Banking as a Network of Financial Contracts

[Joe Leote]

This video starts out demonstrating fractional reserve banking as proliferation of financial contracts:

https://youtu.be/tOm_aF_SB-k

In the past when banks interacted with each other under the gold standard I think the term for such interaction is called correspondent banking. The video does not refer to correspondent or network banking as an independent social institution distinct from the evolution of central banks. So, for example, during the 1907 bank panic JP Morgan led the correspondent banking system to act as lender of last resort thereby performing the role of a central banker in the modern era. The governments instituted central banks to avoid reliance on private bankers to perform the role of lender of last resort. Also the government has the power to enforce or suspend contracts including financial contracts. So when the private bankers and other commercial lenders expand credit and debt contracts until an episode of systemic debt-default occurs due to market psychology the governments evolved public institutions to allocate the financial loss and try to reset the real economy avoiding an economic depression or great depression. During a depression the memory of the financial loss is fresh in the minds of creditors and debtors, spending goes way down, and since economic activity is driven by spending decisions of investors, governments, and consumers, using credit or government deficits at the margin, the memory of financial loss curbs spending in an economic depression.

Joe

[William Meyer]

Nice, short video.  Wondering about all the examples of central banks trying to kill the king are.  The BOE being a Williamite institution and in opposition to the Stuarts I guess could be one.  City of London still sore about Charles I raiding the tower of London.

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[Joe Leote]

I have been streaming Knightfall - a fictional TV drama about France, King Philip, and the Knights Templar. Some elements of history are incorporated into the drama. I did not know that Friday the 13th is associated with the tragic events in Knights Templar history. Historians argue that King Philip saw the Knights Templar as a rival power to the throne, he owed them money, and he contrived with the Pope to destroy the Knights Templar to erase his debts, acquire their wealth, and consolidate power under the throne. Men with weapons tend to form rival groups, much like chimpanzees or tribal humans, and feudalism is the clash of rival military or police power. The rule of law attempts to consolidate police power into the judicial branch of government supervised by the executive branch with laws passed by the legislature and interpreted by the judiciary. In South Korea there is a history of Presidents who declare martial law and the outcome depends on whether the police and/or military officials follow orders of the President or decide to let the courts and judiciary sort out the authority of the President under the prevailing factual and legal disputes.

Joe

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[Joe Leote]

Financial historian's short story about the Knights Templar:

https://youtu.be/a6j9jiBbXrM

State Capitalism, where the government officials benefit directly from control over modern industry and finance via the political monopoly on media, police, and military, is the most effective way to consolidate power in a modern nation. Destroying rival power institutions is less effective than taking them captive and making them work for the political machine.

Joe