To the barricades?? - The History of Money and Credit cards

[macdoc]

I wrote this up on RatSkep to answer a question but it's something anyone should understand now.

Money is a marker or chit for goods or services rendered.

Before fractional lending growing economies ( like the US in it's early days ) would forever run out of currency in circulation as the supply of gold and silver coin would not grow as fast as the economy.
So script ( paper money ) started to replace gold ( the gold standard ) but governments tried to keep a 1:1 ratio between the gold reserves ( Fort Knox ) and the script ( bank notes ) issued.

This didn't work either - sometimes because of rapid growth and sometimes rapacious governments needing to fund wars with money they did not have.

This is a long but very interesting history from PBS



and part two





Here's a written history

http://www.xat.org/xat/moneyhistory.html

How's this for prescience 200 years back...

Nicholas Biddle 1836 By calling in existing loans and refusing to issue new loans he did cause a massive depression, but in 1836 when the charter ran out, the Second Bank ceased to function. It was then he made these two famous statements: "The Bank is trying to kill me - but I will kill it!" and later
"If the American people only understood the rank injustice of our money and banking system - there would be a revolution before morning..."

It's been an ongoing battle between banks greed

n 2010, Dublin lawyer Vincent Martin and his colleagues were contacted by a man who was at loggerheads with the Irish Nationwide building society, a local bank. After obtaining the bank’s files on his account, the man had discovered the bank, which has since merged with Anglo Irish Bank, had created a new version of him for their credit committee.

So they could lend him more money during Ireland’s bull market, banking officials had changed the man’s occupation, inflated his roughly $39,000 annual salary to $78,000, and forged both his and his employer’s signature. Martin wouldn’t reveal the man’s name because of ongoing litigation. He also declined to say whether police were involved in the case.

http://www.thestar.com/news/world/artic ... ction?bn=1

governments need to fund wars - often not of their own choosing

NAPOLEON (1803 - 1825)

He didn't trust the bank saying:

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes... Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
Napoleon Bonaparte, 1815

For both sides of a war to be loaned money from the same privately owned Central Bank is not unusual. Nothing generates debt like war. A Nation will borrow any amount to win.

and of course our own "money from nothing" attitude which led hundreds of thousands to use their houses as ATM machines and expect the prices to ever grow up - urged and cajoled by the reality industry and the bankers issuing the debt.

Back to your question....

when a bank issues a loan it is effectively putting new money into circulation - if the value of the loan is honest - it's not a bad system keeps money supply matched with growth.

But put in creative accounting, dishonest valuators and seriously stupid bidding wars on houses that still goes on and the bubble of magical money was overwhelming the traditional economies all over the world ( see the two Economists articles about the biggest bubble early on ).

The piper has to be paid .....now the pain will go on for a very long time and the battle to bring the banking community into the real world instead of their fantasy land of eternal obscene bonuses goes on.

Each default pulls the money supply down ( correction ) and by moving the value of the properties into line with incomes tho that is far from the case in Canada and Australia notably where there are slow bubbles in play tho it looks as if Vancouver's is popping now as is Sydney's.

If you are confused about money you are hardly alone and the idea that banks can effectively create 10 to 20 times their capital in loans out of thin air and it being sanctioned by the government seems utterly outrageous.

It is.

With that chartered right should come responsibility both to avoid speculative activies and to provide financing across the entire valid needs of the real economy.

The local season business who needs a few months loan until the season is over ( crops notably ), the local business that needs to buy new machinery etc.

These all need low cost loans yet they don't get it - they get tossed off into the credit card scam machine which is another bit of history that will appall - this one you can trust.



If you watch the four videos you just might get on the barricades.

[Hermit]

You put quite an effort in this post, but no, I will not go to the barricades because of "money". While unconscionable practices are perpetrated, sometimes on a massive scale, we could not function as a society without it. Nor could we function without loans. We like to moan about the rapaciousness of banks and financiers, but they are no different to the millions of ordinary shareholders; too much profit is not enough, and let's take as much as we can get away with. The thing to do is for consumers of financial products is to stop and think things over. You don't need a computer and the ability to create electronic spreadsheets to do this, although that saves time. All you need is a pencil, paper and common sense. After you do the exercise you are unlikely to fall victim to bubbles. In the final analysis the mug-punter only cops a loss if he/she is forced to sell. The principal principle is therefore "ability to repay", and for that an adequate safety cushion needs to be established. Playing "what if" games will help you work out the size of it.

