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Guest Post: The Cyprus Deal And The Unraveling Of Fractional-Reserve Banking

Tyler Durden's picture




 

Authored by Joseph Salerno, originally posted at The Circle Bastiat blog,

The “Cyprus deal” as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s. This trend continued with the currency crises in Russia, Mexico, East Asia and Argentina in the 1990s in which fractional-reserve banking played a decisive role. The unraveling of fractional-reserve banking became visible even to the average depositor during the financial meltdown of 2008 that ignited bank runs on some of the largest and most venerable financial institutions in the world. The final collapse was only averted by the multi-trillion dollar bailout of U.S. and foreign banks by the Federal Reserve.

Even more than the unprecedented financial crisis of 2008, however, recent events in Cyprus may have struck the mortal blow to fractional-reserve banking. For fractional reserve banking can only exist for as long as the depositors have complete confidence that regardless of the financial woes that befall the bank entrusted with their “deposits,” they will always be able to withdraw them on demand at par in currency, the ultimate cash of any banking system. Ever since World War Two governmental deposit insurance, backed up by the money-creating powers of the central bank, was seen as the unshakable guarantee that warranted such confidence. In effect, fractional-reserve banking was perceived as 100-percent banking by depositors, who acted as if their money was always “in the bank” thanks to the ability of central banks to conjure up money out of thin air (or in cyberspace). Perversely the various crises involving fractional-reserve banking that struck time and again since the late 1980s only reinforced this belief among depositors, because troubled banks and thrift institutions were always bailed out with alacrity–especially the largest and least stable.

Thus arose the “too-big-to-fail doctrine.” Under this doctrine, uninsured bank depositors and bondholders were generally made whole when large banks failed, because it was widely understood that the confidence in the entire banking system was a frail and evanescent thing that would break and completely dissipate as a result of the failure of even a single large institution.

Getting back to the Cyprus deal, admittedly it is hardly ideal from a free-market point of view. The solution in accord with free markets would not involve restricting deposit withdrawals, imposing fascistic capital controls on domestic residents and foreign investors, and dragooning taxpayers in the rest of the Eurozone into contributing to the bailout to the tune of 10 billion euros. Nonetheless, the deal does convey a salutary message to bank depositors and creditors the world over. It does so by forcing previously untouchable senior bondholders and uninsured depositors in the Cypriot banks to bear part of the cost of the bailout. The bondholders of the two largest banks will be wiped out and it is reported that large depositors (i.e. those holding uninsured accounts exceeding 100,000 euros) at the Laiki Bank may also be completely wiped out, losing up to 4.2 billion euros, while large depositors at the Bank of Cyprus will lose between 30 and 60 percent of their deposits. Small depositors in both banks, who hold insured accounts of up to 100,000 euros, would retain the full value of their deposits.

The happy result will be that depositors, both insured and uninsured, in Europe and throughout the world will become much more cautious or even suspicious in dealing with fractional-reserve banks. They will be poised to grab their money and run at the slightest sign or rumor of instability. This will induce banks to radically alter the sources of the funds they raise to finance loans and investments, moving away from deposit and toward equity and bond financing. As was reported yesterday, this is already expected by many analysts:

One potential spillover from yesterday’s agreement is the knock-on effects for bank funding, analysts said. Banks typically fund themselves with some combination of deposits, equity, senior and subordinate notes and covered bonds, which are backed by a pool of high-quality assets that stay on the lender’s balance sheet.

 

The consequences of the Cyprus bailout could be that banks will be more likely to use contingent convertible bonds — known as CoCos — to raise money as their ability to encumber assets by issuing covered bonds reaches regulatory limits, said Chris Bowie at Ignis Asset Management Ltd. in London.

 

“We’d expect to see some deposit flight and a shift in funding towards a combination of covered bonds, real equity and quasi-equity,” said Bowie, who is head of credit portfolio management at Ignis, which oversees about $110 billion.

If this indeed occurs it will be a significant move toward a free-market financial system in which the radical mismatching of the maturities of assets and liabilities in the case of demand deposits is eliminated once and for all. A few more banking crises in the Eurozone– especially one in which insured depositors are made to participate in the so-called “bail-in”–will likely cause the faith in government deposit insurance to completely evaporate and with it confidence in fractional-reserve banking system.

There may then naturally arise on the market a system in which equity, bonds, and genuine time deposits that cannot be redeemed before maturity become the exclusive sources of finance for bank loans and investments. Demand deposits, whether checkable or not, would be segregated in actual deposit banks which maintain 100 percent reserves and provide a range of payments systems from ATMs to debit cards. While this conjecture may we overly optimistic, we are certainly a good deal closer to such an outcome today than we were before the “Cyprus deal” was struck.

Of course we would be closer still if there were no bailout and the full brunt of the bank failures were borne solely by the creditors and depositors of the failed banks rather than partly by taxpayers. The latter solution would have completely and definitively exposed the true nature of fractional-reserve banking for all to see.

 

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Thu, 03/28/2013 - 19:09 | 3387142 hedgeless_horseman
hedgeless_horseman's picture

 

 

the world will become much more cautious or even suspicious in dealing with fractional-reserve banks.

Nope.  99% of people cannot fathom what the ECB's 1% reserve ratio means.

Thu, 03/28/2013 - 19:10 | 3387145 MrX
MrX's picture

history will repeat itself in grand fashion: http://vimeo.com/15056028

Thu, 03/28/2013 - 19:22 | 3387168 hedgeless_horseman
hedgeless_horseman's picture

 

 

I would love to videotape myself standing outside of a bank in any European country and asking the depositors to explain to me what the ECB's 1% Reserve Ratio means to them as a depositor.  

Project Mayhem homework assignment!

You may be shot as a terrorist before you can speak to ten.

Thu, 03/28/2013 - 19:26 | 3387177 Careless Whisper
Careless Whisper's picture

The Careless Whisper Evening Stock Chart Review & Threadjacking

Anyone notice that CVX XOM and COP all took a nose-dive during the last 15 minutes of trading, on heavy Volume? While BP didn't budge at all. Is Goldman planning a pre-market downgrade mañana on the international oil sector? Is Middle-East peace about to breakout? Anyone???

http://bigcharts.marketwatch.com/email/notify.asp?nosettings=1&symb=cvx&...

 

Thu, 03/28/2013 - 19:29 | 3387188 hedgeless_horseman
hedgeless_horseman's picture

 

 

I asked a BP Wind Energy guy how much energy it takes to build, install, and maintain a wind turbine.  

He said energy?  

I said yes, energy?

He said they have no idea.  All they care about is that they were able to finance the costs of the turbines over 20 years.

I asked do the wind turbines even have a 20 year life?  

He said they don't know, and they don't care, because the bank financed them for 20 years.

Brilliant!

Thu, 03/28/2013 - 19:41 | 3387210 JPM Hater001
JPM Hater001's picture

Love your wholesaler...they are taught never to question the coolaid.

Poor fools

Thu, 03/28/2013 - 20:36 | 3387357 auric1234
auric1234's picture

I was a salesman in a former life. I once asked what to respond if a client asked a specific question. They told me that when this happens I should avoid that sort of client altogether because it's not worth my time.

Salesmen are taught to sell, not to understand what they're selling.

 

Thu, 03/28/2013 - 21:35 | 3387506 flacon
flacon's picture

Two words: EXTER'S PYRAMID. 

http://tinyurl.com/7s5t4c5

Thu, 03/28/2013 - 21:42 | 3387521 damage
damage's picture

I somehow doubt Cyprus' problem is a banking system which actually allows for loans to be made.

Where does the bank's money for making loans come from if they can't loan out deposits? How would there be any credit? If banks were supposed to be warehouses then why not just get a safety deposit box and fill it with cash? How do you expect to be paid interest on your savings account if they don't loan money out?

