Crapitalism, B4|\|k3r5 r \/\/4|\|k3r5 Options

[Licentia Per Ori...]

Ok so that was a really in depth reply,
I'm going to split the one about money banks and cronieism - sorry capitalism off into it's own thread if thats ok.

interest exists for two fold reasons:

First, to counteract the negative effects of inflation.
And second, to counteract loans that default, or are otherwise unpaid.

In the 60s, about £5000 per year was a GOOD wage. A comparable wage nowadays would be ten times as much. So if I leant you £5000 in 1960, I would expect £50,000 back in 2012 (these numbers are estimates, I'm not looking up inflation statistics for an example.)
If I only asked for £5000 back, then I would be at a HUGE loss.
Remember, the true value of money is what you can do with it. Money is a go between for transactions. If items change value, or the amount of wealth a country has changes, then the value of the money MUST change as well to compensate.

However, there's also the possibility that I will never get my money back.
Say I lend £5000 to 10 people in 1960.
One of them never returns the money.
In 2012 I'll get £45000 back, but I'd actually be at a loss.
So I have to ask each of the 9 for roughly £556 extra to cover that loss.

Then there's profit to consider. If I'm going to be lending money, I want to be rewarded for my services.
However, I also want to reward people I KNOW will pay me back.
So if you have a good history, I can make the interest rate lower, so that I just break even with a small profit.
If you have a bad history, then I'm taking a gamble, and when you gamble, you expect a return equal to or greater than your possible loss, so the interest rate is much higher.
Of course, you KNOW this before I lend you the money. There'll be a contract that dictates the interest rate.
The contract we enter together is not some kind of theft. I don't need to lend you the money, and you don't need to accept. If you really have no way of making your money and need a loan, then I can draft whatever terms I want.
I repeat, it's a service, and they charge for that service.

In a perfect world, bankers do not ask for interest, and chefs wouldn't charge for meals, and every company and business would go broke overnight.
You're the one being naive not to see this.

Now, this is where it gets tricky.
The banks, when lending money, have to take ALL of this into consideration, and apply it to a LARGE population.
They have to work out what % of people will pay back on time, and which won't.
But the banks provide another service, they take in money as well, and gamble with it (according to their strict profit based rules) and then return that money (with a cut) to the people who put the money in.
Everyone wins, right?
Well, what if the large population were all asking for loans, and the returns look GOOD, but the bank doesn't have the money. Or any other kind of gamble. The system has always worked to this point...
But then the % of people paying back drops, which means the bank is at a massive loss, then the market is going to change (a change in money coming in and out of the market). This was housing loans, mostly.
So the bubble bursts. The money coming in is less than the money that's gone out. Prices go waaay up. And money is lost.
The money isn't gone, it's just tied up in loans which aren't getting paid back.
To recoop that lost, the banks have to turn interest rates sky high.
It's not enough.
The Government has to bail them out.

This situation is applicable for the name: Black Swan Event.
It is an event which you could not predict.
And event which you have to reason to believe would happen.
But in hindsight, it seems so obvious it would happen.

So people who read up on the topic think to themselves, How did they not see it coming?!
Because no one did.
No one predicted that the system which assessed risk would fail, and that less and less people would make good on their loans. No one predicted how this would affect the market.
A system which works 99.99% of the time, still fails just once, but that's all it takes.

The way that the banking system and interest actually works is mis-understood by many.
This somewhat applies to how capitalism works when it gets towards it's end game state (which we are starting to see today)

In terms of interest, and banks lending money.
There is a serious point you have missed.

you mention lending 10 people £5k
Now if you or I were to lend 10 people £5k we would need £50k in cash to hand over.
The same does not apply for banks.
The bank requires only £5k.
It can then lend out the same 5k 10 times.
(this is called fractional reserve banking)
the additional £45k did not exist before the bank lent it out.

It was in fact the very act of debt bondage that has the value of 5k.
The piece of paper 'you' have signed that legally requires you to pay back 5k creates the very value that the bank is 'lending' you.

So lets go back to your example.
A bank lends 10 people £5k and one of them does not pay any of it back, the other 9 do.
You point out that this is a 5k loss for the bank.
In real terms it is actually a £40k profit for the bank.

you start off with £5k and a year later, you have £45k
(hows that for an investment)
Whats more you don't even need to get back the £5k from the guy who is not paying it back.
It's the piece of paper, the debt bondage that has the value. (just like a £10 note)
So the bank could sell that piece of paper to another bank.
To make it attractive to buyers, they would sell it for less than the total repay value.

This selling of debt, caused the big ol' crash of 2008, and is still very much legal.

