Fractional Reserve Banking

Discussion in 'The Lounge - Off Topic' started by drum_dude, Jan 8, 2009.

  1. r.h.lee

    r.h.lee Gigabyte Poster

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    Here's a relatively deep philosophical point directly relevant to this topic and this site's existence. Some Information Technology systems exists to help perpetuate the system of vapor money.
     
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  2. drum_dude

    drum_dude Gigabyte Poster

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    Yes before the FRS there was a thing called bartering or a real currency. One traded real tangible goods or currency for services. Yes poverty is nothing compared to what it used to be...we just ignore such things.

    Money is not infinite! If it were infinite then it would be worth nothing! Weimer Germany? Zimbabwe? Inflation? When you say 'lending' did you mean borrowing?

    No they're not! Did you even bother to watch the link I posted? It has nothing to do with Zeitgeist, but you're obviously obsessed with that production yourself. Oh and I don't think Zeitgeist is what Karl Marx had in mind.

    It is built into the system! Bankruptcy, consumerism, greed, defaults and theft. All part of everyday life. The regular Joe goes bankrupt because he borrows based on his income and then later on down the line looses his job due to the drying up of the money supply.

    So would you dare say that to people who have just lost their jobs from Nissan, Land Rover, Woolworths, Zavvi, Barclays etc etc? I doubt it.

    Yes it is! The credit crunch was caused by banks no longer getting suffiecient interest payments on the debts they created! That is the Fractional Reserve System! Stop paying your debts = you no longer are paying the Interest. To make matters worse, the banks had SOLD these debts - in the good times - to investors and had already creamed off their Interest reward in the sale i.e. the took their full Interest in ADVANCE before the debt was paid in full! The banks simply acted as collectors for the investors and when it went pear shaped the investors demanded their money back. That is the a direct result of the Fractional Reserve System!

    Bankers are greedy and so is the consumer. So how can this system work? It doesn't and it is failing all around us today!

    If people saved then they would have to PAY for their savings to be held! They would receive zero interest on their savings! 2 years of crunch and 15 years of luxary?Boom and Bust has been more like 3-4 years of stupidity followed by 10 years of misery. There is no regular cycle!

    You seem to get your assumptions from Fred Harrisons Boom and Bust book. I was like you when I read that i.e. shock to the system but you soon realise that it's a load of rubbish.

    And the system would just carry on being used by people like you? People who pay £60 in interest a year in an attempt to get a good credit history? Hardly one of the sheep...not!

    No we are not! Those with savings are being hammered by low interest rates. The currency is weakening, people are losing the roof over their heads, house prices are falling, jobs are being lost, firms are going bust and the govt is preparing to print more money - which worked wonders for Weimer Germany, Argentina etc etc etc...
     
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  3. JonnyMX

    JonnyMX Petabyte Poster

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    There has always been something wrong with a system where someone who is paid less than you has a bigger house and a nicer car.
     
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  4. westernkings

    westernkings Gigabyte Poster

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    Believe me, when it comes to a mortgage in 20 years time, who is going to have a better chance of getting one ? me with my 20 years of 0000000s or you with absolutely NO credit rating because you despise the idea of it ?

    Then again, by your assumptions we should just sit and refuse to use the fractional reserve system. We should all start trading cows for sheep ? and Pork for Taxis ? bartering ? take a look at the 3rd world countries where that actually takes place and tell me that you are really going to advocate living like that ?

    Could go back to gold standard, but then again, what do we do with the 10s if not 100s of millions of people that have no money afterwards because money outstripped gold in terms on quantity-value ratio decades ago. there is not enough gold to back up the economy.

    So you get a job, fine, you then want to own your own house, you get a mortgage, funded by the fractional reserve system, you lose your job, then your house. The customer is not to blame, but the company that is laying him off of course, but without the FRS, there would be a very very limited about of mortgages, so we would all be paying to our landlords just like the 1400s.

