Moderator: Peak Moderation
Dont this lot want that banned?You can sell your entire loan book
That's actually what I meant by a 100% fractional reserve. I just got my terms mangled. That is to say, the debt side of a given lender cannot become the credit side of that lender by virtue of the same money being deposited with them and so there cannot be any money multiplication effect. The only money in circulation in such a system is that which was originally deposited (plus accumulated interest).UndercoverElephant wrote:ZOPA is not a bank, and therefore there is no "fractional reserve" figure at all. It is simply a system that matches people who have money to save with people who want to borrow money....DominicJ wrote:Actually the reserve on ZOPA and such is 0%, not 100%stevecook172001 wrote:On just hearing about this, I must confess to feeling a bit twitchy about it if it is a system of lending at interest. Once again, it just seems like yet another scheme whereby people are encouraged to extract rent from one another since this is the only game left in town now that we don't appear to be able to make anything and sell it to the world any more. Instead, all that is left is for us to feed off one another. We're all bankers now.
On the other hand, I guess it is better than the banks since the fractional reserve is presumably 100%.
You give ZOPA £100, they give £100 to a borrower and you cant have your money back till the borrower pays it back.
No, that's not quite true. Let's imagine that instead of debt-based money, the entire money supply was created by the government. Under such a system, ZOPA could still exist without having to change a single thing about its business model. So it is only the case that "the money comes from the mainstream banking system" because under the existing system that is where 97% of the money actually comes from. That's nothing to do with ZOPA.stevecook172001 wrote:That's actually what I meant by a 100% fractional reserve. I just got my terms mangled. That is to say, the debt side of a given lender cannot become the credit side of that lender by virtue of the same money being deposited with them and so there cannot be any money multiplication effect. The only money in circulation in such a system is that which was originally deposited (plus accumulated interest).UndercoverElephant wrote:ZOPA is not a bank, and therefore there is no "fractional reserve" figure at all. It is simply a system that matches people who have money to save with people who want to borrow money....DominicJ wrote: Actually the reserve on ZOPA and such is 0%, not 100%
You give ZOPA £100, they give £100 to a borrower and you cant have your money back till the borrower pays it back.
Nevertheless, it should be noted that this money is still lent at interest in such systems. In the mainstream banking system, the paradox of where the new money to cover the interest payments comes from is dealt with by the ponzi-scheme of new debt based money being lent into existence by, amongst other things, the multiplier effect (within defined limitations based on the fractional reserve). In a scheme like those outlined here, though, that cannot happen. So, where does the money to cover the interest payments come from in such schemes? The answer is, of course, the mainstream banking system outside of such a scheme. In short, then, these schemes, relying on interest bearing loans as they do, are feeding off the mainstream banking system in order to fund their existence and so are just as dependant on debt based money as the mainstream banking system is. They are just one step removed from the dirty end of the business, that’s all, and so their hands merely appear to be cleaner.
That's not actually true either. I have a few thousand pounds in ZOPA, but the interest that comes to me via that mechanism does not just sit around accumulating in my account. I use it to supplement my low income. I spend it.Lending money at interest either makes the lenders end up with everything or it means we have to keep inventing new money to fill the hole left behind and the lenders still end up with everything. It just takes a bit longer that's all.
All of the above lack of a problem you cite with with such a system is predicated on you and people like you supplementing relatively low incomes by using the interest gained on loans as spending money on consumables. That’s because you're lending relatively small amounts and are making modest profits. Modest enough so as to not accumulate excess capital. In other words, you are not accumulating excess exchange value in the form of money or other assets. However, as soon as any player starts lending large sums out, then the capital accrued in interest payments is used to lend yet more out and so everyone ends up borrowing off them because they can offer better rates because of economies of scale in terms of their profit margins. Additionally, they can use this accumulated capital to buy up everything of value in the real world. The only way that such a scheme would not end up that way is if it is sufficiently unpopular that the big players are not motivated to get involved. In which case, it changes nothing. Or, it does get popular, in which case the big players do get involved and it suffers exactly the same problems as the mainstream banking system. In which case it changes nothing.UndercoverElephant wrote:No, that's not quite true. Let's imagine that instead of debt-based money, the entire money supply was created by the government. Under such a system, ZOPA could still exist without having to change a single thing about its business model. So it is only the case that "the money comes from the mainstream banking system" because under the existing system that is where 97% of the money actually comes from. That's nothing to do with ZOPA.stevecook172001 wrote:That's actually what I meant by a 100% fractional reserve. I just got my terms mangled. That is to say, the debt side of a given lender cannot become the credit side of that lender by virtue of the same money being deposited with them and so there cannot be any money multiplication effect. The only money in circulation in such a system is that which was originally deposited (plus accumulated interest).