So what does this have to do with interest?
Interest / inflation is caused because the amount of money in the system has increased, while the amount of things and people to buy things has stayed roughly the same. (in comparison)
Because the Banks are de-valuing their customers money with fractional reserve lending methods, they give their customers a little bit of extra money to plug the devaluation gap that their own activities have caused.

It's not about sharing the risk.

Why do they then charge interest on loans?
Because they can. And it's a great way to make even more money.

Unfortunately these interest rate are not static, they are devaluing the money at an exponential rate.
Which brings me to where the end game of capitalism is leading.

Time however is short for me at the moment.
So more on that another time :-)

RE: endgame



This post has been edited by Sparrowsmith: Aug 17 2012, 05:21 AM

[Sparrowsmith]

Try not to double post. I've merged them this time.

You don't seem to grasp how money lending works.
Of course you need £5000 to lend £5000, but you don't need £5000 to owe £5000 (I believe this is the source of your confusion).

Banks take the money people deposit (lets say £100,000 for an example bank) and loan it out (let's say £80,000).
When the loans are repaid (with interest) it'll be £120,000
However, briefly, the bank will owe the people £100,000, but it will only have £20,000 within it (and £80,000 debt bondage).
It hasn't leant out any imaginary money, it's the opposite, the bank is pretending to have money it doesn't have (again, THIS is why you were trying to describe, you just got it backwards as far as I can tell)

However, the bank can crash (run is the correct term) if all the depositing persons attempt to withdraw all their money (£100,000) when the bank only has some of the money (£20,000).
The money does exist, it's just tied up elsewhere. If everyone tries to take out their money, then the banks can do nothing until it receives money (either from its loans or from another bank).

And yes, they can sell the debt bondage, why shouldn't they?
I lend my friend £10, my brother lends me £10.
Rather than pay back my brother and get paid by my friend, I'll just pay back my brother by getting my friend to give him the money. I'm passing on the debt.

Hell, money actually is debt and we trade that just fine.
"This piece of paper means I am owed £5"
It's written right on the note "I promise to pay the bearer on demand the sum of five pounds"

Back to the point at hand though, the banks aren't making money. The notion is absurd. They're simply lending other people's money.
When the magician pulls the rabbit out of the hat, the little kids say "HE MADE A RABBIT" but really, the rabbit was in the hat all along.
And the money is there all along too, it's just divided up, and serving several aspects of its purpose at once.
Nothing mindblowing.

also, can we stop pretending that corporations are evil?
The innovation stemming from them is worth far more than the 'risk' they pose to us.

[Licentia Per Ori...]

Try not to double post. I've merged them this time.

You don't seem to grasp how money lending works.
Of course you need £5000 to lend £5000, but you don't need £5000 to owe £5000 (I believe this is the source of your confusion).

Banks take the money people deposit (lets say £100,000 for an example bank) and loan it out (let's say £80,000).
When the loans are repaid (with interest) it'll be £120,000
However, briefly, the bank will owe the people £100,000, but it will only have £20,000 within it (and £80,000 debt bondage).
It hasn't leant out any imaginary money, it's the opposite, the bank is pretending to have money it doesn't have (again, THIS is why you were trying to describe, you just got it backwards as far as I can tell)

No, banks do not directly lend out the money that people deposit,
They use the Deposits as security to lend out more than the value of deposits.
This limit is legally limited to bewteeen 10-12 times the amount of the deposits.

So if a person deposits £100,000 into a bank,
That bank can then use that £100,000 as a basis for lending out £1,000,000 pounds.

The total amount of money in *THIS* system was £100,000, it was in the hands of the customer.
Once the deposit is made, an additional £900,000 can in effect be created.

However, the bank can crash (run is the correct term) if all the depositing persons attempt to withdraw all their money (£100,000) when the bank only has some of the money (£20,000).
The money does exist, it's just tied up elsewhere. If everyone tries to take out their money, then the banks can do nothing until it receives money (either from its loans or from another bank).

A crash and a "run on the banks" are two different things, Though a run on a bank can of course cause it to crash
The system is involved yet strangely simple,
It is also worth pointing out that only the "retail" arm of the bank can have a run on it.
Many banks crash without people making a run on the retail arm.
It is usually the bank crashing, that causes a run on the bank.

again - the main mistake or error in your thinking is that a bank can only lend out as much money as it has on it's "books"
This could not be further from the truth

And yes, they can sell the debt bondage, why shouldn't they?
I lend my friend £10, my brother lends me £10.
Rather than pay back my brother and get paid by my friend, I'll just pay back my brother by getting my friend to give him the money. I'm passing on the debt.

Except you cannot sell you're friends debt for £10. Because what is the incentive for your brother going to find you're friend and the risk that your friend will renage on the debt.
Thus you would have to sell the debt for less than £10
However, it's still profit, because you never had the tenner to start with. you only had a pound.