[macdoc]

No but we could and did function with much tighter control without the banks being allowed to engage in insurance and mortgages - I recall that you may not. For the longest time that centralization of power was resisted and rightly so by governments.

You miss the point entirely and lay the blame on the borrowers. Indeed many are at fault and I really could care a rats ass about defaults by over ambitious speculative buyers.

What I DO care about is the systemic issue of a privileged banking system that is granted rights to capital magnification by charter and then deprives small businesses of low cost credit when they themselves

a) are granted low cost credit by central banks

b) mis- managed that monumentally

and then expect to make it back up off the poor sods who have to deal with them while still handing out insane bonuses. The financial sector is way above the norm for income and the reason for that is the their charter for fractional lending. Normally a business and any size can only employ their capital in one incoming earning endeavor - not the banks - they get the multiplier and some times they were lending out 31 :1 on ventures that were themselves leveraged.
Then they came begging when the house of cards fell predictably and the predators fled..

I did not "fall victim" to any bubble - I read the Economist back in 2005 and have been renting all through the nonsense.
Shelter is a service period and the sooner it stops being a gambling den the better for society.

What irks me is joe blow gets a loan on property that if the history from 1989 repeats will drop 40% but a long established business ( 27 years )with $150k cashflow a month and ultra low cost of operations is pushed off into credit card land instead of a used to be normal operating line of credit at an interest rate that reflects the central banks interest in creating jobs and stimulus.

In addition they pay NOTHING to those with deposits - less than 1% in most cases.

The big corporations have tons of cash and credit and are NOT creating jobs.
The small businesses are hosed by credit card and bank fees and yet they DO create over half the jobs and maybe more if gov employment is taken out.

Credit unions are not in this situation - they provide credit to local people at reasonable rates tho they too fall for the housing is security crock.

P2P lending is coming slowly but in a case in BC the gov shut down a very successful local lending/borrowing business accusing the owners ( all the investors were local as well as the borrowers ) of running an unlicenced bank.

Yet those same borrowers could not get the credit they needed for seasonal operations from the local banks.

It's wrong - the banks and financial institutions need to be reined in big time and a tax on financial operations put in place to curb speculation and pay for bailouts which in no way have ended.

I suspect because of Spain alone every bank in Europe is underwater if the true bad loans from housing ( mostly empty - over 50% of those built in Spain's case ) were accounted for.

The economist called it in 2005 - the piper is being paid. I'll post up the articles.

[macdoc]

Why in return for that charter privilege - which can be withdrawn by legislation.....the banks should NOT work in the public interest.

With a legislated privilege comes a responsibility.

If I have a house - I can rent it out once.
If a bank has a house - it can rent it out 10-20 times depending on the capital reserve legislation.
Nice work if you can get it eh.

( sub in a million dollars for house )

What the marvel is - that even with the capital magnification fractional lending provides to the greedy assholes - they still fucked it up by leveraging it out even further on risky bets - cuz when the margin calls come on fractional lending....it works in reverse and banks go underwater right quick....as for every say million dollars in bad debts that's a direct hit on their capital and takes out 10-30 million in lending capacity.

My guess is every single bank in Europe is underwater big time if the paper they are holding on places like Spanish housing were evaluated honestly.

The Economist called all this in 2005

The global housing boom
In come the waves
The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops
Jun 16th 2005 | from the print edition

NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.

continues
http://www.economist.com/node/4079027

House prices
After the fall
Soaring house prices have given a huge boost to the world economy. What happens when they drop?
Jun 16th 2005 | from the print edition

read on

http://www.economist.com/node/4079458

That was then

•••••••
what is happening now? It is unfolding with big time hurt as any bubble does - and this was the mother of all bubbles - there were 1.3 million houses built on speculative loans in Spain alone.....more than half remain unsold....if you recall how the fractional lending works - you can see how far far underwater the European Banks are as those houses remain on their books.

Spain in ‘crisis of enormous magnitude’ as unemployment rate nears 25%
Published On Fri Apr 27 2012EmailPrint(13)

Spain's sickly economy faces a "crisis of huge proportions", a minister said on Friday, as unemployment hit its highest level in two decades and Standard and Poor's weighed in with a two-notch downgrade of the government's debt.
ANDREA COMAS/REUTERS
Daniel Woolls and Pan Pylas

MADRID—The hole in Spain’s economy is getting deeper.

