another whom he does not trust as a friend, nor shall he lend money upon interest; and the borrower should be under no obligation to repay either capital or interest.

– Plato, Laws, Book V (c. 348 BC)

And if you lend to those from whom you hope to receive back, what credit is that to you? For even sinners lend to sinners to receive as much back. But love your enemies, do good, and lend, hoping for nothing in return; and your reward will be great, and you will be sons of the Most High.

– Jesus Christ, Luke 6:34-35

See also:

Imagine A World With No Banks

A Tale Of Usury, Explosions, And A Used Car Salesman

Babylon = Usury: We Want Interest-Free Money at realcurrencies.com

The Apologia Of An Awakening Real Estate Agent

25 May

awakening

Reader “Phil” had the following to say, in response to Thursday’s post, Real Estate Marketers Now Out To Get Your Kids.

His words are an object lesson for real estate industry professionals everywhere (my bold added):

As a licensed real estate agent myself, I would like to suggest a difference between single office agencies and franchise groups. The typical stereotype of a real estate agent is derived from the high flying top 3%. There is no doubt there are some wankers in the industry. The rest that I know are hard working good people who support families and employ staff of 10 to 15 on average. That goes for many of the offices within franchise groups.

Since 2008, I have stood back and looked at the industry a bit differently. I have recognised that most real estate agents have no idea that it is bank credit expansion that causes house prices to rise. Or as Steve Keen explains, actually “growth” in credit expansion.

This is only possible due to legislation allowing private banks to use housing equity as security to create credit. We just continue to do this as that appears to be the way it always was. (IMO housing should be a consumable not an asset).

BTW, hat tip on your recent article exposing those who foster the continuation of the “housing industry” as a financial derivative.

Back to the franchise groups and franchises in general (Parasites!!!). This is not unlike usury or rent seeking. They take franchise fees from hard working small businesses and promote corporate ideals. The LJ Hooker promotion is revolting IMO.

I keep returning to your story of the used car salesman. Most people just keep doing what they know to do to get by or maybe get ahead. We are all preyed on by those who control and promote the FIRE structure.

As one who is now seeing the reality of this I feel a responsibility to speak. Much as you do. I tend to do this even as it makes me an outsider. Strange that huh?

The Only Aussie Economist To Predict The GFC Shows Treasury Department How The Economy Really Works

26 Apr

This past Friday, Professor Steve Keen – the only Australian economist to predict the GFC and give cogent reasons why, and thus one of very few economists in the world who is not a danger to the public – gave this superb, by-invitation (!?!) presentation to staff at the Australian Treasury department.

If you want to gain a better understanding of how the economy actually works – as opposed to how all the people who run the country ass-ume it works – I highly recommend making time to watch the whole thing.

One of many highlights for me came in the question time following Steve’s presentation (1:09:20):

“One of my students put a beautiful question to me once saying, ‘Is the finance sector a Profit centre, or a Cost centre to be minimised?’ It is the latter.”

Logical inference: We must minimise the size (and power) of the finance sector.

The excesses of the finance sector are built, primarily, on the Twin Pillars of currency exclusivity (legal tender laws) … and the power of usury.

Breaking those twin pillars is where any realistic long term “solution” must begin. For those interested, this is my idea for how to begin doing that.

Enjoy this brilliant presentation by Steve Keen, and follow him on Twitter @ProfSteveKeen

* Please help educate others, by sharing this video.

%d bloggers like this: