Wednesday, 27 August 2008

Problems For The Bankers - Part 2

Cartels usually don't work for very long

Banking is a cartel, and an incredibly succesful one at that.

This success creates a problem - there are vast profits for anyone who breaks the cartel. Not being stupid, cartel members know this and there are usually severe penalties for anyone who breaks ranks. This makes the cartel even more successful, which boosts the profits of all...and makes breaking the cartel even more lucrative and likely.

This is how all cartels ultimately end. From within, from a lack of trust between their own members and profit seeking for risk takers within the cartel itself. Banking is also an immoral (though not illegal) and more crucially hidden cartel and this throws up it's own dilemmas and challenges.

Bankers revealed will be bankers reviled...

As the famous manufacturer Henry Ford noted, ""It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." This means that publicity is to be shunned by the bankers and this has been useful to an increasing number of people. Bankers don't want public discussion about what they do and this means staying out of courtrooms when central issues are raised.

There is a small but growing band of chancers, moralists, legal investigators, desperate debtors, flim flam artists, libertarians and others who are all leading a quiet and virtually hidden war against the bankers while they try to get their "debts" repaid. Knowledge is power, but so is ignorance. (Clued up "borrowers" are a tiny but potentially lethal threat to the bankers, more about which in future blogs.) They are, as far as I can tell, split between people who want something for nothing and people who want the bankers to stop getting something for nothing from everyone else and the plain desperate who are trying anything to get the debt monkey off their backs.

Put simply, if you understand how banking works and can ask the right questions the bankers will struggle to collect any "debts."

Problems with the other members of the triumvirate

The triumvirate as I noted in the first blog is workmaster, taxman and banker. They don't always get along. The workmaster might have no productive work for people to do, the taxman or workmaster might be limited in what they can demand or the workmaster/taxman can get greedy and not share profits with the banker. Any one of the three can promise things the others can't deliver.

One of the three can be replaced with someone who doesn't like the deal. No good being a banker if a Stalin or a Hitler arrives - they are going to just order people about at gunpoint directly. This never lasts long but the bankers have to watch for it. The workmaster might find work so productive for people to do that they build up surpluses, which means they can't be ordered around as easily. How these people behave is crucial -

The threat of a good example

I haven't explicitly said it so far in the blog as I can recall but it's worth saying it again even if I have - there is no need for the current system of taxes, banking and the workmaster. People have their own abilities, dreams, motivations and ideas. The middle class* is a shining example of people who freely trade, don't rob each other directly or by fraud, work for what they have and most importantly work with each other voluntarily.

That the vast bulk of people perform win/win trading with each other on a daily basis and do not act as the taxman or banker do and would be horrified at the idea is a great hidden truth. Much work is being done to make sure it stays hidden - compulsory schooling, slanted media, limited public "debate" of issues, advertising and all the tools of modern persuasion are employed to hide the simple fact that alternatives are available and are being used every day. That our current way of life is the only way of life is the message and it's broadcast 24/7/365

What we can see is that whenever a geographical region starts to act along these lines without a banker/taxman/workmaster paradigm, it is swiftly invaded one way or another and brought to heel. Whether this is a South American country, a failed ex-soviet state or a field full of hippies they will be there before very long, ready to impose their way of life. This is as much self defence as greed. If control slips for too long anywhere, it might never come back, for example -

Alternative currencies

Anything can be a medium of exchange. Anything at all. This is a problem because if you want to mandate a medium of exchange, you had better make sure that as many people as possible are using it. The emergence of an alternative is anathema to the bankers. They hate and love gold for this very reason. It's a spectre of a time when they were limited in their power to create money and command the economy.

Ebay has been investigated by the taxmen just in case one good became a medium of exchange on there, E-Gold and others have been raided and put out of business, safe deposit boxes stolen by the taxman etc and this will continue until either the banker empire collapses or people wake up.

Detachment from reality

This is just a general problem with power, status and money but it definitely applies to bankers. Too much power alienates a person from realities that others take for granted, such as paying attention to the needs and wants of others, empathy and sympathy. Take this quote from Lawrence Summers, who worked at the world bank -

.....developed countries ought to export more pollution to developing countries because these countries would incur the lowest cost from the pollution in terms of lost wages of people made ill or killed by the pollution due to the fact that wages are so low in developing countries…the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. **


That the people he is talking about might realise who is hurting them and (for example) fly a plane into his office sometime obviously hasn't occured to him. Empathy and sympathy are useful tools for humans for self preservation, if nothing else. Our current crop of banker overlords think that "perception is reality" which makes sense, given that they are conmen.

The problem with this is that reality is reality and perception always bows to it in the final analysis. A lot of damage can be done while "managing perceptions" before that moment comes. This will almost certainly be the ultimate end of the banking empire - drowned in it's own crapulence.


*Please forgive the generalised terms, I realise that individual people move in and out of this or that band of humanity all the time but it's a useful lie I like to use as illustration so I lump them all together this way.

**Quote found on this article -

Sunday, 24 August 2008

Problems For The Banker....Part 1

So far, I have been presenting the banking system and the bankers as a whole unit, one entity, which has served for the simple explanations and outlining I wished to put accross. However, bankers are just men and women, individuals like all of us and in operating the banking system with the other two groups they have their own problems and pitfalls.

