[MrBill]

I am always curious about people's views on fractional banking. I mean a system that has been around since the sixteenth century. Interest is the time value of money. Banks charge interest. If banks did not charge interest they could not pay interest to depositors. Without fractional banking banks would have no money - except their own - to lend. Without banks there could only be organic growth from own savings. No one would loan anyone money if that money did not carry a rate of interest to compensate them for the time value of money and the risk of not being repaid.

Far from being somehow democratic this would simply concentrate capital in the hands of the rich. The rich in turn would only spend money on those projects they thought would benefit themselves or bring them personal pleasure. Whereby the common man would not have the capital to invest in anything, like a house or a farm, nor could they borrow from anyone that did have capital. Someone with capital might fund an expedition by supplying the ship and provisions, but only by demanding a large share of any future profit or revenue from that voyage. Similarily if you needed capital or seed money to plant your field the lender would demand a large portion of the harvest as compensation for the risk that the crop failed.

Even if you get rid of paper money you still have the problems of risk and the time value of money. And without fractional banking you would have to pay banks to safeguard your wealth. You could not earn interest. You could only really live in the present. The future would be too uncertain. Sustainable development and stewardship of the environment would be abstract concepts for the masses with no stake in the future. No sense in worrying about an uncertain future. Live for today. Consume what is at hand. Talk about Darwinism.

[Specop_007]

If I'm reading you right MrBill you appreciate fractional banking as much as I do and realize its just about the only successful form of banking and in truth the only way you can build a thriving civilization.

Paper currency just makes for easy exchange or movement of money. Who wants to haul around rocks or stones?

Well.....In restrospect, maybe thats what our fat American asses need!

And yes, since I quit smokin in Feb I'm put on a few extra pounds too....

[mattduke]

Fractional reserve banking means multiple property titles to the same property. Like Cuba. If you see no inconsistency, we cannot have a logical discussion.

[MrBill]

Since mid-May we have lost hundreds of millions in marked to market losses and I have made hundreds of millions of dollars worth of margin calls in cash and collateral. Plus now I have lost probably another several hundred million dollars in liquidity through the loss of counterparts like Lehman and Merrill as well as the disappearance of others through mergers like Dresdner and Commerzbank as well as ABN Amro and RBS. While other banks have dramatically curtailed loans, raised rates and asked for larger haircuts.

Clearly this has been a difficult time for us. And we have a very strong balance sheet and dependable shareholders. I can only imagine that for many others that are not nearly as strong that it is even worse. But the thing is that these global imbalances have been building up for a long-time. Many of us saw this coming. So I am surprized that so many seem to be caught unawares by this financial storm. The signs and the symptoms were there for all to see.

Well, in any case, when you're on top of a mountain in a white-out you can either argue about who's fault it is that you are up there or you can spend your time trying to figure out how to get down safely without falling off a cliff. I am not sure if the calm I feel at the moment is a false sense of security or not, but I still feel that our financial architecture is a lot more robust than some of us or our policy makers give it credit for. This too shall come to pass.

Unfortunately, our financial problems are a distraction from our energy and environmental issues that are no less pressing and urgently need our attention, but never the less seem distant in the current roar of market turmoil. But despite it all I have never felt the system was broken. Abused, but not broken. We are now corecting some of that mispricing of risk and letting assets fall towards their true value as well as seeing a flight to simplicity.

[dohboi]

Congratulations on your successfully giving up cigs, spekop!

Many here seem to be asking deeper questions than you or Mr.Bill are responding to. Given the global ecological mess that our "civilization" has created, should we be encouraging systems--fiat currency and fractional banking--that nourish it?

I don't pretend to have a "system" that could replace the current one, but the discussion has to start with what the underlying goals are. The usual assumption has been that we want to maximize humans and human potential. But maybe, given our track record, systems should aim to limit humans and especially to limit their impact on the non-human world.

[ReverseEngineer]

$this->bbcode_second_pass_quote('dohboi', 'C')ongratulations on your successfully giving up cigs, spekop!

Many here seem to be asking deeper questions than you or Mr.Bill are responding to. Given the global ecological mess that our "civilization" has created, should we be encouraging systems--fiat currency and fractional banking--that nourish it?

I don't pretend to have a "system" that could replace the current one, but the discussion has to start with what the underlying goals are. The usual assumption has been that we want to maximize humans and human potential. But maybe, given our track record, systems should aim to limit humans and especially to limit their impact on the non-human world.

