Writing the unthinkable in the Telegraph

[JavaScriptDonkey]

No JSD, YOU are the one who is confused - because you do not understand what is actually going on.

Rehypothecation of a fungible assets isn't a problem so long as the assets used are solid and there is appropriate hedging in place. it also has ABSOLUTELY NOTHING WHATSOEVER to do with nailing down what FRB is.

Why do people drive off on rants about various short comings of the financial sector? All I'm trying to do is point out that you are blaming FRB for faults that are completely separate from it.

Banging on about inter bank lending and re-packaged mortgages is totally irrelevant to this point. FRB is not the enemy here - the crash was caused by evaporating asset values brought on by rising oil prices and the onset of a global recession.

If you want to make banks keep 100% of deposits on hand in the exact form they were deposited then you don't want a bank - you want a safe deposit box.

And I'm not even going to get in on asking why you think banks that can print money by simply lending it ever needed a bailout from the tax payer when they could have (in your world) simply offer 0% loans to all and sundry and so bought their way out.

[Little John]

No JSD, YOU are the one who is confused - because you do not understand what is actually going on.

Rehypothecation of a fungible assets isn't a problem so long as the assets used are solid and there is appropriate hedging in place. it also has ABSOLUTELY NOTHING WHATSOEVER to do with nailing down what FRB is.

Why do people drive off on rants about various short comings of the financial sector? All I'm trying to do is point out that you are blaming FRB for faults that are completely separate from it.

Banging on about inter bank lending and re-packaged mortgages is totally irrelevant to this point. FRB is not the enemy here - the crash was caused by evaporating asset values brought on by rising oil prices and the onset of a global recession.

If you want to make banks keep 100% of deposits on hand in the exact form they were deposited then you don't want a bank - you want a safe deposit box.

And I'm not even going to get in on asking why you think banks that can print money by simply lending it ever needed a bailout from the tax payer when they could have (in your world) simply offer 0% loans to all and sundry and so bought their way out.

You still have not directly addressed each of the following question JSD.

Why is that?

Ok

Let's take this one step at a time in order to establish precisely which bit you take specific issue with and when:

1) Do you accept that central banks create base money for our economy either by buying it in from outside the system via the issuance of government bonds or, if they wish, by directly creating it from scratch with mechanisms such as QE.

2) Do you accept that the banks who take out loans of base money from the CB can then lend out a proportion of it to other banks and/or non-banks customers based on their fractional reserve requirements?

3) Do you accept that either:

non-bank customers are either going to deposit the money they have borrowed into a bank or are they going to spend the money such that the recipient (or some recipient at some point down the chain of transactions) is going to deposit the money into a bank, thus allowing the recipient banks to declare that loaned money that has been deposited with them on their books as a part of their assets and thus increase their fractional reserve?

or

other banks who have directly borrowed the money from the first bank in the chain are going to be able to declare their loaned money as an asset on their books and thus increase their fractional reserves?

4) Do you accept that in either or both instances of (3), the increased fractional reserves of the banks having received previously loaned money means that they can now lend more money out than was the case prior to their receipt of it?

5) Do you accept that all of the above processes will, unless there is a direct regulatory intervention, continue until all capacity to wring a return out of deposits received (within the fractional reserve requirements) is exhausted. In other words, until infinity is approached?

It's not good enough to whitter something along the lines of "but it doesn't make sense, so it can't be right". You need to be specific in your assertion that what has been put to you is incorrect, otherwise it begins to look like you are obfuscating.

Do you accept that each of the above is true? If not, which ones do you directly contest including your specific reasons why?

Anything other than a direct and specific response to each of them is overt evidence of evasion and bullshit.

[kenneal - lagger]

JSD, if you want to know how the banking system went wrong watch Evan's Davis' program, The Bottom Line, which explains how the banking crisis happened. One of the speakers plainly says that the banks had capital of £1 billion and lending of £33 billion. It is called gearing and the current regulations allow 33:1. The problem was that their lending only had to lose by a few per cent to wipe out their asset base, which is what has happened and could happen again if the PIIGS default again.

The relevant section on banking starts at 18 mins.