Alla inlägg den 9 januari 2009

Av Sunda Pengar - 9 januari 2009 06:34

Följer en diskussionsgrupp av akademiker som diskuterar pengar och Ellen Browns arbete angående principerna bakom krediter är ibland diskuterad.

Kritiken mot henne är att hon inte har fullt grepp på hur pengaprocessen fungerar utan utgår från 10% reservkravs modellen med krediter som ökar efter dess cirkulation.

Hennes nya artikel är dock ett avbrott mot denna och hon har börjat titta på Basel ackordet som är grunden för hur utlåning fungerar internationellt.

Återger hela hennes artikel här, klart läsvärd.

Ellen brown – Web of debt.

Letter to the bank ­
Dear Sirs, In light of recent developments, when you returned my check
marked ³insufficient funds,² were you referring to my funds or yours?

Economist John Kenneth Galbraith famously said, ³The process by
which banks create money is so simple that the mind is repelled.² If banks
create money, why are we suffering from a ³credit crunch²? Why can¹t banks
create all the money they can find borrowers for? Last fall, Congress
committed an unprecedented $700 billion in taxpayer money to reversing the
credit crisis, and the Federal Reserve has already fanned that into $8.5
trillion in loans and commitments. 1 But the bank bailout has proven to be
no more than a boondoggle for a handful of lucky Wall Street banks, without
getting credit flowing again.
To understand the real cause of the credit crisis and how it can
be reversed, it is first necessary to understand credit itself ­ what it is,
where it comes from, and what the real tourniquet is that has limited its
flow. Banks actually create credit; and if private banks can do it, so
could public banks or public treasuries. The crisis is not one of
³liquidity² but of ³solvency.² It has been caused, not by the banks¹
inability to get credit (something they can create with accounting entries),
but by their inability to meet the capital requirement for making loans.
That inability, in turn, has been caused by the derivatives virus; and only
a few big banks are seriously infected with the it. By bailing out these
big banks, the government is actually spreading the virus by furnishing the
funds for them to take over smaller banks.
A more effective alternative than trying to patch up the
hopelessly imperiled derivatives books of these few banks would be to create
a parallel credit system with a pristine set of books. A network of public
banks (federal and state) could create ³credit² just as private banks do
now. This credit could be extended at low interest rates to consumers and
at very low interest to local governments, drastically reducing the cost of
public projects by reducing the cost of funding them. This is not a radical
proposal. It is what private banks themselves do every day. But most people
have trouble believing it, and bankers will dispute it. So the first thing
to be established is that . . .

Banks Create the Money They Lend
Bankers will tell you that they do not create money. At a 10%
reserve requirement, they simply lend out 90% of their deposits. The catch
is that their ³deposits² include the money they have written into their
customers¹ accounts as loans. That is how loans are made: numbers are
simply written into the accounts of borrowers, as many reputable authorities
have attested. Here are two of them, dating back to when officials were
either more aware of what was going on or more open about it:
³[W]hen a bank makes a loan, it simply adds to the borrower¹s deposit
account in the bank by the amount of the loan. The money is not taken from
anyone else¹s deposit; it was not previously paid in to the bank by anyone.
It¹s new money, created by the bank for the use of the borrower.²
­ Robert B. Anderson, Treasury Secretary under Eisenhower, in an
reported in the August 31, 1959 issue of U.S News and World Report

³Do private banks issue money today? Yes. Although banks no
longer have the right to issue bank notes, they can create money in the form
of bank deposits when they lend money to businesses, or buy securities. . .
. The important thing to remember is that when banks lend money they don¹t
necessarily take it from anyone else to lend. Thus they Œcreate¹ it.²
­ Congressman Wright Patman, Money Facts (House Committee on
Banking and Currency, 1964)
The process by which banks create money was detailed in a
revealing booklet put out by the Chicago Federal Reserve titled Modern Money
Mechanics.2 Periodically revised until 1992, when it had reached 50 pages
long, it is written in somewhat difficult prose; but here are a few relevant

³The actual process of money creation takes place primarily in
banks.² [p3]
Translation: banks create money.

