banks

It is generally accepted I think that the Wall Street Crash and the subsequent depression started with a major sell-off on the New York Stock Exchange on Thursday 24th October, 1929 - the so called "Black Thursday". The day of the worst one day fall on the New York Stock Exchange was the following Monday, "Black Monday", October 28th 1929, when it lost 13% of its opening value.

If all this does prove to be the start of a period of economic turbulance that will live in memories as long as the Wall Street Crash, I wonder which day will be identified as the start of it all. It seems to have been continuously bad news for weeks. Today, Russia's stock exchange index lost virtually 20%, having suspended trading twice. But what about the day the US bailed out AIG? Or when Hank Paulson got down on his knees to beg Nanci Pelosi to sign up to the $700bn bailout? Certainly that day I thought for the first time George Bush actually looked chillingly, almost menacingly sincere, much moreso than at any time during the Iraq conflict. The nationalisation of Fannie Mae and Freddie Mac perhaps? Or the failure of Lehmans? Or maybe just the day Peter Mandelson returned to the government!

...but strangely intensely exciting at the same time?

I'm just watching the news on Channel 4 and they've got all this coverage of the squirming going on in Washington and Wall Street.

Is it just me or am I right in the impression that Privilege and Power is absolutely terrified at the moment? That "they" really believe things are on the edge of a precipice which threatens systemic melt-down or revolution?

And also that there is a real massive popular movement going on to get the message across to "the Hill" that "they" will not be forgiven for allowing "our" money to pay Goldman Sachs bonuses.

...it's more like 2% of our money that is actually real, tangible stuff.

You're lucky if you happen to have some of the real stuff in your hands in fact. Why shouldn't the good old coin counterfeiter have a go. The Masters of the Universe who are at this very moment plunging us all into financial depression are the ones who are really the counterfeiters. And on an unimaginable scale. So unimaginable that we would rather believe it's not been happening.

The fact is that what we think of as pounds and pence are really only represented in the real world by, at the last calculation, about £45bn worth of notes and coins. Yes, that's the sum total of what the state has ever issued in our name.

But add up what we all have in our bank accounts and the humungous numbers represented by our outstanding mortgage balances and so on, there are more like £1,800bn or one point eight trillion.

Is it any wonder that this house of cards is teetering? And the fraudulent pound coins and notes that sometimes inconvenience us when a shop assistant tells us we can't use the money we thought we had are only the visible manifestation of a fraud so much grander we'd prefer not to think it exists.

...and we still don't seem to know what to do about bankers!

The Bank of Scotland, whatever is now left of it, is 312 years old. That of England just two years older. Ever since the banking system has been built on state protectionism, corporate welfare, monopoly privilege and, at its heart, a gigantic fraud.

The fraud was that a goldsmith could give both you and I receipts for my gold stored in his vaults and make money on both - from me a fee for keeping my gold, from you interest on the receipt you had borrowed from him. Indeed they found they could duplicate this so frequently, fraud upon fraud if you like, that though gold is perhaps regrettably no longer the basis of our money, the "hardest money", real "hard cash", amounts now to just three per cent of our total money supply in terms of everything we all have collectively borrowed and deposited.

To be fair, most goldsmiths at least issued notes of their own. Customers - both depositors and borrowers - chose which goldsmith to bank with on their reputation. If they became overstretched, issued what was felt to be too many receipts for the same gold, their notes would be less desirable in trade, there may even be a "run" when all the receipt holders tried to get their "real" money, the gold, out of the bank, which of course had much less gold than he had issued such receipts for. Nowadays, however, what they create and destroy in their lending business is denominated in the national currency, a currency issued nominally at least, by the state and guaranteed by the state.

This means it is no longer a private affair between a bank and its customers as to whether their business practices jeopardise their customers' savings; it is a problem for us all. We have ceded control of the supply of money issued in our name to private businesses whose main aim is to make profit for themselves and who, in the course of that otherwise noble pursuit, play fast and loose with the very air the entire economic system requires to function. And states protect them, bail them out as seems about to be the case in the US to the tune of almost countless billions, because they have to guarantee the currency they have so little control over.

Regular readers will know I am very fond of a quotation from Josiah Stamp, Liberal politican, Chairman of the Midland Bank in the 1920s and reputedly second wealthiest man in Britain in his lifetime:

"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again.