Let's have a look at some -


Being a banker is pretty sweet, so there is competition. While not being especially moral, banking is really rather wonderful if you happen to be on the profit taking end. Power, resources, social status (and the resultant sexual choices) mean that it's difficult to keep a closed shop. Those who know enough to run or set up another banking network have to be brought into the cartel or otherwise disposed of. Usually this takes the form of big bonuses, light corruption and the like.

Generally speaking however, the main competition for a banking empire is from another banking empire. The Euro bankers versus the pound bankers and the dollar bankers....areas of control with their own flavours and set ups. Once a banking system is operating within a region and has stamped out competitors, then it's pretty easy to offer the best and brightest jobs in the enterprise and co opt them. As has been said elsewhere "this class of people are no threat for they see only the profit to be made." This can bring it's own troubles -

Misaligned incentives.

The people at the bottom and in the middle of the pyramid have tremendous incentives to game the system. This is far from uncommon in industry, but it poses a particular problem within a fraudulent enterprise because the individuals concerned cannot always be publicly outed. The local cashier who pilfers some bits and bobs of cash can be tried as a thief, the head of a franchise bank who decides to engage in a bit of excess money creation, not so much.

The bonus and pay structure itself can be hazardous to the banking enterprise - bonuses paid yearly which encourage risk taking have recently lead the junior members of the cartel to lend to lots of people who don't have a hope in hell of doing anything productive in return for their "debts."

This is a problem because -

The bankers can get greedy

As with anything, there is a goldilocks effect. Not too much, not too little, everything just right. If taxes are too high, the people revolt or avoid them, in a severe case there is revolution. If inflation is too high, then there is a chance of people refusing to use the money, no matter how much force the taxman applies - quite a few currency criss have ended with soldiers entering homes to force the use of money. This is exorbitantly costly of course and rarely works.

If the work demanded is too much, or further production not possible for some other reason, then promises that the bankers themselves have made might not be met. If those promises were to some significant group - the taxman, the workmaster, another group of bankers or even some powerful group within the rest of society then a disaster might unfold.

For example - if a load of american bankers promised a vast river of wealth to some chinese bankers, some problems might result if the workers that the american bankers rely on to do all the work don't produce for some reason. What reason might that be -

Too much debt?

Again, there is a maximum amount of people who are willing to work for the workmaster or pledge their assets to the banker. Traditionally the bankers have got around this barrier by creating imaginary entities called "countries" which can borrow for those people and then charge them via taxation. This puts the level of tax up of course, but this also has a limit.

Once debts start to destroy productive assets, the ability to produce goes down and this is also a threat to the banking system because it only exists because of the health of the economy it feeds off. This is a problem because -

Too big a parasite will kill the host

Pretty self explanatory - it's all very well being able to use a confidence trick to claim the houses, businesses and farms of millions of people, but then who is growing all the food and doing all the work?

Hungry people are dangerous people when you have food.


Next - why cartels always fail, what happens when governments and bankers fall out and the threat of a good example....

Saturday, 23 August 2008

Inflation and Deflation

Inflation and deflation are amazingly easy to define, incredibly difficult to predict in a free market and incredibly easy in a command controlled one and almost impossible to measure in either.

Put simply, inflation is an increase in the money supply, relative to itself. It is generally understood to be rising prices, but this is incorrect.

Deflation is the opposite - a decrease in the money supply, relative to itself. it is generally understood to be lowering prices, but this is incorrect.

Price changes are a symptom of inflation/deflation.

In a free market, money is anything that people use as a medium of exchange and this will alter daily in both type and quantity as and when people require it. If traders run out of gold, they'll use silver, if they run out of silver, they'll use oil if they run out of oil they'll use peppermint coughdrops......a medium of exchange is instantly thrown up by market forces and instantly removed by those same forces as and when required.

In a command economy with a fraudulent banking system such as we currently have, the money supply is impossible to determine. High street banks routinely pretend to have more money than they really do (they call this money creation, ho ho) which makes the figure impossible to determine from that point of view.

What we do have is a vague idea is the amount of printed and coined fiat money that there is - roughly £50 bn in the UK. The real question from the point of view of inflation or deflation of course is this - do market participants make their valuation as if that is all the money that there is, or do they think that there are a lot more pounds knocking about than there really are?

People accept numbers on a screen as payment, they accept headed paper with a bank logo and some numbers on it as payment. People accept credit cards and debit cards as payment. Why do they do this?

Well from a brief straw poll of a few dozen people on the high street, because they think that real money is behind the bank logo, "real" money is behind that headed paper. In other words, they price pretend money as "real" money. "Real" money being fiat currency in the popular mind.

Here is the kicker though - pretend money doesn't cost the same as real money. Not by a long shot. Vague promises are pretty cheap and stationary costs very little. However, it IS money, of a sort. Money is anything that people will use as a medium of exchange. The trouble with this mehod is that people are only accepting copies, knock offs, lies and the trouble with lying in this manner is that you have to keep doing it. That piece of paper that was flashed at some sucker with an imaginary "mortgage" had better work tomorrow, and the next day, and the day after, or he's going to stop working so hard to make his "repayments."

Eventually, the bankers might have to come good on their promises.

