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Prominent Economists Call for End to Fractional Reserve Banking
Excessive leverage by the banks was one of the main causes of the Great Depression and of the 2008 financial crisis.
As such, lower levels of “fractional reserve banking” – i.e. how many dollars a bank lends out compared to the amount of deposits it has on hand – the more stable the economy will be.
But economist Steve Keen notes (citing Table 10 in Yueh-Yun C. OBrien, 2007. “Reserve Requirement Systems in OECD Countries”, Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board):
The US Federal Reserve sets a Required Reserve Ratio of 10%, but applies this only to deposits by individuals; banks have no reserve requirement at all for deposits by companies.
So huge swaths of loans are not subject to any reserve requirements.
Indeed, Ben Bernanke proposed the elimination of all reserve requirements for banks:
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
Economist Keen informs Washington’s Blog that about 6 OECD countries have already done away with reserve requirements altogether (Australia, Mexico, Canada, New Zealand, Sweden and the UK).
But there is a growing recognition that this is going in the wrong direction, because fractional reserve banking can destabilize the economy (and credit can easily be created by the government itself.)
It was big news this week when one of the world’s most prominent economics writers – liberal economist Martin Wolf – advocated doing away with fractional reserve banking altogether… i.e. requiring that banks only loan out as much money as they actually have on hand in the form of customer deposits:
Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.
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What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. I discussed this approach last week. Higher capital is the recommendation made by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute in The Bankers’ New Clothes.
A maximum response would be to give the state a monopoly on money creation. One of the most important such proposals was in the Chicago Plan, advanced in the 1930s by, among others, a great economist, Irving Fisher. Its core was the requirement for 100 per cent reserves against deposits. Fisher argued that this would greatly reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff suggests this plan could work well.
Similar ideas have come from Laurence Kotlikoff of Boston University in Jimmy Stewart is Dead, and Andrew Jackson and Ben Dyson in Modernising Money.
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Opponents will argue that the economy would die for lack of credit. I was once sympathetic to that argument. But only about 10 per cent of UK bank lending has financed business investment in sectors other than commercial property. We could find other ways of funding this.
Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function. This is a giant hole at the heart of our market economies. It could be closed by separating the provision of money, rightly a function of the state, from the provision of finance, a function of the private sector.
(The IMF study is here.)
In fact, a lot of experts have backed this or similar proposals, including:
- Bank of England Chief Mervyn King
- Prominent conservative economist Milton Friedman
- Prominent liberal economist Irving Fisher
- Prominent conservative economist Lawrence Kotlikoff
- Prominent liberal economist James Tobin
- Prominent conservative economist John Cochrane
- Prominent liberal economist Herman Daly
- Prominent conservative economist Murray Rothbard
- Prominent British economist John Kay
- Conservative Spanish economics professor Huerta de Soto
- German economist Thorsten Polleit
- Conservative French economist Jörg Guido Hülsmann
- Head economics writer at the Guardian Ambrose Evans-Pritchard
- Bloomberg columnist Matthew C. Klein
Interestingly, the Chicago Plan for full reserve banking came very close to passing in 1934. But the unfortunate death of one of its main Congressional sponsors – Senator Bronson M. Cutting – in a plane crash reversed the momentum for the bill.
As Wikipedia notes:
Cutting played a key role in the political struggles over the reform of banking which Roosevelt undertook while dealing with the Great Depression, and which resulted in the Banking Reform Acts of 1933 and 1935. As a supporter of the Chicago Plan proposed by economist Irving Fisher and others at the University of Chicago, Cutting was among a handful of influential Senators who might have been able to remove from the private banks their ability to manipulate the money supply by enforcing a 100 percent reserve requirement for all credit creation, as stipulated in the Chicago Plan. His unfortunate death in an airliner crash cut short what may have been his most enduring legacy to the nation.
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George Washington: I really like Denninger on financial matters, and agree with his "One Dollar of Capital" writings. I considered adding him to the list, and only decided not to because he's not an economist.
...he's a damned bit smarter than any gaggle of economists you could throw in a room.
Its not about smart its about integrity.
Not going to happen. Without the ability to create money out of thin air, Congress would need to balance the budget. If you use GAAP, the Congress can not balance the budget.
Of course, after legalizing the creation of "money" out of nothing, and using that to gamble with, then the privileged people who can take advantage of those opportunities are going to attempt to maximize that. Since they get to keep the profits, when their speculative bets made with "money" made out of nothing have paid off, they are then inside of a runaway system of being able to continue to corrupt the political processes, to make sure that even more of their special kinds of privileged frauds are legalized.
From a practical political point of view, it way too late to imagine how there is any realistic way to stop these systems from continuing to drive themselves madly self-destructive. After the political processes have already been corrupted enough to enable the privatized creation of the public "money" supply out of nothing as debts, which "money" can then be used for leverage, or rehypothecation, etc., over the moon and back, those who succeed when playing that game are then in a league of their own with respect to continuing to use their wealth to influence the political processes, to drive the vicious spirals of political corruption through even more turns of that worm.