"However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits."

It rather seems to me that with the events of the past few days, we may be "taking the earth away from them" (or, more accurately and nauseatingly, buying it back from them) which they have stolen from us with their inflationary approach to money, but leaving them the power to create those deposits all over again with which, in the next bubble, they will buy it all back again.

Everyone seems to think that money has somehow been pretty constant. The way it works I mean, not whether we call it shillings and guineas or pounds and pence. But the current confidence trick really began with the depression of the 1930s and the work of two extremely wealthy, powerful men in the US who persuaded the government of their day to set up the system that enabled them to create "our" money according to their corporate priorities. The results of John D Rockerfeller and John P Morgan Jnrs' work was the Federal Reserve and the rapid ramping up of fractional reserve banking, and the eventual demise of real solid backing for that currency.

If the current crisis really does turn out to be the "big crunch" at the end of the cycle begun by that 1930s "big bang" we should be ready with policy to replace that fraudulent, anti-competitive, oligarchical system, designed by the very wealthy to keep them that way for little actual productive work with something different. Entirely different. I do not detect any mainstream politicians with the cojones to say so. Our governments and politicians are but eunuchs to the bankers, and the longer that continues, the more the vast majority of us will suffer.

They've been rumbled. The very shaky foundations of the entire house of cards have been exposed. The vast fraud against lower and middle income households that is the financial system, and, ultimately, government has been laid bare. Surely everyone can now see that? No? That doesn't surprise me. Just as there was very little outcry in this country when former Governor of the Bank of England Eddie George revealed that their commission on independence in 1997 was not just to maintain an inflation target but also to see to it that house prices continued to rise by keeping money as cheap as possible for as long as possible.

In my opinion, whatever the consequences in the short term, it would be better if Fannie and Freddie were allowed to die gracefully even as their lives have been a disgraceful deceit. What have they done that is so bad that a normally forgiving person like me would be calling for the corporate equivalent of the death penalty? The seemingly innocent practice of underwriting mortgages is in fact a key factor in the creation of the property price bubble and in the transfer of wealth from poorer to richer.  Yes that's right, redistribution the wrong way!  Without that underwriting the front line lenders would have been more cautious in their lending stabilising prices and not stretching households to the financial limits just to have a home over their heads.

Oh, what a clever idea, you still say perhaps - after all, it surely helps more people buy a home. And that's what Fannie and Freddie were supposed to do, by offering an implicit government guarantee people who would previously not have been considered for a mortgage got to join in the jamboree. And that's the problem - a government guarantee. They, the state, have pledged an eye-wateringly close to unlimited amount of money, that's *our* money of course, to make us have to pay more for our homes to the banks who effectively create the credit in the first place and line the pockets of landowners. And this in a nation that is still so relatively empty as to have marginal land in abundance so other land values should still be relatively stable other things being equal.

But those other things are not equal, the cycle of lending inflates the broad money supply so over time reducing the value of the asset that very system conspired to make you pay so much for in the first place. And all this is only possible because of the enclosure of land, the privatisation of the entitlement to and collection of the value that the whole of the community creates at any particular unique location.

At best, Fannie and Freddie are shining witnesses to the power of unintended consequences - I am sure the New Dealers whose brainchild they were earnestly believed they were helping: at worst, they can be seen as part of a conspiracy between government and those who own the financial system and its institutions to transfer vast amounts of wealth from Average Joe to the richest few. Add the evidence of Eddie George that in the UK the past ten years' property price boom was deliberate though unannounced political policy and it's harder to rule out conspiracy over cockup.

Either way, Fannie and Freddie should go, and go quickly, and, as they say, be buried in a closed casket to boot. It will unleash financial turmoil of unprecedented ferocity I am sure. But it will be the herald of death to a fundamentally flawed, corrupt and downright fraudulent system that continues to benefit a tiny few at the expense of the vast majority. I was introduced to a new, to me, term at the weekend, the Kondratiev wave. Looking at the vast amounts of money involved in the current potential crisis, the fact that the asset bubble is bursting as production is also slowing and there's ever decreasing amounts of money available to maintain existing economic activity, and I'm beginning to wonder if Kondratiev wasn't on to something.

