News & Analysis
Ineffectiveness of Banking Accords
G20 and EU 'posturing' could exacerbate future banking crises ... The efforts of the G20 and European Union to overhaul financial regulations have been lambasted for being "disingenuous political posturing" that are "increasing the likelihood of future meltdowns", an influential think-tank has warned. The TaxPayers' Alliance has published a paper accusing politicians and regulators of basing their response to the financial crisis on a "mistaken view of its causes" and "political considerations." – UK Telegraph
Dominant Social Theme: Regulation comprises a balance that must be found.
Free-Market Analysis: This article (excerpted above) is an interesting one because it actually explains the reality of what is taking place today regarding regulation. Regulation, in fact, often does nothing to address the "problems" it is intended to solve but does provide a justification for the powers and privileges that accrue to a ruling elite.
Regulation is inevitably presented as a necessary good in Western jurisprudence. One who contravenes regulations is a lawbreaker and there are variety of remedies available to the state. Unfortunately, the idea behind regulation does not seem to be based on economic logic. The two professions – law and economics – are seen as disparate entities when in fact no lawyer ought to be released into the world without an understanding of economics, preferably laissez-faire economics. Such a comprehension might go a long ways to reduce the amount of bad laws that circulate in society.
Drug laws provide us with example of regulatory futility. Reducing the flow of one drug or another merely drives up the price of that drug, which stimulates further production. If through aggressive interdiction, a particular drug is made unavailable, then other drugs will be found. The ramifications of Draconian enforcement of bad laws are not hypothetical. Colombia, for instance, was destabilized for decades by enforcement aimed at wiping out the cocaine trade. Eventually, the largest dealerships were broken and industrialized cocaine trafficking was reduced in that former narco-state. But the trade merely moved to Mexico; and so did the "war." Today Mexico is widely regarded as a failed state and the results of expanded drug enforcement are seen in the murders of thousands and the displacement of millions.
Billions of taxpayer dollars that have been spent on drug enforcement but the rate of flow of drugs probably has not decreased noticeable. What such "wars" do accomplish, unfortunately, is to build up the power and infrastructure of the state itself. Policing officials – military and civilian – establish themselves and build enforcement empires that bear no relationship to the "problem" but merely act as sinecures.
As regulatory and legal battles are pursued over years and even decades, the level of violence usually increases. Again, we can see this in Mexico where the war on drugs has turned into a real war waged by the military of both the US and Mexico. Eventually, one presumes the superior firepower of the state shall rid Mexico of its drug-dealing enterprises or at least diminish them. But that will not solve the problem. Market demand will be met. The industry will merely migrate elsewhere.
In the white-collar arena, the militarization of what has been declared criminal is often less obvious. But in fact the damages are just as severe. What ends up occurring is a homogenization of strategies allowed to the investor. Thus, mutual funds can purchase instruments but not hedge against them; stock brokers can suggest stocks but not strategies that minimize risk (as these might be considered arcane and therefore "aggressive").
Ultimately, all regulation is a price fix, resulting in a queue, a misallocation of resources or other sorts of market distortion. Thus when one regulates a given practice, the very act of regulation provides opportunities for others not involved in the particular act being regulated.
If there is a market niche available within a given business continuum, people will try to fill it. If it is a strong enough market need, people will simply circumvent the regulation or law. If enforcement is stringent enough, providers will be driven underground, but they will continue to offer the service and receive compensation. We can see this reflected in the banking critique offered by the Taxpayer's Alliance, as follows:
The paper, which was co-written with the Lagatum Institute, an academic group that focuses on wealth, attacks the key aim of politicians including Prime Minister David Cameron and Chancellor George Osborne for internationally co-ordinated regulation. It warns that "global regulation causes global crises" ... That means that global regulations can be dangerous because they increase the amplitude of global credit cycles."
