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Post by Joe Durnavich on Sept 14, 2005 20:26:48 GMT -4
"Hurt the shareholders"? You mean I dare suggest a plan that hurts the privileged few who have amassed fortunes by doing nothing but rake in money through usury?
A bank's shareholders are not necessarily a privileged few. Many people can and do own stock in banks.
Next time you step outside, take a look at all the material wealth in the neighborhood and consider that the majority of those houses and the majority of those businesses were made possible because of the opportunity banks provided their owners. Organizations that pool the community's capital together and make it available for further production and growth are a blessing to the community.
I do seek a system to assist in correction of this massively disproportionale distribution of wealth. That is key to increasing the wealth of the majority.
No. Wealth has to be produced. The top percentiles in your chart are not a problem. They own the most wealth because they produce the most wealth. In any free society, there will necessarily be an unequal distribution of wealth. It is natural and expected.
You don't increase wealth by forcibly taking from those who have it and giving it to those who don't. You don't make your soccer team better off by injuring your star players.
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Post by Joe Durnavich on Sept 14, 2005 20:57:01 GMT -4
No - the bank making the loan does not lose out.
It not only will lose out under your scheme, it will bleed to death. Any bank that consistently loans at a low interest rate (or fee) and pays a higher interest rate to depositors will have a continuous outflow of money until it runs dry.
The bank doesn't care if the borrower makes a 100% profit on the loan the day after he gets it. Or if he sinks it all into a startup business with a slow return on his investment. It only considers that it gets the fees and principle paid back.
It certainly will care if the borrowers are depositing the money back in the bank! The bank then has to pay out interest on its own credit.
This also is the case for our current interest based loans.
But banks carefully set the interest rate higher than what one would get by investing it back in the banking system.
It's a shame that you don't understand how prices arise in a free market and how they serve as information and signals that help guide resources to where they are most needed. Then you could better appreciate how your meddling with prices (in this case, interest rates) distort this most valuable information and cause resources to be misdirected.
The bank also knows the loan is not likely to sit in a bank account to gain interest, either its own or another bank's.
You don't understand people's preferences. Your interest paid to depositors is virtually guaranteed (compared to riskier investments). All people have to do is borrow money and put it in the banking system and they earn interest income for doing nothing. That is too good of a deal to pass up. Some will prefer to gamble on riskier investments, but most will take the easy path to free money.
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Post by turbonium on Sept 14, 2005 22:59:51 GMT -4
A bank's shareholders are not necessarily a privileged few. Many people can and do own stock in banks.
Next time you step outside, take a look at all the material wealth in the neighborhood and consider that the majority of those houses and the majority of those businesses were made possible because of the opportunity banks provided their owners. Organizations that pool the community's capital together and make it available for further production and growth are a blessing to the community. Really? Well the Federal Reserve's 12 regional banks shareholders number about 300 or so. The other member banks shareholders are a select group as well. These banks don't trade on the NYSE where John Q. Public can buy up shares in, say, JP Morgan Chase. The shareholders in a bank profit from usury, plain and simple.
As to your example, I can step outside, and see many homes, all still owned by the bank, not the residents. How many "homeowners" actually really "own" their homes? Take a look at the data - most do not even have equity up to 50% of the value of their homes. The banks own the majority shares. You are giving banks far more praise than is deserved - they are not granting loans and mortgages to be nice, generous people. They are the wealthiest single business sector for a good reason. That would be interest charges. Banks in the system I advocate would create the actual example you cite - nice homes, most of which are actually owned by the people which reside in them.
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Post by turbonium on Sept 14, 2005 23:09:09 GMT -4
No. Wealth has to be produced. The top percentiles in your chart are not a problem. They own the most wealth because they produce the most wealth. In any free society, there will necessarily be an unequal distribution of wealth. It is natural and expected.
