Well, yes. Financial deregulation in the US was a big mistake. Which we knew in 2008. Yet it wasn't reversed then.
It's a little better now with people like Elizabeth Warren. The left still needs to understand finance better though or we'll all get totally screwed again come the next crisis.
The way to avoid the next crisis is to stop bailing out the players. The role of the Fed should be ensure that the payment system remains robust and that solvent banks have access to liquidity.
Lehman Brothers should be a model for the future. Barclays and Nomura bought productive the assets of Lehman and put them to work. The investors in Lehman's poor management were punished.
On the other hand, AIG/Goldman bailout earned Warren Buffet alone about $5 billion dollars. He literally was buying Goldman preferred stock while advising the Treasury to bailout AIG (whose biggest counterparty was GS).
If people get hungry, they revolt. The banks said to government, "If you don't bail us out, there will be a revolt. You don't want war in the streets do you?"
Solvent banks need liquidity, the payment system has to stay robust and functional, and existing deposit insurance (which is fully funded) needs to be honored. But don't bail them out.
We are in a situation where essentially all global personal tax revenue goes directly or indirectly to pay commercial and central banks for the money supply to exist.
Destroy that — or be destroyed by it.
Everything else is just rearranging deck chairs on the Titanic.
Presently, that is secondary; the limiting function is the ability of civilization to maintain the interest payments to those private institutions mandated to create the money supply.
One of these concepts is necessary; the other is not.
Creation of dynamic money supplies based on the one limiting function is possible, and there are emerging mechanisms becoming available to support such money at scale — and make it available to the other ~4 billion people entirely unserved by the present system.
Care to comment on why this conversation is a “polemic”, and such a future is unimaginable?
- Bob deposits $100 of 'real' money at a bank.
- Joe takes out a loan of $90 and uses it to buy something from Jane.
- Jane deposits $90 at the bank.
- Mike takes out a loan of $81 ...
And this process recurses on downward with a smaller and smaller share each time. But the mathematical result of this is that $100 of "real" deposits ends up creating $1000 of debt. And that's before interest which, for long term loans, can be multiplicative. So $100 of "real" money may end up creating thousands of dollars of debt. We've created a system where banks end up, quite rapidly, being owed literally more money than exists. Great time to be a banker for sure.
This is why the Fed and other financial entities are so obsessed with inflation. Inflation makes everything more expensive in the present, but it also reduces the cost of loans from the past. Imagine I take out a loan for $1000 and somehow the next day we see 100% inflation. Well now my loan can be paid back with only $500 of 'value' as measured from the time I took out the loan. If inflation is higher than the interest rate on my loan, I actually earn money by not repaying it. By contrast, deflation makes older loans more expensive. And of course there is also the investment outlook. Inflation is a penalty on wealth. If there's 2% inflation per year, my billion dollar piggy bank becomes worth ~$20 million less each year. So I'm incentivized to invest actively. By contrast with deflation I can sit on my money and become relatively richer by the day.
But this also puts us on a roller coaster. Old debt is only paid off with new debt which will only be paid off with new debt which ... And the money definitely does trickle downward, but at the same time it gushes upward. And the ride keeps going faster, and growing bigger. Not hard to imagine a different system as ours is grossly counter intuitive. Of course different doesn't mean better so, as a recurring theme in human history, we're only like to change once things go boom.
In general, you can look for information pertaining to "How banks create money," which refers to your $100 deposit turning into $1000 after it completes the ownership ladder.
If you're still in college and have the opportunity to take some electives, I highly recommend Micro and Macroecon.
>G. Edward Griffin (born November 7, 1931) is an American author, filmmaker, and conspiracy theorist. Griffin's writings promote a number of views and conspiracy theories regarding various of his political, defense and health care interests. In his book World Without Cancer, he argues that cancer is a nutritional deficiency that can be cured by consuming amygdalin, a view regarded as quackery by the medical community.[2][3][4] He is the author of The Creature from Jekyll Island (1994), which promotes false theories about the motives behind the creation of the Federal Reserve System.[2][5] He is an HIV/AIDS denialist, supports the 9/11 Truth movement, and supports a specific John F. Kennedy assassination conspiracy theory.[2] He also believes that the biblical Noah's Ark is located at the Durupınar site in Turkey.
Taxes also effectively perform the same function - destroying money (consider what would happen if all current tax money were burned and all government spending were printed - economically no different).
This side of the equation doesn't get a commensurate level of attention.
That requires the creation of additional money, borrowed into existence by someone else and then earned by the interest payer, in a never ending exponential cycle.
credit is only problematic when the expected activity fails to come to fruition, which is why the credit shrinkage acutely accompanied the economic shrinkage in the last crisis.
It’s the creation of money and paying interest that’s problematic.
This interest demands new money to be brought into being to pay it — to someone doing nothing but seeking rents due a monopoly position bestowed by the government; the banks.
This stream of interest payments is going out of the economy to whomever owns the commercial bank, but must be paid by people within the economy, who must borrow more money into existence to pay it — from the very people to whom it is “owed” (for no reason at all; they bear no risk, and provided no capital of their own).
how does the existence of loan defaults jive with the idea that loans have no risk?
If the money creation aspect of banking was separated from the capital accumulation and loan-making/risk-taking aspect, things should unfold much differently. Particularly since there would be "fractional reserve" concept underpinning the money supply.
https://www.forexlive.com/centralbank/!/fractional-reserve-b...
However, I did read the link and did some own research. I do see the argument that we need to revisit the causality of bank loans through the demand side argument. This however does not need to mean that "Fractional reserve banking does not exist". I'm not sure what makes you think that.
When you create money through "taking a loan" against property, the bank creates deposits equal to the "loan", secured by your assets. These assets are attached by the bank (a lein), valued by an appraiser and insured against loss (at your expense).
The bank creates these deposits ex nihilo; the only one in this equation that has any wealth is you, and the bank is at little to no risk.
Imagine, instead, a scenario where all of this takes place; you have wealth, you insure it against all perils (loss due to destruction or theft, including title insurance against fraud, etc.), at your expense. You get it appraised, and then money springs into being. Exactly like today. Except with no bank, and no "interest" being charged.
The same limiting function is used, as by the banks; the amount of money allowed to be brought into existence for a certain amount of wealth is some percentage (say, for example, 75%, or whatever).
Except, this factor is dynamic; it is adjusted automatically as inflation or deflation occurs, dynamically issuing and withdrawing "credit" (the amount of money credited to your account due to the pledged wealth).
The value of the units of currency can thus be established at an absolutely fixed valuation (say, relative to a basket of widely traded commodities; steel, kWh electricity, pork bellies, OJ, barrels of WTI crude, etc.).
If someone needs to "borrow", in excess of the money they have created based on their wealth, they can do so on the private market; not based on some fanciful central-bank controlled interest rate, but at market rates from others with excess wealth/credit, at their own individual risk-adjusted market rate.
Anyway, that's a quick summary of one potential alternative.
Same highly dynamic money supply, most of the same "moving parts", but no central-bank interest stream is required to create the stock and flow of credit underlying the economy.