The paper adds: "The Basel regulations may still be procyclical, imposing more onerous requirements on institutions at times when the system is in trouble." The authors claim the new regulations, including the G20-sponsored Basel rules and the Capital Requirements Directive of the EU, have been based on too narrow a view that "greed and insufficient regulation" were the causes. They argue that "regulations and poor policy choices" were also to blame – and that the authorities are in danger of making similarly dangerous mistakes. – UK Telegraph
There is no doubt that financial regulation tends to exacerbate the volatility that it is supposed to address. By mandating that certain strategies and "best practices" be followed, lawmakers concentrate capital surges and make the market generally more susceptible to financial shocks, not less. In the case of banks, the Basel regulations will merely further restrict what banks are capable of providing to customers.
According to the website Nuwire Investor, banking officials have complained that "higher capital requirements and limited investment behavior would restrict lending abilities, drive up borrowing costs and reduce banks' profitability by discouraging lucrative investments." By demanding that banks act in certain ways and forego certain "risky" businesses, regulators in fact weaken these institutions financially, which makes them less likely to withstand financial difficulties.
Higher capital requirements will ensure that banks will lend less, which will also affect the bottom line. And the increased "transparency" that is being demanded will further reduce the services that large banks are able to provide, since certain customers will look elsewhere for services rather than put themselves into situations where they will receive scrutiny.
Ultimately, the hypocrisy of the new banking regulations can be seen by the lack of attention paid to the relationship between central banking and commercial banking. It is mercantilist central banking, with its enormous money flows and ability to print money from nothing that causes the investment manias that end up ruining central banking's distribution system of commercial banks.
In fact, these banks are nothing more than conduits for fiat money. It is a given central bank that sets policy and determines the price and quantity of money in the current environment. The whole exercise of regulating banks capital reserves is fairly ludicrous given that banks have no control over the economic environment that central banks create. So long as central banks continue to flood economies with excess paper money, the commercial banking sector shall struggle with overwhelming booms and subsequent busts.
Conclusion: The unfortunate "facts on the ground" thus remain in force. An Anglo-American power elite that has evidently and obviously created a central banking economy worldwide continues to enjoy the privilege of printing money at will. When the process blows up economies singularly or all-at-once, the fingers are to be pointed at the distributors of the funds – the commercial banking community.
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Posted by Ingo Bischoff on 01/03/11 11:51 PM
@ DB
A land value tax is "Anglo-Saxon" Law. It provides for equal access to land. It really is not a tax, but a rent for the use of land based on the value. It is only called a tax, because the money from the rent obtained is used to pay for government.
The U.S. Constitution bars a tax on "Wealth", "Labor" and "Capital". A "land value tax" allows compliance with the Constitution. Taxes are a perview of the States. Let the States decide. That was the intention of the founders.
"Do away with the graduated income tax and allow silver and gold to circulate freely as money."
What would that accomplish? Are you suggesting that gold and silver be used as currency? That would not work. What is needed is a currency based on "Real Bills" which can be redeemed for gold or silver. In other word, we need "commercial banking" again, not just gold and silver circulating as a coin currency.
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Posted by Ingo Bischoff on 01/03/11 09:00 PM
@ DB
To replace the current system, the following would have to be done:
1. Repeal the 16th and 17th Amendments and return to the original constitutional government.
2. Render FED "central banking" ineffective and reinstitute "commercial banking".
3. Raise taxes to pay for costs of government at all level with the land value tax applied at the local level. (Excise taxes, duties and user fees are an exception.)
Practical steps to achieve this:
First and foremost, as a stop gap measure, the U.S. Congress must remove the "legal tender protection" from the Federal Reserve Note as regards its use for payment of "private" debt. This allows the separate States to revive "commercial banking", thereby providing for immediate employment opportunities in the private sector.
This gives time for 3/4 of the States to call for an Article V convention to propose and ratify the repeal of the 17th Amendment (it is unlikely that the Congress will ever propose an amendment to repeal the 17th Amendment). With the ratification of the repeal of the 17th Amendment, the voices of the States will be restored to the U.S. Senate. The consequence will be the shutdown of the FED "central banking system" and the repeal of the 16th Amendment.
