I appreciate your intentions ONQ, but I feel you are misguided.
First of all what is credit? Well it is other peoples savings.
We have accessed these savings during the boom times when credit was easy.
Now we have huge personal debt and government debt and bankrupt banks which owe billions.
Now that there is a recession and much reduced demand for all goods and services, you feel that the banks should turn on the credit tap again to stimulate the economy.
You may think that credit is at the discretion of the bankers but the banks are dependant on foreign lenders for the money and these lenders are imposing stricter conditions.The money the banks got from the government is not for the purpose of lending but for NAMA which is to try to cover them for their losses to developers.
What type of enterprises do you think should get credit. We have a massive oversupply of most buisnesses to serve a market with much reduced spending power.
If there was a good and viable buisness that had serious potential....maybe an exporting company that had a product with strong demand...I am sure that company would be able to get the required credit.
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Really Sunrock, Darwinian Economics do us little credit when we're trying to salvage and economy.
We need liquidity, common sense and cop on.
Here's some of mine for you.
Q. From Where or Whom do Banks get the Money they lend: A. its Magic:
Most of it is not from the deposits they take in.
If they were so limited they could only lend a percentage of this to cater for the time you might want to withdraw some of your own money.
Nowadays banks operate on the
Fractional Reserve Banking System.
Banks with a deposit of say €100,000,000, are allowed lend a multiple of this, say 10 times or so or €1,000,000,000
The money they "lend" to you is virtual money, created by keyboard entry in your account and regulated by laws and agreements.
Q. How Do Banks Make Money: A. Lending:
They don't make their money by investing deposits, or else they'd be making very little with the current low interest rates.
One way Banks may a profit, even in a recession, is to screw money out of the population they say they are "serving".
When times get bad, like they are now, they lend less to fewer borrowers [the safest bets] and charge them higher interest to make up the difference.
Businesses go to the wall - the banks stay safe.
"Its the market", they blithely say.
It isn't - its the Banks.
Look at the difference between the interest rates the banks pay and lend at.
You can see the people on the edge of the game, the foreign exchange offices in every tourist resort.
People get annoyed when they're down to their last 100 EURO and they see the exchanges marking up the deal a couple of percentage points.
Look at the difference between what Banks can buy money at and what they lend at - even to regular customers who have excellent credit rating.
They take
several percentage points over the current exchange rate, claiming: " it must be done - its risky to lend to people..."
Firstly, its not that risky.
Secondly, that's why insurance was invented.
That's doesn't stop Banks taking two cuts of the pie on every loan - don't believe me?
Have you ever taken out an insurance policy in case of default on a loan you took out and seen the interest rate they're charging you fall?
Me neither.
But lending and charging interest on the loan is not where Banks make their Billions.
It only seems like that to the little people, who use their Bank to borrow from as opposed to do business through.
Lending is actually only the icing on the cake.
Q. How Do Banks REALLY Make Money: A. Transaction Charges:
The big boys, the multinational corporations and the like, carry out thousands, perhaps hundreds of thousand or small transactions every day.
Every time a Bank does something to an account, there's a little thing called a transaction charge, charged to the account, or to a charging account.
These are micro-payments in relative terms, but over the course of a trading year for a multi-national they can run into billions.
Think of writing a cheque, the OLD way of doing business.
Physical paper gets collected and sorted and accounts get processed and debited.
The Banks had to pay people to do this and decided they weren't paying out of their annual profits - transaction charges would do instead.
Even after the introduction of Credit Cards and Virtual Direct Debits and Inter Account Transactions and 24-hour Banking - those charges still remain.
For giant corporations, able to shift their money and beggar countries, their leverage allows them to negotiate better rates.
But they still get charged by the Banks for doing similar things - moving and clearing money on a scale so vast we cannot imagine it.
One corporate clearing house is suggested to have cleared over 30 Billion one year - one year, one of the firms - and all of those Billions were charged for.
Transaction Charges: remember this.
Q. No, Seriously How Do Banks REALLY, REALLY Make Money: A. Black Magic:
No one really knows the extent of this, probably not even the Banks, but there is a market between Banks called the Inter Bank Market.
Banks Trade with Banks and with virtual corporations, specially constructed to undertake these trades.
These trades happen 24/7/365 using advanced instruments of trade.
Hedge Fund, Credit Default Swaps, Derivatives - we hear only about the common-or-garden varieties of trading instruments.
There are others, with more being invented all the time by people whose grasp of mathematics, probability theorem, International law and corporation law makes the people who invented Fractional Reserve Banking look like mere Apprentices.
But even leaving the derivatives Market in the hands of the like of Walls Street and the London Stock Exchange is like handing the keys of the Worlds nuclear weapons arsenal to HAL the super-computer from 2001@ A Space Odyssey.
Look at the Nama-ization of Bank Loans, less than 60 Billion and we're wetting ourselves over how we'll pay for it going forward.
Anglo Irish had over 210 BILLION EURO of Derivatives on its loan book.
210 BILLION EURO.
How much?
210 BILLION EURO
One Bank.
Brendan published the end of year Report from Anglo a while back and I pointed this figure out to him.
He corrected me assuming this like all the other columns was denominated in Millions.
I went and checked and found it was denominated in Thousands of Millions.
Billions - 217 of them or so If I recall correctly - from just one Bank.
Let me tell you Sunrock, I'm not the one who's misguided.
I'm the one who has started looking at this seriously last year and who's begun to see what's going on.
When I say we need a bank to lend money and not take deposits - apart from the initial deposit - I don't need Darwinian Economics and 1st principle reasoning.
We need this Bank because it will be able to lend from the get-go without having to worry about reaching an arbitrary Capital Reserve Ratio.
This is the 1 to 10 ratio mentioned above as an example that is the actuarial rule-of-thumb for fractional reserve banking.
Banks that don't reach this ratio are technically Bankrupt in Banking terms because they cannot lend.
This means they cannot lend to themselves, cannot make REAL money, cannot therefore PROSPER.
The biggest customer of this Bank may be the Banks themselves.
We need liquidity.
The Banks need liquidity.
And we all need to take a hard look at the Banking Systems because its out of control.
ONQ.