Even leaving aside this fraudulent aspect of banking and looking at a straight fractional reserve system we have the problem of promising the same item to many people. The value of that one item will be eroded because in the popular imagination there will seem to be many more of them than there really are. This means that when it's working a fractional reserve system will both appear inflationary and be deflationary all at the same time.

When it stops working, the opposite will occur. There will appear to be deflation but actually there will be either static monetary growth or inflation.

Eh? How come?

Using a real object is again the way to explain this, I think. If I have 1 piano and record it as belonging to 15 people and they all believe me, they will all act as if they have a piano. The human actions that result from mistaken belief - 15 people booking concerts, recording studio time, buying piano varnish, hiring piano tuners and so on. This sends signals to the market that there are 15 pianos in existence and so more human actions will follow - the concert hall owner will print tickets, have the place cleaned and that will result in even more actions, impossible to determine and very difficult to predict.

So...what happens if two people come for their piano at once and the warehouse banker is caught out? Well, he is ruined...unless....he can get another piano from somewhere. Now we have doubled the actual piano supply. The piano supply has inflated. But, and this is important - he's either had to have it made or bought it from elsewhere. This has a cost and gives out yet another set of signals.

What happens if all 15 people arrive for "their" piano and only 10 of them can be provided with a newly made one?

The banker goes out of business, the piano supply has actually increased by 10 and 4 people have lost an illusion. (The original piano was also given out.) Pianos will be swiftly repriced by the market to match their newly inflated amount. 4 people will need to either get another piano from somewhere or give up, with resultant loss of human actions that were based on a mistaken idea.

Replacing banker lies with fiat currency is inflationary.

A promise to provide the same item to multiple people doesn't create more of that item. Pictures of an item do not create more of that item. Plausible words delivered by a smiling man in a good suit do not create more of an item. Account statements claiming that there are more of an item than there really are do not create more of an item.

Making good on those misrepresentations, however, does create more of that item.

Not replacing banker lies with fiat currency isn't deflationary.

It's just the death of a delusion, the lie revealed. There were £50 bn, there still are £50 bn. Nothing has happened, nothing has changed, but peoples perception has altered to meet reality. They will act differently, that's for sure.

Velocity of money?

Doesn't mean anything, only known or perceived amount does. Velocity within the banking system is merely a measure of mispricing and mistake.


To conclude, the fiat/fractional system is an economic nightmare, whether the bankers get away with it or they get caught out. While it operates, no one has any real idea what anything is worth. Market signals are nearly useless. This is a bit of a problem because we've been on such a system for nearly 80 years.

80 years of malinvestment. 80 years of mispricing. 80 years of doing the wrong jobs in the wrong areas.

Think about what that might mean is here that shouldn't be and isn't here that should.

Tuesday, 19 August 2008

Gold Is Money?

Gold is a useless yellow metal. To me, at least.

I neither want nor crave gold. I don't like jewelry, I don't have a penchant for things that shine and shimmer, I don't need a very heavy paperweight. I am hardly unique in this indifference to gold - many, many people have no love or desire for gold. Of course, many, many people just love gold. They think it's the best'know...ever!

Then again, many, many people love all kinds of things - old stamps, football stickers...practically anything and everything has it's enthusiasts.

Why does gold have anything to do with banking though, and why do some people (goldbugs as they are known) think that "gold is money?"

The general idea is that money is a kindof abstract idea has certain properties and that gold fulfills the abstraction most closely out of all substances in reality. Platonistic foolishness, like all platonicity is.

Money is said to want to be -

Stable. That is there wants to only be so much of it, so that it's not subject to sudden deflations or inflations and it therefore preserves it's value.

Rare. That is, it's supposed to be in limited supply. The rarer something is, the more valuable if people desire it. Everyone likes to breathe but air isn't in short supply, so it's no good to use as money.

Divisible. A good money will be able to split into parts without losing any value. 1 gold bar cut in half is exactly the same value as the gold bar was. 1 sheep cut in half really isn't.

Concentrated. A lot of value in a small space. A money that was twelve feet square wouldn't be much good to go shopping with, even if it was really light. You'd need one hell of a wallet, for a start.

And the list goes on for some time and sounds very plausible.

However, I am telling you right now - it's all nonsense. Money is just any medium of exchange. If you trade goats for sheep and have cows as a middle step, then cows are money. If in prison you trade cigarettes for hard core porn with your cell mate and he then trades those cigarettes for soap with someone else - cigarettes are money. If you trade football cards with your friends in the schoolyard, then the cards are money.

What's the problem with all free market forms of money?

Refusal. No doubt you knew a kid who assembled all the football cards back in your schooldays. He might have appeared vaguely cooler than the other kids, or got a burst of happiness from his collection. After a time though, people moved on and his card collection became almost worthless. Cigarettes are also waning in popularity - everything has it's day, even cancer sticks.

What happens to the holders of gold when people move on and want much cooler things instead - TV's, cars, mobile phones or whatever? Gold's main property to those who genuinely want it for what it is, is jewelry. Jewelry is just one form of social display these days. One social marker amongst hundreds. The goldbugs are the equivalent of the kid with the cards in the playground wanting, wishing that the value of the cards remained high as it used to be. This does give gold a sort of faux value, but it's not actual demand as far as I can tell, it's a memory.

Can you say bubble?

Not that you can't trade a bubble or that people's individual valuations aren't valid. All I am pointing out is that gold doesn't have the objective value that some would like it to have. All values are subjective, in fact.