As the repeal of the 16th Amendment works its way through the process, the States will install a taxation system to pay for the cost of government at all levels, including the costs of the federal government. The ideal tax would be a land value tax, but that is the decision of the sovereign states. Any state which fails to install a land value tax is disadvantaged versus a state which does employ it.
That's it. That will cure the problems in the monetary and economic systems. Legally, these steps are unassailable.
The states will then compete for labor, talent and capital. This competition in the USA will rub off on the rest of the world. People at the local level will decide how much, or how little government they want. With "free markets" supported by a "commercial banking system", diversity, liberty and prosperity will reign beyond all imagination.
Reply from The Daily Bell
This is awfully complicated, though. And why is a land value tax necessary?
Here is our prescription:
"Do away with the graduated income tax and allow silver and gold to circulate freely as money."
Wouldn't this accomplish the same purpose? ...
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Posted by Ingo Bischoff on 01/03/11 06:25 PM
@DB
"...The IMF. The UN. The BIS. The World Bank. The same names turning up over and over. Serendipity? Coincidence?"
No....I term them feable attempts of control. The more Daily Bells there are, the more these central control institutions will lose on credibility.
Whose a fraid of the "big, bad wolf", if you know that he hasn't any teeth left....???
Reply from The Daily Bell
And what, in a nutshell, would you put in place of the current system?
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Posted by Ingo Bischoff on 01/03/11 03:52 PM
@ DB
My main point is that "central" anything, be it "government", be it "banking", be it "intelligence"....is an anathema to "Natural Law", and it therefore doomed in the long run. There is no sense in prolonging this "central control idea" by giving it a lot of credence.
Reply from The Daily Bell
We do not prolong it. It is evidently and obviously a fact. How do you explain the wars and central banking - and the endless advance of authoritarianism throughout the world? The IMF. The UN. The BIS. The World Bank. The same names turning up over and over. Serendipity? Coincidence?
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Posted by Ingo Bischoff on 01/03/11 02:49 PM
@ DB
Quite so, there are financial families like the Rothschilds, the Schiffs, etc., etc....all which rely on influencing politicians to gain advantage over average people. As long as information is controlled, these elites can prosper on a national level or on a limited international level.
That is where David Rockefeller came in. He was the consummate "Central Banker" who was on a first name basis with all heads of Western governments. His influence on those governments created the post WW II life for the West in which the monied families prospered and were secure in their living standard.
When David Rockefeller realized that the FED "central bank" had run its course in the early 1990s, he refused to be involved when Gordon Brown and Robert Rubin set about to manipulate the price of gold. He also disapproved of keeping the bond market going by selling interest rate swaps. For all the scorn heaped upon "central bankers", I give David Rockefeller credit for having scruples to refuse to be dragged into out and out fraud. He left Chase Bank and faded from the international scene.
Yes, I believe these monied families do exist, but their "patron saint" in the form of David Rockefeller resigned when it became too much. Since then these families have generally been leaderless in effectively guiding central banking throughout the world.
Reply from The Daily Bell
Yes, I believe these monied families do exist, but their "patron saint" in the form of David Rockefeller resigned when it became too much. Since then these families have generally been leaderless in effectively guiding central banking throughout the world.
We believe you are misreading the situation. The structure exists. You are correct in your assumption that Rockefeller is irreplaceable. That does not mean he will not be replaced. In fact he already has. It is fairly large and powerful corporation, is it not?
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Posted by Ingo Bischoff on 01/03/11 11:50 AM
There is no doubt that such familial Anglo-American elite exists. For decades their undisputed leader was David Rockefeller.
However, in the early 1990s he lost or voluntarily let his influence on the world stage slip away. A position of influence like his is not inheritated by the son...there is to this day no one who takes his place. I think he moved from the world stage when he knew that the central banking regime, in existence since 1934, had come to an end.
