Lenders & borrowers.
Banks have been saved from their lending folly, while borrowers remain in the quagmire. But banks are merely the intermediaries by which the wealthy lend their excess incomes to the less well off. To maintain growth in consumer demand, the 5% who cannot spend all their revenue (and the 60% who save for their retirement) must circulate the surplus. They do this by depositing it in banks and demanding high returns. The banks then use the deposits to grant credit. This concentrates wealth even more, because the interest on deposited incomes increases the surpluses, the deposits and the interest, in an ever expanding spiral.
Bankers have been accused of rapacity, but in fact they are the victims of their greedy depositors. Until quite recently, money was deposited on non-remunerated checking accounts.
(The change started in the 1960s, as shown by the growth of M3 to the detriment of M1: http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_supply2.svg).
This liquidity was used by bankers to grant commercial credit, mortgages and occasional, begrudged and very safe overdrafts. Then came the investment funds, paying high returns thanks to profitable market speculations based on instinct and mathematical equations. This was a drain on checking accounts, on the life blood of banks. They countered by offering equivalent remunerations on deposits. And their lending strategies became far more aggressive to compensate the cost of the money they were using. Money they had previously used for free.
Progressively, borrowing became the norm. A minority was lending more and more, a majority was lending less and less, and an ever increasing fraction was living on future incomes, with all the uncertainty that implies. As credit expanded into the subprime zone the uncertainty grew. But credit had to spread to keep the ball rolling, so the obvious was ignored. And more credit was granted to pay more interest on swelling deposits. This created a huge suction pipe for wealth that was completely disconnected from any form of production.
Saving the banks with treasury money is saving their depositors at the expense of the wider community. The ruling class is digging deep into the public purse to bolster up an exhausted system. Does anyone really believe it can be revived, or is this just a little extra mileage and the liquidity to move out?
Bankers have been accused of rapacity, but in fact they are the victims of their greedy depositors. Until quite recently, money was deposited on non-remunerated checking accounts.
(The change started in the 1960s, as shown by the growth of M3 to the detriment of M1: http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_supply2.svg).
This liquidity was used by bankers to grant commercial credit, mortgages and occasional, begrudged and very safe overdrafts. Then came the investment funds, paying high returns thanks to profitable market speculations based on instinct and mathematical equations. This was a drain on checking accounts, on the life blood of banks. They countered by offering equivalent remunerations on deposits. And their lending strategies became far more aggressive to compensate the cost of the money they were using. Money they had previously used for free.
Progressively, borrowing became the norm. A minority was lending more and more, a majority was lending less and less, and an ever increasing fraction was living on future incomes, with all the uncertainty that implies. As credit expanded into the subprime zone the uncertainty grew. But credit had to spread to keep the ball rolling, so the obvious was ignored. And more credit was granted to pay more interest on swelling deposits. This created a huge suction pipe for wealth that was completely disconnected from any form of production.
Saving the banks with treasury money is saving their depositors at the expense of the wider community. The ruling class is digging deep into the public purse to bolster up an exhausted system. Does anyone really believe it can be revived, or is this just a little extra mileage and the liquidity to move out?
posted by le Lézard at 5:51 AM
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