    The money supply is created from the government borrowing from the central back, which creates money out of thin air, so how can something that can be created out of nothing, ever run out ?

    So, people should get interest on savings ? interest payments that are provided by the fractional reserve system ? that's double edged, you can't have interest payments on people savings without the FRS, either completely switch the Monterey system or deal with it.

    So we switch tomorrow, the governments of the world decide we need change,

    first thing is the lack of available credit (Provided by the FRS) so instantly you have millions and millions of people unemployed and homeless because credit has been taken away, mortgages are retracted (as they are legally allowed to do) and your house repossessed. new companies can no longer receive funding to start up, so we are down on job creation. Expansion funds are businesses dry up, meaning companies need to lay people off to maximize disposable income to pump into expansion policies.

    Forget a welfare system in the UK and a NHS which is funded for a huge part by corporation tax. and so on, you get the idea.

    Instantly, we have a problem, how soon can you implement a new system ?

    the world is not a fair place, that's just life, the world sucks, we all know it, but you can't change it, you can just live it. Forget the damn Venus project and resource based economies for the foreseeable future.

    You enjoy your current conditions because of nothing else but the fractional reserve banking system which inflated the economy to provide it. So stop reading in to the bull**** about the world sinking into 1900s recessions where 100,000,000 are unemployed and all that, because it won't get like that.

    The economy will take 2 steps back, 1 step forward, 2 steps back and eventually 20 steps forward, and pretty quickly as well. This isn't the 1930's where countries are isolated, a recession on that scale simply is not possible because of the linkage of the economy in the world. All are interconnected and once you get that big, you're pretty safe.

    Back in the 20s the United states was banking by it's self. It traded with a few select countries and a bank runs in the US effected for the most part, the US and Her really close allies.

    Now is different, we are exposed to the entire world, and that is a lot of power.
     
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  5. zebulebu

    zebulebu Terabyte Poster

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    Amen!

    There are masses of arguments both for and against the FR system. Personally I think that, although the system CAN work, it can only do so in a vacuum, and with equal cooperation from the banking system, government and consumers - which is NEVER going to happen. Its a disgrace, but I'm not naive enough to think that more than 5% of the population gives a **** enough one way or the other to ever change it.

    However, it is a fact that too many people working at Asda earning 10 grand a year were given a £300,000 mortgage on a house worth about half that.
     
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  6. drum_dude

    drum_dude Gigabyte Poster

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    A mortgage in 20 years time? Your credit rating must be shot to pieces if that's the time scale! Will you be working till you're 80 to pay it off? And then when you need to go into care will the govt force you to sell your asset to pay the fees?

    Did I not also mention currency? They're better alternatives to a debt based system. Take the time to research them instead of assuming the thoughts of others.

    Doesn't that come down to living within your means? What was it you said? Responsible lending and borrowing?

    There it is guys, I've highlighted the words and in particular the most important one: want! So want means you must have? Can you see where 'want' has got us? Probably not.

    People who pay to a 'landlord' are much better off for it; a mortgage isn't the be all and end all you know. And it's precisely that 'want' attitude to money i.e. I don't give a sh!t, live for today etc, that has caused the situation we see today. Renting isn't dead money as it provides a roof over your head! And bear in mind that for the full term of a mortgage you are indeed renting! Trip up on any of the payments for a certain period of time and the end result is repossession...the money that you paid in is gone! Expensive rent and a dangerous gamble!

    I'm glad that you finally got 'lending' & 'borrowing' the right way round! I was starting to wonder if it was worth debating with someone who 'lends from a bank' LOL!

    Clue is in the first letter of the acronym (F).

    Once again the clue is in the F. Google it! Or watch the video I posted; quite clear that you haven't!

    No sh1t sherlock!


    So we continue to prop up a failed system that will eventually lead to what? We're seeing the results now! The facts you mentioned above are happening RIGHT NOW!

    No I don't get the idea? Please provide HM Treasury data that backs up your claims. You fail to mention the Interest on the National Debt? How is that paid for?