The government reported Friday that unemployment rose to 24.4 per cent in the first quarter — compared with 22.9 per cent in the fourth quarter — and that more than half of Spaniards under 25 are now without jobs. The bleak employment report came one day after ratings agency Standard & Poor’s downgraded the country’s debt.

The Spanish economy is in recession for the second time in three years as the damage from a housing bust persists. Foreclosures are rising, Spain’s banks are in worse financial shape and the government’s deficit is hitting worrisome levels.

more

http://www.thestar.com/business/article ... gnitude-as

People need to understand the underpinnings of what happened and why it will happen again if the privileged position of the banking industry is not curbed.

Lending institutions ARE required....predators need not be a sanctioned part of that....and currently they are.

[PsychoSerenity]

I want to come back to this thread and read it properly and watch the videos, but I don't have the energy right now. Thanks for posting, macdoc.

[macdoc]

NP - it's important and many people are very shocked at what has gotten out of control WITH STATE SANCTION and we all need to understand it. The videos are long but it provides a backdrop.
Solution ......dunno yet - Canada did "okay" but the power is not broken - just curbed a bit.

The risks are very real as Iceland found out - this is short 8 min and to the point.


and it leads directly to Occupy.

Lessons from Iceland: the people can have the power

As early progress in Iceland shows since the banking collapse, the 21st century will be the century of the common people, of us

http://www.guardian.co.uk/commentisfree ... ople-power

snip

We had the first revolution after the financial troubles in 2008. Due to a lack of transparency, corruption and nepotism, Iceland had the third largest financial meltdown in human history, and it shook us profoundly.
The Icelandic people realised that everything we had put our trust in had failed us. One of the demands during the protests that followed –

and that resulted in getting rid of the government, the central bank manager and the head of the financial authority – was that we would get to rewrite our constitution. "

We" meaning the 99%, not the politicians who had failed us. Another demand was that we should have real democratic tools, such as being able to call directly for a national referendum and dissolve parliament.

This was a profound change and it's needed.

[macdoc]

Credit card issuers set up perverse system, Competition Bureau charges

The lead counsel for the Competition Bureau opened the case against Visa and MasterCard on Tuesday with a sweeping indictment of their practices.
SEAN KILPATRICK/THE CANADIAN PRESS
The Canadian Press

OTTAWA—The Competition Bureau says Canada’s credit card issuers have set up a perverse system that thwarts the normal rules of the marketplace and costs consumers billions of dollars annually.

The lead counsel for the bureau opened the case against Visa and MasterCard with a sweeping indictment of their practices.

Kent Thomson told a tribunal Tuesday that Canadian merchants are paying among the highest fees in the world for the privilege of accepting credit card purchases.

But what Canadians don’t know is that those fees added about $5 billion to consumer costs last year, he says.

RELATED: Visa, MasterCard head to hearing over high fees

Credit card fees can be as high as 50 times greater than those on debit cards, he says.

Thomson says Visa and MasterCard are able to get away with such uncompetitive practices by denying merchants from charging extra for credit card purchases, or even differentiating from premium cards, whose fees can be more than double those of standard cards.

Thompson says the system is rigged in such a way that the most affluent consumers — who typically use premium and super premium cards — spread the higher costs for those cards to those that don’t use them.

The issue was referred to the tribunal by the Competition Bureau after a group representing independent firms complained they suspected credit card companies engaged in price fixing.

The hearings, which operate much like a trial, are expected to run until the end of June.

Credit card companies typically charge businesses a range of 1.5 per cent to three per cent of the customer’s total transaction, but the “no-surcharge” rule prevents them from tacking on a surcharge to offset the extra amount.

The credit card companies have argued that if businesses were forced to charge a fee for use, it would result in a form of discrimination against credit card holders, who would have to pay more for using the cards.

Visa and MasterCard operate the two largest credit card networks in Canada.

Together they processed more than 92 per cent of all credit card transactions by Canadian consumers in 2011, representing more than $322 billion in purchases, the bureau has said.

The bureau first brought its application to the quasi-judicial tribunal in December 2010 with a challenge under the price maintenance provisions of the Competition Act, which allows the Competition Tribunal to prohibit certain agreements or contracts that influence prices upwards or discourages the reduction of prices.

The bureau launched its investigation in 2009 in response to complaints by merchants.

[Svartalf]

Impressive and interesting. Thank you.

[macdoc]

You waded through the videos??? - congrats