Some comments above pointed out that such "money" is not truly created out of "nothing," since the fact that people are forced to pay their taxes with that kind of "money," as well as that the law deems that kind of "money" to generally be legal tender is what makes that kind of "money" made out of nothing be valuable, far beyond the pieces of paper it was printed on, or the bursts of electricity it was encoded into.
However, that insight that the governments' powers to tax backs up the private banks being legally able to create the public "money" supply out of nothing as debts, through factional reserve banking still on skims the surface of this issue. On deeper levels, the problems with mere "economists" recommending the end to the fractional reserve banking systems continues to operate within the overall frame of reference which most economists tend to have, which is based on being able to deliberately ignore the ecological environment, and the issue of the natural capital which must exist in the first place.
Some of the previous comments mentioned that perhaps basing a monetary standard on energy would be better than based on gold and silver, as still being real, and much more inter-convertible, as well as in much greater supply than merely precious metals. I agreed that there is something to that, but I think that we should look much more at general energy systems, and especially look at a radical critique of the current conceptualization of "entropy," before we might be able to have a monetary standard backed by inter-convertibility connections to energy.
The most basic problems with understanding human civilization as a general energy system is that the principles that the most labile components control the system, and that systems flow along their path of least action, or least resistance, means that, in human terms, civilizations have been controlled by the people who were the best at being dishonest, and backing that up with violence, while, therefore, civilizations developed along the path of least morality.
Therefore, real human history had warfare be the force the forged civilizations, which created the War Kings, that made the powers of the sovereign states, which powers were then covertly taken over by the Fraud Kings, the private banks that applied the methods of organized crime through the political processes to result in things like fractional reserve banking being legislated.
THE BIGGER PICTURE IS THAT POLITICAL ECONOMY OPERATES INSIDE HUMAN ECOLOGY, WHICH MEANS THAT MONEY IS MEASUREMENT BACKED BY MURDER, BECAUSE THE DEBT CONTROLS DEPEND ON THE DEATH CONTROLS.
Superficial economists who may recommend an end to fractional reserve banking still tend to deliberately ignore the issues of human ecology, which in turn means that they are generally ignoring the issues of environmental ecologies. That problem is particularly acute, because, after the industrial revolution gets going, it becomes its own industrial ecology, which, so far, is not being treated seriously, despite the exponential rates at which it is emerging.
Fractional reserve banking would not exist but for the international bankers applying the principles and methods of organized crime, in order to dominate the national political processes, in ways which turned most politicians into their puppets, while those politicians were voted for by muppets, who had been brainwashed to believe in bullshit promoted by the banksters, and their approved economists, in a vicious spiral of governments enforcing frauds.
Since those are the real reasons who and why fractional reserve banking was able to become triumphant, so that almost 99% of the public "money" supply is being created out of nothing as debts by private banks, because that fraud is enforced by the power of governments, there are no sufficient solutions to the problems caused by fractional reserve banking which do not address those real reasons why why it existed in the first place, and what that really means.
To again repeat the basic point, after life exists, then it automatically comes as a package deal, along with sets of chronic political problems which are inherent to the nature of life. Hence, life evolves ecologies, to cope with those chronic political problems. Human civilization did that, but that primarily happened through the history of warfare, where success was based on deceits, and then through economics, where the supreme success was legalized fraud, enjoyed by private banks, to be able to make the publicly enforced "money" supply out of nothing as debts, which were thereby actually being enforced by the power of the government, which could tax, and kill those who resisted being taxed.
Generally speaking, human history has primarily been based on social success through the means of deceits, backed by destruction, which then morphed to become success based on enforced frauds, such as the existence of legalized fractional reserve banking, which is simply legalized counterfeiting, by a privileged few, who have been on a runaway tear feedback loop from doing that more and more for Centuries, with the last few decades being exponential growth, and the last few years continuing to show that trend of exponential growth of "money" made out of nothing as debts, which debt slavery system has generated numbers which have become debt insanities.
Generally speaking, those who "call for an end to fractional reserve banking" tend to deliberately ignore the issue of the murder which is going to back up the money in the future of any alternative system. That is because they tend to be able to continue to take their human frame of reference for granted, without thinking about it. They do not consider the bigger issues of the natural ecologies, or the emerging industrial ecologies. They tend to have a grossly oversimplified view that the powers of the sovereign state are going to be sane and stable, when the historical facts are that the best organized gangs of criminals have already captured control over the political processes, and transformed that whole edifice into being based on about 99% legalized lies, backed by legalized violence.
The central concept in any evolutionary ecology is that, after there is some life, then the death controls direct the evolutionary ecology of that life form. The real problem we face is that money is necessarily measurement backed by murder. Ideally, that should be understood through the perspective of general energy systems, with a radical correction of the concept entropy included into that perspective, because the crucial core to civilization has been its death controls, which were most successfully operated by those who the best at lying about doing that.