Nevertheless, it should be noted that this money is still lent at interest in such systems. In the mainstream banking system, the paradox of where the new money to cover the interest payments comes from is dealt with by the ponzi-scheme of new debt based money being lent into existence by, amongst other things, the multiplier effect (within defined limitations based on the fractional reserve). In a scheme like those outlined here, though, that cannot happen. So, where does the money to cover the interest payments come from in such schemes? The answer is, of course, the mainstream banking system outside of such a scheme. In short, then, these schemes, relying on interest bearing loans as they do, are feeding off the mainstream banking system in order to fund their existence and so are just as dependant on debt based money as the mainstream banking system is. They are just one step removed from the dirty end of the business, that’s all, and so their hands merely appear to be cleaner.
That's not actually true either. I have a few thousand pounds in ZOPA, but the interest that comes to me via that mechanism does not just sit around accumulating in my account. I use it to supplement my low income. I spend it.Lending money at interest either makes the lenders end up with everything or it means we have to keep inventing new money to fill the hole left behind and the lenders still end up with everything. It just takes a bit longer that's all.
I don't agree with you that the system of lending money at interest is at the heart of the inequalities inherent in our current system. Or at least, there are ways to counter-act that apart from making lending with interest illegal. Historically this has been done via taxes - especially taxes on income and property.
I do understand why people might be against the whole of idea of lending money with interest payments, but I don't think this is in the same league as having private banks with the power to create new money and lend it at interest. I don't think we should confuse these two things.
Your basic point here is that there's no major problem with "normal" people lending money and being paid interest, but that it becomes obscene and unbalanced when the very rich do it, because they earn far more in interest than they can possibly spend. So the very rich just end up getting even richer, even without the need to invest in anything. And obviously it is true that the very rich are getting ever richer, and it is indeed obscene.stevecook172001 wrote:All of the above lack of a problem you cite with with such a system is predicated on you and people like you supplementing relatively low incomes by using the interest gained on loans as spending money on consumables. That’s because you're lending relatively small amounts and are making modest profits. Modest enough so as to not accumulate excess capital. However, as soon as any player starts lending large sums out, then the capital accrued in interest payments is used to lend yet more out and so everyone ends up borrowing off them because they can offer better rates because of economies of scale in terms of their profit margins. Additionally, they can use this accumulated capital to buy up everything of value in the real world. The only way that such a scheme would not end up that way is if it is sufficiently unpopular that the big players are not motivated to get involved. In which case, it changes nothing. Or, it does get popular, in which case, the big players get involved and it suffers exactly the same problems as the mainstream banking system, In which case it changes nothing.UndercoverElephant wrote:No, that's not quite true. Let's imagine that instead of debt-based money, the entire money supply was created by the government. Under such a system, ZOPA could still exist without having to change a single thing about its business model. So it is only the case that "the money comes from the mainstream banking system" because under the existing system that is where 97% of the money actually comes from. That's nothing to do with ZOPA.stevecook172001 wrote:That's actually what I meant by a 100% fractional reserve. I just got my terms mangled. That is to say, the debt side of a given lender cannot become the credit side of that lender by virtue of the same money being deposited with them and so there cannot be any money multiplication effect. The only money in circulation in such a system is that which was originally deposited (plus accumulated interest).
Nevertheless, it should be noted that this money is still lent at interest in such systems. In the mainstream banking system, the paradox of where the new money to cover the interest payments comes from is dealt with by the ponzi-scheme of new debt based money being lent into existence by, amongst other things, the multiplier effect (within defined limitations based on the fractional reserve). In a scheme like those outlined here, though, that cannot happen. So, where does the money to cover the interest payments come from in such schemes? The answer is, of course, the mainstream banking system outside of such a scheme. In short, then, these schemes, relying on interest bearing loans as they do, are feeding off the mainstream banking system in order to fund their existence and so are just as dependant on debt based money as the mainstream banking system is. They are just one step removed from the dirty end of the business, that’s all, and so their hands merely appear to be cleaner.
That's not actually true either. I have a few thousand pounds in ZOPA, but the interest that comes to me via that mechanism does not just sit around accumulating in my account. I use it to supplement my low income. I spend it.Lending money at interest either makes the lenders end up with everything or it means we have to keep inventing new money to fill the hole left behind and the lenders still end up with everything. It just takes a bit longer that's all.