Why was gold used as money in the past?

Gold was money because in the three ring circus of taxman, banker and workmaster, gold was used to regulate the banker. The workmaster and the taxman both know the main problem with the banker is that he can just pretend to have more and more money to more and more people unless there is something stopping him. His greed will inevitably get the better of him, and knowing that he is a fraudster as both the workmaster and the taxman do, only a fool would trust him.

Of course it was a four ring circus in those days, because they had the religious guy in on the action. He's not as active these days, more of a part timer. His tradition of not marrying people without a gold ring has hung around though. Now, people don't want to get married without a gold ring, although they don't get married as much and also maybe more often. Or something. Whatever, the gold ring tradition is still here but the religious reasons aren't as significant is what I am saying.

Gold has all the properties needed to keep a lid on the banker. Therefore the taxman wanted it and the workmaster issued it. This keeps a lid on the banker and keeps the slave economy stable.

This is what makes gold so valuable in the political economy. It stabilizes the predation. Remove the predation and gold is revealed to just be a shiny kind of fiat. In a free market, gold isn't anything special - in fact it's rarity makes it almost useless for day to day trading.

Having said that, I do have some and I do have some other monetary metals. Why?

Because I don't see much of a free market in the near to medium future. I can easily see a post paper money collapse gold standard being introduced. (Bloody stupid because if gold standards worked we wouldn't be here in the first place, but that's people for you.)

There we have it then - gold ain't all that.

Monday, 18 August 2008

Banking, Guilt and Reciprocity

A question that has fascinated me since I first learned about the bankers various frauds is this -

Why do people fall for it?

And then, after debating with people who knew about it and defended it -

Why do people want to fall for it?

When I found out I had been conned, I was straight into writing letters, making phone calls, visiting branches to make sure that what I had found out was true and then to tell the bank to stick it's "debts" up their collective bumholes. (I did get them all cancelled too, a story I shall tell sometime.)

I finally realised the reason that the scam and scheme work - Guilt and Reciprocity.

This is the reason that the bankers fraudulent scheme works, ultimately. Most humans have an inbuilt desire to reciprocate equally when they receive some benefit from someone or just from good fortune.

Salesmen make use of this fact with the "free offer," which is really a hook into peoples sense of reciprocity. When people have to acquire banknotes or the bankers permission to get something that they like - a house, a car, or whatnot then they automatically assume that they should give something of equal value in return.

Not doing so creates a sense of guilt for the vast majority of humans. If we do a favour for someone, we can be annoyed or upset when nothing is returned, "not even a thank you" is a grumpy refrain we have all heard from time to time. If we lend one of our cherished possessions to another, we expect to have them looked after and are annoyed when they are not. There are few things worse than breaking or losing something vauable entrusted to us by a friend or family member.

Luckily for the bankers, the bulk of people equate this interpersonal lending with what the bankers do. Because of the massive cost disparity between the bankers issuance and the general populations effort to acquire that issuance and the fact that the bankers usually have whatever they give out back within a very short time frame indeed, these feelings of reciprocity and guilt are entirely misplaced.

We as general citizens have to work quite hard, take risks and put up collateral to acquire the bits of paper with dead gangleaders on them. The taxman is exceptionally keen to take them from us at every turn, traffic wardens want them, if you want a licence you need them. Families argue about who should have what amount of them, businesses compete for can be hard without them.

The banker just prints them.

To him they are more or less free. They require little effort and they always come home to him when he does give them out in a very short amount of time indeed. He doesn't sweat for the paper, he doesn't have the taxman bothering him (they are best friends) he doesn't have to go to work all day to acquire the paper. He just writes it down and he's got it.

Take out a loan with a bank and spend it in the morning and by teatime the banker will have his cash back, safe and sound. No need for reciprocity, no need to feel guilty, no need to do anything further.

And that's if it ever even leaves the bankers grasp or is printed at all......which doesn't happen all that often in this modern electronic world.

Do you owe workmen who just tell you they have built a wall for you?

Do you owe a mechanic who just tells you he has fixed your car?

Do you owe a banker who just tells you money has been moved around on your behalf?

Nope. No need for reciprocity, no need to feel guilty, no need to do anything further.

Friday, 15 August 2008

Credit Crunch? Nah - It's Profit Taking!

The story of the credit crunch is amazingly simple. It's as simple as the dotcom bubble and the great depression, as simple as the scam itself. It has a slight twist, however and more than a few wild cards.

What the bankers have done is bubble housing on purpose, so they can take control of a lot of assets through the magic of people defaulting on debts that aren't there. Why, do you think, have the bankers done this?

Well, to put it simply, the bankers are short on time. Two things are against them - the first being the rise of home computing/printing and the second being the massive debts they have run up via their proxy companies "the united states, the united kingdom" etc. They've promised pensions and universal healthcare and a playboy model for every 16 year old boy and a whole boatload of other stuff to keep the general citizenry passive which they haven't got a hope in hell of actually providing.

A nice economic crisis will solve that problem for them. No pension for you, grandad - "credit crunched", no medical care for you young 'un - "credit crunched" and no pay rises and lots more taxes and regulations for all the little folks who just go to work every day and are no harm to anyone. Or so the plan goes.......all hung on a simple slogan "credit crunch."

