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Banks and Credit

This article from February 1975, is well worth a study and is still pertinent to the circumstances leading up to the crisis of recent years. Although some of the references are dated they have been retained for historical purposes.


Economics:

THE USE-VALUE of loan capital, which is made available through the banking system, consists of producing profit, and this type of profit is described as interest. The rate of interest is arrived at by competition between lenders and borrowers, or by supply and demand; the lender of loan capital striving to obtain the highest rate of interest for the use of his capital, and the borrower seeking the lowest rate. There is no "natural" rate of interest, nor is there any limit to the rate that can be charged.

 In the German Weimar Republic during the period of great inflation after World War 1, the rate of interest was raised weekly in some cases to 200%. The "natural" rate theory has its basis in the repetitive form of dealings bet…

The Banksters at RBS

The crimes of Royal Bank of Scotland as described on this website.

UK: PPI mis-selling - Estimated liability: £2.65 billion
RBS has set aside £2.65 billion in provisions to cover the cost of compensating customers to whom it mis-sold payment protection insurance (PPI). This often redundant product was highly lucrative for the banks but was useless to many of the people who bought it. The bank now has 1,800 staff working full-time on PPI redress. It threw an additional £250 million into the compensation pot on Friday.

UK: Rights issue class action - Liability: up to £13 billion
The bank is fighting the UK’s largest ever class action case in the High Court. The suit comes from 13,000 RBS investors who allege that the bank duped them into putting £12.3 billion into a rights issue in April 2008. On 30 July, the RBoS Shareholders Action Group was ordered to amalgamate its £4.3 billion claim with those of two other investor groups. A QC’s opinion last year found that asset-management firms t…

The Bank Revolution?

You have been taught that we live in a democracy. There are laws and courts and jails for the criminals — and you were told that all citizens are equal before the law. But you know perfectly well that a banker who swindles a great many people seldom lands in jail, and if he does, he is soon pardoned or else his imprisonment is turned into something like a vacation in a country club open prison. But if you, a worker, steals the law will be after you and there will be no mercy. You were taught that this is “justice.” Yet where is the justice to  being thrown out into the street for non-payment of a mortage or rent but bankers an default on billions and get bail-outs from the government? Something is wrong here, too. Apparently, all these notions about law and order, about justice and injustice, about crime and punishment, are made in the interests, not of you and the like of you, but in the interests of those who use them against you.

The truth of the matter is that this is a rich man’…

Banking 6/7

Surely, the current banking crisis has exploded the myth about banks being able to create credit, i.e. money to lend out at interest, by a mere stroke of the pen but apparently not. Financial crises always spark interest in critics of the system. They see the problems of capitalism—like its vulnerability to crises—as primarily financial in origin. The whole point of production under capitalism is not the satisfaction of needs, but the accumulation of money. In other words, it’s impossible to separate the economic world into a good productive side and a bad financial side; the two are inseparable. The monetary surpluses generated in production—the profits of capitalist businesses—accumulate over time and demand some sort of outlet: bank deposits, bonds, stocks, whatever. It’s going to be that way until we replace capitalism with something radically different. What we need to ask is why people today tend to blame banks rather than capitalism as a whole.

Banking 5/7

Dealing with the conspiracists

The oft-given explanation circulating around the internet is that banking originated from goldsmiths is misleading as it suggests that this was widespread when there may only have been the odd example of this. There is one film (Money As Debt) which gives the impression that every mediaeval and early capitalist town had goldsmiths who did this. Currency cranks  use the goldsmith argument fairly extensively to show that a bank can lend more than has been deposited with it. It is also strange that this historical theory should be widespread in the US where there would ever have been any goldsmiths who did this (if only because the money-commodity there was silver to start with) and where paper money originated from the states printing it and making it legal tender for paying taxes.

Adam Smith makes no mention of "goldsmith bankers". His description of how the Bank of Amsterdam operated confirms that the currency cranks have not been able to produ…

Banking 3/7

Banking Myths

The first banks were the merchants of ancient world that made loans to farmers and traders that carried goods between cities. The first records of such activity dates back to around 2000 BC in Assyria and Babylonia. Later in ancient Greece and during the Roman Empire lenders based in temples would make loans but also added two important innovations; accepted deposits and changing money. During this period there is similar evidence of the independent development of lending of money in ancient China and separately in ancient India. The Templers began generating letters of credit for pilgrims journeying to the Holy Land: pilgrims deposited their valuables with a local Templar preceptory before embarking, received a document indicating the value of their deposit, then used that document upon arrival in the Holy Land to retrieve their funds. This innovative arrangement was an early form of banking, and may have been the first formal system to support the use of travellers che…

Banking 2/7

"I think that people have learned that money is not made in banks. It is made by real people working hard at real jobs. Actually, deep down we knew that all along. We just have to learn it again." Asbjorn Jonsson, an Icelandic fisherman, in a week when Iceland was effectively a bankrupt state. Its banks owed the world an astonishing £35 billion - 12 times the size of Iceland’s gross domestic product and £116,000 for every man, woman and child.