After power went through the continuum to become information, the death controls morphed into the debt controls. Therefore, the process of robbery morphed to become fraud. That was how the powers of the War Kings were taken over by the Fraud Kings to manifest in the form of fractional reserve banking, as enabling private banks to legally counterfeit the public "money" supply, by being able to make that "money" out of nothing as debts, while governments forced everyone, including even the government itself, to operate inside of that context of fundamentally fraudulent financial accounting systems.
THAT FRAUD WAS SYMBOLIC ROBBERY. Debt slavery was simply more sophisticated slavery, which was still based on the power to threaten, "do what I say or I will kill you," which had become more convoluted through fractional reserve banking to be, "pay your taxes in this fiat "money" made out of nothing, or else!"
The deeper problems we face are the ancient history of warfare in which success was based on deceits, so that the real history of human ecology was achieved by its death controlled murder systems being done through the maximum possible deceits. That system of the biggest bullies' bullshit social stories was also embraced by the controlled opposition groups surrounding that system, in the form of all the old-fashioned co-opted religions and ideologies. That continues to be the situation today, the central controls are the death controls, but those are the most deeply buried under bullshit, and that bullshit includes the old-fashioned religions and ideologies.
Nothing changed when robbery morphed into more symbolic forms of frauds, as economics was built on the foundation of warfare, except that everything became more complicated and convoluted. In that context, fractional reserve banking is a form of money being measurement backed by murder, or a form of debt controls being backed by death controls, because that was the real human history that made those things develop in the ways that they did.
Since our death controls operated through murder systems whose success was based on the maximum possible deceits, and debt controls operated through monetary systems whose success was based on the maximum possible frauds, the only genuine solutions should be based on fully recognizing the existence of the nature of those problems, like fractional reserve banking actually being legalized counterfeiting, done by the best organized gangsters, the banksters, who were able to apply the methods of organized crime to dominate the political processes. No other genuine solutions could actually operate outside of that overall frame of reference, except as more layers of devious deceits and frauds, still being able to sustain even bigger contradictions while doing that. However, the problem presented by continuing to run the same old systems of deceits and frauds, after the progress in science makes technologies trillions of times more powerful, make continuing to resolve our problems through the means of still being more deceitful, or fraudulent, and deliberately ignorant, way more problematic!
Furthermore, the frame of reference of understanding money as an information system, consistent with general energy systems, is then the one which is the most consistent with, and can be reconciled more readily with, the general energy systems found through natural ecologies, as well as could be speaking the same language as used to best describe the emerging industrial ecologies. However, in order to to that, one has to return to central problem, which is that political economy is actually within human ecology, and so, the debt controls depend upon the death controls. Understanding money as measurement can not be adequately be done without facing the facts that those measurements were backed by murders, to give them their real meanings.
Our real monetary system is already based on its real history of being backed by murder, first to create the powers of the War Kings, that made sovereigns states, with the power to tax, and then, the more covert application of the methods of organized crime by the Fraud Kings,the private banks, which were the biggest gangsters, the banksters, that were behind creating the fractional reserve banking systems, and all related aspects of our current political economy.
Therefore, an article like this one above is correct, but only on some of the most superficial levels of the nature of these problems. The deeper levels of these problems are extremely paradoxical, because they track back through the radical critique of understanding how to apply general energy systems concepts to human civilization, in order to perceive how our biggest problems are how to back up money with murder, when the established systems which actually did that evolved on the basis of being able to lie about that the best, and that their success through those means resulted in them gathering around themselves various controlled opposition groups, which would operate as the old-fashioned religions and ideologies do.
The crucial issues for the future are the emergence and integration of human, industrial and natural ecologies, through understanding the processes whereby those were historically done through the maximum possible deceits, frauds, and deliberate ignorance. To actually approach monetary systems as intelligible accounting for general energy systems has to cope with the paradoxes of the historical murder systems being successfully operated through the maximum possible deceits, while the monetary systems were operated through the maximum possible frauds, because that was actually consistent with how human systems did operate, as special cases of general energy systems.
The existence of fractional reserve banking was an expression of civilization morphing through from power to information, from War Kings to Fraud Kings, and from robbery to fraud, as the dominate way that political economy was organized, as that was built on the real history of human ecology, which was based on murder systems, whose paradoxical success was based on being deceitful, which then enabled political economy to become based on fundamentally fraudulent monetary systems.
Our central problem is how can human beings cope with our technologies becoming trillions of times more powerful and capable, after that is expressed through the threat of violence, that backs up lies, in the current forms of atomic bombs, and globalized electronic fiat money frauds? In that overall context, calling for an end to fractional reserve banking, and similarly related supervising institutions, such as the Federal Reserve Board, just barely scratches the surface of what would theoretically be required.