But it's just paper!!!111

Fiat paper currency is pretty well crafted. It's so well crafted that a man in Glasgow managed to print a few hundred million "perfect" ten pound notes a year or so ago. It's so well crafted that a family in the south of england managed to print "enough money to destablise the bank of england." Counterfeit, of course. Not that you or me could tell them apart, but the man in the wig calling himself a judge said they were so they must be.

Here is the problem of paper fiat, going forward - home printing will eventually catch up to the top of the line printing of currency to a good enough standard to fool shopkeepers. Simple as that. It doesn't have to be perfect - just good enough to hand over to a corner store. At this point the empire of fiat is doomed. Given that PC's double in power every 15 minutes it seems and home printing also improves at a breakneck speed the day when it's uneconomical to keep up the paper part of the banking scam mustn't be all that far away.

The bankers must know this, and one would expect them to be preparing for it, one way or another. All those madcap cashless society and RFID tagging schemes that the internet has been chattering about for a while now suddenly start to make a bit more sense, don't they?

It's either start providing people with actual value (like gold or something) or get them into a database. As providing people with value for their labour isn't what banking is all about, a database is the preferred solution!

The other thing about the PC revolution is the internet. Right now you can go and watch umpteen videos about banking, get help with your debts, learn about fractional reserves, gold standards and all the lovely and obscure stuff that was up until a few years ago kept well out of the public arena. Now we have forums, blogs and lots and lots and lots of chatter. Word is spreading. Slowly, but surely, word is spreading.

Here is the plan -

1) Bubble housing by targetting that sector for cheap loans. (Remember, to the guy who owns the printing press paper money really IS worthless and even if it wasn't it doesn't matter he'll be getting it back soon enough!)

2) Do this in a few countries at the same time. Tv shows ramping property, magazine articles and all that jazz to accompany the cheap money.

3) Once the bubble is underway and in full swing, stop handing back out the money that is taken in and crash the whole system. This is a nice deflationary bit - when the market realises there is less money than has appeared because velocity has been so high and everything gets repriced.

4) Once everyone and their dog is flat broke and going bankrupt, print up a boatload of new cash to but their assets and technically pay all those outstanding state and private debts. You set aside a million for your pension? No problem, here have a million back - it will buy you a cup of coffee with no sugars.

5) Reboot the system with a new currency, preferably global or multi regional and probably claiming it is backed by gold to shut the goldbugs (and others who were paying attention pre bust) up. Actually it will be a database effort with ID cards and tagging if they can possibly get away with it. If not, they can always just go back to pretending they have more gold in a small household safe than exists in the whole world. And they will have almost all the gold, make no mistake.

6) Go back to business as usual and start again, only starting with owning most of the real estate on planet earth's western bit. (Lovely views, crazy skies.)

or so the plan goes, or so the plan goes. Chuck in a contrived war, Iron Man/Father of the people rescuer hero figure, persecution of a minority or two, strikes, riots, Tom Joad, gold confiscation, the discovery of a massive fraud or three that mysteriously don't get prosecuted and that's about it.

The paper is worthless if you own the press. It's the defaults that the bankers seek.

Bankrupcy for you and yours is profit taking for them and theirs.

Wednesday, 13 August 2008

There Is Only One Bank!

Well, one bank in each country at any rate.

The structure of the banks is a masterpeice of plausible deniability and faux competition. In the centre we have a central bank, and then it's immediate franchises, then their franchises, then on down to the local high street bank.

The local HSBC is a branch of the Bank of England. So is it's apparent competitor accross the street, the Natwest, Barclays or whatnot. This is poorly understood by the people who work for these organisations, this hydra like system.

What is also rarely understood is that all the money remains the property of the issuing bank at all times. You and me just get to use it. Again, what people think is happening and what is actually occuring are light years apart - this is the sort of creative misunderstanding that banking thrives upon.

What happens when we take a loan out of a HSBC branch and it then gets deposited at..say...a Natwest branch?

It has been returned to it's owner. Now there is no debt.

Everyone who is repaying a mortgage or a loan or a credit card bill is working for free at the direction of the bankers.

Tuesday, 12 August 2008

Teddy Bears And Where To Stick Them

Is it possible to give someone something they already have in their possession, for example the teddy bear I mentioned in my last blog?

Of course not. The idea is ridiculous.

Can they be owed anything?

Sure, they can be owed any interest or fee that was agreed for the loan of the teddy bear. What you might notice is that in the real world the bankers claim for a new bear plus the fee/interest. This means that there is a river of wealth flowing to them that they are simply not entitled to.

It is possible, however, that the bankers are simply in ignorance of this global perspective. From my conversations with various banking staff, any consideration beyond their immediate job isn't usually entered into. The banker is no more able to follow the chain of transactions than anyone else. All he knows is that he gave someone some money on Monday and someone else gave him a deposit on Tuesday. He has a contractual obligation to the depositor and the borrower has a contractual obligation to him.

While this is true for the general staff who work in banks - the cashiers, tellers, even managers and so on it's a bit of a stretch to think that the central bankers or heads of the large high street banks are in ignorance of how the system works.

As we can see, there is one major, major problem in all this - in order for the banker to be "paid back" he has to give the depositors money away again so that the people who owe him money can acquire it and return it to him in order to cancel their "debts." the fact that the debts aren't really valid isn't relevent - if the banker is ignorant of the circle then he will cease lending when he runs out of people with good credit ratings, which will begin an implosion resulting in everyone who he can prove owes him losing their assets due to a lack of available funds.

