Europe strikes deal to push cost of bank failure on investors

[StarDust9182]

Quote from Ghost of Cutten:

.......

Also, why wouldn't a full reserve bank be able to compete? That sounds like saying a t-bills fund can't compete with an equities fund or a 10 year bond fund. If people want absolute safety, a full reserve bank is the closest way to provide that. People invest in t-bill funds, so there is clearly a desire for super-safe places to put money.

......

Gresham's law: "Bad money drives out good". (see Wikapedia for more). The next thing to fall would be governments since bad government also drives out good, partly because the amount of intelligence in the world is a constant, but population increases every day!

At least it seems that empirically fractional reserve banks have political and economic dominance in the world.

 

[StarDust9182]

Quote from Martinghoul:


Yep, with you now.

Yes, exactly the point I was trying to make.

... and that was the point I was trying to make also! (Use fully reserved banking system - or as proposed in other threats, an internet based citizens loaning system. Risk matching reward backed by the lender's assets).

Alternatively a ban on passing debt forward so that the risk can't grow to systemic risk proportions. AKA a jubilee event.

OMG, isn't the emergency plan, that in the event that three people on ET agree about something, the website should be closed!

 

[Martinghoul]

Quote from StarDust9182:
... and that was the point I was trying to make also! (Use fully reserved banking system - or as proposed in other threats, an internet based citizens loaning system. Risk matching reward backed by the lender's assets)

OMG, isn't the emergency plan, that in the event that three people on ET agree about something, the website should be closed!

So I am a massive fan of internet-based lending and I am supporting a few of these efforts. However, you need a LOT more transparency on behalf of the borrowers for this to work properly. I don't see why that can't be done, given the internet.

As to full-reserve banking, I just think that it's wishful thinking. I mean it doesn't work even in countries which have tried it and where there's religious law to support it (Sharia). It's a fantasy, IMHO. In fact, here's a question I have never been able to get an answer to. As we have observed, leverage to banks is like pot to a teenager. So how do you ensure that in your hypothetical full-reserve system banks don't sneakily do a few bits 'n bobs on the side? BTW, this is exactly how things evolved with Bank of Amsterdam in the 17th century.

 

[StarDust9182]

Well you don't ask difficult things do you? Let's redesign the banking system so it works on ET. Well I am game. It will take some time since I need to think a lot and since I can not do it alone, we all need to critique it until the idea is proven false, or we have a workable solution or we don't care anymore.

So to start here is information on the Bank of Amsterdamn which I need to review to kick off my thoughts. We should be on the same page:
http://wiki.mises.org/wiki/Bank_of_Amsterdam
and
http://www.frbatlanta.org/filelegacydocs/wp0516.pdf

I first note that the first bank I can find was in 1397. So why create a bank like this years later? Could there have been problems with the first few banks?

Secondly, this bank seems to have worked for 150 years ( longer than the FED) and failed when the directors violated their own rules, started issuing unbacked credit, and kept it a secret. The market worked and appeared to destroy the bank when the secret came out. Secrecy is a bad thing in this case.

We have already established that the current banking system will attack the new banking system. So how to get there is the tougher problem. But let's leave that really tough problem until after we have designed a system.

The flippant answer to your question is we need to design a banking system that fails into balance and not what we have now which fails into bubbles.

I don't like building systems or solutions using rules but principles. Principles are looser and need more interpretation. They are more powerful than rules because the real world is a lot more complex than it appears.

So the first principle is that we are all in this together. We ultimately all fail or succeed together. Equality

http://www.upworthy.com/watch-a-tea...ch-other-for-the-best-reason-imaginable-2?g=2

 

[theiguana]

I'm surprised to see the lack of outrage. All this is going to do is increase the bank runs when any sovereign nation gets in trouble. Anyone with 100K+ will run for the hills.

 

[Humpy]

Much of this activity is a smokescreen to cover thieving by the bosses. The money is lent then is lost ( disappears ) and who then is asked to foot the bill ?

Outrageous

 

[Martinghoul]

Quote from StarDust9182:
Well you don't ask difficult things do you? Let's redesign the banking system so it works on ET. Well I am game. It will take some time since I need to think a lot and since I can not do it alone, we all need to critique it until the idea is proven false, or we have a workable solution or we don't care anymore.

So to start here is information on the Bank of Amsterdamn which I need to review to kick off my thoughts. We should be on the same page:
http://wiki.mises.org/wiki/Bank_of_Amsterdam
and
http://www.frbatlanta.org/filelegacydocs/wp0516.pdf

I first note that the first bank I can find was in 1397. So why create a bank like this years later? Could there have been problems with the first few banks?

Secondly, this bank seems to have worked for 150 years ( longer than the FED) and failed when the directors violated their own rules, started issuing unbacked credit, and kept it a secret. The market worked and appeared to destroy the bank when the secret came out. Secrecy is a bad thing in this case.