The standing problems are that economic systems have always primarily been based their control through robbery morphing into fraud. That robbery has been going on and on for thousands of years, while the more symbolic frauds of fractional reserve banking has been continuously developing in the British Empire since the creation of the Bank of England, a few Centuries ago, and continuously in the USA for about a Century.
Thus, the current state of the world is due to a prolonged history of backing up lies with violence, and any genuinely better resolutions of our problems in the future would take facing those facts. In that context, there are no possibly sufficient "reforms" to the fractional reserve system of legalized fraud, by private banks, enforced by governments. The only theoretically adequate resolutions to the real problems would have to become monetary revolutions, in which the necessity that money was measurement backed by murder was addressed, and the ways that debt controls were backed by death controls were admitted.
Obviously, not only is the established system in the way of that, but also, all of the controlled opposition systems, such as in the form of various old-fashioned religions and ideologies, are in the way of that too. No matter the degree to which most people do not like it, and would prefer to continue to ignore it, we are stuck with now living inside of a technologically based society, in which actually exists globalized electronic frauds, backed by atomic bombs. There are no possibly sufficiently better resolutions which do not face those facts, and admit and address their nature.
Money is measurement backed by murder, whether people do not like, and deliberately ignore that, or not. Fractional reserve banking exists because those are the deeper reasons why it developed. No superficial solutions for ending factional reserve banking, or ending the Federal Reserve Board, etc., are sufficient unless they admit and address the issues of how the death controls are going to be done. Saying there should not be any death controls is just more totally useless bullshit, which is the kind of story spouted by the controlled opposition, which was co-opted by the biggest bullies, who operated their actual death controls through the maximum possible deceits. Similarly, throughout all the rest of the issues regarding human realities necessarily being systems of organized lies, operating robberies, the same scientific unitary mechanisms ought to be applied.
The Grand Canyon Paradoxes are GROWING, that our civilization has made prodigious progress in science and technology, but almost none of that is applied to political science, because regarding political science as a special case of general energy systems reveals the points which I have made above, that political economy was inside human ecology, and that the debt controls were backed up by the death controls. The issue with that Grand Canyon Paradox is how much further can globalized systems of electronic fiat "money" frauds, backed by the threat of the use of weapons of mass destruction, be pushed and pushed, without any corresponding breakthroughs to more radical truths about themselves ???
RM could you explain entropy for me? Your understanding of it might clear a few things up for me.
VWAndy, here is a place to start: The Entropy Law and the Economic Process, by Nicholas Georgescu-Roegen, which was originally published in 1971, and later reprinted in 1999. The author was an extremely intelligent scholar. That book has an excellent review of the history of the concept of ENTROPY ...
I regard "entropy" as the way that energy spreads out through time and space. The law of increasing entropy is the empirical observation that energy tends to always spread out through time and space, towards more probable states, from less probable ones. The GRAND MYSTERY is how the universe ever got concentrated in the first place. Theories like the "Big Bang" are an attempt to answer that, but, of course, fail to satisfy. As well, there is no agreement about whether that increasing entropy continues, or eventually reverses. HOWEVER, what is real to us is that the Sun is concentrated energy, which spreads out into Space, where it bounces off the surface of the Earth, before continuing to spread back out into space. The SUN, EARTH, SPACE energy system is the fundamental one behind almost all life on Earth, which life operates as "entropic pumps" by using energy to capture more of the flow of energy, in order to use energy, to capture the flow, in nonlinear functions. The more times that the energy goes around and around, the more life and consciousness there is.
The way that science understands pretty well everything today is through the concepts of general energy systems, operating as entropic pumps. That is the way that flows of power and information are explained. Therefore, that should be the ways that we understand human beings and human civilizations. However, that tends to NOT be done, because of the paradoxical ways that those things actually work. My view of energy is radically different that the orthodox science, widely believed now, because I NOTICE the arbitrary minus sign inserted into the entropy equations of thermodynamics and information theory, and regard that as an enormous philosophical ERROR.
I.e., murder systems are still entropic pumping. Monetary systems are still entropic pumping. It makes sense why murder systems operate on the basis of the maximum deceits, and money systems operate on the basis of the maximum frauds, from the perspective of looking at human civilizations as general energy systems. However, obviously, the people actually doing that want to bury that under bullshit. That we generally think about entropy BACKWARDS is one of the ways that we generally live in a Bizarro Mirror World, where everything is BACKWARDS, e.g., the government is the biggest form of organized crime, controlled by the best organized gangs of criminals, which manifested as "fractional reserve banking," being legalized counterfeiting of the public "money" supply by private banks, because, while money is backed by murder, that is done through the maximum possible frauds and deceits.