You don't increase wealth by forcibly taking from those who have it and giving it to those who don't. You don't make your soccer team better off by injuring your star players. You don't understand what I am saying. It is the banking system today which I am opposed to creating the 1% super wealthy, who achived this wealth through usury. Your soccer analogy is way off base. I don't propose hurting those who become wealthy through honest means of conducting business. I'm a business owner, and certainly aim to maximize profits. But I don't do it through usurous practices, and 99.9% of businesses do not do so either. Banks, specifically the Fed banks, have a monopoly on the business of creating money and lending it at interest - that, Joe, is creating wealth through usury, and nothing more. And as I said before, I abhor usury in all its forms.
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Post by turbonium on Sept 14, 2005 23:16:01 GMT -4
It not only will lose out under your scheme, it will bleed to death. Any bank that consistently loans at a low interest rate (or fee) and pays a higher interest rate to depositors will have a continuous outflow of money until it runs dry. That's nonsense. I've already pointed out, from your own link, that the banks have $14 trillion dollars in assest, and make $250 billion annually in net interest income. Pleading the banks case for poverty if they didn't charge interest on loans is absurd. The US national debt is primarily due to these unneccessary interest charges. You can't make a case for their survival on interest while they are the most profitable institutions in the world, and their margins increase every year. Record profits for XYZ Bank - this is the regular headline in the financial section of the daily paper s - and it's the truth.
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Post by turbonium on Sept 14, 2005 23:41:47 GMT -4
It certainly will care if the borrowers are depositing the money back in the bank! The bank then has to pay out interest on its own credit. You don't understand something here - the banks take your deposit and invest it for higher returns than it gives you monthly. If you are getting, say 5% interest on your savings account, the bank is undoubtedly getting over a 10% return on their use of your money. Net interest income is misleading you, because it is the measurement (in basic terms) of the loan interest it receives versus interest paid to depositiors. It doesn't take into this equation what earnings are gained from investments made with depositors money. That is allowed thanks to fractional reserve banking, so the money actually in the bank physically is multiplied "in theory" or through a ledger entry.
Let's say I start up The Bank of Turbonium. You deposit $1000 into a 5% savings account at my bank. I now record, say $100, 000 on the books. I did that because as a new bank, I haven't yet met the requirements for reserves on my deposits. No reserves are required on the first $6.6 million. Between $6.6 million and $45.4 million, deposits are subject to a 3% reserve. Above $45.4 million they are subject to a 10% reserve.
I, in turn, invest $100,000 in another venture, which earns my bank an 18% return. I'm making money on your money now. And I did not need to loan out any money to do it. I still make money when my banks deposits begin to require the noted reserve ratios
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Post by turbonium on Sept 14, 2005 23:52:18 GMT -4
It's a shame that you don't understand how prices arise in a free market and how they serve as information and signals that help guide resources to where they are most needed. Then you could better appreciate how your meddling with prices (in this case, interest rates) distort this most valuable information and cause resources to be misdirected.
Please - that's ridiculous. Prices in a free market are better, more accurate indicators of the economy without the roller-coaster effect of interest rates. Interest rates are what is "meddling" with prices, and distorting them. Taxation and interest serve to confuse, complicate and corrupt the economy in more ways than I could count. When you get a 5 year mortgage at say 6% over a 25 year amortization, you have no idea what you will encounter five years later. You could be faced with double that rate and be in real trouble to meet your payments. Changing interest rates on mortgages have served to create an insecure, unstable economy, and John Q. Public doesn't know if he will be able to keep his home if interest rates skyrocket in 4-5 years.
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Post by Data Cable on Sept 15, 2005 8:13:09 GMT -4
It certainly will care if the borrowers are depositing the money back in the bank! The bank then has to pay out interest on its own credit. Exactly. Why would a bank willingly pay recurring interest to depositors when it is only permitted to collect a one-time fee from each loan transaction? (whch, btw, also eliminates the borrowers' incentive to pay back the principle sooner rather than later... if ever) Why should individuals be permitted to engage in usury when banks aren't?
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Post by echnaton on Sept 15, 2005 10:02:36 GMT -4
When you get a 5 year mortgage at say 6% over a 25 year amortization, you have no idea what you will encounter five years later. You could be faced with double that rate and be in real trouble to meet your payments. Changing interest rates on mortgages have served to create an insecure, unstable economy, and John Q. Public doesn't know if he will be able to keep his home if interest rates skyrocket in 4-5 years.