How come Canada's banking system pre-1935 was overall quite stable when they had fractional reserve? In 1930 while over one third of US banks failed, zero banks failed in Canada. We both had fractional reserve. The only difference was there was no central bank in Canada.

Banks can't get away with loaning more than their excess reserves without a central bank supporting them.  Because otherwise they'd go out of business within days because of the clearing debt.

Fri, 03/29/2013 - 00:07 | 3387771 flacon
flacon's picture

Corporations should "borrow money" from the market, not from a bank. Corp should issue stock and ask people to bid for the stock and raise capital that way. There should be a bidding process for individuals to "borrow money" on the free market as well. Want a loan for a house, then find investors who will loan you the money.

 

There should be no bailouts. A bank should CHARGE a monthly fee to warehouse the paper money that they keep safe. Around here in Canada there are banks with huge safes with the doors wide open and nothing in the safe. Amazing! And they call these buildings "BANKS"?! 

 

Also, money should not beget money. Interest usury was banned in ancient times because it was known to defraud the system. 

Fri, 03/29/2013 - 01:12 | 3387838 damage
damage's picture

So just some random investors are going to loan you money so you can buy a house? Sure, buddy.

 

Of course there should be no bailouts, never said there should be.

 

So loaning money for a price is evil? Are you sure you're not a socialist?

Fri, 03/29/2013 - 10:48 | 3388457 BobPaulson
BobPaulson's picture

Dude, interest comes from opportunity cost, not Satan. You need zero growth to eliminate interest, that's called sustainability. That's also why the environmental movement is at odds with our entire system until we figure out how to grow the economy without growing our footprint. I haven't heard a good answer to this yet.

Fri, 03/29/2013 - 04:04 | 3387925 Theosebes Goodfellow
Theosebes Goodfellow's picture

Ah damage, you've hit the nail on the proverbial head! The crime is not fractional reserve banking. The crime, (kudos to Keith Weiner), is duration-mismatch.

Fri, 03/29/2013 - 05:35 | 3387969 zhandax
zhandax's picture

No, Austin, the crime is stealing the fuckin money, no matter how you do it or how long it takes.

Fri, 03/29/2013 - 06:22 | 3387995 css1971
css1971's picture

FFS.

Fractional Reserve IS duration mismatch.

Thu, 03/28/2013 - 20:00 | 3387255 orez65
orez65's picture

I asked a retired CEO of an electric power company why they use wind power.

His answer: "... because if we don't use wind power we loose our operating license ..."

Wind power is a scam.

 

 

Thu, 03/28/2013 - 21:10 | 3387444 noless
noless's picture

Even horse assisted grain wheels? What about entropy reduction intake/exhaust fan generators on automobiles?

Why waste the pressure? Chrisake, build an electronic pressure release/generator combo, all comes out the ass end anyway, at the very least power the local sensor bank.

Fri, 03/29/2013 - 07:28 | 3388026 css1971
css1971's picture

Entropy always increases. It never reduces.

Fri, 03/29/2013 - 10:54 | 3388474 BobPaulson
BobPaulson's picture

It can decrease locally in a subsystem contained in a system with net increase. 

http://m.youtube.com/#/bfleck?uid=NzW4yAY3R9p7xZUPzXO4vw&desktop_uri=%2F...

Fri, 03/29/2013 - 00:04 | 3387770 CheapBastard
CheapBastard's picture

Alternatively:

 

< I asked a retired CEO of an electric power company why they use wind power.

His answer: "... because if we don't use wind power I don't have a job ..." >

Fri, 03/29/2013 - 07:09 | 3388019 Diplodicus Rex
Diplodicus Rex's picture

EROEI of Wind Power

http://www.theoildrum.com/node/1863

 

Fri, 03/29/2013 - 10:57 | 3388484 BobPaulson
BobPaulson's picture

That graph showing solar thermal so low really surprised me.

Fri, 03/29/2013 - 07:24 | 3388025 css1971
css1971's picture

BP don't make em, they wouldn't know shit.

Siemens do. I also see a lot of Vestas around here as well.

Fri, 03/29/2013 - 00:30 | 3387798 bigyimmy007
bigyimmy007's picture

Thanks for the link.

I had no idea Europe was leveraged that much. Jfc...100 to 1 ratio, that's just mind-bogglingly batshit insane, as if 10 to 1 wasn't bad enough.

Fri, 03/29/2013 - 07:20 | 3388024 css1971
css1971's picture

1%?

FFS!

Fri, 03/29/2013 - 10:39 | 3388435 BobPaulson
BobPaulson's picture

You should come to Canada. Thre ratio is 0%. You can't make this shit up man.

Thu, 03/28/2013 - 20:10 | 3387280 Chupacabra-322
Chupacabra-322's picture

@ MrX,

History will teach us it was all based on The Global Criminal Cabal (Bankster?Intelligence) Crime Syndicate Fraud. 

A Model based on Debt Enslavement.  Fasicsm.  Complete Full Spectrum World Dominance.  Via a Global "Chicago School of Economics" Para Police State Authoritarian Totalitarian Neo Feudalistic Tryanny. 

Were just the Debt Slaves, Divided & Conquered. 

 

Fri, 03/29/2013 - 00:35 | 3387805 bigyimmy007
bigyimmy007's picture

It's so much easier to enslave minds than bodies.

Thu, 03/28/2013 - 21:12 | 3387455 The Heart
The Heart's picture

Hello Mr X, thank you for the video. Sorta makes one tear up seeing this kind of human behavior and knowing that this kind of mayhem could have been avoided if the cops that hurt Rodney had been better trained, more patient, and had allowed him to just go to jail without the incident that sparked these riots.

As far as it repeating again, better read up on this wicked weaponry that is just the tip of the iceberg when it comes to this kind of evil harmful weapons. The confrontations in the future will be horrendous. Check this out.:

http://www.activistpost.com/2013/03/latest-non-lethal-weapons-arsenal-th...

What is sad to realize is, the American people have paid for their own destruction at the hands of the new world gestapo that is going to replace the military some day.

http://www.pakalertpress.com/2013/03/27/homeland-security-to-military-we...

But even worse than all this that is coming, is the continued torture and killing off of these innocent goat herders in Guantanamo that were captured to use as objects of blame for the horrors of 9/11. Heck, everybody knows that isreal and certain corrupted elements in the American leadership sponsored and executed 9/11. That is no big secret. Only the details are. These poor innocent people from Afghanistan could never ever have the possibility of orchestrating such a massive event like 9/11 was. Anyone who believes these tortured innocents in gitmo had anything to do with 9/11 is just plain ol stupid, and lives in a degree of denial and ignorance unparalleled on this planet. It is just to farking unreal to believe this horror actually goes on day after day still, while so many know the prisoners there had absolutely nothing to do with 9/11. The bankster puppet bushite neocons had to have a group to blame the 9/11 attacks on, and to direct the public's attention away from the real inconsistencies and criminals that caused the 9/11 murderous attacks on America to start off the profits for war campaign. How long will the WORLD stand by and watch this evil go on? The only real reason they do not let them out is because of the horrid tales they would tell about how the Americans, and prolly others, have tortured them and done things that are so against the Geneva convention, it would make a mockery of the realness of this document, or it's actual effectiveness in modern times.

Dear good folks, please DO something, or anything at all for these innocent people who are now slowly dying, rather than to live on in this continued indefinite detention and daily suffering. Think about it; how many of you reading this could stand the mental and physical torture at gitmo, while KNOWING you are completely innocent? Could you endure the tortuous conditions at gitmo for almost ten years with no one coming to help you or free you?? Everyone on board is now being petitioned to do something to SAVE these people's lives. Follow your Heart.

http://news.antiwar.com/2013/03/27/emergency-motion-us-denying-gitmo-det...