Energy is Spirit. Entropy is Evil. Understanding entropy can be a scientific way to understand evil. However, the social pyramid system does NOT want to do that, because that would reveal that the ruling classes are extremely evil, i.e., they are doing the maximum entropic pumping! The social system is based on the history of warfare, segueing into the history of economics. Warfare is a science, like economics is a science. Correcting the enormous errors in the entropy equations could enable a better reconciliation between postmodernizing science and ancient mysticism. However, that kind of philosophy, or spirituality, is something that our society does NOT like. Rather, it attempts to wage a perpetual war on consciousness to try to keep most people ignorant and afraid, so that they can be controlled and exploited. From within the Bizarro Mirror World view, that is supposed to be a good thing, therefore, debt slavery, which is driven by fractional reserve banking, is supposed to be a good thing. However, clearly, it is an extremely evil thing. That we do not understand evil better relates to how we were taught to understand entropy backwards, due to the paradox that society was controlled by the people who were the best at being dishonest, and backing that up with violence.The shadow of energy in time and space appears as entropy. In our world, our bodies, and machines, operate as entropic pumps, but the ways that we were taught to think about that was almost totally BACKWARDS!
The biggest bullies' bullshit dominated all social enterprises, including the philosophy of science. Therefore, the way that we think about entropy was REVERSED, and we understand everything BACKWARDS, because that is the way we deliberately ignore the paradoxes that governments are the biggest form of organized crime, controlled by the best organized gangs of criminals. Most of the controlled opposition, reactionary revolutionaries, want to keep the same old-fashioned false fundamental dichotomies, and related impossible ideals. However, from the perspective of energy, there are no fundamental dichotomies. My way of thinking about entropy leads to understanding things as operating through unitary mechanisms, rather than through false fundamental dichotomies. However, both the established systems, as well as their controlled opposition, do not like that!
The main thing I mean by unitary mechanisms is to approach everything as energy systems. There are NO fundamental dichotomies from the perspective of energy, because either there is some energy on both sides of a dichotomy, in which case it is NOT fundamental, or there is no energy on one side, in which case, it NOT a dichotomy.
I explained that more in a previous reply here:
http://www.zerohedge.com/contributed/2014-04-18/bankers-are-behind-wars
Bankers are Behind the Wars
Thanks for a most exelent thought. I did not know how to explain that. I thought of it in terms of productivity and parrasitic loss. I think I may need to take a look at that book.
I TOO agree we should look at things as energy systems.
You are welcome.
The big stories that science attempts to tell may seem like fairy tales?
https://www.youtube.com/watch?v=eYc8iRyL7YU&list=UUfq2rHvRy7u_VRCRxcOXq7g
The End of the Universe:
Big Crunch, Big Chill or Big Rip?
I hope we can solve this before the place gets fried.
What has happened in several countries that have reduced the role of required reserves in their banking systems is to replace them with minimum paid-in capital requirements. In my opinion this trend is destructive in the long run since the capital position of any bank can be easily manipulated as well as not being known with any certainty until well after the fact. A 100 percent reserve requirement is a formula for disaster, unless accompanied by free coinage of precious metals and/or the issuance of Treasury currency. The issuance of Treasury currency would be subject to substantial abuse for political purposes and make the total federal debt fly completely out of control.
Notwithstanding current fashionable criticisms, the fractional reserve system currently in operation has its virtues. If the Fed is led by capable and honest people, the current system has the advantage of real time adjustments to the flow of credit and the stability of prices and employment. What has weakened the Fed's role in recent years is its failure to carry out its regulatory responsibilities. Banks, and non-bank financial entities have invented new products without any review by the Fed or other regulators. Non-banks were invented to evade the exiting regulations of commercial banks. They should not have been permitted in the first place.
huh.
No wonder Conditioning has it that Math parades as unapproachable.
MOAR FLUORIDE!!!
Basil Moore 1983, “Unpacking the post Keynesian black box: bank lending and the money supply”, Journal of Post Keynesian Economics 1983, Vol. 4 pp. 537-556; here Moore was quoting a Federal Reserve economist from a 1969 conference in which the endogeneity of the money supply was being debated.
“In the real world, banks extend credit, creating deposits in the process, and look for reserves later”.
I define the cost of credit intermediation (CCI) as being the cost of channeling funds from the ultimate savers/lenders into the hands of good borrowers. The CCI includes screening, monitoring, and accounting costs, as well as the expected losses inflicted by bad borrowers. Banks presumably choose operating procedures that minimize the CCI. This is done by developing expertise at evaluating potential borrowers; establishing long-term relationships with customers; and offering loan conditions that encourage potential borrowers to self-select in a favorable way.
Ben just had his thesis validated for the construct since the CCI was the clean up crew of the designer gutted sheep. Hoover was correct and we are drowning in assholes and fishheads.
