newsid_9718000/9718062.stm While accepting that "no one could quite bring themselves to believe that in our modern financial system the biggest banks in the world could fall over", the Governor said the Bank had been aware of the precarious position of institutions that were lending too much.
Looking back at the events since global financial markets froze up in August 2007, King said the Bank had not imagined the scale of the disaster that would occur when the risks it had identified can to be. The crisis led to a three-day run on Northern Rock – the first on a British high street bank since the 1860s – and, a year later, the part-nationalisation of Royal Bank of Scotland and Lloyds Banking Group.
"And in the crisis, we tried, but should have tried harder, to persuade everyone of the need to recapitalise the banks sooner and by more. We should have preached that the lessons of history were being forgotten – because banking crises have happened before." Indeed they have many many times over it is a fact of the current banking system that crisis is in built as money is created out of thin air and sold with interest to the rest of society, governments, companies and individuals.
A quick look at http://en.wikipedia.org/wiki/Financial_crisis#Banking_crisis would have allowed Mervyn to see that most of the significant economic collapses in Capitalism have been caused by banks and well before!
But David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, accused Sir Mervyn of being "disingenuous", quite. "If Mervyn King had thought more regulation was important he could've done something about it. And because he didn't he must take responsibility for the fact the Bank of England missed the biggest financial crisis in a century," he told BBC Radio 5 live.
He blamed the recklessness of banks; he blamed a collective 'failure of imagination' to see that banks' huge increase in lending was the mother of all dangerous bubbles waiting to burst; he blamed the last Labour government for stripping the Bank of England in 1997 of its direct powers to regulate banks, but what he couldn’t or wouldn’t do is to blame the failure on the system itself.
The fact that money can be created at will with limited controls through lending means two key issues, our economy is saddled with debts that can never be repaid as there is never enough money to pay the loan and the interest back and even more debt must be created to allow for more money to appear to pay debts back. Inevitably as the volume of lending builds then the bubbles return and another crisis is born, but now that 98% of our money is digital the possibilities for money created as debt are almost unlimited, the shadow banking system is testimony to this.
The shadow banking system is the collection of financial entities, infrastructure and practices which support financial transactions that occur beyond the reach of existing state sanctioned monitoring and regulation. It includes entities such as hedge funds, money market funds and structured investment vehicles (SIV). Investment banks may conduct much of their business in the shadow banking system (SBS), but they are not SBS institutions themselves.
So what of Mervyn’s solutions what do they hold for us and in particular our pension funds?
He claims Regulation, resolution and restructuring of the banks are the three Rs of a new approach to make banking, and so our economy, safer. But once again he fails to learn the lessons of history, even recent history. The key flaw in our current banking system is that almost all money is now created by private banks as debt. In the words of Martin Wolf, writing in the Financial Times, “the essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending” (FT, November 9th 2010).
The only solution worthy of consideration, based this time on an historical analysis is the take away the right to create money from profit making banks and politicians and place the creation of all new money in the hands of the Bank of England . It is impossible to have a stable economy whilst the behavior of banks determines how much money there is in the economy. Without a stable and productive economy our pension funds will be undermined and at threat of closure.
The banking sector would then be placed under full or 100% reserve system, that is all lending by the banks would have to be covered by deposits in full and now new money could be issued in the form of loans if it was not backed by deposits.
An economy running on a foundation of full--‐reserve banking will be less prone to cyclical crisis and less inflationary. This was also supported by the Governor:
“Eliminating fractional reserve banking explicitly recognises that the pretence that risk free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets.” http://www.neweconomics.org/sites/neweconomics.org/files/Submission-ICB-Positive-Money-nef-Soton-Uni.pdf
So we are sure it will bring you comfort that he knew all along how to end our slavery to the banks!