I believe David Rockefeller decided that he wanted nothing to do with the gold manipulation under Robert Rubin and the era of the interest rate swaps.
Reply from The Daily Bell
Ingo, there is the whole issue of the Anglosphere, London's City, the migration of the Venetian bankers, the European Black Nobility, the Black Church. It goes far farther than Rockefeller ...
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Posted by Ingo Bischoff on 01/02/11 11:57 PM
@ W. Palmer
"The fact that the perpetrators of this financial crisis have been identified and are still at large, still pocketing millions of dollars in bonuses and commissions and still in positions of control when they should be in jail."
Have the perpetrators really been identified...??? I don't believe so.
Who are the perpetrators? They are those you installed the FED "central banking system". The FED "central banking system" was fashioned from the FED "commercial banking system". How did that happen?
It always has been the desire of bankers to have an unhampered power to create currency. "Commercial banking" does not provide this power, because commercial banks are restricted to creating currency only against "Real Bills" they have acquired in the Bills Market. Commercial banks cannot create "Real Bills". They can only be created among private businesses involved in the production of consumption items.
"Central banking" on the other hand relies on power handed to it by politicians to monetize government debt which was created by the very same politicians. Part of the monetized debt funds the reelection of the politicians. It is "We the People" who elect the politicians. If the politicians make the laws that allow the central bankers to monetize debt, it is "We the People" who are to blame. Complaining and pointing fingers after the fact is ludicrous.
The founding fathers had made sure with the U.S. Constitution that "commercial banking" could not be replaced with a "central banking system". So what happened?
What happened was that the big money center banks supported the ratification of the 16th Amendment to insure backing of an eventual central bank currency and the ratification of the 17th Amendment to strip the sovereign States of their representation in the U.S. Congress. This accomplishment to begin with was totally sufficient for the big money center banks and their plans. Though, the Federal Reserve Act which was passed after the ratification of the 16th and 17th Amendment in 1913, was not at all to the liking of the big money center banks, the big banks knew how to bite their time. They waited until the early 1920s when the U.S. Senate was comprised of only Senators who had been elected by big bank money. The terms of the Senators sent to Washington, DC by the sovereign States had by then expired.
As on cue, the NY FED under its president Benjamin Strong started to violate the 1913 FRA by monetizing Treasury debt. The U.S. Congress did nothing. The result was the 1929 stock market crash and a "commercial banking" crisis. Instead of chastising the FED and putting the responsible people in jail, the Congress retroactively legalized the rogue acts of the FED.
The number one culprit responsible for putting the American economic and banking system into huge problems was Benjamin Strong, who was dead by 1928. The problems he created are with us still today. The other culprits are all the federal politicians who voted for an "ex-post facto" law, prohibited by the U.S. Constitution, to amend the Federal Reserve Act of 1913 which changed the "commercial bank" FED into a "central bank" FED under the leadership and control of the mega banks in the NY FED. Not one of the politicians who cast a vote for amending Section 14 of the original 1913 FRA is still alive today.
So much for putting the culprits in jail.... I suggest that instead of repeating widely held incorrect assumptions and getting excited about putting people in jail, people would be better off to take a little time to study history. Maybe then they'll vote different the next time around.
Reply from The Daily Bell
Who are the perpetrators? ...
A multi-generational, familial Anglo-American elite that controls continents through the sham of mercantilist central banking and the creation of money from nothing.
You would rebut this?
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Posted by Don The RkyMtn Gnome on 01/01/11 12:16 AM
A working "Black Friday" link:
Click to view link
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Posted by Don The RkyMtn Gnome on 01/01/11 12:13 AM
@John Danforth
"The root of the corruption is our own brain-washing."
"I really AM thankful to have some intellectual allies."
Amen! Fending off Dominant Social Themes (DST) all by my lonesome nearly drove me insane. DSTs felt like a festering "splinter in my mind."