³In the absence of legal reserve requirements, banks can build
up deposits by increasing loans and investments so long as they keep enough
currency on hand to redeem whatever amounts the holders of deposits want to
convert into currency.² [p3]
Translation: banks can create as much money as they want by writing loans
into their borrowers¹ accounts, limited only by (a) legal reserve
requirements (money that must be held in reserve ­ traditionally about 10%
of outstanding deposits and loans) or (b) the amount of money they will need
to keep on hand to pay any depositors who might come for their money (also
traditionally about 10%).

³Banks may increase the balances in their reserve accounts by
depositing checks and proceeds from electronic funds transfers as well as
currency.² [p4]
Translation: the ³reserves² that count toward the reserve
requirement include currency, deposited checks, and electronic funds
transfers. (Note that the ³deposits² created as loans are excluded from
this list: the bank cannot just keep bootstrapping loans on top of loans but
must keep money from external sources on reserve equal to about 10% of its
loans and deposits.)

³The money-creation process takes place principally through
transaction accounts [accounts that can be drawn on without restriction] . .
. . With a uniform 10 percent reserve requirement, a $1 increase in reserves
would support $10 of additional transaction accounts.² [pp 2, 49]
Translation: $1 deposited by a customer can be fanned into $10 in loans.

³In the real world, a bank¹s lending is not normally constrained
by the amount of excess reserves it has at any given moment. Rather, loans
are made, or not made, depending on the bank¹s credit policies and its
expectations about its ability to obtain the funds necessary to pay its
customers¹ checks and maintain required reserves in a timely fashion.²
Translation: In practice, banks issue loans without worrying too much about
whether they have the reserves to cover them. If they come up short, they
can just borrow them:

³[Since] the individual bank does not know today precisely what
its reserve position will be at the time the proceeds of today¹s loans are
paid out. . . . many banks turn to the money market - borrowing funds to
cover deficits or lending temporary surpluses.² [p50]
³[A] bank may [also] borrow reserves temporarily from its Reserve Bank. . .

[However], banks are discouraged from borrowing [Reserve Bank]
adjustment credit too frequently or for extended time periods.² [p29]
Translation: If the bank finds at the end of the accounting period that its
reserves do not come to the required 10% of its outstanding loans and
deposits, it can simply borrow the reserves it needs from the money market
or its Federal Reserve Bank.

A 2002 article posted on the website of the Federal Reserve Bank
of New York noted that today, few banks are constrained by reserve
requirements at all:

³Since the beginning of the last decade, required reserve
balances have fallen dramatically. The decline stems in part from regulatory
action: the Federal Reserve eliminated reserve requirements on large time
deposits in 1990 and lowered the requirements on transaction accounts in
1992. But a far more important source of the decline in required reserves
has been the growth of sweep accounts. In the most common form of sweeping,
funds in bank customers¹ retail checking accounts are shifted overnight into
savings accounts exempt from reserve requirements and then returned to
customers¹ checking accounts the next business day. Largely as a result of
this practice, today only 30 percent of banks are bound by a reserve balance
requirement.² 3
Even without official reserve requirements, however, banks must
keep enough money on hand to meet withdrawals or checks written against the
accounts of their depositors; and that generally means about 10% of
outstanding deposits and loans, as moneylenders discovered centuries ago.
But if the banks come up short, they can borrow this money from the money
market or the Federal Reserve; and if the Fed comes up short, it can create
new reserves.4 So why the current credit crunch? What is limiting bank
lending? One answer is that borrowers are simply ³tapped out² and not in a
position to take out as many loans as they used to. When housing and the
stock market crashed, consumers no longer had home or stock equity to borrow
against.5 To the extent that the blockage is with the banks themselves,
however, it is not caused by the reserve requirement. Something else is
putting the squeeze on credit.