BUMPER STICKER: FREE THE PRISONERS OF GUANTANAMO NOW!

 

 

 

Fri, 03/29/2013 - 17:35 | 3389589 TeMpTeK
TeMpTeK's picture

Anyone who leaves 1 million cash in an account that is only insured for 100K is a buffoon. Not to mention the warning signs over the last 4 years of EU financial Mayhem in every newspaper... The fool and his money is now parted....

Thu, 03/28/2013 - 19:18 | 3387165 prains
prains's picture

it's almost impossible to start false wars without fractional reserve banking so the only industry still left in the hands of americans will not be curtailed under any circumstances, as long as war makes money for the 1% then fractional reserve banking is all we have.

Thu, 03/28/2013 - 20:20 | 3387307 Edward Fiatski
Edward Fiatski's picture

Uh... does it mean, that banks can only lend out 1% of total deposits? Sounds reasonble.

 

 

/sarc

Fri, 03/29/2013 - 01:08 | 3387733 Radical Marijuana
Radical Marijuana's picture

Yes, hedgless_horseman, I completely agree with your estimate of about 99% of the people not being able to fathom that the ECB "reduced the reserve ratio, which was 2%, to 1% as of the reserve maintenance period, starting on 18 January 2012."

However, I feel it is important to emphasize that is because the People DO NOT WANT TO UNDERSTAND.

In the Canadian context, I have been working on THAT problem directly for about three decades, through the political contribution tax credit. My activities included a couple of court cases against the Canadian government regarding the laws controlling the funding of politics, which spanned about fifteen of those thirty years. Here are links to my continuing current work on those topics, in the Canadian context:

http://www.marijuanaparty.ca/article.php3?id_article=215

http://www.marijuanaparty.ca/article.php3?id_article=413

Since I actually have discussed these issues face to face with tens of thousands of people, from all walks of life, for a few decades, and I made a serious effort, during my court cases, to track down every authority on these topics that I could find in the library, I believe that I am relatively qualified to concur with your statement, hedgless_horseman.

In fact, more than 99% of the general population in most of the world always act like Zombie Sheeple, who do not want to understand the monetary and taxation systems that control their lives! Perhaps some small percentage could literally be unable to understand anything, however, most of the people could understand, IF they wanted to. The crucial point is that they DO NOT WANT TO UNDERSTAND! That is superficially a completely irrational attitude, but still, those ARE the real social facts!

Inside the context of THOSE SOCIAL FACTS, and SOCIAL HABITS, "The Unraveling Of Fractional-Reserve Banking" may reasonably be expected to become an opportunity to replace it with something worse. ... While I agree with the article above regarding what it says, I do NOT agree that the outcomes will necessarily be in any ways better.

It would take a prodigious series of political miracles for the vast majority of the Zombie Sheeple to do anything else than allow the next system of organized lies, backed by coercion, run by the next set of ruling classes, to develop to become even worse than the fractional reserve banking system was. After the current pyramid scheme collapses, the most probable projections are for another one, even worse, to be implemented in its place, because 99% of the people will continue to not want to know anything about that, and not want to do anything about that.

It is almost impossible to understate how bad things already are, and even more impossible to understate how much worse they are probably going to get. Indeed, I would emphasize that by asserting that money is always backed by murder, and that the runaway insanities of the monetary and taxation systems surround deeper runaway insanities regarding the murder systems and death controls, which again, the overwhelming majority of people do not want to understand, and do not want to do anything about, except continue to participate within those systems as Zombie Sheeple, who act like political idiots.

After working directly on these problems for several decades, I am currently convinced that 99% of the people will continue acting like brain dead political idiots, because they have been conditioned to want to be like that. The tiny fraction of 1% that made and maintained that system of social habits have every possible advantage to keep things like that.

Of course, I probably will continue to waste my time to attempt to change that social situation. However, in reality, I have been defeated, or rather reduced to an apparently permanent stalemate situation. That is basically why I spin my wheels in the mud by bothering to post some of my kind of bla, bla, blah on the Zero Hedge Web site. At least here, with this select audience, there is some tiny fraction of the 1% of the people who actually want to understand how the monetary and taxation systems really work.

It continues to be quite sublimely paradoxical that almost everybody worries about their money, and how to make it, and how to spend it, BUT almost nobody wants to understand the SOURCE of that money, nor the MEANING OF THAT SOURCE! Therefore, we are living inside of a fractional reserve banking system that 99% of the people do not understand, and do not want to understand, and do not want to do anything to change it. Therefore, we are a long way from having enough of the people care enough to learn about that, and want to do something about that. We are nowhere close to the kind of social tipping point where, say, 10% knew and cared, instead of less than 1%.

Personally, I like to day dream about some future when 5% of the people really cared, and another 20% supported them, in order to have the political will to change the fractional reserve system. However, these days, that seems to be quite a ridiculous day dream to entertain. Instead, we are on a runaway path towards the current systems collapsing into chaos, followed by more genocidal wars, along with democidal martial law. Meanwhile, on that path, it looks like 99% of the population will continue to want to understand nothing about that, and do nothing to effectively change that!

By far the most probable REAL future is that the vast majority of the people will continue acting like Zombie Sheeple, and after they have been fleeced to exhaustion, they, and their lambs, will be massively slaughtered off. However, that probably will not make any difference, because they will continue to want to ignore that, and do nothing about that. ... I have not enjoyed learning about that, and have attempted to change that, ... but that is that!

Fri, 03/29/2013 - 01:43 | 3387858 walküre
walküre's picture

Very cool.

At least here, with this select audience, there is some tiny fraction of the 1% of the people who actually want to understand how the monetary and taxation systems really work.

If there was a Dancing With The Stars Zerohedge Edition we might get our message across. Maybe the sheeple would need to see us perform a dance in order to captivate their attention span of a fly.

In reality though, the hammer will come down everywhere including in Canada. Few are prepared. Being prepared means to tune out all the noise and propraganda and live almost a stealth life. Always looking from the outside in and being watchful, careful and informed about every step the elite takes.

Fri, 03/29/2013 - 05:39 | 3387971 John_Coltrane
John_Coltrane's picture

I'm guessing that a signficant fraction of ZH readers have read Griffiths tome, "the creature from Jeckyl Island" and thus understand very well the nature and history of money, banking, fractional reserve banking and most importantly what sound money is.   Our money system is backed by debt and only debt and that is its fundamental flaw.  Though the average citizen would stare is blank silence if you pointed out the stunning truth that if we pay down all our debt we destroy all our money.  Its a truly insane system!  Sound money is backed by real finite commodities like gold, oil, food stores etc. which require work to create and thus follow the laws of thermodynamics and physics.  Such money is sound/finite for this reason.  We've never really had such a system.  Though one can use a lot of words, to describe our system, Griffiths summarized it best as the "the name of the game is bailout and its instument of enslavement is debt".  The government is the debt addict and the FED and treasury its debt pusher.  This pusher/addict relation is why the government always grows larger.  There is no competition in such a system organized as a cartel like the FED.  There is no possibility of creative destruction and rebirth-and thus such a system is doomed to fail.  We ZHers are just frustrated that it seems to take so long to do so.

Fri, 03/29/2013 - 09:22 | 3388239 fallst
fallst's picture

No, its "backed-up" with Federal Income Tax, also created in 1913.

 

Sat, 03/30/2013 - 13:49 | 3391746 Radical Marijuana
Radical Marijuana's picture

Yes, fallst, taxation, and legal tender laws, back up fiat money.  However, WHAT backs up the government's powers to rob, which we call "taxation?"  The answer is that murder backs up money. If you resist being robbed by the government, then their enforcers may kill you with impunity. The government uses it revenue to pay for enforcement, to gain more revenue, and so, basically, the government is another entropic pump.

