A Politician’s Guide to Fixing the Banking System

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A guest post by R.F. Morrison

The confrontation between top bankers and public opinion escalated with the resignation of Bob Diamond from Barclays Bank. He follows Fred Goodwin of RBS into the cosy retirement home for millionaire sacrificial goats. This time, however, the public is demanding more – a fundamental change to the culture of banking. This phrase is, of course, coined by the media. It smacks of obfuscation, though, because culture has so many meanings, from the benign ‘cultured society’ to the less attractive biological definition of nasty, anti-social viruses grown in the rarefied isolation of a laboratory. This latter description appears more appropriate to the parallel existence of banking outside the normal world of commerce and industry.

It is also appropriate because such cultures can prosper only in a controlled environment, an artificial but consistent system dedicated exclusively to the nurture and welfare of the organism; upset the system and the creature dies. Banking has become the reality of a science-fiction creature which has grown to take over not just the laboratory but also the world beyond. It has assumed a malign life of its own which cannot be ended with a few sacrificial goats – only by withdrawing its life support system.

Fractional Reserve Banking

That system is Fractional Reserve Banking, whereby depositors place a unit of real money into their bank’s account. The system then grows or multiplies it ten or twelve times and lends the resultant ‘culture’ to borrowing customers as debt.

This system has dominated banking during the 20th Century – certainly since 1913 when the US Federal Reserve was created. But it was contained within the laboratory until the end of World War II, when the West agreed to designate the US dollar as the world’s reserve currency. Even then, it was not until 1986 – when the regulations were removed by the UK government – that the Fractional Reserve System really began to mutate and rape the economy.

Its first target was the Full Reserve Banking System. The Building Societies and Savings Banks had been protected by law up until 1986. These long-established and stable institutions had financed virtually the entire UK house mortgage business for 150 years yet, within ten years, they had virtually disappeared, acquired by Fractional Reserve Banks.

The analogy of an alien culture destroying the native one holds good here. How was it done? Full Reserve meant just that – these institutions could not lend more than their depositors had lodged in their accounts – there was no multiplier. As banks, however, they did not need the savers’ deposits so they returned the money to the members who enjoyed a short spending spree. The real harm came later as the real money of savers was replaced by the notional money of the banks, and that is when systemic inflation really started to take off. The remaining rump of the Building Societies is mainly the Nationwide (53%) but it is no longer a full reserve institution.

We need a political hero

The remarkably effective defence mechanism of the banking culture is global complexity which, so far, has defied any serious challenge. The only hope is that a political hero will emerge and, in true science fiction tradition, reveal the aliens’ Achilles heel – its fractional reserve life support system. When a fractional reserve bank loses even 3% of its loans it is in trouble; if it loses 10% it is insolvent and all its loans would collapse. That in turn would force the collapse of all the other fractional reserve banks. That is why governments feel forced to step in and bail banks out with taxpayers’ money. This guarantee of being bailed out is their life support system. With a full reserve bank such a loss is unpleasant and upsets the equilibrium, but it does not start a chain reaction and is soon absorbed.

It is this same culture which has infiltrated the Euro currency, because the banks lend such huge sums to governments. When doubt arises over the ability of a sovereign State to service its debts, the same threat of collapse and chain reaction is present, hence the concerns within all countries of the eurozone and beyond.

The virus is now pandemic and there is only one solution for a State seeking the vaccine – nationalise all their chartered banks and reconstruct them as Full Reserve. That implies a political willingness to act unilaterally within the sovereign borders of a currency regime and introduce foreign exchange and capital flow controls administered by the Central Bank. The investment banking arms would be sold off – albeit they will become worthless overnight when denied access to depositors’ money and State guarantees.

The conclusion is that removing the fractional reserve system is the only cure. The outcome will be stable banks, a capping of National Debt and a return to accumulating genuine wealth by returning money to its proper function – that of facilitating the exchange of useful goods and services.

Ron Morrison is an accountant, company director and author of ‘There’s No Independence Without Financial Independence’ – an online booklet which describes in much greater detail the banking options for Scotland if it chooses independence. These are the views of the author and not necessarily those of Save Our Savers.

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9 Comments

1. John.

   July 17, 2012 at 5:30 pm

   The political hero aspect I buy into, though history has grave lessons for those who try to unilaterally break the stranglehold enjoyed by the secret society of criminal families behind world banking and debt slavery.