Although the CRA was signed into law by Jimmy Carter, two other important acts the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA) were signed by a republican, Gerald Ford. The talk show hosts also state that Bill Clinton was responsive for the expansion of CRA and forcing the banks to make bad loans. However, the two major changes in the CRA occurred in 1989 with the passage of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Both were signed into law by George H. W. Bush. Under FIRREA, the reporting requirements of CRA compliance were expanded. The latter act required Fannie Mae and Freddie Mac to support affordable housing by purchasing CRA-qualifying loans. Even though the talk show hosts have said that up to one half of Fannie and Freddie loans were CRA loans, the act suggests that by the year 2010, that one-third of their purchases be affordable housing loans.
If there were pressures to expand CRA lending, it came in part from the banks themselves. As a result of the Riegel-Neal Interstate Banking and Branching Act of 1994, signed into law by George W. Bush, CRA ratings became an important factor in determining if banks could merge or acquire across state lines. Because advocacy groups would use CRA ratings as a protest against the banks in order to get additional CRA lending, the banks greatly expanded these types of loans. I recall going to a Fed Atlanta conference on CRA lending, compliance and enforcement. A banker told me that the Feds never pressured him into making a bad loan. However, because they wanted to expand into other states, they had instituted a more liberal CRA lending policy. So the truth is that if there is blame to be handed out for a misguided CRA policy, it has to be laid at the feet of the republicans and the banks. Jimmy Carter and Bill Clinton are convenient whipping boys and are well deserving of other blame but CRA lending is not one of them.
As we go forward Much of the financial carnage of the past several years, Clinton said, could have been prevented if only his appointed regulator had been kept on after he left office. “I think if Arthur Levitt had been on the job at the SEC, my last SEC commissioner, an enormous percentage of what we’ve been through in the last eight or nine years would not have happened.”
Clinton said he regretted not trying to regulate derivatives, but that Republicans would have stood in the way. “Now, I think if I had tried to regulate them because the Republicans were the majority in the Congress, they would have stopped it. But I wish I should have been caught trying. I mean, that was a mistake I made.” Congress provided the lighter fluid and we know who the matches are.
The racial bias Boston housing case was a pretext and symptom of the larger desease of profound ignorance and pure intent.
https://duckduckgo.com/?q=boston%20housing%20cra%20discrimination%20case...
Once again salt water politics said lend or else. On the senate floor in 2005 it was said in record this will cause a collapse.
By now you can see it was noted correctly already that it mirrors the Denkform of simple minded politicos thieves and well placed useful idiots.
A Denkform is a thought-form; the word is coined from the German word denken, to think. Freudenthal shows that the mechanistic philosophy characteristic of modern thought in its Newtonian version (and to a considerable extent in all its main versions) presupposes a world composed of equal elements whose essential qualities belong to them as individuals; they do not depend on the roles of the elements in systems. (p. 165 of English translation, Gideon Freudenthal, Atom and Individual in the Age of Newton: on the Genesis of the Mechanistic World View. Dordrecht, Holland: D. Reidel, 1986. Volume 88 of Boston Studies in the Philosophy of Science.) As a general Denkform of the age individualism is employed everywhere, not just in physics. For example: "Hobbes' broad concept of power [borrowed from Galilean physics. HR] thus justifies his view that a system consists of equal elements; moreover, this concept allows him to neglect the differences between the feudal and the bourgeois society, so that the determination of the essential qualities of the elements (the men) can be understood independently of a particular social system." (p. 126)
" Interestingly, the Chicago Plan for full reserve banking came very close to passing in 1934. But the unfortunate death of one of its main Congressional sponsors – Senator Bronson M. Cutting – in a plane crash reversed the momentum for the bill."
Wonder why the author stuck that tidbit in there. What an unfortunate coincidence the senator dying in a plane crash like that.
Fat fractional chance....
If the IMF says it's good - you know something funny is going on. What's their angle?
Debt for equity swap. Same as always.
"On the basis of a potential scenario, the key shareholders and depositors of special privileges, who will have the suitable access on "inside information" about an oncoming banking crisis, will have the opportunity to withdraw capitals and deposits on time, leaving the rest, therefore mostly, small depositors and independent shareholders, to pay the bill. After that, they will have the opportunity to "come back" - if they want and if the bank is still alive - under different investment fund formations, as saviors of the collapsing bank, obtaining again the basic control, and gaining from the whole situation since they will not have to contribute with their original capital in the required minimum fractional reserve."
http://failedevolution.blogspot.gr/2013/07/why-banksters-laugh-with-rece...
Uh either George or these economists seem to have omitted everything important.
1. Fractional reserve, despite running around 15x capital is only stage 2 leverage under the current regime. Stage 3 is represented by the likes of decades long ramp in RE by government and banks. Tax breaks, taxpayer subsidies, GSEs, lower down payments, lower credit standards. And by cartel banks and their special relationship with sovereign debt. Stage 4 leverage is derivatives. All derivatives, by differing means and strategies are about at bottom, increasing leverage. Circumventing capital requirements, liquidity issues, manipulation, basically any laws, regulations, traditional financial relationships is the objective. Stage 5 is the CB put. And with that we have arrived at the point where the concept of leverage is meaningless. It's just confiscation and tyranny.