    We have a problem now! A big problem that will take longer then 2 years to through! 10 years of continous boom...10 years? Can you remember a boom of the past that lasted 10 years?

    Just because you're in debt and a slave to the entire FRS it doesn't mean that everyone else should just roll over and go with the flow. Have you sought debt counselling?

    Where did I mention the Venus project? You are obsessed with that Zeitgiest stuff.

    So I'm supposed to believe your bullsh*t then? What on earth gives you the right to dismiss other peoples views. So far I have provided sound explanations to your - what I can only call - rather ill-informed statements.

    100,000,000 people unemployed is not a recession; it is a depression. Yes we are heading that way and the fact that we are "global" just means it's going to happen quicker and it will hurt us more!

    It's that linkage that makes it worse! Why can you not understand this! Sub-prime lending in the US nearly caused UK banks to collapse! Does that not worry you? Events in far away lands now have a direct impact on our lives! No I'm not safe and neither are you!

    Where is your evidence for this? What about the loans that the US had made during the 20s to the war torn nations of Europe? The US called them in once the depression kicked in...the domino affect of this action caused a worldwide depression.

    I ain't got a clue what the above is supposed to mean? At first glance it seems to be a very contradicting comment!
     
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  7. BosonMichael
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    I think I'm going to invest in tin foil, because I know I'm going to have at least one buyer.
     
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  8. westernkings

    westernkings Gigabyte Poster

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    I think everyone can see that I have asked you various questions and you have done nothing but dismiss or ignore them, answer the questions I posed to you.

    The system you seem to be talking about, has lasted a lot longer than any recession or depression has. The system works, it has flaws, but in the long run it works. You're simply using what is a very very weak example of a recession (the credit crunch) and using that as sound, base line, concrete proof that the system is flawed.

    The FRS has been around nearly 100 years, it has worked, but a lot longer than this crunch.

    Let's just say for example, 90 years of FDR usage, ignore the wars (Which was unavoidable in expenditure) and you have maybe 50 year of FDR usage without a major event like a world war, I would say 15 years of that in total has been a depression/recession and the remaining 35 year have been perfectly fine.

    This crunch your using as a basis for the FDR causing global pandemic poverty and depression is just absurd. There are not millions of jobs disappearing, there are not food stamps, there are not a huge amount of retailers going bust, this simply is not as bad as the media is reporting.

    Most retailers going bust have simply been hammered by better competition, Woolworths lost out because it simply was a **** place to shop with nothing that someone else didn't do better. same goes for Zavvi and the rest.

    Car Sales are down because people do not want to spend money, because the media is blowing the whole thing out of proportion, claiming we are all doomed because of a global downturn. This is a small wave in a big ocean.

    It was a small problem to begin with until that daft BBC journalist reported that Northern Rock was discussing measures with the government to SECURE peoples money, he said that, people did a bank run and northern rock fell down.

    That is a pretty common occurrence lately, with people throwing out reports, everyone panicking, selling billions in stock, whilst 1000s making a lot of money on them rumours.

    HBOS is secure, Virgin is secure, Lloyd's and Barclay's are secure and the same goes for most others, the stock market has been stable for a while now.

    This started as a subprime mortgage crisis, but it isn't that any more, that is barely mentioned any more, now it is because people are throwing rumours around, purporting ideas about the economy and that is making millions take action.

    This is a media created problem NOW, it started when the mortgages in the US got a higher interest rate, now it is simply assumptions and rumours causing it.

    If you are really going to tell me the 8million people that work in the UK are paying more than the business sector towards the Social services in the UK in tax, then that would be a very bold statement to make indeed.
     
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  9. drum_dude

    drum_dude Gigabyte Poster

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    Well we both have very different opinions on this matter - which is good! Would be rather boring if we all agreed. I think we're both not going to budge on this subject so before the admins step in I'm going to give way on this and agree to disagree. :)
     
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  10. GiddyG

    GiddyG Terabyte Poster Gold Member

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    Umm... pity. Quite a good thread seems to have nosedived. I was quite enjoying the early bits too. Oh well...
     
