Eflex tha Vybe Scientist
Registered Senior Member
Fractional reserve banking...recipe for disaster?
- Thread starter Eflex tha Vybe Scientist
- Start date
:bugeye:
wackos, woo-woos?
Exactly. VERY foolish people who believe irrational, illogical conspiracy theories for which there is absolutely no basis.
Medieval Japanese and Chinese considered Bankers parasites on society (because they did not actually produce anything unlike farmers and artisans). Obviously Bankers and Merchants performed a necessary function, and some amassed large fortunes, yet they were still regulated to the lowest rung on the social ladder (well, next to the lowest which was reserved for street urchin/beggar).
People hated bankers then, people hate bankers now. The difference now is not fractional lending, that's just a means, the difference is that back then, bankers didn't have BOTH money as well as power. Sure, they had money, but that was it. It is clear to me, having witnessed 6 years of The GW Bush Obama Show why Bankers were not allowed to mingle with nobility and why they were regulated to a class lower than that of a farmer (some actually paid to buy land and become farmers as a way to elevate themselves in society).
It may be that Banker-like people are a main reason why societies tend towards dictatorships - who act as a final check on the influence of the 3% of greedy parasites who make up society. Hell, probably why religion was invented as well!
Whatever the answer, it's obvious many societies have protected themselves against these sorts of parasitic people. Having forgot these lessons, or never having learned them, I suppose we're just re-living History as it repeats itself :shrug:
People hated bankers then, people hate bankers now. The difference now is not fractional lending, that's just a means, the difference is that back then, bankers didn't have BOTH money as well as power. Sure, they had money, but that was it. It is clear to me, having witnessed 6 years of The GW Bush Obama Show why Bankers were not allowed to mingle with nobility and why they were regulated to a class lower than that of a farmer (some actually paid to buy land and become farmers as a way to elevate themselves in society).
It may be that Banker-like people are a main reason why societies tend towards dictatorships - who act as a final check on the influence of the 3% of greedy parasites who make up society. Hell, probably why religion was invented as well!
Whatever the answer, it's obvious many societies have protected themselves against these sorts of parasitic people. Having forgot these lessons, or never having learned them, I suppose we're just re-living History as it repeats itself :shrug:
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You said that joepistoe said:
"Originally Posted by joepistole
And the good news is that a severe banking crisis can be fixed. We know how to do it. In the US, we just did it. ..."
and then gave some links calling that into question (as I would too since the surviving banks are even bigger and still with toxic trash on the books, and other problems, worse than before.)
I was surprised that Joe had said that, so I went back thru this thread and cannot find his post stating that.
Are you misquoting him? In what post did joe say US has "fixed" its banking system?
Eflex tha Vybe Scientist
Registered Senior Member
Eflex tha Vybe Scientist
Registered Senior Member
I was surprised by the statement as well. and thanks to you moderator for following the convo.
Since we seem to be on the same page as far as the lack of real accountability for the banks that helped cause the crash of 2007, do you have any thoughts/opinions on FRB? Is there a better way to manage money/debt
Eflex tha Vybe Scientist
Registered Senior Member
Great post... thanks for replying
Yes, I think that many holy books seem to have strict regulations for usury and how to treat folks fairly when dealing in banking and finance.
Their influence upon the political class is unquestionable. Just looking at presidential cabinet positions/Federal Reserve chairmen for the past 30 years.....
its all Investment Banking types who are looking out for their colleagues/investments
Eflex tha Vybe Scientist
Registered Senior Member
for the record, I would NEVER do that. I'm honestly trying to have a frank and HONEST discussion about FRB and where we can go from here.
Surely theres a difference between fixing the system, and fixing the crisis. The crisis was dealt with, for now, but the system as a whole needs changing. At least with the casino style gambling banking linked to retail day-t-day-banking.
Yes, I have some food for thought to give you - provided you actually do want to discuss the topic rather than drag in opinions from the fringes (like the links you originally provided).
FRB worked just fine - until congress and one of the past administration decided to remove the controls that had been forcing the banks to avoid over-extending themselves. And all that's needed is to pass (and ENFORCE) regulations that would once again compel the banks to operate on sound fiscal footage.
That idea has been getting some lip-service in Washington but, so far, there really hasn't been anything done. It's going to be difficult - if not impossible - to accomplish such a relativity simple task because the banks have powerful lobbies working for them - as well as being MAJOR contributors to political campaigns. Perhaps the FIRST real step that needs to be taken is a Teddy Roosevelt trust-busting approach. The major banks have grown SO large that they have become monopolies in a very real sense. That is rather obvious - but if you don't already see it, would you like for me to explain?
Thanks for telling where your quote of Joe came from. You were accurate and I was in error by changing his banking "crisis" to banking "system." It is not unreasonable to claim the crisis was "fixed" but some may think the fix is more damaging that the crisis was in the long run.
As far as the FBS is concerned, I tend to support it as it provides a way (which unfortunately can be abused)* to stabilize economic activity against the natural instabilities of the business cycle (short supply's high prices make many expand production resulting in low prices and unemployment until the excessive inventory is eaten up causing high prices again, etc.). I.e. raising reserve requirements when inflation is growing and lowering them when stagnation is the problem is possible with FBS but not with a currency tied to for example gold.