If he is malicious.......he can deliberately lend to this or that sector and take control of it through debt default, repossession, or just steer it towards the things he personally likes and finds valuable through loan offers to that sector.

They are malicious.

Monday, 11 August 2008

Financial basics - Banking Part 4

Where were we? Oh yes...... (thank you, Moroes.)

If the person who makes a deposit in the bank agrees that the banker can loan it out, nothing really changes apart from the person to whom the money must ultimately return to.

This is important - once the depositors have their goods/money/whatever returned to them there are no debts.

If this seems a little weird - consider this analogy. I borrow a teddy bear from you and tell you I will return it to you the following day, but will take it home for now. On my way home I meet a guy who smoking, and I want a cigarette. The guy agrees to trade the teddy for the ciggy and I smoke it.

The smoking guy takes the teddy and he returns home. On the bus home he trades the teddy with the driver in exchange for the ticket. The driver goes to the pub that night and meets you. You love these teddy bears and the driver knows you know how to look after them. You offer to store it for him. He agrees and now you have the bear back.

The real questions at this time are -

Do I still owe you the Teddy bear?

If I do is it possible for me to provide you with it?

Is the driver owed anything and if so who owes him?

Is the banker acting from ignorance or malice?

I'll say what I think tomorrow......

Sunday, 10 August 2008

Financial basics - Banking Part 3

What if, in our fictional economy there are two bankers?

There are quite a few options -

1) Expose the other banker

This one is pretty simple - there are many ways to expose a fraudster, not just by releasing money as debt videos. It has the danger of possibly exposing both bankers and threatening the idea of banking in general but that can be handled by (for example) buying the other bank, stepping in to guarantee peoples savings in a run and so forth.

2) Borrow from the other banker and relend at a higher interest rate/higher fee or lower interest rate/lower fee

The higher interest rate one is easy to understand, I assume - one banker piggy backs onto the other and makes some money on the differential. High street banks borrow from the central bank and then make use of this differential, for example. Equally, one could borrow a large amount of money and lend it out at a lower interest rate than a competitor in the hope of capturing more market share.

3) Collaborate with the other banker

A wide variety of ways to do this - the sharing of credit scoring, pooled funds to lend, information sharing, providing apparently independent expert witnesses for trials, agreements on reserve ratios, interest rates etc. All cartels have the problem of uneven rewards though.

4) Store items with the other banker when they can't be loaned out

Storing anything valuable carries risk. Risk of damage/theft/natural disaster. Much better, therefore, to push that cost onto someone else (especially if you are being paid for it and there is a differential.)

5) Buy out the other banker


6) Sell up to the other banker

Also straightforward. In both examples of selling up and buying, accurate pricing would be a problem, as would stopping the other banker starting up a brand new bank. Confidence tricks require confidence and if something is to be bought or sold, one can assume confidence is there enough to start up a new bank.

7) Remove the other banker by some other method - kill him, ruin his reputation, have him imprisoned etc

Easy to see if one checks the history of banking. Wars, assassinations of both body and character, bought regulators, bought judges and so forth are all part of the history of banking. Mind you, people have fought turf wars over ice cream distribution as well, so it's not an exclusive banker hobby.

8) Agree spheres of influence - geographical, business type or whatever

Banker A does commercial banking, banker B does retail. This makes sense from a specialisation standpoint. We can also see this with our currency - the area of banker influence where pounds dominate is called the United Kingdom, the euro has different banking masters, the dollar still others.

9) Secretly merge with the other banker but feign competition

Every apparently competitive high street bank is just a branch of the Central Bank. They are franchises, not seperate businesses. This provides an illusion of competition, the illusion of choice and also allows for insane money growth and massive economic control. This system also eliminates risks.

The largest problem with having two banks is one of expansion and collapse because no one really knows where anything is, who it really belongs to or how to sort out the mess once it's begun.

John deposits £100 at bank A. Bank A lends it to Dave who spends it at Stans shop.

Stan deposits it in bank B. Bank B lends it to Sarah, who doesn't need it right now and so deposits it with her bank, Bank A.

What a tangled mess! And we know who traded with who and when and where. This global perspective isn't available in the real world and it becomes a matter of who can prove what in court. Bankers keep records, other people don't.

There are now lots of accounts, which are partial recording of events - specifically who owes the bank and who each bank owes to. This limited perspective is where the bankers can get their greatest power from - the ability to claim assets whilst holding the cash they claim to be owed.

So, we have £100 now, which is in Bank A, and several people all under the impression that it is theirs. It's still Johns money. the only way to sort the tangled web out (which no individual within the system has any definite idea of although the bankers have a general idea of what is going on) is for each transaction to accurately reverse.

The chances of the unravelling happening in the right order are nil. therefore all banking systems must expand to the point at which they cannot go any farther and will then collapse very messily indeed. There is no need fo this to happen, however - by rights all debts from both sides should be cancelled because they never happened and the owner should claim their property back.

This means all paper currency being returned to the source, which is the central bank and all debts being cancelled.

Next - What happens if people agree that the bank can loan their money out.

So far we have assumed that depositors are in ignorance and of course this is not always the case.