In that context, governments, as organized systems of lies, operating organized robberies, are self-organizing and self-justifying. They are simply the best organized local territorial gangsters, and they tend to be directed by the best organized biggest gangsters, the banksters.

Generally speaking most people do not want to face the basic facts regarding thermodynamics, and information theory, including the people who developed those theories, in ways which turned their meaning backwards. That was like the way that "money" was inverted. Money used to mean gold and silver. Dollars used to mean an amount of silver. However, all of that was systematically inverted. (Which reflects, on a deeper philosophical level, how we have inverted the meaning of the concept of entropy.)

However, there is another deeper problem, too, with the idea that money could be backed by commodities, and therefore, somehow become more honest money, or sound money. That problem is that the possession of private property can not exist, and has no meaning, outside of some system of public violence. Therefore, owning gold or silver returns to the basic reality that money is backed by murder.

In my view, the only "solutions" are to continue to muddle through the madness that human realities are always organized systems of lies, operating organized robberies, while attempting to organize resistance in ways which will enable there to be a better set of checks and balances, so that the human ecology and political economy may work better, for longer. ... BUT ... at the present time, the established systems are runaways, and most of the previous checks and balances are being systematically destroyed.

Furthermore, I would again emphasize that thinking that invoking the conservation of matter, in the form of commodities like gold and silver, which cannot be made out of nothing, is now too superficial a solution to the runaway entropic pump, energy system problems that our globalized civilization is experiencing. We have a HUGE PROBLEM that what exists NOW is a global electronic fiat money fraud, backed by atomic bombs. The REAL combined money/murder systems have been amplified to astronomical sizes, by technology, and thereby have become utterly insane.

The ONLY real solutions are new murder systems, to back up new money systems, since the debt controls depend on the death controls. HOW to do that after weapons of mass destruction have been developed has no know answer, at the present time. The first generation that has grown up with that emerging problem is still alive today. We are cruising on the inertia of past social habits, to continue to operate the force backed frauds which were made and maintained during history. BUT, BUT, BUT, amplifying those with powers trillions of times bigger (which as suddenly happened within current life times) is a problem which me have managed to mostly ignore ... although it keeps on getting BIGGER!

Thus, the deeper problem with the monetary system is HOW to back it up with a murder system, AFTER the development of weapons of mass destruction. ??? ???

Fri, 03/29/2013 - 11:06 | 3388495 BobPaulson
BobPaulson's picture

You don't even need a commodity based system to cut out the banks' role in creating it by loans. If the government was owned by the people and not the banking families, they would just print the money and give it to themselves. This would still dilute the currency, but avoid all our debt insanity designed to reinforce that the state is beholden to rich cartels. We are suckers in a debt prison worshiping the jailer.

Fri, 03/29/2013 - 05:24 | 3387965 hansg
hansg's picture

99% of people cannot make any kind of meaningful change to the ECB's 1% reserve ratio either.

Thu, 03/28/2013 - 19:10 | 3387143 NemoDeNovo
NemoDeNovo's picture

Oh how I'd Love this to be true, but I ain't betting the Farm...Yet

Thu, 03/28/2013 - 19:12 | 3387152 bank guy in Brussels
bank guy in Brussels's picture

Well, it looks like Slovenia is going down for sure now ... Because the government there just said everything was fine and not to worry:

« The new prime minister Alenka Bratusek told the Slovene parliament on Wednesday that the fears are overblown. “Our banking system is stable and safe. Comparisons with Cyprus aren’t valid. Deposits are safe and the government is guaranteeing them.” »

http://www.telegraph.co.uk/finance/financialcrisis/9960610/Slovenia-face...

Thu, 03/28/2013 - 22:54 | 3387666 Kirk2NCC1701
Kirk2NCC1701's picture

Riddle me this: How do you differentiate between genuine banking problems and an artificially created one? If the CB media start the "...is a Leper too" rumor, they can systematically target any peripheral bank/country.

All the while the most suspect countries with shitty Debt/GDP are getting media 'cover' (protection). That's right Belgium and UK, I'm talking about you!

Fri, 03/29/2013 - 05:51 | 3387976 John_Coltrane
John_Coltrane's picture

I would look at two factors just as I would and did in selecting a bank for my savings.

1)The ratio of loans to deposits (you want this to be low), certainly below 1.

2)The fraction of non-performing loans (NPLs)

For example, the BIS as of 2011 revealed that in cyprus over 29% of all loans were NPLs.  By comparision in Luxembourg, another overbanked country the NPLs are only 0.3% of assets!  See why you want your capital in Luxembourg!  Those bankers follow the important rule, don't loan money to people who can't pay it back.

(My credit union has only 0.1% NPLs which just might be related to the fact they carry all mortgages on their books, insist on 20% down and a documented good income.)  If other banks had such standards the 2008 bust would never have occurred, nor the housing boom that led up to it.  No skin in the game means people don't give a shit.

 

 

Fri, 03/29/2013 - 06:09 | 3387988 css1971
css1971's picture

Under fractional reserve, there is no difference.

If confidence is lost in the institutions, they are by definition, toast. When you are levered 50:1, the tiniest loss is massively magnified.

Thu, 03/28/2013 - 19:15 | 3387162 Racer
Racer's picture

Bring on the Emperor has no clothes day! I want a good giggle at his microscopic member.

Thu, 03/28/2013 - 20:07 | 3387271 Dealer
Dealer's picture

thats funny dude.

Thu, 03/28/2013 - 19:18 | 3387166 Black Markets
Black Markets's picture

OK if it's so easy to start a bank run post-Cyprus... I will buy an ice cream for the first person on this thread to precipitate the collapse of a multinational financial institute via a bank run.

Go!

Thu, 03/28/2013 - 19:31 | 3387191 Cdad
Cdad's picture

Well...if they have not run already, it may well be too late for Eurpeans.  Don't be surprised if, over a three day weekend for example, capital controls are simply announced.  Inter bank lending within Europe was already showing signs of stress...about one month ago.

Again, the beginning of the story is not lines at cash machines...that's the end of the story.  As we just saw in Cyprus via the "Russian Oligarch loophole", the real bank run is electronic.  So good luck waiting to act if your catalyst is lines at a bank somewhere, buddy.

Thu, 03/28/2013 - 19:45 | 3387222 Karlus
Karlus's picture

One ice creme please

Thu, 03/28/2013 - 19:57 | 3387251 dick cheneys ghost
dick cheneys ghost's picture

Thats right Cdad and Im guessing that the ECB saw that 'electronic bank run' happening in real time, just like Hank Paulson did before he asked congress for $700 Billion large

Thu, 03/28/2013 - 20:39 | 3387368 auric1234
auric1234's picture

No need to do anything. Just sit back and watch they fall.

You owe me an icecream, but maybe you didn't have one in first place. How about you give me an IOU instead?

 

Thu, 03/28/2013 - 19:20 | 3387174 bank guy in Brussels
bank guy in Brussels's picture

For many of us, however, it seems clear that fractional reserve banking worked fine for 40 years, in both Europe and the USA, with just two simple rules in place

(a) No higher leverage than 12 to 1 ... instead of the 30, 40 or 50 to 1 like started to happen recently

(b) Deposit banks ONLY make loans, no casino gambling, derivatives or investment banking games, what in the USA was the 'Glass-Steagall' rule

For 40 years banks did fine following those two rules ... when they dumped those rules in the 80s and 90s, everything started to blow up

My guess is that low 10 to 1 or 12 to 1 leverage for a bank, is okay because it is really just a substitute for money velocity

If it worked for 40 years with no problems under these two rules ... why isn't it okay?

Thu, 03/28/2013 - 19:26 | 3387183 prains
prains's picture

why it wasn't okay was because guys like jamie dimon et al. couldn't match the saudi princes in pure cash and constantly had to be the tiniest cock in the room and that pissed them off.