Isolation ranks as an important component of brainwashing. Journalists such as Jay Rosen, lament losing isolation, euphemistically referred to as "Audience Atomization" (
Click to view link ).
@Wallace Crawford
"thus the need for regulation to protect the little guy and certain other 'guarantees' such as the FDIC and the pension guarantee funds. What I
would propose is that we eliminate the limited liability aspects of ownership. This would do two things ..."
The powers-that-be actually created the FDIC to protect BANKSTERS from yet another 1869 Black Friday
Click to view link
when mobs threatened to hang banksters. The notion of a big brother backstopping also encourages people to shirk responsibility for protecting their own assets.
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Posted by Norm on 12/31/10 10:24 PM
to:wallace crawford--
Boy don't know the libertarians you have been talking to,but both of the examples "you called victimless crimes" sure did have them ,and i'm sure any libertarian would say as much. Think the pressure of living has gottin to ya.i know the feeling.
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Posted by Bionic Mosquito on 12/31/10 09:11 PM
@Wallace Crawford
I find merit in the idea of eliminating the corporate shell that protects individuals from the consequences of their actions. This corporate shell exists due to state protection, I believe (though I am not expert in understanding this).
However:
"I know that libertarians often speak of "victimless crimes." I believe that this is an ignorant position. A white-collar crime that steals $50 million from hundreds of people seemingly hasn't hurt anyone, at least physically."
I don't get this. How is this a victimless crime? Just because no physical damage was done does not make it victimless. When libertarians use this term, they are speaking about things like prostitution and drug use, where all participants are consenting to the trade.
So your use of the term "ignorant" leaves me somewhat dumbstruck.
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Posted by Philip Mccormack on 12/31/10 07:36 PM
DB Great article, an understated superlative. No politician, world wide where the G20 and EU are concerned should be allowed to attend these meetings without first reading:
Click to view link
Their appalling lack of insight, their greed, their defiance in the largesse of bailouts at the taxpayer's expense, their deliberate confusion of lies and truth to maintain political power, is beyond the comprehension of ordinary human beings. They are immoral. My morning rant.Happy New Year Philip
Reply from The Daily Bell
Happy new year to you and your son.
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Posted by Leave Me Be on 12/31/10 03:12 PM
@John Danforth
"The root of the corruption is our own brain-washing."
A perfect summary.
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Posted by Wallace Crawford on 12/31/10 03:10 PM
One thing that is not said if regulation of banking is not in place is what happens when things go south. We have developed an intricate system of limited liability through the use of the "Corporate" identity. When there is a failure the little guy is screwed ... thus the need for regulation to protect the little guy and certain other "guarantees" such as the FDIC and the pension guarantee funds. What I would propose is that we eliminate the limited liability aspects of ownership. This would do two things ...
1. It would raise the level of awareness to the consumer (the little guy) and all other investors (depositors) as to the real stability and reserves of the entity in which one is investing. Most people are unaware that when they make a deposit in their local bank that they are giving the bank a loan that has legal restrictions and remedies should the bank not be able to give you your money back. If depositors demanded accountability and transparency else they would not make deposits it would surely change the nature of banking and it's risk taking.
2. I would mandate that the top 10% of management and anyone owning 1% or more of an entity would become personally liable for corporate decisions, extending even to blood relatives (so there is no chance of hiding assets). If a CEO knew that he could lose everything, his house, his bank accounts, his retirement, and ultimately his self-respect should he and his family be left destitute, I am sure that he would approach risk more reservedly.
Hell, I would gladly go to a Federal Prison for five years if I knew that I had $20 Million waiting for me when I got out. I know that libertarians often speak of "victimless crimes." I believe that this is an ignorant position. A white-collar crime that steals $50 million from hundreds of people seemingly hasn't hurt anyone, at least physically. So the guy goes to jail for eight years but he sure had a ride for a while.
But what about all the people from whom he stole. You never hear of the single father who worked two jobs so he could save money to send his daughter to college who lost everything. You never hear that he started drinking too much in despair because of how he had failed his daughter who was going to be stuck an opportunity-less life.