The Real Tourniquet: Capital Adequacy and the Marked-to-Market Rule
What banks can¹t get around with ³overnight sweeps² and the like
is the capital adequacy requirement; and the capital requirement is imposed,
not by our own central bank, but by the Bank for International Settlements
(BIS). Called ³the central bankers¹ central bank,² the BIS pulls the
strings of the private international banking system from Basel, Switzerland.
How the capital requirement is determined is even more
complicated than the reserve requirement, but here is a simplified version.
A bank¹s ³capital² consists of its assets minus its liabilities. The
capital adequacy rule imposed by the Basel Accords requires that the ratio
of a bank¹s capital to its ³risk-weighted² assets be at least 8%. That
means the bank must have $8 in capital for every $100 in ordinary loans
having a ³risk weighting² of 1.0 Mortgage loans (which are secured by real
estate) have a risk weighting of .5. That means they need only $4 of
capital per $100 of loans. Other bank exposures given risk weightings
include such things as derivatives and foreign exchange contracts.6
(Interestingly, the $700 billion committed by Congress to bailing out the
financial system is approximately 8% of the $8.5 trillion the Fed has now
promised in loans and commitments. Even the Federal Reserve evidently feels
constrained by the BIS capital requirement. )
One of the most important accounting rules imposed on a bank for
its capital ratio calculation is the ³mark to market² rule for valuing
assets. This rule requires banks to revalue all of their assets each day as
if the assets had to be sold that day. Capital calculations thus fluctuate
with the market; and in today¹s volatile market, all asset classes have
plunged at the same time. Since assets get marked to market but liabilities
don¹t, a bank may suddenly find that its assets are insufficient to support
its liabilities, rendering it insolvent and unable to make new loans. The
balance sheet instability caused by the marked-to-market rule is compounded
by the fact that bank balance sheets include derivatives, which are very
difficult to value reliably.

The Derivative Virus
Of particular concern today are ³credit default swaps² (CDS), a
form of derivative widely sold as insurance against default. CDS have
allowed banks to lighten up the risk-weightings on their balance sheets by
eliminating the risk of default from their loans. At least, that is how
they have been sold to investors; but this unregulated form of insurance is
now known to have been based on faulty mathematical models. When AIG, the
world¹s largest insurance company, ventured into CDS in the late 1990s, the
presumption was that ³housing always goes up² and that the risk of default
was so remote that selling ³credit protection² was virtually ³free money².7
But this free money turned into a serious liability to the protection
sellers when the ³remote² actually happened and a flood of defaults struck.
The value of the derivatives protecting securitized mortgages became so
questionable that they were unmarketable at any price. Banks counting these
derivatives as assets on their books then had to ³mark them to market²
effectively at zero, reducing the banks¹ capital below the levels called for
in the Basel Accords and rendering them officially insolvent. When AIG went
broke in September 2008, banks heavily involved in derivatives faced double
jeopardy: not only did they have to write down the derivative protection
they had sold to others and counted as assets on their books, but they could
no longer count on the derivative insurance they had bought to minimize the
risk of default on their other assets.
Derivatives have introduced a lack of transparency into bank
portfolios, creating fear and uncertainty on the part of lenders, depositors
and investors alike. This uncertainty has prevented banks from raising
capital by selling stock or meeting reserve requirements by getting
interbank loans, and it has discouraged investors from being invested in the
money market. Banks don¹t know whether the money they lend to each other
will be repaid, since they don¹t have a clear view of the value of the
assets carried on bank balance sheets. The result is a crisis of
confidence: the players are all eying each other suspiciously and holding
their cards close to the chest.
Fortunately, according to a recent study using the Treasury
Department¹s own data, the banking crisis is not widespread but is limited
to only ³a few big, vocal banks.²8 It is with the banks with significant
derivative exposure that the real credit problem lies; and most of this
liability is carried by only a few big Wall Street banks. Outstanding
derivatives on the books of U.S banks are now reported to exceed $180
trillion; and by the first quarter of 2008, $90 trillion of this was carried
on the books of JPMorgan alone, while Citibank and Bank of America each
carried $38 trillion.9 Needless to say, these are also the banks that are
first in line for the Treasury¹s bailout money under TARP (the Troubled
Asset Relief Program). Rather than excising this relatively contained tumor,
the Treasury and the Fed are feeding it with trillions in taxpayer money;
and this money is being used not to make loans but to buy up smaller
banks.10 That means the derivative cancer, rather than being excised, is
liable to spread.
We the people and our representatives in Congress have allowed
Wall Street to call the shots because we think we are dependent on their
credit system, but we aren¹t. There are other ways to get credit ­ ways
that are fair, efficient, transparent, and don¹t encourage greed. Some of
these alternatives are operational now and have a long track record of
success. More on this subject to follow; stay tuned.



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