by
Mervyn King
250
Innocence Regained: Reforming Money and Banking
1
terms
4
notes
251
[...] For a society to base its financial system on alchemy is a poor advertisement for its rationality. The key to ending the alchemy is to ensure that the risks involved in money and banking are correctly identified and borne by those who enjoy the benefits from our financial system.
I think when I first read this I thought it was great and super radical, but now it just feels meaningless ... how could anyone possibly "correctly" bear the risks? you just have to reduce the possibility of gaining benefits
[...] For a society to base its financial system on alchemy is a poor advertisement for its rationality. The key to ending the alchemy is to ensure that the risks involved in money and banking are correctly identified and borne by those who enjoy the benefits from our financial system.
I think when I first read this I thought it was great and super radical, but now it just feels meaningless ... how could anyone possibly "correctly" bear the risks? you just have to reduce the possibility of gaining benefits
253
[...] The pretence that the illiquid real assets of an economy--the factories, capital equipment, houses and offices--can suddenly be converted into money or liquidity is the essence of the alchemy of the present system. Banks and other financial intermediaries will always try to finance illiquid assets by issuing liquid liabilities because they make profits by paying less on the latter than they earn on the former. [...]
there's a great line in a different book (forget which, maybe Yaroufakis) about banks wanting true, instant liquidity ... and yet in reality they have to cope with the short-term/long-term disparity between lending/borrowing maturation rates (I forget the term for this)
[...] The pretence that the illiquid real assets of an economy--the factories, capital equipment, houses and offices--can suddenly be converted into money or liquidity is the essence of the alchemy of the present system. Banks and other financial intermediaries will always try to finance illiquid assets by issuing liquid liabilities because they make profits by paying less on the latter than they earn on the former. [...]
there's a great line in a different book (forget which, maybe Yaroufakis) about banks wanting true, instant liquidity ... and yet in reality they have to cope with the short-term/long-term disparity between lending/borrowing maturation rates (I forget the term for this)
258
[...] each type of asset is given a risk weight, agreed by international regulators, and this is used to calculate the overall amount of equity a bank must issue. Mortgage lending, for example, was thought on the basis of past experience to be relatively safe, and was given a low risk weight. Sovereign debt was believed to be so safe that it was given a zero risk weight, meaning that banks did not have to raise any equity finance in respect of such investments and so had no additional capacity to absorb losses on them. [...]
again, this all stems from the truly stupid idea that this shit is rigorously quantifiable and not just make-believe
[...] each type of asset is given a risk weight, agreed by international regulators, and this is used to calculate the overall amount of equity a bank must issue. Mortgage lending, for example, was thought on the basis of past experience to be relatively safe, and was given a low risk weight. Sovereign debt was believed to be so safe that it was given a zero risk weight, meaning that banks did not have to raise any equity finance in respect of such investments and so had no additional capacity to absorb losses on them. [...]
again, this all stems from the truly stupid idea that this shit is rigorously quantifiable and not just make-believe
Chicago Plan
(en)
a set of banking reforms suggested by University of Chicago economists in the wake of the Great Depression; supported by Friedman, Minsky, Fisher, etc; suggested 100% reserves on demand deposits; never fully implemented (some watered-down versions eventually made it into policy)
261
the system of 'fractional reserve banking', under which banks create deposits to finance risky lending and so have insufficient safe cash reserves to back their deposits. The elimination of fractional reserve banking was a proposal put forward in 1933 as the 'Chicago Plan'.
notable
7 years, 3 months ago
the system of 'fractional reserve banking', under which banks create deposits to finance risky lending and so have insufficient safe cash reserves to back their deposits. The elimination of fractional reserve banking was a proposal put forward in 1933 as the 'Chicago Plan'.
notable
7 years, 3 months ago
284
[...] Someone buying a meal in a restaurant might use a card, as now, but the result would not be a transfer from their bank account to that of the restaurant; instead there would be a sale of shares from the diner's portfolio and the acquisition of different shares, or other assets, to the same value by the restaurant. [...] There would be no unique role for something called money in order to buy 'stuff'.
this passage kinda boggles the mind (I say so now, but I think I felt similarly when I first read this) cus how can you imagine such a strange concept (which is really functionally equivalent) but not then take the next step of asking why such a transfer is needed at all???? it's still money??? like that startup that tried to get people to do favours for each other in exchange for virtual currency (which they called karma I believe). why is it necessary to transfer wealth in order to support production or consumption??? DRIFT i'm telling you
[...] Someone buying a meal in a restaurant might use a card, as now, but the result would not be a transfer from their bank account to that of the restaurant; instead there would be a sale of shares from the diner's portfolio and the acquisition of different shares, or other assets, to the same value by the restaurant. [...] There would be no unique role for something called money in order to buy 'stuff'.
this passage kinda boggles the mind (I say so now, but I think I felt similarly when I first read this) cus how can you imagine such a strange concept (which is really functionally equivalent) but not then take the next step of asking why such a transfer is needed at all???? it's still money??? like that startup that tried to get people to do favours for each other in exchange for virtual currency (which they called karma I believe). why is it necessary to transfer wealth in order to support production or consumption??? DRIFT i'm telling you