You never hear how, when driving her home one night after having had too much to drink, that he loses control of his car, hits a tree and his daughter is killed instantly. You never hear. And yet the absconder rests in prison, well fed and warm, having committed "only a victimless crime." I believe in restitution and accountability ... our courts don't. Our courts are only concerned with conviction rates and the fines that the government collects. So, back to personal liability for business decisions ... what would change if the CEO could lose everything if he "screws around" making decision that are primarily concerned with his quarterly bonus or stock options program.
What of the investor or mutual fund manager that suddenly would become liable for a lack of due diligence, not only for the value of his investment but any other liabilities that might arise out of the investment. Yes, this would slow down investment and make it more costly, but hasn't the velocity of investment and movement of funds caused some of the problem, too. In 1960 the investment community represented 6% " 8% of the GNP. Today it represents 34%. Something is out of balance when movement and velocity of money becomes more important than the productivity created by the money, where fees and commissions mean more than what use the money is being put.
National welfare and GNP growth comes from productivity increases and making things, not from moving funds. The current system is screwed up and regulation is not going to correct it. Only liability can correct false presumptions. Ultimately, people figure out liability.
So much for my missal of the day. I've just been thinking about all the snakes out there and needed and end-of-year blowout.
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Posted by JM on 12/31/10 03:09 PM
@Click to view linklmer
Re: "But where does that leave the investor? Such an environment would make banking and investment a casino and force people to store gold in strong boxes beneath their beds."
Seems like that in the current world, banking and investment ARE a casino and people ARE buying gold -- and silver -- taking delivery and storing it under their beds.
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Posted by John Danforth on 12/31/10 02:37 PM
"Even in these times, we have much to be thankful for."
I really AM thankful to have some intellectual allies.
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Posted by John Danforth on 12/31/10 02:31 PM
The root of the corruption is our own brain-washing.
"Regulation and investor protection are the duty of government."
That's the source of it, right there.
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Posted by W.Palmer on 12/31/10 02:12 PM
Therefore.......?
Is there a solution? None that I read so far.
The only solution that seems to leach out from a great deal of pontification and analysis is, that banks, which seem to be central to the problem, should not be protected by government and the risks they take should be exactly that... risks.
They should "live and die by the sword".
But where does that leave the investor? Such an environment would make banking and investment a casino and force people to store gold in strong boxes beneath their beds.
Regulation and investor protection are the duty of government.
The fact that the perpetrators of this financial crisis have been identified and are still at large, still pocketing millions of dollars in bonuses and commissions and still in positions of control when they should be in jail.
This renders this whole debacle a gross miscarriage of justice and a blatant insult by the various governments showing who has them in their pocket to the millions that it has permanently affected.
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Posted by Bionic Mosquito on 12/31/10 02:10 PM
@John Danforth
"Except, the nominal value of all the funny-money derivatives is somewhere near ten times the nominal value of all real assets on earth."
The picture I see is this. Two piles: in one pile, all the funny money in the world. In the other pile, all the stuff worth buying with the paper money (food, clothes, houses, stocks, gold, etc.)
Yes, the value of each unit of funny money is shrinking, because the pile is artificially growing. However, proportionately the cartel is getting more of the funny money pile as compared to the average Joe. This allows them to get more of the real stuff.
So it doesn't matter if there is ten times the funny money (and derivatives or whatever) as compared to real stuff. The cartel has grown their pile of the funny money by 20 times, while the average Joe is staying even at best, actually declining even in nominal terms.
And Happy New Year to you. Even in these times, we have much to be thankful for.
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Posted by John Danforth on 12/31/10 02:00 PM
The above was typed in hastily. I should have mentioned that a further part of my delusion is that the current policy is made necessary in order to transfer the bankruptcy of the banking (and government) system onto the people. Thus leaving the banking (and government) system in possession of all real property.
Happy new year! Heh.
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