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* Given that in democracies, the politicians want to have growth and prosperity while they are in office, there is a bias to over stimulate, build up debts. An independent agency like the Federal Reserve is needed too if FBS and democracy are combined. IMHO, the fundamental problem is lack of adequate economic education among the voters. They want benefits now and payments for them later. Borrowing for productive investment is often wise, but rarely so for current consumption. America has been doing much too much of that for a couple of decades, at least; as China wanted a big market for it production it was willing to lend for excessive consumption. That era seems to be ending now. In large part, IHMO, because the average Chinese worker is now demanding the right to enjoy more of the benefits of his production - no longer willing to work long hours in sweat shops for little pay so Joe American could buy and enjoy cheap goods at Wal-Mart.
Surely in this new era, the Chinese living standards will rise significantly (and that is a risk for the CCP - the Chinese may want more freedoms too) but it does seem probable that Joe American's living standards will come down some - already are as Joe deleverages, pays off debts, downsizes his car and home (or even switches to renting). There is going to be, and already is, a lot of price pressure on resources, food, and especially liquid fuels.
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Correct me if I'm wrong, but doesn't the fraction part of the equation get smaller the larger the bank is and the better its rating?
Isn't it also like 80 to 1 ratio or something at the top? Is that too high? 40 to 1?
You'll have to excuse me for being an econo-dodo, but then again, Wall Street and the financial world at large has always looked like voodoo to me, so I try not to get too sucked in to its inner workings. My mistake, huh?
Isn't it also like 80 to 1 ratio or something at the top? Is that too high? 40 to 1?
You'll have to excuse me for being an econo-dodo, but then again, Wall Street and the financial world at large has always looked like voodoo to me, so I try not to get too sucked in to its inner workings. My mistake, huh?
Eflex tha Vybe Scientist
Registered Senior Member
Ironically, the rest of your statements about Big Banks being monopolies is simply a restatement of the data provided from those "fringe" links.....
Eflex tha Vybe Scientist
Registered Senior Member
Great question. I've tried to find a list of modern countried that do NOT use FRB, but I cannot find a list..... I will continue searching.
http://en.wikipedia.org/wiki/Full-reserve_banking
http://austrianeconomics.wikia.com/wiki/Fractional_reserve_banking
Technically, fractional reserve banking is embezzlement, but it is considered legal now. The bank is insolvent, because it cannot honor its commitments. But unless the customers demand too much money at once – or too many loans fail – it can continue running, without the customers ever noticing that their money was gone.
So until there is a modern country running with full reserved banking for 1-2 decades successfully, we will just stick to the FRB. It is not the system that is wrong but the possibility of abuse. As long as governments can control it, FRB is perfectly fine...
Eflex tha Vybe Scientist
Registered Senior Member
fantastic post. thank you for being respectful and not resorting to name calling or condescending tones.
I have some follow up questions, if you have time.
1. Does FRB inevitably lead to inflation and then an economic crash?
I speak of this in terms of M1/M2/M3 money supply
http://www.theshortrun.com/data/Financial/aggregates/msexplain.html
Bush Admin stops publication of M3 figures after 2006
http://prudentinvestor.blogspot.com/2005/11/unpleasant-trend-fed-counters-by.html
M3 is the most important money aggregate for economists, analysts and Fed watchers to get an idea at what speed the (electronic) printing press is running.
Doesn't FRB require more and more and more money to be printed to cover outstanding debts?
2. How can the Federal Government of the United States of America ever pay off its debt if every dollar printed has interest applied?
3. Is FRB technically embezzlement?
http://austrianeconomics.wikia.com/wiki/Fractional_reserve_banking
Technically, fractional reserve banking is embezzlement, but it is considered legal now. The bank is insolvent, because it cannot honor its commitments. But unless the customers demand too much money at once – or too many loans fail – it can continue running, without the customers ever noticing that their money was gone.
Eflex tha Vybe Scientist
Registered Senior Member
How does the government control the Federal Reserve? which is a private corporation
http://www.federalreserve.gov/generalinfo/faq/faqfrbanks.htm
Under the Federal Reserve Act, the president of a Federal Reserve Bank is the chief executive officer of the Bank. He or she is appointed by the Bank's board of directors, with the approval of the Board of Governors, for a term of five years.
The terms of the presidents of the twelve Reserve Banks run concurrently, ending on the last day of February in years ending with 1 and 6 (for example, 2001, 2006, and 2011). The appointment of a president who takes office after a term has begun ends with the end of that term. A Reserve Bank president may be reappointed after serving a full term or a partial term. Reserve Bank presidents are subject to mandatory retirement upon becoming 65 years of age. However, a president initially appointed after age 55 may, at the option of the Bank’s board of directors, serve until attaining ten years of service in the office or age 70, whichever comes first.
Are Federal Reserve Bank employees considered government employees?
No. Employees of the Federal Reserve Banks are not government employees. They are paid as part of the expenses of their employing Reserve Bank.
Eflex tha Vybe Scientist
Registered Senior Member
Has Fractional Reserve Banking run for two decades "successfully"? We seem to be in a cycle of bubble, crash, Fed intervention, bubble, crash, Fed intervention
Are you counting the crash of 2008 as part of the success?
Eflex tha Vybe Scientist
Registered Senior Member
I tried not to get sucked into the "inner workings " of Wall Street and the Banking industry because I assumed that these "titans of the industry" , these "masters of the universe" knew what they were doing.....
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.
David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.