You are vastly overstating the situation. By far the most common type of home loan is a 30 year fixed interest rate note with a put option given to the borrower allowing him to repay the loan at any time. So the borrower is never obligated to pay more per month on the loan than the agreed upon payment schedule. The lender has very limited call rights that are primarily contingent upon the buyers default on payments.
Although if borrowers want to borrow with a balloon payment or on a floating rate basis, I see no reason for the government to prevent them.
I think almost everyone would agree with you that taxes distort the economy, but interest rates are just another price. Although, as we all know, the Fed has a zero cost of funds and vast liquidity so short term are not a free market equilibrium. Thus short term rates are not a price at all, but a Fed policy. Long term rates are a price, and reflect the competitive environment and expected future conditions of repayment.
You know turbo, if you would just stop trying to push your fundamentalist morality everyone, most of this would not be an issue. Just let those that voluntarily borrow money and have no problem with paying interest to do that if they want. Just as no one should force you to borrow money and pay interest if you don’t want to. This kind of liberalism makes for a far wealthier society than one in which the government specifies the terms of trade.
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Post by Joe Durnavich on Sept 15, 2005 22:15:24 GMT -4
Really? Well the Federal Reserve's 12 regional banks shareholders number about 300 or so. The other member banks shareholders are a select group as well.
I was thinking of the thousands of other banks. I have seen some state that they have from several hundred to over a thousand shareholders. If that is not the case, or is not typical, then I stand corrected.
As to your example, I can step outside, and see many homes, all still owned by the bank, not the residents. How many "homeowners" actually really "own" their homes? Take a look at the data - most do not even have equity up to 50% of the value of their homes.
And why should they? Homes and property are expensive and take a long time to either pay off or save up for. Present dollars are worth more than future dollars. You cannot get around that. The combination means that it is going to take the average couple or person 30 years to get full ownership of a house.
In the meantime, though, families are being raised in those homes, and although we do not appreciate it, we live quite comfortably and luxuriously in this day and age compared to the past.
The banks own the majority shares.
Don't forget what is on the other side of the balance sheet. The the depositors, the people who loan to the bank, and its shareholders effectively own those shares.
You are giving banks far more praise than is deserved - they are not granting loans and mortgages to be nice, generous people.
Of course not. I give them praise because of their self-interest. Everybody is in the market for his or her own self-interest. Self-interest--the drive to do better--is what makes the market work so well.
They are the wealthiest single business sector for a good reason.
Wealth is not a fault. That would be interest charges. Too simplistic. The banking system does well because it provides our capitalist market with what it needs to thrive: capital. Banks in the system I advocate would create the actual example you cite - nice homes, most of which are actually owned by the people which reside in them. No, banks would not function properly in your system. By annihilating most of a bank's interest income, you would leave banks with little means to acquire deposits, to borrow, and to build capital. Banks cannot just "create" money with a push of a button. They require capital to make loans.
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Post by Joe Durnavich on Sept 15, 2005 23:28:22 GMT -4
That's nonsense. I've already pointed out, from your own link, that the banks have $14 trillion dollars in assest, and make $250 billion annually in net interest income.
But you are planning on wiping out that net interest income.
Commercial banks take in $350 billion in interest income. Your fee-versus-interest example showed us on one loan how the banks would take in over 7 times less income. If that is anywhere near typical, then the system's interest income will plummet from $350 to perhaps, what do you think, $50 to $100 billion? You have not explained how banks can stay afloat after giving up so much income.
Let's say I start up The Bank of Turbonium. You deposit $1000 into a 5% savings account at my bank. I now record, say $100, 000 on the books. I did that because as a new bank, I haven't yet met the requirements for reserves on my deposits. No reserves are required on the first $6.6 million. Between $6.6 million and $45.4 million, deposits are subject to a 3% reserve. Above $45.4 million they are subject to a 10% reserve.
It is not that easy. You are overlooking capital adequacy and liquidity requirements. Reserve ratios are virtually irrelevant. (Not that I agree that they should be, but that is a downside of central banking.) It may help to look at the banking system's balance sheet and see how loans compare to what is on the liability and equity side.