Saturday, 9 August 2008

Financial basics - Banking Part 2

Fractional reserve banking (unique item.)

It's an almost cast iron rule in banking that the name of the subject concerned is exactly the opposite to what is occuring, or has nothing whatsoever to do with what's really going on. oh, and I know that people get very worked up about this stuff but don't worry, nowhere actually still uses FRB these days but we'll get to that soon to. Just fyi before we begin. :)

Let's start with our first sort of fractional reserve banking - unique item fractional banking.

If we remember our piano from the previous blog - we left it in the care of the banker and paid him a fee to look after it for us, but then found out that he had loaned it to someone else - a pianist. Now...why could the banker do that?

Well, pianos are kindof hard to move and if we store them it's not all that likely we will be coming to check on them or want them back anytime soon. The banker can therefore be reasonably sure that he can loan our piano to someone, charge them a fee and still give us our piano back when the time comes for us to collect it.

In a fractional reserve system, the banker lends the piano to several other people for a fee. The piano is the reserve and the fraction is the amount of people he can lend it to before some external constraint like being found out by the original owner or running out of people who want to borrow limits the lending. One crucial constraint is the amount of time it takes to move the piano about. The faster that piano moving can occur, the more times the piano can be loaned.

If the banker has 1 piano and lends it to 20 people, the fractional reserve is 5%

Lets say he lends Bob the piano in January and Bob pays him a violin for doing so.
In Febuary, he lends John the piano and John pays the banker a flute for this service.
In March, he lends Linda the piano and Linda hands over a bassoon as payment.
And so on...

We can see that pretty soon the banker has a whole orchestra worth of instruments (but no idea how to play them.) What can he do? All the banker knows is lying, storing and it's pretty easy to imagine that he will try to lend out the other instruments he has gathered if he can - not being able to play them for one and saving on storage for another, plus he can get still more fees from those loans.

In fact, by lending the piano out, he pushes the cost of looking after the piano onto others. Each pianist is paying the banker to do the bankers job for him.

Of course, this isn't quite as simple as I make it appear - the piano can be damaged, it can be stolen, it can go missing. However, it's worth noting that if, say, Linda loses the piano when she is borrowing it, it's up to Linda to replace it. If she can't, the banker can take her to court and make a very good show of having lost "his" piano. All the paperwork will certainly show that and Linda herself will almost certainly think that this is what has occured. Linda will be paying for a replacement piano, have to find the instrument as fee and will probably be paying the bankers court costs as well.

A fractional reserve system as regards a unique item, therefore, is a recording of who has been loaned what, where and when from the bankers perspective but without the global perspective that will reveal him as a fraudster.

The banker has 1 piano but receives a whole orchestra on the back of apparently carefully looking after it for someone else. As long as the banker selects his pianists reasonably carefully, he has absolutely zero risk. All he need do is loan the piano to people who already have more in assets than the piano is worth and he can never, ever lose.. Worst case is he has to write off the piano because someone has damaged it, pay the original borrower back (in fiddles?) while apologising and keep all the instruments he has gathered in the meantime. Win/win/win for the banker.

Now we can see why a banker is a man who lends umbrellas when it's sunny and wants them back when it is raining.....

The next question to answer is what happens when there are two bankers......which I will cover tomorrow.

Friday, 8 August 2008

Financial basics : Banking Part 1

Warehouse banking (unique item.)

A warehouse bank is one where you go and leave your valuable for later collection. You pay a fee to the banker to look after your stuff and he keeps it safe and sound for you. If this is an antique piano or a distinctive bit of jewelry then it is obvious when your item is or isn't in the bank.

Warehouse banking (non unique items.)

A warehouse bank is one where you go and leave your valuables for later collection. You pay a fee to the banker and he puts your non unique item (grain, gold coin, fiat paper money etc) into a big pot with other similar looking items and when you come back to reclaim you are given an equivalent amount in return, but it almost certainly won't be the exact same items as you deposited, just a replacement that is very ,very similar.

If I put £100 in pound coins into a bank on Monday, the odds of me getting the exact same pound coins back are almost nil if I return a week later.

Why is this distinction important?

Simply because ownership is incredibly hard to prove in the case of non unique items, especially if no attempt is made to keep track of who owns what. what?

If no attempt is made to keep track of who owns what then an unscrupulous person can use that "fog of war" to their advantage. To give an example from our unique item warehouse bank -

I give the banker my antique Bentley piano to look after and pay him a fee. I think that my piano is safe in storage, being well looked after and have paid a sum of money to the banker to do this looking after. One night I go out to a concert hall to watch a performance...there, on the stage is what looks surprisingly like my piano. It can't be, can it?

I wait impatiently through the performance and then explain the situation to the management, who are anxious to quell my fears and so let me have a (supervised of course) look at the piano after the performance is done. My god! It IS my piano, I can tell by the markings, the security ink and so on.

Surely the banker would have called me to tell me he had been robbed?


Ahhh...the banker has loaned my piano for a fee to the pianist! The swine! But at least he has now been caught and both the pianist and I can reclaim our money and the banker can go to jail for his fraud.

But...what if....I cannot tell my item apart from all others?

So..what if I gave the banker some fiat currency and he loaned it to someone else...would I be able to tell? Would anyone?