Thu, 03/28/2013 - 19:43 | 3387218 masterinchancery
masterinchancery's picture

Actually, every deposit insurance scheme in history has collapsed due to moral hazard and the fact that strong institutions are forced to subsidize weak  ones, so they leave the jurisdiction eventually.  The current Federal scheme has survived due to money printing, i.e. subsidies from the taxpayers,  and the fact that the dollar is a reserve currency. Eventually, the subsidies will be eliminated, as Andy Jackson did in 1834 for the Bank of the United States, and the scheme will immediately collapse.

Thu, 03/28/2013 - 20:14 | 3387283 disabledvet
disabledvet's picture

First off President Jackson lowered the boom on real estate speculation in addition to the "den of vipers." good luck trying to change that. Second and what is consistently missed here and everywhere is how banks have always stood at the ready to provide liquidity once the economy has sufficiently "corrected." can't speak for Europe but this downturn/collapse was clearly caused by the Fed...hence the Fed and Treasury stepped into the breach and provided not just liquidity but an entire panoply of programs and "plunge protections" to "staunch the bleeding." in that sense this iteration...while extraordinary in a numerology sense...is not different at all. What is different is the lack of economic recovery as a consequence...something that should have been a warning to Europe but was not. Are we full on "Code Red" now? Unless and until there is a massive devaluation the answer is obviously no. "since when has one of those been telegraphed?" the word never comes to mind.

Thu, 03/28/2013 - 23:04 | 3387690 Kirk2NCC1701
Kirk2NCC1701's picture

The Fed would have been in trouble sooner, if the rest of the world weren't forced to use petro-dollars. Effectively, it allows them to blow up a much larger balloon. That's the only difference.

Thu, 03/28/2013 - 20:16 | 3387293 TwoHoot
TwoHoot's picture

Which 40 year period (in Brussels or the US) are you talking about?

Thu, 03/28/2013 - 20:15 | 3387295 orez65
orez65's picture

Because it is FRAUD, the banks are lending money that they have counterfeited.

It causes the market to be misled about how much REAL savings are available to loan thereby creating an unstable financial system.

The counterfeited money lowers the interest rates, a false signal that there are excess savings.

This leads to artificial economic booms and their corresponding busts.

Thu, 03/28/2013 - 20:21 | 3387308 Arrowflinger
Arrowflinger's picture

What we have now is the rise of Rational Preserve Looting. It is entirely rational for the bankers to preserve themselves by looting us.

Thu, 03/28/2013 - 20:39 | 3387365 Key-Rick
Key-Rick's picture

Hit the nail on the head bank guy. +1

Fri, 03/29/2013 - 06:04 | 3387985 css1971
css1971's picture

Bollocks.

FRB functions only if it is able to grow exponentially. What you think of as "fine" was just the growth phase of the pyramid scam. It hadn't hit any limits at that point. By exactly the same token Ponzi schemes work fine too.

Thu, 03/28/2013 - 19:25 | 3387182 francis_sawyer
francis_sawyer's picture
The Unraveling Of Fractional-Reserve Banking...

~~~

'Unraveling' of 'Fractional Reserve Banking'?

LMFAO

Like that's fucking going to ever happen... I'll tell you EXACTLY when that day will happen...

It will happen... ON THE DAY... that francis_sawyer is no longer subjected to the usual barrage of 'JOO~JUNKERS'...

 

Thu, 03/28/2013 - 19:36 | 3387203 Yen Cross
Yen Cross's picture

      I_m Not Jewish Francis. I have to give you an upvote though.  Fractional reserve banking, Pathetic as it is?

    Who just bought that house in the Hamptons, and a Picasso to boot Francis? Is he jewish/goyum?

 

Thu, 03/28/2013 - 19:54 | 3387239 fonzannoon
fonzannoon's picture

they have been planting the seed for the fractional reserve crisis for a while now. if a tru run ever starts the straw man cyber attack will hit hard. Every bank will be frozen Cyprus style while they try to identify the hacker. By the time it's all over we will all get clipped for some percentage of our assets, if we are lucky, and the capital controls that have worked so well in cyprus will be implimented. The main thing here is that it is not the banks fault. they are the victims.

Thu, 03/28/2013 - 20:09 | 3387279 francis_sawyer
francis_sawyer's picture

@YC

@fonzanoon

~~~

&, for that matter, to anyone else who 'relates' to a YC or a 'fonzanoon' ZH post...

This has nothing to do with 'JEWS'... Instead ~ this has to do with 'joobux'...

Joobux = the paper equivalency, OVER TIME, that the 'Jeckyl Island' masterminds decided upon over 100 years ago, in order to implement, hopefully controllably, to incrementally 'rake' themselves a bit of wealth [for themselves], over time...

It has become GODZILLA ever since... Much more, I suppose, than their wildest dreams...

Beyond that... There remain 'BENEFICIARIES' [moreso than the originators even possibly contemplated]... Nevertheless ~ 'beneficiaries' are are an organic species on their own [in an organic world]...

So ~ MOVING FORWARD... What are we supposed to do?...

1. Allow the rouge beneficiaries to arbitrarily meander forward?

2. Declare... NO... STOP... Let's shed the 'madness', & despite potential pitfalls, advance FORWARD...

~~~

francis_sawyer has already decided which 'TEAM' he wants to be a part of... [The 'REST' of you are FREE to 'JUNK' any & all of francis_sawyer comments on Zero Hedge according to your 'TEAM' alignment]...

Thu, 03/28/2013 - 20:35 | 3387325 Yen Cross
Yen Cross's picture

     Francis. you are an extremely gifted person. You have fantastic intelectual and gramatical skills. You are a 'Mans man'.

Thu, 03/28/2013 - 20:42 | 3387374 francis_sawyer
francis_sawyer's picture

I'm a fucking DIPSHIT... [which means ~ by valuation standard ~ YOU are a fucking dipshit]

~~~

IOW ~ Right on BROTHER!... :-)

Thu, 03/28/2013 - 20:43 | 3387380 gonetogalt
gonetogalt's picture

Good cogent speculation fonz.  Your outside the box ideas are worth consideration.

Thu, 03/28/2013 - 20:08 | 3387266 Pseudo Anonym
Pseudo Anonym's picture

well, it will be a toss between you and i

It will happen... ON THE DAY... that francis_sawyer is no longer subjected to the usual barrage of 'JOO~JUNKERS'...

for pointing out that the hofjuden run fractional reserve central banking scheme is a deliberate and wilful act to defraud individuals and their families of the fruits of their labor by capturing politicos and making judefetzen legal tender money as a conduit to transfers wealth from us into the hands of the lucifer worshipping hofjuden who answer to their masters in vatican

Thu, 03/28/2013 - 20:18 | 3387304 francis_sawyer
francis_sawyer's picture

@Pseudo Anonym

~~~

UNCANNILY ~ You & I are aligned...

The differeence is that you dig it DEEPER to the 'hofjuden' [which flexibly translate to 'Jesuits']..

For the record ~ I'm not AGAINST that assumption [as we speak]... I simply need more details [which may surface over time]...

~~~

This is COMPLICATED shit... MOST have ZERO hope of understanding [which is why ~ even on ZH ~ DAILY LIFE is like the 'Jerry Springer' show]...

Thu, 03/28/2013 - 20:43 | 3387378 dick cheneys ghost
dick cheneys ghost's picture

I found this to be of interest.........