I don't agree with you that the system of lending money at interest is at the heart of the inequalities inherent in our current system. Or at least, there are ways to counter-act that apart from making lending with interest illegal. Historically this has been done via taxes - especially taxes on income and property.
I do understand why people might be against the whole of idea of lending money with interest payments, but I don't think this is in the same league as having private banks with the power to create new money and lend it at interest. I don't think we should confuse these two things.
Banks create money out of thin air at the point of lending.DominicJ wrote:
But you stll dont get the FR system.
Theres absolutely nothing stopping me depositing £100 with ZOPA, lending myself £100, depositing that £100 and so on. Banks dont lend the same £100 to multiple people no matter how many times you say otherwise.
• This article explains how the majority of money in the modern economy is created by commercial
banks making loans.
• Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits
It really could not be clearer. You are one of about ten people I've encountered on the internet who have gone to great lengths to defend a load of total bullshit about how banks don't create money. You were wrong. Not just a little bit wrong, but completely and utterly wrong. Steve understands where money comes from. It is you who doesn't.In the modern economy, most money takes the form of bank
deposits. But how those bank deposits are created is often
misunderstood: the principal way is through commercial
banks making loans.
Whenever a bank makes a loan, it
simultaneously creates a matching deposit in the
borrower’s bank account, thereby creating new money.
The reality of how money is created today differs from the
description found in some economics textbooks:
• Rather than banks receiving deposits when households
save and then lending them out, bank lending creates
deposits
In a way, that's how it used to happen in, say, the 1970s. Getting a mortgage (for example) involved the lender making a thorough assessment of the borrowers: their finances, their situation, even their character as people.UndercoverElephant wrote: Are you suggesting some sort of panel of experts to decide who should be loaned money, and how much and on what terms?
Yes, indeed. The pretence, even, of probity that came with the theoretical limit on how many time banks could fraudulently re-lend out the same money due to an imposed fractional reserve is now gone. There is no limit, save for the point at which large scale default imposes one. Even then, the state (or, more properly put; me, my children, my grand-children and my grand-children’s children), it would appear, comes to the rescue.UndercoverElephant wrote:
Banks create money out of thin air at the point of lending....
It really could not be clearer. ...
....banks don't "lend the same £100 to multiple people". It's much worse than that: they don't even need any £100 in the first place....
What the article misses, is that it creates a debit entry as well.When a bank makes a loan, for example
to someone taking out a mortgage to buy a house, it does not
typically do so by giving them thousands of pounds worth of
banknotes. Instead, it credits their bank account with a bank
deposit of the size of the mortgage.
At that moment, new
money is created.
Isn't it slightly more complex than that? My understanding is that commercial banks 'buy' money from the central bank at the base rate and then 'sell' the money to individuals and companies at a higher lending rate.UndercoverElephant wrote:They have the power to invent as much money as they like and lend it to people, who then have to repay it with interest. The bank then destroys the repaid principal sum, and keeps the interest.
No, Dominic, it does not. The article doesn't "miss" anything at all. It's a report released by the Bank of England for the specific purpose of clearing up exactly the sort of confusion that YOU are suffering from, and it doesn't mention any debit entry because there isn't one.DominicJ wrote:A little bit of knowledge is dangerous thing. The BoE accepts 4 types of money, M1-4.
That article doesnt say what you think it says, to be fair its clunky as hell, but the point stands.
What the article misses, is that it creates a debit entry as well.When a bank makes a loan, for example
to someone taking out a mortgage to buy a house, it does not
typically do so by giving them thousands of pounds worth of
banknotes. Instead, it credits their bank account with a bank
deposit of the size of the mortgage.
At that moment, new
money is created.
It's pointless if you continue to point blank deny the reality of how money is created, even after you've been presented with a clear statement from the Bank of England explaining the process. You're actually claiming that the BoE has got this wrong! It beggars belief.But this is probably a pointless arguement
No. That's what a lot of people believe, it's what the commercial banks are happy for you to believe, but it is not true. Commercial banks sometimes have to "buy" money from the central bank in order to solve short-term cashflow problems, but not in order to make loans.Tess wrote:Isn't it slightly more complex than that? My understanding is that commercial banks 'buy' money from the central bank at the base rate and then 'sell' the money to individuals and companies at a higher lending rate.UndercoverElephant wrote:They have the power to invent as much money as they like and lend it to people, who then have to repay it with interest. The bank then destroys the repaid principal sum, and keeps the interest.
Nope. This is absolutely not what happens.So technically I believe it's the central bank that's 'inventing' money and the commercial banks are just buying and selling that money.