  11. drum_dude

    drum_dude Gigabyte Poster

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    Sorry about that...here's hoping that someone else picks up where I left of eh?:D
     
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  12. r.h.lee

    r.h.lee Gigabyte Poster

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    drum_dude and other CF members,

    The above link is listed as "This video is currently not available. Please try again later." Here's another link to the video that works..

    http://www.youtube.com/watch?v=PHBtnzxJJ_4
     
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  13. derkit

    derkit Gigabyte Poster

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    I agree with G, a good thread gone slightly off-track TBH, so I'll try and bring it back on topic... hopefully! :)

    To give everyone a background - I'm renting, saving money and have no debts (apart from the student loan), I'm a marketeers knightmare as I don't fall for their ploys of getting people to buy stuff "for the sake of it" and am lost how other people are.

    When I started uni in 1999 (wow, haven't written a 1 in the year for ages now!) my parents had just moved a few years earlier and I remember talking to them about mortgages and paying loans back etc. and how the house they bought was paid for at just under £50k (last year at peak ~£165k). I shall come back to this responsible level of borrowing/affordability later.

    I worked since I've been 13/14 on a paper round, in a small newsagents/corner shop, bar jobs, security guard, odd jobs whilst at uni, and am now 28 with 14 years worth of some sort of work under my belt - and even before I had those jobs, I understood the value of money, how much I had, what would happen if I spent it all before the next payday/pocket money day, and I understood about credit. My parents installed in me the concept that money isn't something to be thrown around but to be used wisely, be it for a pension (long term future), house (medium term future) or the 3 evenings I'm going out in the rest of the month that I don't know about yet - always plan for contingencies, the "what-ifs".

    Saving for something and then buying it - whilst that concept works in smaller items, houses are one of the those that saving 3 times your salary (before tax) is nigh-on impossible so that debt I can understand - but cars, holidays, flat screens, computers all of which can be bought for "cash" by simply saving, I can do it so why can't others???? I don't understand!

    Its the "I don't need to wait, I can get it now!" attitude has been prevalent in our society for the past at least 8 years - it may have existed before but I never noticed it - whilst credit is needed for businesses to buy the initial stock, for people to buy houses I feel it has been "let off the leash" and now having a several grand credit card is a given norm - why? Apart from the greed of banks in the hope that people won't pay it off each month and hence pay them interest, there has been no other reason for the need of such an explosion of personal debt.

    Going back to an earlier point - affordability - the "in-laws" (not married, but you get the idea!) went on a continual rampage about 2 years saying about the need to buy a house and to stop renting, now ignoring the actual cost of the houses, something I argued with them then, I did to with work colleagues and would still do in this downturn, is about how much it would cost me to pay this debt back. If I have £1000 pm in my pocket, with £200pm other costs, why would I get a loan that would cost me £700pm at current rates? For me that is stupid, no sense at all! What happens if the rate goes down, well happy days less spent on interest, but also what happens if the rates go up, I loose my job, the missus becomes pregnant, I fall ill for a long time - I have no where financially to run as I not left myself, and the bank have not checked, how much excess money I have left over.

    I think banks should take the heat for taking the risk (irresponsible lending) that higher loans means higher interest payments and more profit, but I also believe that if it wasn't for the public just using money they were yet to receive with no attempt to use the save-then-spend approach (irresponsible spending).
     
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  14. dmarsh
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    I think people are missing the point when they start mentioning personal finance.

    Like derkit I like to think I'm fairly frugal also.

    The problem however is that the current system does not reward savers, I believe this is drumdudes point.

    It does not matter if you work for 20+ years, if you don't ever have credit, if you have only a small mortgage and overpay so its gone in ten years, etc, etc.