2. And what was the rationale behind "independent" CBs in the first place? Politicians and government and their tendencies towards corruption and self interest.
3. Which brings us to what is supposed to be the underlying principle of fractional reserve. SKIN IN THE GAME. Politicians and bureaucrats are the antithesis of skin in the game.
I submit that this kind of analysis is evidence that folding the unofficial government into the official government will only result in more of the same. With the same old magical thinking that government management will be selfless and competent despite all evidence to the contrary.
Fractional Reserve Banking is not the problem or the solution. It simply is what it is. To mandate reserve requirements is more of the same top down government control bullshit that we should be running away from. The problem is government.
Imagine a world where there were no regulations regards to reserves. Bank A could operate at 50% and bank B at 1% reserve. Bank A could pay 1% to depositers, bank B might have to pay 10%. Each bank would be free to develop their own model and fail or succeed (along with their shareholders and depositers) without the government involved.
Absolutely false! Government is simply the tool that those who seize power will wield. There never has been, nor ever will be no government or "less government". Nature abhors a vacuum, and so does politics and economics. Just like nothing is static in nature, the same applies to the above mentioned disciplines. If you don't want government, the Oligarchs will gladly take the tool and beat the living shit (or tax dollars) out of you.
This fantastical notion that if we just limited government, everything will be alright is pure childish bullshit.
Your plan is to not limit , to do nothing?
PS the down arrow is not mine.. Great first paragraph. WH give up in the second?
Can you limit nature? Government is as good or bad as the people who control it. Advocating for less government is abdicating control. That void will be filled.
No, the problem is not government. The problem is "too much government". Not the same thing. Government is just like aspriin. Too little and it doesn't help. Just right and you feel better. Too much and you die.
Just to throw out a wild idea, let's tie government to GDP. (When I say government here, I mean, all of it. Federal, State, Local, Authoriities, School Districts, all the rat bastard organizations dipping in the public purse. ALL OF THEM, EVERY LAST ONE...)
Now, to borrow from our Christian friends, if 10% is good enough for the Lord God Almighty, then 10% should be good enough for the PIPS (Pricks in Power).
Just sayin,
The gummint has no mandate for any of this central banking shit under the enumerated powers in the Constitution. This is a politically and judicially engineered usurpation. Governmentshouldn'steven benefactor in this.
At least God's10% is voluntary (here).
No prob with your 10% idea messy, but you couldn't be more wrong about government. Managing the collective, OPM, is intrinsically treacherous and dangerous. We're all living The Wages of Fear. Most don't want to admit it. Mitigation is the best you can achieve and it takes some courage and considerable effort.
Actually, what we need is a giant robot to lord over us... a la "The Day the Earth Stood Still". Lacking a giant robot, we must make do with what we have which is a very imperfect system. No government is anarchy and the end result would be strongman tyrants doing the most evil things imaginable. Pretty much like in the hunter/gatherer days.
No, whether we like it or not, we have to have some government. A small government fears the people. A large government tyrannizes the people.
GDP is the only way I know to shrink government. We have to put it in the coming Novus Constitution...
;-D
Came looking and found it. You've earned my up vote.
Humanity will soon come to senses, after 4.3 decades of brainwashing... there is only one currency worth saving in, so who'll want big amounts of fiat sitting in accounts anyway...?
"His unfortunate death in an airliner crash cut short what may have been his most enduring legacy to the nation."
Unfortunate indeed!
Advice for Elizabeth Warren: if you're dead serious about taking on the banksters, or even if they think you are, you might want to rediscover Amtrak.
Restore us to the systems we had in the Free Banking period in US history.
Just a goldarned second here!
Bank lobbyst, and well-known NY Times fiction writer, Paul Krugman, claims there is no such thing as this here fractionating reserve system:
http://www.nakedcapitalism.com/2014/04/piketty-wealth-gap-wakeup.html
George, You missed at least one modern writer who has espoused one dollar of capital for every dollar lent out - Karl Denninger of the Market-Ticker who wrote the book Leverage. It appears to me that outside of Wall Street and The Hamptons, ending fractional reserve banking has a lot of proponents - but probably not enough. Most Americans haven't a clue how our financial system actually works and are stunned to learn that banks create money. Keen is the most astute economist of our age.
I really like Denninger on financial matters, and agree with his "One Dollar of Capital" writings. I considered adding him to the list, and only decided not to because he's not an economist.
Keen is the man ...
Keen called it all a scam publicly awhile back. He was on tape laying a good part of it out plain.
Fractional reserve banking:
The dirty little secret that nobody seems to discuss anywhere about fractional reserve banking under the Fed Reserve system is that while we say money is created out of thin air, it is not.
