Friday, 15 April 2011

Collection of Posts in the BBC News Business blog of Robert Peston And Stephanie Flanders

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Do banks use billions in subsidy wisely?07:07am on 14 Apr 2011no 195 Hello Spike. I think that you are in danger of mixing up some apples and pears and oranges here. The Basic system at the end of the day is pretty easy to understand as was its intended purpose when adopted as our means of exchange.
The banks are allowed to issue debt money licensed by the government regulated by the Bank of England with some other watchdogs. The banks engage in two overarching fields Retail and Investment banking. It is their Retail Function that allows them to engage in their Investment Function it is the Retail Function that gives their debt money its value because of the confidence that its customers have in that debt money to buy goods and services. What happens Next is not dis-similar to the concept of Float in the insurance and re insurance business for an excellent explanation of Float go to almost any Warren Buffet letter to Berkshire Hathaway shareholders.
When people Like Lord Rothschild put this down in part to a failure of regulation and management he is of course correct as he is on so many things, what he is incorrect about is that any flexibility in the banking system with respect to Fractional reserves is not sustainable as a model for society as a whole. As a means of exchange it is both expensive and unfair to the banks customers who are after all both the Government and the People ( who are supposed to be the same thing broadly speaking) The banks are creating money from nothing secured against our own wealth and lending it back to us as coin of the realm sounds a bit far fetched?.
What is Investment banking if not the Innovation division of the Fractional Reserve side of the Banking Industry it is there to find ways around the very sensible limits, imposed by regulation ,to the extent to which banks can create Money and Make it disappear literally with a stroke of a pen, most of what is created remains in a loop that never gets into the real Economy quantative easing, the missing Billions look at the loop and connect things like record profits being reported now all coming from investment banking ( what are they investing in exactly) answer in their own merry go round ( some liken it to a roulette wheel ).
Personally putting that power in the hands of a few private organisations run by people clearly motivated by quite extraordinary levels of Greed seems to me to be a rather less appealing choice than The apparatus of the state which whilst unanswerable in so many ways is still constitutionally bound by the law of the land.Where there is separation of the Judiciary and the executive and a system going back to Magna Carta which most people would cherish as the cradle of democracy ( an almost laughable proposition these days, but this is what people believe).

Its definitely time for some fresh thinking on this there is a very real need for rigourous public debate of the fundamental root of the system whilst some people have rather a lot to lose they really should have nothing to hide. Indeed those of us given to poring over report and accounts and so forth kind of know where to look but regulation is both a sword and a shield and human ingenuity will always seek to buck any system and find the loopholes, accounting and reporting is sadly not exempt from this. Investment Banks would not exist without loop holes or indeed without their Retail banks or at least a belief at large that all banks are created equal ( the public have been hoodwinked on the distinctions for too long.)

There are some very helpful explanations of all of this over at the MENSA web site. Here is the link should you be interested on a more cerebral analysis of the concepts and systems in play here
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