[mattduke]

Loan me your car then.

[ReverseEngineer]

$this->bbcode_second_pass_quote('mattduke', 'L')oan me your car then.

[Snowrunner]

$this->bbcode_second_pass_quote('MrBill', 'I') am always curious about people's views on fractional banking. I mean a system that has been around since the sixteenth century. Interest is the time value of money. Banks charge interest. If banks did not charge interest they could not pay interest to depositors. Without fractional banking banks would have no money - except their own - to lend. Without banks there could only be organic growth from own savings. No one would loan anyone money if that money did not carry a rate of interest to compensate them for the time value of money and the risk of not being repaid.

[Specop_007]

$this->bbcode_second_pass_quote('dohboi', 'C')ongratulations on your successfully giving up cigs, spekop!

Many here seem to be asking deeper questions than you or Mr.Bill are responding to. Given the global ecological mess that our "civilization" has created, should we be encouraging systems--fiat currency and fractional banking--that nourish it?

I don't pretend to have a "system" that could replace the current one, but the discussion has to start with what the underlying goals are. The usual assumption has been that we want to maximize humans and human potential. But maybe, given our track record, systems should aim to limit humans and especially to limit their impact on the non-human world.

[Quinny]

Interesting - I interviewed a post grad last year who was researching Sharia Banking where they don't agree with the concept of interest. He said that the way it basically works, is that when money is loaned, the bank appoints a director / worker who then monitors the project to help its success. The bank then charges the customer for time spent. In his opinion/experience he said that because of this closer involvement, projects had a much higher success rate.

$this->bbcode_second_pass_quote('ReverseEngineer', '')$this->bbcode_second_pass_quote('dohboi', 'C')ongratulations on your successfully giving up cigs, spekop!

Many here seem to be asking deeper questions than you or Mr.Bill are responding to. Given the global ecological mess that our "civilization" has created, should we be encouraging systems--fiat currency and fractional banking--that nourish it?

I don't pretend to have a "system" that could replace the current one, but the discussion has to start with what the underlying goals are. The usual assumption has been that we want to maximize humans and human potential. But maybe, given our track record, systems should aim to limit humans and especially to limit their impact on the non-human world.

[Specop_007]

$this->bbcode_second_pass_quote('Quinny', 'I')nteresting - I interviewed a post grad last year who was researching Sharia Banking where they don't agree with the concept of interest. He said that the way it basically works, is that when money is loaned, the bank appoints a director / worker who then monitors the project to help its success. The bank then charges the customer for time spent. In his opinion/experience he said that because of this closer involvement, projects had a much higher success rate.

$this->bbcode_second_pass_quote('ReverseEngineer', '')$this->bbcode_second_pass_quote('dohboi', 'C')ongratulations on your successfully giving up cigs, spekop!

Many here seem to be asking deeper questions than you or Mr.Bill are responding to. Given the global ecological mess that our "civilization" has created, should we be encouraging systems--fiat currency and fractional banking--that nourish it?

I don't pretend to have a "system" that could replace the current one, but the discussion has to start with what the underlying goals are. The usual assumption has been that we want to maximize humans and human potential. But maybe, given our track record, systems should aim to limit humans and especially to limit their impact on the non-human world.

[ReverseEngineer]

$this->bbcode_second_pass_quote('Specop_007', '
')Regardless of how it is charged, there absolutely must be SOME fee associated with the loaning of money.
Otherwise why loan? It completely skews the risk / reward ratio.

If you arent allowed to charge to loan monet the problem is the BEST case scenario is the return of your money. Worst case, you lose it all?

"Break even" isnt suitable reward for the risk involved. In todays system the reward is the interest charged. The risk is assessed as the rate at which the money is loaned....ie...if your a high risk you'll have a high interest rate. If your a low risk you get a low interest rate.

[Specop_007]

$this->bbcode_second_pass_quote('ReverseEngineer', '')$this->bbcode_second_pass_quote('Specop_007', '
')Regardless of how it is charged, there absolutely must be SOME fee associated with the loaning of money.
Otherwise why loan? It completely skews the risk / reward ratio.

If you arent allowed to charge to loan monet the problem is the BEST case scenario is the return of your money. Worst case, you lose it all?

"Break even" isnt suitable reward for the risk involved. In todays system the reward is the interest charged. The risk is assessed as the rate at which the money is loaned....ie...if your a high risk you'll have a high interest rate. If your a low risk you get a low interest rate.