This is a huge opportunity. An opportunity to reinvent a stable monetary system more suited to a globalised world of trade and increasing aspiration amongst a whole new world of consumers, a world in which, of necessity, economic activity is shifting relatively away from the west, from the existing reserve currency and its close followers and towards the east and the global mass of population.

And that, dear reader, is why I am likely to die waiting. An opportunity those who wield power would prefer us to miss.

Since the Vatican last week tried to redefine the "Seven Deadly Sins" and the events of the last few days in the financial markets I thought I would share a nice quote by a chap called Josiah Stamp, a liberal economist, tax policy expert, director of he Bank of England for a while, chairman of the LMS Railway company, and at the time reputed to be the second wealthiest man in Britain:

"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money."

Of course bankers, we know, ruleown the world. And they will stop at nothing, ultimately, to keep the rest of us from really understanding what's been going on these last few weeks but with one predicting, according to the Sunday Times, that the run on Northern Rock, which is what it undeniably is, could go as far as savers removing up to £12bn, it's worth a little reminder of what that number amounts to.

Going, going, gone!
There's only £50bn of the stuff in existence.

Originally uploaded by Ste D

I'm sure not everyone is demanding cold hard cash with the monarch's head all over it, but if they did, that £12bn would amount to just shy of a quarter of the entire stock of Sterling notes and coin in circulation and in banks' tills. So, whether you bank with Northern Rock or not, if you want your share of that pretty measly pie, you'd better get it wherever you can, soon!

If I'm a bit quiet at the moment it's because a. I have half a dozen unfinished blockbuster blog posts in progress and b. I seem to be putting in 12-14 hour days at work at the moment as I'm in the middle of a big software rollout. In fact I've just finished (at half past three in the morning) shutting down remotely tonight's 25 updated machines - perhaps I would be better off in India!

But I seem to have been "tagged" by James Graham for a response to George Osborne's statement that we are all living off the coat tails of the City of London, so I will try and honour him with a response! I'm not sure I share his or Jonathan Calder's interpretation that Osborne means the rest of us are living as "parasites" on the City. I don't detect such a value judgement in Osborne's comment. Rather I think he is in fact describing the status quo.

When as much Sterling is traded on forex markets in a week than our entire annual GDP - more in a single month than our entire national wealth - and when every trade generates a commission or turn for the middle-men in the City, Osborne is right if he is merely pointing out that we are too dependent on the City. What I can't fathom from what has been reported of his interview is whether any solution he might have to offer involves reducing the influence of the financial sector at the same time as trying to increase the competitiveness of British industry and non-financial sector wealth creation.

However much we may be dependent at the moment on financial markets for our national cash-flow (I won't say wealth creation because money is not itself wealth and pushing money around is not producing any tangible wealth, just pocketing tokens that could be used to buy actual wealth) it is unhealthy because it exploits all of us. In order to have enough tokens to trade in the volumes the interbank market needs to make a decent return they artificially inflate all the world's currencies. And then skim the cream off of what they have created.

I confess my mind is sorely troubled by recent events in the financial markets - partly why I am finding it very difficult to write about it. For several years now, after reading the likes of "The Future of Money: Creating New Wealth, Work and a Wiser World" (B.A. Lietaer) and "The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics" (Michael Rowbotham), I have become convinced that we are in the "last days" of a system based on debt, speculative froth and the dominance of money pushers, abetted by state protectionism of the highest order. Part of me wants this current crunch to precipitate the sort of crisis that will force us to find an alternative more sustainable system. The other part recognizes the inevitable pain to ordinary people such a collapse would cause unless we have an alternative waiting in the wings.

The problem is that they really do rule the world. Because we have given them the ability to create credit at will, to manipulate money supply, currency circulation and so on they utterly outgun all the real wealth production in the global economy. And it's only when we wake up to the fact that they are only able to do so by persuading us to borrow, usually on the back of land values that are in turn driven up by that borrowing until they reach what in the US has recently become a bursting point threatening the stability of the rest of the global market, that we will be able to do something about it.

A couple of blog posts in the past few days - one by Lynne Featherstone on Lib Dem Voice - have highlighted the issue of corruption, but there is no greater confidence trick and fraud than that perpetrated every day against us by the financial sector. Let's have some more discussion of how that affects us and what we can do about it.