 

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

Thu, 03/28/2013 - 21:02 | 3387420 francis_sawyer
francis_sawyer's picture

nice find...

~~~

Personally ~ I'm still trying to BALANCE the following:

- the TRUTH that the rhetoric that I was ever taught in my scholastic upbringing was ever DIFFERENT than a rudimentary [biased] representation of REALITY...

- That ~ based upon the unpublished MSM media representation percentages & narrative of [AIPAC FRIENDLY] causes ~ my DAILY NEWS DIET is properly 'balanced'...

` Well ~ fucking SHIT... francis_sawyer made a BOATLOAD of previous comments [on the movie 'OLYMPUS HAS FALLEN'], on a previous thread.. That nobody should wonder anymore...

Thu, 03/28/2013 - 21:41 | 3387516 dick cheneys ghost
dick cheneys ghost's picture

Francis-FWIW I second the 'Yen Cross' statement from above.........

 

Also, I enjoy ur interaction with Pseudo Anonym.....you two have much to offer....

Thu, 03/28/2013 - 22:31 | 3387489 Pseudo Anonym
Pseudo Anonym's picture

see, for this reason

The differeence is that you dig it DEEPER to the 'hofjuden'

i believe i have a larger fan club of junkers than you do.  while you attract those who want to deny the disporportionality of the jew banker sponsored financial crimes, and their being above the law, i also attract those crazy and brainwashed catholics that on one hand can acknowledge the jewish disproportionality in financial crimes, but on the other hand, they cannot accept the fact that this is all done with the vatican's consent.  and yet, for confirmation, all they have to do is  open encyclopedia judaica, look up the list of titles the rothschilds', one of the hofjuden families, hold and wonder why the fuck  rothschild would bear the title “Guardians of the Vatican Treasury”.  how fucked up is that?  after these money changers were kicked out of the premises for usury, the vatican entrusts their treasure to them.  like, really, from catholic's point of view, who the fuck, in their right mind, would trust these characters with their gold and wealth when it is in plain site what type of fraud against humanity these banking families wont shy away from.  it only starts making sense if we accept the fact that those two work together http://tinyurl.com/cmfvdm4 .

now, let's not forget where it all started.  vatican is the oldest and most profitable corporation; and as such, it will have a mission statement and critical goal to achieve.  counter to the popular belief, world domination is not the goal of hofjuden. vatican wants it since 1302 - on 18 November 1302, Boniface issued the bull Unam sanctam. It declared that both spiritual and temporal power were under the pope's jurisdiction, and that kings were subordinate to the power of the Roman pontiff; then the unam sanctam ends:

Furthermore, we declare, we proclaim, we define that it is absolutely necessary for salvation that every human creature be subject to the Roman Pontiff

if that is not a forward looking, corporate mission statement, then i dont know what is ...

Thu, 03/28/2013 - 19:36 | 3387202 Racer
Racer's picture

There has been an insidious herding of the people into doing banking on line, direct debits for bills etc.... if you don't let us mainline your account each month you will be penalised.

why should they be allowed to charge extra to pay a different way? We are still paying the bill after all?

Why should we have to pay to view our own credit report?

And now why have they denied people's access to their OWN money? Only in amounts THEY say.

People need to wake up from their slavery slumber and do something...

TAKE all your money out of the banksters grasp because when not if they run into problems it won't be there for you to take and they will let you starve

Thu, 03/28/2013 - 20:21 | 3387310 IamtheREALmario
IamtheREALmario's picture

Take the paper bills. Use credit cards, not debit cards, but pay the bills in full every month. Never use JP Morgan. minimize the unsecure debt in banks. Take delivery of stock certificates. Own, don't rent. Don't make insurance companies rich on your dime. Live beneath your means. Don;t pay attention to fads or the mainstream media.

Listen to Shakespeare.

Thu, 03/28/2013 - 20:44 | 3387385 Key-Rick
Key-Rick's picture

Bingo. Anyone here know how to grow food?

Thu, 03/28/2013 - 22:19 | 3387597 Anusocracy
Anusocracy's picture

"Own, don't rent."

Why not just tattoo 'Willing Debt Slave' on your forehead.

Thu, 03/28/2013 - 19:55 | 3387244 Mordenkainen
Mordenkainen's picture

OT: Did anyone else notice the sharp uptick in gold and silver? Wonder what's going on ...

Thu, 03/28/2013 - 20:01 | 3387259 fonzannoon
fonzannoon's picture

no, what spike?

Thu, 03/28/2013 - 20:09 | 3387278 Mordenkainen
Mordenkainen's picture

LOL I swear gold was +7.10 just a few minutes ago. 

What the hell ... the Kitco spot gold chart has gold at 1603, but also says, "1596.50". I don't get it.

Thu, 03/28/2013 - 20:13 | 3387290 Citxmech
Citxmech's picture

That got swatted down quickly. . .

Thu, 03/28/2013 - 20:07 | 3387270 blindman
blindman's picture

your money creation is a fraud.

Thu, 03/28/2013 - 20:15 | 3387272 machineh
machineh's picture

As announced on ZeroHedge two days ago:

------------

 

The Cypriot government has warned that banking curbs to prevent money from leaving the country will apply for longer than expected, in a blow to the island's attempts to revive its paralysed economy.

The country's foreign minister, Ioannis Kasoulides, said the regime, including a limit on cash withdrawals at €300 (£253) per day, would last for "about a month" – just 24 hours after the population was told they would only be in place for a week. The capital controls, the first ever to be imposed on a eurozone member state, have been introduced to prevent a cash exodus that would destroy what is left of the Cypriot banking system.

Kasoulides said: "A number of restrictions will be lifted and gradually, probably over a period of about a month according to the estimates of the central bank, the restrictions will be lifted."

http://www.guardian.co.uk/world/2013/mar/28/cyprus-crisis-limits-bank-wi...

------------

Let's repeat: CapControls 1.0 are not going to be over in "four days," and they are not going to be over in "about a month" either.

They are not going to be over until well after Bailout II, and possibly until Bailout III.

It ain't over till it's over, bItCHeZ.

 

Fri, 03/29/2013 - 08:11 | 3388087 smacker
smacker's picture

 

 

And - following expropriation of deposits in Cyprus from people who thought their life savings were safe, thus causing a possible growing collapse of trust in banks across the whole EZ - why won't capital controls be introduced across the whole EZ soon? Like over this Easter weekend for instance?

The Eurozone is falling to pieces and we are the onlookers. The only thing holding it together is hopium and duct tape.

Fri, 03/29/2013 - 08:44 | 3388170 falak pema
falak pema's picture

and QE, the universal hopium panacea of banksta world; we all are tied to that wheel.

Thu, 03/28/2013 - 20:14 | 3387291 IamtheREALmario
IamtheREALmario's picture

The very unfortunate thing is that banks do not need depositor funds. They have nothing but contempt for depositor fund. All they need is the central banks to fill their coffers and fill their pockets. Why do they give depositors NOTHING to borrow their money? Because they do not need it and frankly must not want it.

Thu, 03/28/2013 - 20:23 | 3387316 orez65
orez65's picture

Deposits are very welcomed by banks because they can leverage them in accordance with the "fractional reserve" requirement.

For example if the fractional reserve requirement is 5% and you deposit $1,000 they can leverage it to $20,000, that is they can loan $20,000.

Thu, 03/28/2013 - 22:03 | 3387562 W74
W74's picture

....In the old normal.

Fri, 03/29/2013 - 05:53 | 3387977 css1971
css1971's picture

Typical leverage ratios: Europe - 50:1, UK - 30:1, US - 10:1

Fri, 03/29/2013 - 08:00 | 3388072 smacker
smacker's picture

 

Sure, but in economies which are fast going down the flusher, where low-risk borrowers (private and commercial) are thin on the ground, and banks don't want to lend anyway under the current regime, why would they want depositor's money? I can fast see the day arriving when banks actually charge customers for storing their money.

Thu, 03/28/2013 - 20:17 | 3387296 casaananda
casaananda's picture

Someone pleae tell me why the spot price of gold jumped back over 1600 in a flash after 4 pm eastern today? Up over 7 bucks very quickly.

 

