Post by peterv on Mar 28, 2013 22:45:52 GMT
At a recent meeting of the Sheffield group, we had a lengthy debate about debt. One of our conclusions was that we need to differentiate between
When banks have got into trouble in recent years, they have been bailed-out by governments, but that just throws the losses onto taxpayers. It also raises ‘moral hazard’ ie. if banks know that they can be bailed out, then they engage in ever more risky business, which increases the chance of them failing.
In the case of Cyprus, support from the EU and IMF came with conditions that the creditors of the two weakest banks – Laiki and Bank of Cyprus – take some of the hit. Hence a ‘bail-in’ by the creditors instead of a ‘bail-out’ by taxpayers. Well, the ‘creditors’ (the people that the bank owes) are just the savers who put their money into the banks thinking that they were safe.
People are now realising that banks are NOT safe deposit boxes! When you put money into a bank you are investing in a business – if the business does well then you stand to gain (interest), and if the business fails then you stand to lose. That is exactly the principle behind the Positive Money ‘investment accounts’ - no pain, no gain.
The problem is that, in our current monetary system, there IS nowhere safe to keep our money (except physical notes and coins). The PM reform is not just about “taking the power to create money away from the banks” – it is also about protecting our payments system by taking it off the balance sheets of the banks, so that those who do not want to put their money at risk have got somewhere safe to put it (‘transaction accounts’).
My conclusion is that the Cyprus deal realigns risk and reward, is a correct and moral action, and a step in the right direction. What do you think?
- interest with no risk. This is ‘usury’, which has little justification and has historically been condemned
- interest in return for risk. This meets one of PM's objectives – to “realign risk and reward”
When banks have got into trouble in recent years, they have been bailed-out by governments, but that just throws the losses onto taxpayers. It also raises ‘moral hazard’ ie. if banks know that they can be bailed out, then they engage in ever more risky business, which increases the chance of them failing.
In the case of Cyprus, support from the EU and IMF came with conditions that the creditors of the two weakest banks – Laiki and Bank of Cyprus – take some of the hit. Hence a ‘bail-in’ by the creditors instead of a ‘bail-out’ by taxpayers. Well, the ‘creditors’ (the people that the bank owes) are just the savers who put their money into the banks thinking that they were safe.
People are now realising that banks are NOT safe deposit boxes! When you put money into a bank you are investing in a business – if the business does well then you stand to gain (interest), and if the business fails then you stand to lose. That is exactly the principle behind the Positive Money ‘investment accounts’ - no pain, no gain.
The problem is that, in our current monetary system, there IS nowhere safe to keep our money (except physical notes and coins). The PM reform is not just about “taking the power to create money away from the banks” – it is also about protecting our payments system by taking it off the balance sheets of the banks, so that those who do not want to put their money at risk have got somewhere safe to put it (‘transaction accounts’).
My conclusion is that the Cyprus deal realigns risk and reward, is a correct and moral action, and a step in the right direction. What do you think?