All those dollars, either phsically printed or added to a balance sheet are "promises to pay". In what? Future dollars backed by the full faith and credit of the United States. What backs the United States? Where do they derive income?
Yup. You guessed correctly. You get a tax bill. The beautiful thing is that you will never be held to pay off the balance before you die. Your children are now on the hook for 'full faith and credit of the US' and then your grandchildren and so on until it becomes mathematically impossible even to service the interest costs and faith become heartbreak when the inevitable house of cards collapses.
Thin air is a misnomer.
It should be called a mortgage on the unborn's future.
FR banking is like believing you can make it one more day on a bald tire thats already showing the metal plies. It works until it doesn't.
It should be called a mortgage on the unaborted's future.
RIGHT ON THE MONEY, pun intended.
All this debt is just neoserfdom for our children. No wonder old folks get dumped in shut 'em up and forget 'em hellhole 'retirement homes.'
I think that is an excellent point. Why will people in this country accept the dollar? Because they have to pay their debts in dollars. How many people do you know who have debt? Yeah, all of them are going to accept your FRNs, because they need them to pay off their debt.
Thin air? Sort of. The dollar is backed by debt, oil and force.
The coin must have a real value. Based on something real.
Control of its value should be done by those that actualy produce.
Gold is finite silver too. That makes them a poor choice. Sorry boys.
Energy backed has true merit. Control by producers is possible.
Never forget we are talking about the medium of exchange. So stability is the only quality it can have. It must have.
All the power to create wealth/value should be spread out as far as possible. In other words everyone should be able to create wealth/value.
Several ways to make an energy backed coin. The one that stands out most is booze. It is easy and simple to make. It is easily varifyable and has an actual energy value.
The best part is the economic results if its debased. Money does not make the world go round energy does.
"Prominent Economists", economists who are obscure, and economists who are dead have nothing to do with what the FED and Banking Insitutions do or don't do.
Their righteous recommendations are less than useless.
Didn't we just learn that outsiders can say all they want... Right Larry?
Peer to Peer Banking?
http://i-opeen.com/
Whole lotta sharkthrashing on this issue.
If the majors got even a whif of this being legislated into existence, there would be a lot of Senator Cuttings crashing into mountains.
If you enacted this, say, draw a line. What would do with the quadrillions of unsecured debt obligations in existence now? For this to work you'd have to start with a new currency, devalue the old, forgive debt on a massive scale and put all the bankers to the firing squad.
The debt would die one way or another. Either because who would trade real value for a fraudulent debt? Secondly a real value coin would thru natural forces simply be freely chosen over fiat. It is not complicated. All it requiers is long term thought. Being a parent helps too.
"For this to work you'd have to start with a new currency, devalue the old, forgive debt on a massive scale and put all the bankers to the firing squad."...
'kurt'
You nailed it!
We had a chance 5 years ago to say "enough of this shit" GS and JPM are going down and the American people could have made good on the threat by taking there money out of commercial financial institutions and putting some of it in credit unions and coffee cans in the back yard... Done!
They didn't and because of that missed exercise they will either line up for the next major war that will be based on another 9/11 narrative or they will die in a civil war. Take your pick. But either one or both is going to happen -No matter what!
We have had so many opportunities to fix, and each time we walked away telling ourselves it isn't really that bad it will get better....
You know how they run training operations that mimic a real "terr" event and then run the event? Today they say that LAX was shut down for just two hours. Then they said the West Coast. I am under the flight path in San Diego. There were no jets at all for 5 or 6 hours! There was about 4 helicopters. There were no chemtrail jets either. The only other time the skys cleared like this was 9-11. I know for a fact that they lied about the length and scale of this Operation Computer Glitch. My guess is a Nuke on San Onofre, which takes out Pendleton, Miramar, San Diego, north to Orange County and 400 miles east which is Nellis, Edwards, and Area 51, Yuma Testing Grounds, and Bundy Ranch and Vegas. Then this radioactive cloud joins with Fukushima and drifts east.
We are at war with terrorists who began their assault on 9-11, destroyed our economy, our Constitution, our Middle Class. They're creaming their grubby little jeans itching to hit that button.
You're the first one I've heard from that was part of what took place yesterday out West.
I suspect it was a drill as well, but who are they going to pin it on this time?
Russia???...
As lame as the American people are after 12 years of what we've witnessed our government bankrupting us abroad with the ultimate lie of lies that gave us the Patriot Act to launch 7 invasions and occupation in 5 years, to now turn around with the worst blowback against a superpower in history with the Nuland/Pyatt tape and labeling them now a "terrorist" after what we've done will be the show of shows... I see lots of hand wringing going on before they pull the switch on another 9/11.
If they decide to do it again?... The politicians, intelligence, military and justice department people better find themselves a new home and identity once they decide to give that one the "green light".
You better stop making sense!!!
Banking is scam and usury is criminal, both need to go,...away!