We have already established that the current banking system will attack the new banking system. So how to get there is the tougher problem. But let's leave that really tough problem until after we have designed a system.

The flippant answer to your question is we need to design a banking system that fails into balance and not what we have now which fails into bubbles.

I don't like building systems or solutions using rules but principles. Principles are looser and need more interpretation. They are more powerful than rules because the real world is a lot more complex than it appears.

So the first principle is that we are all in this together. We ultimately all fail or succeed together. Equality

http://www.upworthy.com/watch-a-tea...ch-other-for-the-best-reason-imaginable-2?g=2

Yeah, so the point I was actually trying to get at was that you need someone to enforce the "full reserve" nature of the banks in this system. Who is the infallible agency that will do this? The government? The bank officials themselves?

My analogy with drugs is appropriate here, I believe. Leverage in the financial system is like pot. Make it illegal and you're gonna need a lot of money and effort to enforce the rules. Furthermore, judging by the historical precedent, it's not like this enforcement is likely to be successful. Much more sensible, IMHO, to allow some leverage, while trying to educate the consumer and also keeping a lid on any excesses.

 

[achilles28]

Quote from Martinghoul:

As I have mentioned in our other conversations, I remember 2008 all too well. I was right in the middle of that sh1t and I still have the scars.

So I am 100% in total, unwavering agreement with you re: Glass-Steagall. It's shocking that there's been no progress in the US on this issue whatsoever, just like there's been virtually no progress on TBTF, in spite of attempts like Brown-Vitter. Even here in the UK, they have achieved more and the financial services sector here is a larger portion of GDP than in the US. It's the power of the US banking lobby and it's why people like Charles Calomiris and Larry Summers infuriate the sh1t out of me.

On the derivatives issue, I am, in contrast, in complete disagreement with you. I think you're, with all due respect, barking up the wrong tree. If you want me to, I am happy to go through my argument again, like I did in one or two older threads.

Yup on glass-steagall.

Derivatives....I'd love to hear it...

 

[achilles28]

Quote from Martinghoul:

Yeah, so the point I was actually trying to get at was that you need someone to enforce the "full reserve" nature of the banks in this system. Who is the infallible agency that will do this? The government? The bank officials themselves?

My analogy with drugs is appropriate here, I believe. Leverage in the financial system is like pot. Make it illegal and you're gonna need a lot of money and effort to enforce the rules. Furthermore, judging by the historical precedent, it's not like this enforcement is likely to be successful. Much more sensible, IMHO, to allow some leverage, while trying to educate the consumer and also keeping a lid on any excesses.

Legalize competition?

 

[StarDust9182]

Quote from Martinghoul:

Yeah, so the point I was actually trying to get at was that you need someone to enforce the "full reserve" nature of the banks in this system. Who is the infallible agency that will do this? The government? The bank officials themselves?

My analogy with drugs is appropriate here, I believe. Leverage in the financial system is like pot. Make it illegal and you're gonna need a lot of money and effort to enforce the rules. Furthermore, judging by the historical precedent, it's not like this enforcement is likely to be successful. Much more sensible, IMHO, to allow some leverage, while trying to educate the consumer and also keeping a lid on any excesses.

Whew! That is much easier to talk about.

I don't like that analogy. It says that every law made is like pot. Laws need enforcement because laws are made on things the state wishes to happen, not necessarily what people want to happen. People want pot, states want control and survival. Laws imply enforcement, income and work (purpose) for the state. Police states greatly increase laws to have more purpose. There are no laws not needing enforcement like - everyone will breathe daily or suffer the consequences.

So the problem is the partial reserve system and the shift of burden of risk onto "the system" and the burden of profits onto the banks. We need to ensure risk and reward stay together and then free markets will keep it on track. Certainly blow ups would be contained.

So who would benefit by lending? - the lenders. Who has the interest to keep it working - the lenders. How do we a ensure lenders want to full reserve because it is the best policy, safety and profits for them in the long run? Savers age, become lenders and then recycle their created labor wealth.

Like all markets concentration causes free market trouble (unions, companies, governments etc). So how about this. Laws on maximum size of lending companies, laws on the maximum size of shareholders, laws holding lenders completely responsible, laws preventing re-loaning ( this is a big cause of the problems since 1970s - repackage a bad loan, add in my fees and resell it to greater fools who invest other people's money), laws allowing selling of debt but not the risk, laws demanding a loan be settled within say 30 years maximum.

One potential is a kind of co-operative model that loans in regions setup and ruled by local governments. Third-party shares are not allowed in banks - your own capital or no ownership. If the bank loses on a loan, owners lose proportionally their savings capital. Wide ownership lists and laws on concentration. Banking monopolies or worldwide size are not allowed. To fund large projects, money must come from lots of diverse groups (Principle 2 - diversity. Environment proves this works best long term).

So many laws but then who would enforce them? Not the state, but the people who risk their own money would enforce them. You know the pot dealers!

Would that keep risk and asset together?