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....

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