Because money so dominates people's lives and because they associate money with banks, people's resentment at their money problems is aimed at banks but banking or monetary reform are not going to stop money dominating people's lives.

Many seek out solutions without understanding the causes. Marx wrote extensively on money and banking and credit yet how convenient it is to forget his conclusion that it is the entire capitalism system not simply individual aspects of its functioning that is the problem. Theorists seem to for…

Banking 1/7

Are the banks and greedy and incompetent bankers to blame for the current economic crisis? That’s what a lot of people think and what the media seems to want us to think. Certainly, bank directors generally are greedy – awarding themselves huge “salaries”, bonuses and pensions – and some of them are incompetent on their own terms. But blaming them is to let the real culprit off the hook: the capitalist system of production for profit. There are few places in the world more pointless than a bank. There are few compelled to toil more uselessly than bank employees. In every respect, the function of banks is to facilitate a form of exchange in which nothing is produced and much can be lost. A world without banks would be a wholly better place.

For all its worth, the distinction between productive and non productive capitalists remain a question of who gets what share of the unpaid labour of the working class.

Workers are exploited by virtue of the fact that we produce surplus value for t…

Salmond - apologist for organised crime

Speaking during his New York trip, Alex Salmond said HSBC "in many ways is the most Scottish bank in the world now. Founded by Scots, run by Scots, on the principles of Scottish banking. Hence one reason why it's survived the winds better than other institutions"


With the Scottish-based HBOS and RBS exposed as incompetent and failed banking institutions Salmond was required to look further afield for a positive example. But the HSBC?

This was the bank fined £1.2 billion for money laundering in the United States and Mexico, and embroiled in a fresh scandal with Argentine authorities accusing it of laundering $100 million. In India, in November 2012, anti-corruption crusaders Arvind Kejriwal and Prashant Bhushan alleged that the bank was involved in black money and hawala transactions. They said that in July 2011, the Indian Government had received a list of about 700 people having bank accounts in HSBC, Geneva, in 2006. The Bank also was fined $1.4 billion by the U.K. fo…

The Banksters

Fred Goodwin had his knightship removed. Shall we see the same for Sir James Crosby and Lord Stevenson being stripped of their honours.
The Parliamentary Commission on Banking Standards concluded the three men, who have since moved on to new positions, should never be allowed to work in the financial sector again. The report identified bad lending (when someone cannot repay a loan), inadequate liquidity (not enough ready cash) and a lack of risk management as the key factors behind HBOS’s fall

The report said: “The primary responsibility for the downfall of HBOS should rest with Sir James Crosby, architect of the strategy that set the course for disaster, with Andy Hornby, who proved unable or unwilling to change course, and Lord Stevenson, who presided over the bank’s board from its birth to its death...Lord Stevenson, in particular, has shown himself incapable of facing the realities of what placed the bank in jeopardy.” It said the former HBOS bosses had failed to admit their mi…

Crime does pay

Despite being fined for money-laundering for drug cartels and paying compensation for cheating customers over payment protection insurance HSBC rewarded shareholders with an increased dividend and its chief executive Stuart Gulliver took £7.4 million in pay. it paid 204 of its staff more than £1m in the year, with 78 of those based in the UK. Underlying profits were up 18 per cent to £10.9bn.

Crime after all does pay.

bank nationalisation (2)

It appears that some still see a future in the banks to solve the problems of the recession - state-owned banks, of course. Alf Young of the Scotsman appears to be a a convert and waxes lyrically about the Bank of North Dakota which is owned by the state. He appears to infer that the low impact of the crisis on the state had something to do with the this bank. Young then nostalgically recalled the widespread trustee savings bank that once existed but fails to mention that at least one still remains.

It is a shame that he never read the Socialist Courier or he would have come across this post which would have enlightened him a bit more to dead-end hope of bank nationalisation. 

Bank Nationalisation

It is no co-incidence that the cries for banking reform invariably comes during economic depressions. The lubrication that keeps the capitalist machine running – the money markets – are dysfunctional.

As Marx identified “So long as things go well, competition effects an operating fraternity of the capitalist class…so that each shares in the common loot in proportion to the size of his respective investment. But as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, ie, to what extent he must share in it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole, then comes to the surface…”

 Marx also pointed out that “the mone…

The World Bank

Glasgow branch is at present conducting a series of meetings on British banking so it maybe useful to add an international dimension.

The World Bank was established in 1944 to promote economic development and virtually every country is now a member. This spring the bank's 187 member countries choose a new president to succeed Robert Zoellick, whose term ends in July.

Until now, the unwritten rule has been that the US government simply designates each new president: all 11 have been Americans, and not one has been an expert in economic development, the bank's core responsibility, or had a career in fighting poverty or promoting environmental sustainability. Instead, the US has selected Wall Street bankers and politicians, presumably to ensure that the bank's policies are suitably friendly to US interests. US officials have traditionally viewed the World Bank as an extension of US foreign policy and commercial interests. With the bank just two blocks away from the White House …