Anyone see that?

Thu, 03/28/2013 - 20:47 | 3387390 BigJim
BigJim's picture

I did see it, at least according to the charts Turd has on his site.

Didn't last long before it got beaten back down, though. 

Now that the bullion banks know the CTFC are not going stop them, the suppression is getting just laughably brazen. 

Thu, 03/28/2013 - 20:17 | 3387300 Dooud
Dooud's picture

WTF Man, "Demand deposits, whether checkable or not, would be segregated in actual deposit banks which maintain 100 percent reserves..."

This is a cornerstone of Glass-Steagel, Why did we get rid of that again?

Do I have to worry about the $30.22 in my checking account too?

Thu, 03/28/2013 - 20:44 | 3387382 spdrdr
spdrdr's picture

One of Bill Clinton's last acts in office.

Follow the money trail...

Thu, 03/28/2013 - 22:02 | 3387561 W74
W74's picture

Pardoning a Jew money-launderer?  Pretty sure that was one of 'em.

Fri, 03/29/2013 - 08:41 | 3388162 falak pema
falak pema's picture

Marc Rich's rich legacy,  now Glencore! 

Thu, 03/28/2013 - 20:51 | 3387397 BigJim
BigJim's picture

Sorry, Glass Steagal didn't impose 100% reserve banking. I don't think it's ever been 'imposed' by government fiat here in the US.

In previous, non-CB times, the banks were obliged to keep the amount of paper issuance down to prevent bank runs. 

Thu, 03/28/2013 - 21:09 | 3387435 machineh
machineh's picture

In 1994, Greenspan okayed a subterfuge called 'overnight sweeps,' in which banks wave a magic wand and turn demand deposits into savings deposits overnight, to avoid reserve requirements.

http://www.ny.frb.org/research/epr/02v08n1/0205benn/0205benn.html

By U.S. law, withdrawals from savings deposits can be severely restricted in an emergency. In Cyprus, savings deposits are frozen.

One 'morning in America' when savings deposits fail to morph back into demand deposits, the music stops.

This 'fail unsafe' time bomb has been wired into the system for nearly 20 years, And it's 'all legal' ... because Greenspan said so (but try finding a record of it).

'Overnight sweeps' are the 'get out of jail free' doomsday trump card of the U.S. bankstering industry.

 

Fri, 03/29/2013 - 05:47 | 3387972 css1971
css1971's picture

We don't have 100% reserve banking anywhere.

It can't compete with fractional reserve while fractional reserve banks are being subsidised by the government and losses it imposes are socialised on the tax paying public rather than privatised with the investors.

Schiff has what he claims is a 100% reserve bank he started in 2011. However it doesn't make loans so it's really a depository, not a bank.

Thu, 03/28/2013 - 20:19 | 3387303 Moe Howard
Moe Howard's picture

Give me your money and if you are a good little peon I might let you have some of it back, but you can't take it out of the area.

 

Nice.

Thu, 03/28/2013 - 20:18 | 3387305 casaananda
casaananda's picture

Wow. Justlooked again and it's back to where it was, that gold spot price. well under 1600. what BS

Thu, 03/28/2013 - 20:41 | 3387362 evernewecon
evernewecon's picture

 

 


I think the more the sector’s concentrated and monopolistic

(TBTF is monopoly of the currency) the more regulation

is required.

 

If it were free and democratic the market would impose

its own discipline earlier.

 

It being monopolistic, though, a simple Schwab or Ameritrade

kind of oversight of net equity at risk, even allowing for

some fractional reserve banking, is necessary, and, entirely

possible insofar as what the TBTF banks do is legitimate.

 

I don’t think such things as selling ever more insurance for

ever more risk with ever less coverage for ever greater

bonuses is the least bit legitimate.  

 

(Ooh.   I feel like 007 describing Kamal Khan (Octopussy.))

 

I know a lot of people hate this, but what the heck.

Our TBTF bankers should only be as cunning as Kamal

Khan.

 

http://www.youtube.com/watch?v=IwHbCvXMbS8

Perhaps a gate protecting depositors and

taxpayers can one day be found deriving from that.   If not,

perhaps a newly invented class of bankruptcy protecting

depositors can be,  if need be.   Depositors will keep their

cool particularly when they trust their regulators, I think.

I hope the link doesn’t piss off ZH too much but good

risk managment vs. bad (as in wrongful, or, economically

dumb) risk management can be a complicated thing.

http://evernewecon.weebly.com/#eneninventsstructureandprocessforanation

 

 

Thu, 03/28/2013 - 20:41 | 3387376 auric1234
auric1234's picture

This will induce banks to radically alter the sources of the funds they raise to finance loans and investments, moving away from deposit and toward equity and bond financing.

IOW, this will induce banks to become a bit less dishonest and a bit less insolvent.

Ain't that wonderful?

 

Thu, 03/28/2013 - 20:59 | 3387416 irishlink
irishlink's picture

I sincerely hope Jonathsn May is live and healthy watching this . He truly was one of the first to take on the Bankers and the criminality of the fractional reserve. System.

Thu, 03/28/2013 - 21:39 | 3387514 damage
damage's picture

I somehow doubt Cyprus' problem is a banking system which actually allows for loans to be made.

Where does the bank's money for making loans come from if they can't loan out deposits? How would there be any credit? If banks were supposed to be warehouses then why not just get a safety deposit box and fill it with cash? How do you expect to be paid interest on your savings account if they don't loan money out?

How come Canada's banking system pre-1935 was overall quite stable when they had fractional reserve? In 1930 while over one third of US banks failed, zero banks failed in Canada. We both had fractional reserve. The only difference was there was no central bank in Canada.

Banks can't get away with loaning more than their excess reserves without a central bank supporting them.  Because otherwise they'd go out of business within days because of the clearing debt.

Thu, 03/28/2013 - 22:36 | 3387630 Pareto
Pareto's picture

Agree.  I've never been convinced that fractional reserve banking, in and of itself, is the root of all evil precisely because of what history in Canada has shown.  The problem is the central bank and the price fixing of rates through the manipulation of the money supply - an abandonement of free market forces that price risk relative to confidence, and inter-temporal preferences of consumers and producers.  Government has demonstrated repeatedly that it cannot replicate this efficiency and is instead, rather adept at massively distorting efficient resource allocation by constantly changing the "rules".  Always economic chaos follows.

Competition is good.  Competing bank notes also good.  Prior to the Bank Act (1935), Bank of Montreal notes competed with Canadian Bank of Commerce.  There was no central bank.  Now Canada has a cartel of 5 chartered banks back stopped by the Bank of Canada.  Competition is in appearance only.  The country is just as sensitive to the effects (distortions) of central bank policy (cloaked as modern business cycle theory), as any other country with a Central bank.

As England will soon find out, The sterling will serve as an awesome short against pretty much any cross IMHO and they can thank Canada for that.

Fri, 03/29/2013 - 10:33 | 3388419 Hail Spode
Hail Spode's picture

I agree too...Upvote for you and Patera sir.  "Fractional Reserve Banking" is not responsible for this mess.  There are virtually no reserves backing this system.  Its all leverage, debt, derivitaves, and taxpayer looting.   My philosophy of government is "Localism" as described in http://www.barnesandnoble.com/w/localism-a-philosophy-of-government-achb... this book which explains what the real problems and solutions are.   This is the Barnes and Noble "Nook" version, but I know it is on Amazon for Kindle too.

Basically, no central banks, real money, investment and depost banks separate, leverage limited by law to very safe levels, and officers of the bank are personally liable for losses of the bank, as are certain government officials who are responsible for making sure banks keep sufficient reserves.   Some of this may sound over the top, but it all makes sense as explained in the book.   The finacial stuff was only about a quarter of it, as you might expect of a book on Philoisophy of Government.

Fri, 03/29/2013 - 00:22 | 3387792 RaceToTheBottom
RaceToTheBottom's picture