Probably not. Even the banker would become hopelessly confused once the paper had started to circulate. Lets have a three man analogy. Dave, Bob and John.

Dave owns a shop, Bob has £3,000 which he wants the bank to look after and John has next to nothing but is willing to work and borrow. Bob puts his £3,000 in the bank, the banker tells him it will be safe.

John agrees to borrow the £3,000 from the banker at interest, and then he spends it at Daves shop. Dave, fearing theft, sensibly puts it into the bank. There is still only £3,000, but the bankers books show much more money than that (called broad money by bankers, this is just a recording of frauds like double billing, double counting, misplacing assets in the liability column and so on.)

As we see, the situation is already extremely complicated. Several people all think they have claims to the £3,000 but actually it was only ever owned by Bob. It never ceases to be Bob's money. Everyone else has just used it. Such procedures if done openly would no doubt attract a fee, if left in the dark and ownership is claimed by multiple people they are flat out fraud. Fraud done in ignorance by some, but deliberately by others, but fraud all the same.

This leads to the interesting position where the banker can have the £3,000 in his possession but be also at the same time on the phone to John asking him when he is going to "get his money back." Worse, John will probably believe that the banker is somehow out of pocket. Even worse, the banker can make a good show of having lost money in a courtroom and so John will probably go bankrupt, even if he works out he has been defrauded. Unless he can come up with something like proof of what the banker has done or can find some way to highlight the fraud he is snookered.

Similarly, it can lead to the position where two people arrive at the bank to pick up "their" £3,000 at the same time and both of them will be going home empty handed because the banker has loaned it to someone who hasn't brought it back to the bank (yet.)

This whole complicated mess can be easily avoided by keeping track of whose property is where.

Accurate recording could end all banking crisis forever, this is blatantly obvious - but then there are no opportuinites for the bankers to misrepresent their way to wealth and power.

For example - right now there are roughly £50billion in legal tender in the united kingdom, most of which is in the possession of the bankers and there are also trillions of pounds of imaginary debts.

No one owes them anything, they already have it.

Thursday, 7 August 2008

Financial system basics

Well, right now we are in the middle of an economic crisis, a credit crunch, the start of the next depression, a housing bubble going pop and a whole lot of other economic difficulties that I will have a look at going forward.

This time, however, I am going to talk about the basics of the financial system, specifically the answer to this question -

What gives pieces of paper with dead presidents, monarchs and other various famous people any value?

When you think about it, the trading of bits of paper with people printed upon them (they aren't even naked!) shouldn't really have all that much value. You can't eat them, you can't write on them all that well, you cannot do very much with them at all.

So..why so valuable?

First of all- taxes.

You have to pay your taxes or some rather nasty things will happen to you (assuming you are caught of course.) You have to pay your taxes using the "legal tender" banknotes of the country that you are living in.

The simple act of threatening people gives fiat money, legal tender, paper currency or whatever you want to call them their value. They are, in effect, "get out of jail free cards." Without taxation paper currency has no value.

A simple analogy is this -

A large, heavily armed group of men are demanding that you provide them with pictures of someone who used to lead their gang. Luckily for you, there is another group of men called "bankers" (who apparently have nothing to do with the first group) who are willing to loan you the pictures (at interest) if you provide them with collateral in the form of promised future labour, your assets such as cars, houses and so forth. There is also a third group of men who are giving out pictures of ex-gangleaders in exchange for a days work, these people also seem to be an entirely different group to the gang which is threatening you. pledge your assets or work for a day to acquire the pictures of old gang leaders and give them to the heavily armed gang, who seem pleased and tell you they will leave you alone for the rest of this year but will be back next year for another payment of pictures and every year after that.

As soon as the heavily armed gang leave you, pictures in hand, they drive straight around to the workmaster and give him some of the pictures, and then drive to the banker to give them some of the pictures so that when you need some more you can pledge more of your assets or do more work for yet more pictures. This is happening to all of your neighbours, all of your friends, to your family all at the same time and so it seems kind of ..well..normal. People trade the "get out of jail free cards" amongst themselves even, because they have value - what's more important than your liberty and your unmolested health?

Now, I don't know about you, but this looks a lot like slavery to me. It's more complicated than an outright master/slave relationship but it pretty much amounts to the same thing.

The second thing you can do with the paper is to cancel debts as far as the heavily armed gang is concerned. They have a court system where one of their number settles disputes by using the gangs might on one party in a disagreement (usually the one who has least to offer the gang.) If you offer the gangleader pictures to pay a debt, then the courts will back you up even if the other person wants some other substance instead. All legal means of restitution are lost if the paper currency is refused.

So, people accept them for this reason.

Again, I don't know about you, but this doesnt seem to me to be the most equitable arrangement. it looks a lot like one man getting another to work for him for free by using force.....which is again a kind of slavery. It's almost an embarassed slavery though, not the old, open kind - a veneer of legitmacy has been placed over it and the obvious coercion has given way to a game of plausible deniability where it could even be argued that one hand really doesn't know what the other is doing.

I doubt that the average worker in any of these spheres (or the average tax/debt payer) has this global view of events. Higher up the food chain the truth will be known of course.

And so we have this blog, within which I shall aim to put how our systems work as simply as possible, without terminology or jargon as far as possible and hopefully by using easy to understand analogies and stories to illustrate what actually goes on.

Thank you for reading and have a good one!