[ReverseEngineer]

$this->bbcode_second_pass_quote('Specop_007', '
')No, the system is failing because of unsound lending practices. Simply put.
Greed.

I mean come on, no income verification mortgages? I dont care WHO you ask their going to say thats a BAD idea.

Simple greed is what ruined the system. It seems to have worked very, very well for the past few centuries. These occasional depressions and collapses are nothing more then very small blips on an otherwise very successful radar screen. Obviously that doesnt make it any easier for those who suffered through them.......

But to address your idea.... Why on earth should I RISK my money when the only REWARD is a return of it? I mean come on, I'm all for helping someone but I wont risk my own well being in doing so!

[MrBill]

We have to be very careful about using the term Sharia lending as there are many varieties of such lending and religous scholars depending on their stripe argue amoungst themselves about which products meet such a test. But basically the lender is still compensated for the time value of money and the risk of default.

For example, Malaysia issues Sharia bonds and non-Sharia (or traditional) bonds. If I look at the characteristics of the Sharia bonds they look like a normal treasury bill to me? They are issued at a price discount and they mature at par. Say issued at 95 and mature at 100 in one-year. So technically that is capital appreciation and not interest income. But don't fool yourself that is the same as issuing a normal one-year bond at par that carries a 5% coupon. So it is just financial engineering. Creating a debt-like instrument that has equity-like characteristics. You are still compensating the lender for the time value of money and the risk of default.

Lending money and usery are two different things. Usery/usury is charging interest on top of interest. Or charging an exorbitant or unlawful rate of interest. Attempting to literally translate the Bible is very difficult because different passages often contradcit one another. Especially between the Old Testament and the New Testament. Nevermind what has gotten lost in translation between Assyrian, Hebrew, Latin and later English translations of the original scripts. Who are we to know 'exactly' what God said to Moses or Christ said to His disciples? It happened thousands of years ago and was often only written down years and decades after the fact.

So if you were to interpret Genesis literally then you would have to conclude that the world is less than 6000 years old and was created in six days. There is also the uncomfortable bit in the Bible of how we all sprung from two adults that had two sons. Hmm? So please hold off the sermons on the wickedness of lending money.

Money is an asset like any other asset. It needs to be deployed in an efficient manner. To generate a positive rate of return. To be put to work to create value. Working capital for a firm is as important as its stock of machinery or the skills of its workers.

It is a complete waste of time to address serious economic and environmental problems like peak oil and climate change by having these arguments. We need to address the underlying problems and not fix the symptoms. And we need workable solutions to these problems now without having to reinvent the wheel from scratch by ditching a currency system that has been refined by trial and error over hundreds of years of practical experience. Go with what we know works. The market economy has served us very well. Better than anything else yet tried and found wanting.

[ReverseEngineer]

$this->bbcode_second_pass_quote('MrBill', '
')Lending money and usery are two different things. Usery is charging interest on top of interest. Attempting to literally translate the Bible is very difficult because different passages often contradcit one another. Especially between the Old Testament and the New Testament. Nevermind what has gotten lost in translation between Assyrian, Hebrew, Latin and later English translations of the original scripts. Who are we to know 'exactly' what God said to Moses or Christ said to His disciples? It happened thousands of years ago and was often only written down years and decades after the fact.

[mos6507]

$this->bbcode_second_pass_quote('ReverseEngineer', '
')You just identified precisely the reason you see the system in failure. You are looking for a "reward" for risking YOUR capital on some adventure that is tangible, so that you can further enrich yourself.

[Quinny]

Sounds to me a bit like the central tenet of Marxism.$this->bbcode_second_pass_quote('ReverseEngineer', '')$this->bbcode_second_pass_quote('MrBill', '
')Lending money and usery are two different things. Usery is charging interest on top of interest. Attempting to literally translate the Bible is very difficult because different passages often contradcit one another. Especially between the Old Testament and the New Testament. Nevermind what has gotten lost in translation between Assyrian, Hebrew, Latin and later English translations of the original scripts. Who are we to know 'exactly' what God said to Moses or Christ said to His disciples? It happened thousands of years ago and was often only written down years and decades after the fact.

[ReverseEngineer]

$this->bbcode_second_pass_quote('mos6507', '
')As far as I'm concerned there is a symbiotic relationship between the lender and the lendee. Both parties are trying to enrich themselves in different ways.

I think you should work through your utopian vision a little more thoroughly.