I, in turn, invest $100,000 in another venture, which earns my bank an 18% return.
People will not deposit for only 5% in a bank that makes such risky investments. I believe banks were not allowed to make such investments, but I am not sure what the regulations are now.
And if you could earn a consistent 18%, I don't think you would be wasting your time working for a bank.
The US national debt is primarily due to these unneccessary interest charges.
There is interest on the debt because the US Treasury offers it as incentive for buyers to buy Treasury securities. All sorts of people from all over the world, as well as banks, buy such securities. I don't understand why you lay blame squarely on banks.
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Post by turbonium on Sept 16, 2005 1:54:18 GMT -4
Of course not. I give them praise because of their self-interest. Everybody is in the market for his or her own self-interest. Self-interest--the drive to do better--is what makes the market work so well. The market is not working so well, if you look at the bottom line - our national debt. It is not a healthy economy in the least today., it's in huge trouble, in fact it could collapse like a house of cards before you knew what hit you. Reckless government spending >>spiralling debt from interest based loans>> increasing tax burden on individuals. It's a vicious cycle with no end in sight but inevitable collapse. This is where uncontrolled "self-interest" has put us today...
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Post by turbonium on Sept 16, 2005 2:17:34 GMT -4
You know turbo, if you would just stop trying to push your fundamentalist morality everyone, most of this would not be an issue. Just let those that voluntarily borrow money and have no problem with paying interest to do that if they want. Just as no one should force you to borrow money and pay interest if you don’t want to. This kind of liberalism makes for a far wealthier society than one in which the government specifies the terms of trade. I'm not "pushing" my "morality" on anyone. My intent is to share some of the lesser known economic realities with others so that it can be seen why we have such a problem with our current economy. I don't wear rose-colored glasses, ignoring what the implications are regarding our current economic conditions for the future.
Your post reminds me of the stories I've read from pre-Depression times. The "Roaring 20's" were great times economically and socially. Nobody wanted to hear any nonsense about how fragile the economy was, that it could all come crashing down in an instant. "I'm in debt to the bank but my job is secure. I'm happy with how things are going, so don't try and bring me down, saying I could lose my home and job."
The only people smiling after the Depression hit were...guess who.....the bankers. Wealth was not lost - it changed hands drastically from the many (our ancestors) to the few (the ancestors of today's bankers, who of course were also bankers).
That has nothing to do with morality - it's reality, and you can ignore it if you wish. I wouldn't want to be thought of as a party-pooper.
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Post by Joe Durnavich on Sept 17, 2005 7:58:44 GMT -4
The market is not working so well, if you look at the bottom line - our national debt. The national debt is a problem of the public sector, the government, which operates outside of the discipline of the private market. Private businesses that rack up such large debts cease to be attractive investments. People are free to take their money elsewhere. This lack of freedom and the discipline it allows is why I am opposed to your moving the banking system entirely into the public sector. Reckless government spending >>spiralling debt from interest based loans>> increasing tax burden on individuals. If the government did not persistently spend more than it takes in tax revenues, then it would not need to borrow money by selling US Treasury securities to individuals and institutions. There would be no long-term debt and no interest on that debt.
The problem here is not with interest, but with the fact that the government does not have to obey bottom lines to the same extent private businesses do. They operate under political discipline rather than market discipline. The results are not always optimal for the economy. This is where uncontrolled "self-interest" has put us today...
You have no idea how easy you have it sitting there in a comfortable shelter free from hunger, perhaps free from disease, typing in messages and having them instantly delivered to people all over the planet. The self-interest of the intelligent and industrious, free to be productive, has allowed the average person today to live far more comfortably than the kings of the past.
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Al Johnston
"Cheer up!" they said, "It could be worse!" So I did, and it was.
Posts: 1,453
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Post by Al Johnston on Sept 17, 2005 8:51:29 GMT -4
The problem here is not with interest, but with the fact that the government does not have to obey bottom lines to the same extent private businesses do. They operate under political discipline rather than market discipline. The results are not always optimal for the economy. And quite rightly so: last century our government was twice faced with the alternatives of spending more money than it conceivably raise through taxation or surrendering a World War.
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