People often try to put these things into examples of i lend my mate this...etc etc etc
But that is not how the banks operate.
And the wrongness of it all is made clear if we put it into actual person to person examples.

In your example. you're brother lends you £10
you have £10
your friend now asks you to lend him £10
so you take £1 of your ten pounds and put it in a little jar. You get your friend (bob) to sign a £10 I owe U - and you put it in with the jar.

What is now the value of the Jar?
The value of the Jar is now £11
It contains £1 cash and £10 in liability.

Now you don't actually have a £10 note on you, but you live in a small village and everyone knows you, and trusts you.
So you give bob an I owe U - but this I OWE U is from you. and anyone and everyone in the village will accept this I OWE U.
Because unlike bob, they TRUST that you are good for it.

you brother now wants his £10 back.
But you don't have it. (as you have now spread it out into 10 jars to lend to £10 to ten other people.
However each of those Jars is worth £11 remember.
So you sell a jar with a value of £11 for £10 to your neighbor
You use this £10 to pay back your brother.

This is basically how it works.
Except the brother lending £10 is a customer depositing £10
The Jars are accounts, bobs I owe U is legally binding liability
and the I OWE U that you (as the bank) hand out are bank cards.

When you spend £10 in a shop on you're card.
The shop doesn't actually get £10 does it?
It gets the ability to draw out £10 from it's account in the future.

Hell, money actually is debt and we trade that just fine.
"This piece of paper means I am owed £5"
It's written right on the note "I promise to pay the bearer on demand the sum of five pounds"

Yes Money is debt, and what does debt come with?
Interest.
how is it that the £5 note in your pocket represents £5 of debt, and debt from whom to whom?
why does money not simply = value?
How is this debt money even created?
Does the government create this money?
NO - the Government cannot print money.

Back to the point at hand though, the banks aren't making money.

Really are you sure.
So where exactly on any bank note are the words HM Government Written?
Or if the 2nd lord of the chancery is in charge of the monies, (1st being PM)
Surely bank notes should have HMRC printed on them right?

Except they don't,
They do however say BANK OF ENGLAND

The notion is absurd.

Indeed it is, The notion is so absurd that the mind initially rejects it, for how can such a basic and obvious swindle have us all under the yoke?

They're simply lending other people's money.

Several times over, and the money the system we have involves the government being in constant debt.

When the magician pulls the rabbit out of the hat, the little kids say "HE MADE A RABBIT" but really, the rabbit was in the hat all along.
And the money is there all along too, it's just divided up, and serving several aspects of its purpose at once.

let me expose the "trick" for you.
A government wants to add £10 to it's economy.
The government cannot print £10
the government can however make a bond.
So it takes a piece of paper, writes "we the government give this paper a value of £10 - and we will pay it back in 10 years"
The banks then take this paper, and use it to print £10
we now have £10 of extra money in the system.
YAY!
However, the bank is not a charity, it is instead a greed run organisation who aims to stay in power, and turn profit.
So the Bank agrees to "buy" the governemnt bond but only if the Government agree to pay back more money than the bond is worth.
This is called interest.
So the government has it's shiny £10 note, but is now also £11 in debt.

And thanks to a law that was passed 100's of years ago, by a corrupt government, only the money the bank produces is considered "legal tender"
Legal tender means that someone who is owed money can demand the debt be settled in legal tender, and equally, once a debt has been settled by legal tender. it is settled.

So the Government have £10, but they now £11
They are £1 short.
And the only way they can pay back that £1 (which is of course an ever growing amount thanks to the compound interest the banks charge) is by borrowing more money
pushing them further into debt.

In the current system there is literally NO WAY for the government to be in control again.

Nothing mindblowing.

you just don't understand it is all.
and hey don't take my word for it, or even ham fisted way of explaining it.
look into it

If you are actually interested, i suggest you watch this.
http://video.google.com/videoplay?docid=-515319560256183936

also, can we stop pretending that corporations are evil?
The innovation stemming from them is worth far more than the 'risk' they pose to us.

Look at a time, Yes
Capitalism was wonderful,
Corporations pushed forward innovation.
But the time has come where it is not in the interests of large Corporations to actually innovate.

for example.
Pfizer is one of the largest pharma companies in the world.
Now if they developed a pill that you could take once, and never have to buy hayfever medication again.
they would patent it, and not release it.

Pharma companies don't make profit curing people,
They make money treating people.
And you can only treat people who are sick.

wake up sparrow,
you are surely smarter than this.

what next?
private companies will save the NHS money?

[Severity]

Anyway for you guys to put all this in simpler terms?

[Licentia Per Ori...]

Anyway for you guys to put all this in simpler terms?

I'd say watch the video.google link i posted.
warning, It will make you angry.

It's a bit long, but it's important knowledge.