Thursday, June 11, 2015

Helena Kennedy, Oliver Kamm and what banks actually do

Helena Kennedy in the New Statesman 5 June on Magna Carta says banks rely on complexity which foxes law prosecutors and befuddles politicians. Surely complexity does not automatically imply illegality? So where does the power come from that Baroness Kennedy says is wielded by financial institutions, which in her opinion shows that Magna Carta lacks bite?  It is derived from a very simple, non-complex but fully legal right to create the money supply by banks. See this short video which explains the process:  Banking and the Economy  

From this process - the ability to create money - the banks, et al, engineer the complex financial products that rattle HK, which are the source of the profits. If this power was not available and banks had to make do with their own funds, there wouldn't  be any point in making complex products - it would be too much bother given the small margins. The profits arise for banks from the huge leverage gained by multiplying small margins on a huge base of their specially created money. See also on the ignorance of politicians from Positive Money.  The answer for politicians such as Baroness Kennedy  is not 'going head to head against large banks', but to take away their right to create money - or at least encourage the formation of independent  local community banks, owned by local trusts which don't make complex products and which channel profits back to the community.    

Oliver Kamm in The Times 11 June writes:
' the role of banks and capital markets in matching owners of capital with businesses that need it' 

This new paper by Jakab and Kumhof will enlighten:  Bank of England paper No 529 
Mervyn King (2012), former Governor of the Bank of England: “When banks extend loans to their customers, they create money by crediting their customers’ accounts.” Lord Adair Turner (2013), former head of the UK Financial Services Authority: “Banks do not, as many textbooks still suggest, take deposits of existing money from savers and lend it out to borrowers: they create credit and money ex nihilo — extending a loan to the borrower and simultaneously crediting the borrower’s money account.”

Or see this blogpost 'Bank of England concurs with Prof Richard Werner's view on creation of money by banks'
posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom

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