Finding Complete Bollocks In The Guardian: Banking Balls
NO, no, I know, it’s not a total surprise is it, finding something in The Guardian which is simply complete, total and utter bollocks. And yes, it’s in the comments section but it is still important. Important both for who said it and for who believes it.
Of course banks handle deposits, but as anyone who has reviewed rates available to depositors for the last few years will know just how contemptuous banks have been of those who wish to use their services for this purpose. There is good reason for that: banks do not (and never have) needed depositors for enable them to make loans. The simple fact is that the money banks lend is created by them out of thin air. It’s offensively easy for them to do so. All that happens when someone asks for a loan is to credit a current account with the amount of the loan and debit a loan account with the same sum. That’s it: that is how 97% of all money in the UK is created, but as is clear, deposits play no part in that process. Instead banks literally create the cash they lend and can get away with this trick so long as people think they’re good for their promise to pay – which they will be so long as, as is now the case, the government clearly considers them too big to fail and explicitly and implicitly guarantees all they do. The insult to the injury is that having made this cash out of thin air they then charge heavily for it – vastly more than they pay for deposits. No wonder an organisation that can costlessly create what it sells is so profitable.
Bob Diamond acknowledges none of this, and the fact that much of the profit he and his colleagues supposedly generate is effectively licenced to them by the fact that the government has failed to claim for itself the right to he profit made on the creation of money; money which only the state can legitimise, but which banks have claimed for thei own benefit and which they have used to speculate at considerable social cost to society at large, as Adair Turner and others have noted.
Now I’m afraid to have to tell you that this is indeed complete bollocks. Think it through for a moment, using the example of Northern Rock. They went bust, didn’t they? They went bust because people were lining up to take their deposits out of the bank, didn’t they? But if banks don’t need deposits to make loans then Northern Rock wouldn’t have gone bust because people took their deposits out, would it?
QED. Banks do need deposits.
What’s got garbled here is that the banking system as a whole does indeed create credit. An individual bank does not. It’s also true that banks don’t look at how many deposits they’ve got before they make a loan. They consider the loan first, make it, then go out and find the deposits to fund it. But they do have to go and find those deposits. Every bank’s books must balance at 4.30 every afternoon. We even have a whole system called the overnight interbank market which makes sure this happens. If Lloyds lends out a little more than it took in that day, Barclay’s vice versa, then Lloyds borrows from Barclay’s to cover it. This system shifts £20 trillion (yes, trillion) around the country each year.
The idea that banks do not needs deposits, that banks just create money, that they create for nothing something that we then pay dearly for, is simply complete, total and utter bollocks.
But then bollocks being spouted in the comments section of The Guardian is hardly unusual, so why draw attention to it? Because of the person who is spouting it. This is one Richard J Murphy, a retired accountant from Wandsworth. So far, so what I hear you ask. Well, you see, he’s an advisor to the TUC on matters banking, accounting and taxation. And to the Green Party. And Action Aid, Oxfam, the Tax Justice Network, Christian Aid and however many others.
No wonder the entire country’s fucked when such advisors spout such complete, total, utter and absolute bollocks, eh?
Posted: 4th, November 2011 | In: Money Comments (5) | TrackBack | Permalink