    None of this matters if :-

    Market forces make the house lose 50% of its value.
    Market forces make you lose your job.
    Market forces devalue your currency making it worthless.
    The central bank cuts rates making holding cash a loss bearer in real terms.
    Inflation devalues any profits, cash or investments you do hold.
    Government debt ensures both you and your children will be paying in taxes for the feckless, greedy and corrupt for the next 50 years.

    The responsible will get punished by the system just as efficiently, probably more in most cases than the feckless.

    Why did this happen ? Well the government allowed the banks to break the lending rules and they allowed them to do some dodgy accounting. What did the government get, lots of nice company tax and stamp duty. The bankers and estate agents got rich. People who did a job for a living instead of 'Property Development' were suddenly mugs. What do we get now? A nice big shinny bubble... I'm sure you know the rest.

    How could of been stopped ? Well they could have kept the lending rules, government could have ensured a strong FSA. Banks could have been kept strictly in the retail sector or investment not both, or as building societies, their loan to value could have been regulated as well as their reserves. The housing market could have been properly regulated with anti guzumping laws etc like other countries. No instead of proper government we got the usual new labour behaviour, of lots of spin and no action, 'no more boom and bust' etc.
     
  15. onoski

    onoski Terabyte Poster

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    In a nutshell, sew your coat according to your size:)
     
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  16. dmarsh
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    No thats not my point, what use is personal prudence if the system is fundamentally broken ?

    Why work when a person on benefits can live in a bigger house ?

    Why fight in a world war and save for a pension only to see your income slashed by the government, your income and savings erroded by taxes and inflation ?

    Many of the current generations pensioners did 'cut their cloth by their coat' but they will pay for the people that used equity release for that 5 star holiday or the bankers that got a six figure bonus by selling junk bonds as tripple A.
     
  17. onoski

    onoski Terabyte Poster

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    Please, whichever government that's in place would still experience the same economic downturn. Lets face it the rich would always strive at the expense of someone or something.

    I think what we should all be looking to happen is responsible lending and good adhered to practices put into banking, selling and the whole of the financial institution

    The moral of the story or this thread should be don't waste your hard earned cash or try to live like the Joneses.

    Politics is a dirty game that strives on lots of issues that this thread cannot afford to deviate into at this moment.
     
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  18. onoski

    onoski Terabyte Poster

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    These are very valid points you've raised however, you can always choose to live somewhere else where your hard earned cash is working for you and not slashed. Lets face it the world is a messed up place, messed up by individuals in the name of politics, greed and religion.

    You can try to make a difference by not being too caught up with the above as the fact of the matter is that once you can live a life of contentment that should be it.

    However, no people get greedy and materialistic forgetting when they die the money and worldly possessions are not going with them.

    Sorry, sort of deviating a bit but get the gist and live life to the full whether you're rich or poor as trust me there is someone more messed up by things not necessarily their own fault.

    If you're well, healthy and can hope without too much stress in life you are more well off than a millionaire that has to pop pills each night just to get a sleep.

    Nuff said:)
     
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  19. dmarsh
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    Ok so both main political parties helped create the current situation with their deregulation of the banking sector.

    Governments absolutely were and still are in control of policy, people were warning of self cert and a property bubble 5+ years ago. They absolutely could have had a hand in 'how we experience the downturn'.

    Gordon brown has been over optimistic and over spent for almost his entire time in office. At least margaret thatcher paid back the national debt.

    The UK has also followed the services model far too much in my opinion will will also have a big effect should financial services take a big hit.

    Government absolutely is responsible for policy, whether we import gas, if we invest in research, if we support manufacturing, if we allow weak regulation, etc, etc.
     
  20. onoski

    onoski Terabyte Poster

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    Either party that's in place would not make a difference as there still would be higher taxes paid via income tax etc. The fact of the matter is that the government policies are not in favor of the majority of the UK population or working class that's the fact.

    It is however in favor of the super rich either way you look at it.

    So forget about policies as these would not make a difference unless one chooses to live outside of the UK period:)
     
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