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The Forum > Article Comments > Financial system inquiry > Comments

Financial system inquiry : Comments

By David Leyonhjelm, published 5/3/2015

Murray should have recommended that options to bail out banks ought to be closed off, including through removing the discretion of the Reserve Bank to bail out a bank without parliamentary approval.

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"...those who decided, directly or indirectly, to invest in a bank that made the wrong calls"

It is cynical to call ordinary people "investors", then blame and punish them for making "wrong calls" - ordinary people simply and legitimately want to keep their hard-earned savings for when they need them.

The problem is indeed the government, but it begins much earlier, where the government interferes in the economy to force inflation (of 2-3% a year), so ordinary people are forced to place their savings in a bank (with interest) just to overcome that inflation which government created. They are not speculators and shouldn't be treated as such.
Posted by Yuyutsu, Thursday, 5 March 2015 11:02:43 AM
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Agree David!
Rhrosty.
Posted by Rhrosty, Thursday, 5 March 2015 12:09:11 PM
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I am amazed that a person who thinks that he knows enough to be a member of parliament has such a poor understanding of economics.

Private banks do not create money. When a bank makes a loan it creates an asset which it holds, and a liability that that the borrower has to repay. Each time the borrower repays some of the capital value of the loan the exact same amount of the bank's asset disappears. When the loan is first made available the bank increases the balance in the borrowers account by key stokes and advises the Reserve Bank that the balance in that bank's reserve account has to be reduced by the loan amount.

But the banking system's reserves, in total, are unlikely to change as the borrower will spend the money that the loan represents and the money will appear in another account somewhere within days. Because hundreds or thousands of such transactions take place each day the amount hat the first bank lost from its reserves will be recovered from different loan transaction at other banks. If at the end of a settlement period one bank finds that it reserves are not up to the standard demanded by the Reserve Bank then the Reserve Bank makes some key strokes to boost that deficient bank's reserves and promptly charges that bank 2.25% per annum for the extra amount.

When the Currency Issuing Government (the SG) runs a deficit and the money is spent over and over in a long series of transaction the whole of the deficit ends up either back in the government coffers by way of the tax system or in the financial institutions' reserves by way of savings.
Surely people realise that when they pay with a credit or debit card no actual currency changes hands. Key strokes are made, probably by a code-reading machine rather than by someone sitting at a desk.
Posted by Foyle, Thursday, 5 March 2015 8:38:15 PM
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Continuing;
The author and the others who made comments have not heard of the American comedians excellent quip, "The most important inventions ever were fire, the wheel, and central banking".

The author and the comment contributors need to read William Black's blogs about fraudsters in the banking industry in the USA or his book, "The Best Way to Rob a Bank is to Own One". The GFC was caused because bank regulation was either inadequate or wasn't diligently enforced in very many sovereign areas particularly the USA, the UK, Iceland, Ireland.

Foreign currency borrowings by either banks or the sovereign government are a different matter entirely.
Posted by Foyle, Thursday, 5 March 2015 8:40:11 PM
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As a result of an enquirer to my MHR I have been assured that "Bail In"
is not happening. I am not sure that I believe him.
The Governor of the Bank of England seems to believe it.
Certainly the Portuguese and the Cypriots know it is real.

I have become suspicious of the whole banking, industrial, energy
scenario which are capable of interacting in ways that no one has a grip on.
To complicate all the politicians on both sides are determined that
they are going to have very significant growth provided the other
party gets out of their way.
The fact that the energy is not there to generate that growth seems to
be absolutely out of this world to them.

Just to add a factual point I have extracted from State officials
with their reluctance, there is a Federal Government, not a policy,
not a statement, but a "that is a federal area" response that any
consideration of fuel supply difficulties because our refineries
have/are closing, is not to be considered at state or local council emergency management.

Despite that both Federal & State governments would probably cease to
operate after about 3 or 4 weeks of tankers not arriving.
The only likely operational emergency management would be the Local Emergency Management Committees.

Australia a member of OECD is committed to having three months fuel
in stock. We have none ! (NRMA Fuel Reliability Report).
Posted by Bazz, Monday, 9 March 2015 1:14:50 PM
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You are right Bazz. Bail in was passed at the last G20 meeting in Brisbane. David knows all about it because the CEC sent letters to every politician about the evidence for bail in. They also put a full page ad in the Australian.

Our banks have derivative exposure 6 times their assets. Derivatives must be honoured first. There will be no more bail outs because the money printing is not working.

Really worth seeing Rob Kirby had 15 yrs experience in these toxic derivatives and know how they are used to manipulate markets.http://usawatchdog.com/world-headed-for-a-meat-grinder-rob-kirby/
Posted by Arjay, Tuesday, 10 March 2015 6:52:52 AM
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Arjay;
because the CEC sent letters to every politician about the evidence for bail in.

What is the CEC ?
Posted by Bazz, Tuesday, 10 March 2015 11:58:16 AM
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It really is time that you admitted to yourself that you haven't the first clue about finance, Arjay. You keep waffling on about "derivatives" and "exposure", but clearly understand neither.

Let's start with this one:

>>Our banks have derivative exposure 6 times their assets.<<

Ok. Show me. Point us to the numbers themselves, so we can all have a good laugh.

Just as a hint - Westpac's assets in 2014 were $771 billion. So your self-imposed task is to show us $4.5 trillion in derivative exposures.

(Don't forget to net off the puts against the calls, will you.)

I know you can't, and will instead start gabbing on about total irrelevancies, but I just wanted you to know that every so often I'm going to call you out on this arrant nonsense.

Have a great conspiracy-nut day.
Posted by Pericles, Wednesday, 11 March 2015 10:16:52 AM
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Just asking FOYLE a question. Aren't u explaining how the system of reserve requirements works? is not a fractional reserve banking system enabled by the use of leverage, ie only retaining a fraction of reserves and creating the rest?
Posted by WTF, Monday, 16 March 2015 1:36:51 PM
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Bazz,
The CEC are a lunatic fringe political party who think that everythhing's a Britisih conspiracy. They claim President Obama works for MI5, and they've made that same accusation against at least one of the Aussie PMs (I haven't been keeping track of them lately so I can't remember who they've made that accusation againt here, but I'm guessing Gillard, and I'd be surprised if they haven't said the same about Abbott by now).

In my state (SA) they stood in several senate elections but not the last one. And they have a TV show on channel 44.
Posted by Aidan, Monday, 16 March 2015 2:36:14 PM
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