   Recommend (5)
2. Anne

   July 18, 2012 at 7:28 pm

   Has anyone noticed that the financial system and the supply and control of money,is being produced,manufactured and controlled akin to the physics of a nuclear powerstation reactor? I do believe that when things go seriously wrong that this is even known as an economic meltdown!

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3. Anne

   July 18, 2012 at 7:34 pm

   Addendum to `economic meltdown`(above)

   Perhaps it won`t be long now before things go up in a puff of smoke!!

   Recommend (1)
4. ABC

   July 18, 2012 at 11:58 pm

   It’s all about breaking the Eurasian “Triple Alliance”, and in particular the soaring Chinese economy. This artificially created crisis will be over when and only when the economy of China and the strengthening alliance between Russia, China and Iran (the so-called Eurasian “Triple Alliance”) has been significantly weakened.

   Many of us knew that the West was going to break the world economy and send an “inflation tsunami” to the East as soon as China significantly boosted its military program, got it’s foot in Africa (rich in resources), and dropped all previous barriers with Russia.

   Consequently, China has recently revised it’s growth forecasts down sharply, and had to recently cut interest rates for second time in two months. It’s predicted to land with a hard landing.

   I can see that many of you already know that this crisis was deliberately created, but it was not created for the purpose of making the elites rich and more powerful – that has just been a consequence of the crisis. It was all deliberately done to break the Chinese/Russian/Iranian alliance – the so-called Eurasian “Triple Alliance”. Does anyone really believe otherwise? Look at the big picture and the imbalances in the world economies. Do you really believe the elites are that incompetent?

   Recommend (3)
5. frances

   July 19, 2012 at 9:14 am

   Oh very clever ………..so the poverty i am reduced to through artificial holding down of interest rates is all to break the Triple Alliance ………you have to be kidding

   Its all about making the rich richer as evidenced by the exponential rise in the B of E Pension Fund

   No other Pension fund has seen any kind of increase in fact majority are in dire straits

   The whole chaos is simply organised to rip off the elderly and the prudent and HMRC are also part and parcel of the game

   The Elite are indeed totally and utterly incompetant and fuelled bu greed and power

   Every Board of Directors across the country are a bunch of self serving “jobs for the boys ” all raking in one Directorship after another

   The House of Lords is much the same with twerps like Prescot and their snouts in the trough

   If only i got paid for not attending work ……..if i did not work i did not get paid and quite why i bothered to work and save for retirement i dont know because its sure not me who is benefitting

   Recommend (5)
6. ABC

   July 20, 2012 at 1:51 am

   Just to clarify my earlier post – this crisis won’t end until the Chinese economy implodes. You are correct though – the rich are making the most of the situation and will get even richer (the MPC through effectively performing insider trading). The middle and working classes, pensioners and savers will pay very heavily for it all.

   Recommend (4)
7. frances

   July 20, 2012 at 9:34 am

   The Chinese economy will only implode when everyone refuses to buy any goods made in China and manufacturers realise its cheaper to get back to making things here

   equally it needs all the big banks and other industries who switched call centres etc to India to face the realities of what is going on with that cost wise and total lack of customer satisfaction to bring them back toi the UK

   Only when we are back to employing our own people instead of supporting half the 3rd world with handouts and kick out all those who have no right to be here will our country improve and the young get jobs

   The current situation is a ticking time bomb of youth unrest and pensioner anger

   Recommend (2)
8. Lynne

   August 2, 2012 at 9:55 am

   @Frances

   They are collapsing the economies deliberately in order to bring in a totalitarian world government. The evidence for this is overwhelming, but people are conditioned by the media not to believe it. Older people just don’t count in the minds of the global elite. Kissinger called the elderly “useless eaters”. The timing of the collapse was set to coincide with baby boomers reaching 60. They are trying to demonise the elderly in the media and also to make them feel that life is not worth living – hence story after story about nursing homes, dementia etc. People have to open their eyes and then they will have the veil of media brainwashing lifted. The elderly need to rise up and become active.

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9. frances

   August 2, 2012 at 3:56 pm

   I have been screaming this from the rooftops but neither my MP or any of the IDIOTS at the MPC or the Treasury care to listen

   The entire problem is the vast majoritry of my generation are computer illerterate and simply do not know how to protest

   Chickens will come home to roost but ????????????????? is will it be soon enough

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