While I have never read all the fine print, I don't think I gave them permission to sweep my money every night.  With a 24 hour world, why do they assume that I won't need my money through the night?  Do they not realize that the world is round and made up of 24 hours?

 

Criminal blood suckers

Fri, 03/29/2013 - 01:16 | 3387845 damage
damage's picture

Ever hear of ATMs or online banking?

Fri, 03/29/2013 - 01:21 | 3387846 KingTut
KingTut's picture

Sweep accounts are a scam that allow Banks to keep your money in a money market account (uninsured), and put it into a FIDC insured account for a few minutes at midnight.  This lets them monkey with interest rates, reserve ratios etc.

 

Fri, 03/29/2013 - 05:41 | 3387967 css1971
css1971's picture

Fractional reserve is "stable" until it isn't. While it's growing exponentially it's fine. When it can't continue to grow infinitely and hits a limit, it collapses and you get to see it for the pyramid scam it really is.

There's no problem making loans with 100% banking. You simply don't get access to the money you gave the bank. You don't get to have your cake and eat it. Yeah the borrower has your money and yeah, you take the risk that you lose it.

 

Fri, 03/29/2013 - 09:07 | 3388116 damage
damage's picture

It doesn't grow exponentially without a central bank... Have you seen George Selgin's graph of the monetary supply in Canada from 1890 to 1899? There is no exponential growth at all.

See figure 2 on page 10.

http://www.cato.org/sites/cato.org/files/articles/tir_14_04_01_selgin.pdf

 

Where do they get the money for the loans if there is 100% reserves? None of it can be lent out, it's just a safety deposit box.

Fri, 03/29/2013 - 10:30 | 3388409 Hail Spode
Hail Spode's picture

Upvote for you and Patera sir.  "Fractional Reserve Banking" is not responsible for this mess.  There are virtually no reserves backing this system.  Its all leverage, debt, derivitaves, and taxpayer looting.   My philosophy of government is "Localism" as described in http://www.barnesandnoble.com/w/localism-a-philosophy-of-government-achb... this book, which explains what the real problems and solutions are.   This is the Barnes and Noble "Nook" version, but I know it is on Amazon for Kindle too.

Basically, no central banks, real money, investment and depost banks separate, leverage limited by law to very safe levels, and officers of the bank are personally liable for losses of the bank, as are certain government officials who are responsible for making sure banks keep sufficient reserves.   Some of this may sound over the top, but it all makes sense as explained in the book.   The finacial stuff was only about a quarter of it, as you might expect of a book on Philoisophy of Government.

Fri, 03/29/2013 - 12:28 | 3388651 Nehweh Gahnin
Nehweh Gahnin's picture

Ummm, except that separation was once in place, courtesy of Glass-Steagle.  And then the puppets took it out with Gramm-Leach-Bliley.  The structure you wish for will ever be subverted, and the solution you propose will always be temporary.  Except they won't get another shot at "reform," because this shit is done now.

Thu, 03/28/2013 - 22:53 | 3387663 Fix It Again Timmy
Fix It Again Timmy's picture

It's time to settle accounts, people.....

Thu, 03/28/2013 - 23:14 | 3387704 Mototard at Large
Mototard at Large's picture

The power that the banks and financial institutions have obtained means they can frequently dictate policy to the government.  In this new form of inverted totalitarianism, with the financial class on top and the political class below them, it will be interesting to see if this much power and influence in one sector of civil society will cause even more social unrest.  The banking system as we know it is a long way from done, as both financial and political groupings depend on the status quo for their influence. Even the 2008 crisis did not change the system or even the way it operates. 

http://tinyurl.com/cdrnm7f

Fri, 03/29/2013 - 00:30 | 3387774 Radical Marijuana
Radical Marijuana's picture

Mototard, I found another March 27, 2013, article on the Web site you linked interesting, since it demonstrates that Canada has already legally prepared to act like Cyprus:

http://economicsfortherestofus1.blogspot.ca/2013/03/canada-plans-for-it-own-cyprus-scenario.html

The fact that Canada plans for its own Cyprus scenario shows the degree of global coordination by the transnational banksters. The way that the political party that currently forms the government of Canada has more money than all the other political parties combined also demonstrates how god damn difficult, and practically impossible to fix, these kinds of problems are! The government of Canada was able to give away more than 100 billion dollars to the biggest Canadian banks during the 2008 related global crises, while the mass media in Canada barely mentioned that that had happened. (For plenty of links to that story, skim through this forum thread on Some Monetary System articles.) Despite immediately adding more than 50 billion dollars to a growing public debt, directly due to that, the next elections did not raise those issues. Generally speaking, between the puppet politicians who work for the transnational banksters having by far the most money, while the mass media systematically lies by omission, and they help the government to look good, while it actually behaves in outrageously evil ways, there is no reasonable hope for the foreseeable future.

Even AFTER one figures out what is theoretically wrong, there are no practical political solutions, since the established systems have every advantage, in terms of their puppet politicians having way more money, while the mass media put on puppet shows starring those puppets, and their controlled opposition puppets, while nobody else is allowed to appear in those mass media political puppet shows. Therefore, everything important actually gets worse, faster!!!

Thu, 03/28/2013 - 23:50 | 3387742 bsdetector
bsdetector's picture

Might the Fed's artificial suppression of interest rates be a cause for the destruction of fractional reserve banking?

Fri, 03/29/2013 - 08:36 | 3388032 falak pema
falak pema's picture

break down all banks in TWO ; put deposit accounts on a one on one guaranty by a publically owned CB primary emission, not the current FED.

Put all credit bank transactions on the basis of the bond/corporate funding market. 

A genuinely radical approach would be to kill banking as we know it. Rip all banks, large or small, in two -- separate deposit-taking from credit-creation. Back the deposits one-for-one with reserves at the central bank. Then fund loans not with deposits or other money-like liabilities but by tapping investors who understand they've put their savings at risk.''

Fri, 03/29/2013 - 09:07 | 3388215 Mototard at Large
Mototard at Large's picture

The new emerging struggle will be between savers and takers.  What we are seeing in Cyprus and Spain is unnerving for many people – especially savers.  The government, the Banks and supra-national organizations are creating new policies that say they can take your savings  http://tinyurl.com/d9d74qf 

Fri, 03/29/2013 - 09:14 | 3388228 FreeNewEnergy
FreeNewEnergy's picture

All my money is tied up in cash.

Fri, 03/29/2013 - 16:45 | 3389440 monad
monad's picture

My favorite PM is Pb. Can trade to advantage with both friends and enemies.

Fri, 03/29/2013 - 10:14 | 3388373 eclectic syncretist
eclectic syncretist's picture

if Andrew Jackson, Thomas Jefferson, and the other key founding fathers were here they would tell us that there should not be a central bank, fractional reserve lending should be outlawed, and the currency should not be unbacked.  Unfortunately our elected officials do not have the cajones, intestinal fortitude, or moral integrity to do the right thing.

Fri, 03/29/2013 - 13:17 | 3388794 Widowmaker
Widowmaker's picture

Fuck fractional researve treason by banks.

Fuck the Fed.

Fuck Ben Bernanke and his fascist regime of fraud Inc. and aborted justice.

Fractional reserve banking (fraud finance) is fucking history -- as in finished.  Good riddance, you wanker-bankers deserve the worst kind of hell.

Sat, 03/30/2013 - 16:24 | 3392099 Nu Yawks hottes...
Nu Yawks hottest club is's picture

So the moral of this story is .. don't keep more than 100k euros (or the equivalent in your local currency) with one institution, which is something anyone in the UK (and anyone else not hiding their head in the sand) has known for 5 years.

Thanks for reiterating the obvious.

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