Feds invent new scam to transfer tax payer's money to banks
visual...@yahoo.com
Federal Reserve policymakers will discuss paying interest on bank
reserves in a closed door meeting on Wednesday. Such a move could in
theory allow the Fed to expand its liquidity support operations
without limit.
Under a law passed in 2006, the US central bank will gain the
authority to pay interest on reserves in 2011.
Stray Dog
system works, you will find that there are all kinds of things going
on out there whereby the _underlings_ (that is 98-99% of us) are
always getting screwed by somebody, something, somehow. Rich people
and corporations and any big business carry out all manner of tax
dodges, major scams (Enron-Andersen), frauds, price-fixing, monopolies
(Standard Oil, Microsoft), offshore tax havens, exploitation of
employees, exploitation of loopholes in the laws.
And, if you look in any textbook on criminology (I have three of them)
you will find at least a chapter if not a section of multiple chapters
on white collar crime (i.e. corporations and executives) and the short
conclusion is that the total dollar value of the crime (as found in
our court system) caused by people in the upper one percent of our
socio-economic bracket is about equal to the dollar value of all the
other crime commited by everyone else.
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Money Man
> Federal Reserve policymakers will discuss paying interest on
> bank reserves in a closed door meeting on Wednesday.
What exactly does this mean?
Who would be paying - or where would the interest payments come from?
And who would be the recipients of these interest payments?
And who would set the interest rate?
Lantern
> visualseep...@yahoo.com wrote:
> > Federal Reserve policymakers will discuss paying interest on
> > bank reserves in a closed door meeting on Wednesday.>>
Money Man wisely asks some excellent questions. Allow me to try to
answer. I don't know the answers but just to get the discussion going
----->
1. What does paying interest on reserves mean? Answer: Banks must set
aside money to pay depositors when required. Under a fractional
reserve system, banks can lend out more than they have on hand. There
are all kinds of controls and laws on this. The idea is to prevent a
run on banks. Banks do not get paid interest on their reserves.
Reserves must be very, very available, not invested by the bank, like
vault cash. Why shouldn't they earn interest?
2. Who would be paying the interest? The banks would need to put the
reserves to work. But they must put it to work so that the money is
available on demand. How do they do this? I dunno :) This may be the
fly in the ointment.
3. The banks would be the recipients of any interest they earn. This
would be an income source banks do not now have.
4. The interest rates would be set by whoever the banks can arrange to
submit their reserves monies to. Probably investors who can use short
term, readily available monies.
Stray Dog
> On Apr 30, 7:07 am, Money Man <Mo...@Man.com> wrote:
>
> > visualseep...@yahoo.com wrote:
> > > Federal Reserve policymakers will discuss paying interest on
> > > bank reserves in a closed door meeting on Wednesday.>>
>
> Money Man wisely asks some excellent questions.
I agree completely.
Allow me to try to
> answer. I don't know the answers
I don't either, but I've read a couple of books on banking and
economics (so, I know the alphabet) and I've read a lot of books on
scams, frauds, schemes, tricks, tweaks...all designed to make the
rich, richer and the poor, poorer.
but just to get the discussion going
> ----->
>
> 1. What does paying interest on reserves mean? Answer: Banks must set
> aside money to pay depositors when required. Under a fractional
> reserve system, banks can lend out more than they have on hand.
This is true, but I'm not aware that anything like this is going on in
the USA but a WSJ article said that in China as of two years ago, the
Chinese banks were loaning out 140-160% of their deposits AND 50% of
their loans were, at the time, non-performing. Since then, I
understand that they have cleaned up this problem.
There
> are all kinds of controls and laws on this.
I think they come from the Fed.
The idea is to prevent a
> run on banks.
No, you prevent a run on banks by doing something even simpler. They
call it a "bank holiday" and they lock all the doors and tell everyone
(if the bank is FDIC covered) that their money is safe and everyone
goes home until the propeller heads figure out what to do. In recent
times, the Fed organizes a shotgun marriage with stronger banks and
has the stronger bank take over everything, including good assets and
bad loans. The stronger banks don't like to do this, but Bernanke is
now dictator of banks (etc).
The purpose of reserves is to avoid the day when some depositor comes
in and wants to close his account and they tell him "Sorry, we don't
have any money (i.e. cash) here" and then leading to the fireworks and
rumors spreading faster than the speed of light.
> Banks do not get paid interest on their reserves.
No, but they have to get interest income on the loans they make and
that interest has to leave them with net earnings after they pay
interest due to be paid to depositors.
> Reserves must be very, very available, not invested by the bank, like
> vault cash. Why shouldn't they earn interest?
The last time I've seen numbers on this, we're talking about maybe
1-2% of total deposits. Yes, if the bank is a billion dollars bank,
then one percent is 10 mil and they have to froth at the mouth on
that.
However, a lot of bank overlings are greedy-selfish assholes, too, and
don't care that bank solidarity, reputation, and reliability is
important. As I've read a little about this, there are a lot of big
banks doing a lot of little dirty tricks and sneaky-cheaty things and
it gets pretty complicated.
> 2. Who would be paying the interest? The banks would need to put the
> reserves to work. But they must put it to work so that the money is
> available on demand. How do they do this? I dunno :) This may be the
> fly in the ointment.
I'll tell you what banks are doing (one of my banks is doing this),
they are starting to go into all manner of non-bank business. My bank
has offered financial services I've never seen from a bank. In
addition, they are offering "buyer club discount" cards, now (buy the
card, get X % off merchant prices). Also, the latest is a form of
insurance card but its not insurance (or they would run into insurance
regulation), but it is worded in a manner that the "plan" will pay for
health care problems. I'm sure they paid a lot of money to some lawyer
to word their "plan" so it is outside of state insurance regulation
(how many of you knew that Medicaid is not insurance?).
> 3. The banks would be the recipients of any interest they earn. This
> would be an income source banks do not now have.
The question should be: how much money are banks making now and how
well run are those banks.
> 4. The interest rates would be set by whoever the banks can arrange to
> submit their reserves monies to. Probably investors who can use short
> term, readily available monies.
You would have to have a look at the actual wording of the proposal. I
don't remember reading anything in any recent WSJ issue on this
development.
Lantern
> > > > Federal Reserve policymakers will discuss paying interest on
> > > > bank reserves in a closed door meeting on Wednesday.>>
Is there really a law that says banks can start earning interest on
their reserves?
The Trucker
All of this sort of stuff helps in our understanding of money and banks.
The bottom line is that the borrowers and/or the holders of money of all
stripes will pay the bankers in total regardless of how all the plumbing
is arranged. The banks essentially perform an accounting service and that
service must be regulated by representatives of the people to insure that
the bankers do not take too much out of the real economy for their
services. That is the simple fact.
The discussion of interest not paid/(or paid_) on reserves or any other
discussion about money is best opened by thinking in terms of gold coins.
In the world of hard money the banks were required by law to keep a
certain amount of gold on hand so that people could come to the bank (in
decent numbers) and withdraw their money as they pleased. Now obviously,
the gold sitting in the vault was not loaned out and did not produce any
interest income for the bank. My point about the inevitability of the
borrowers paying for the service is demonstrable even in this hard money
system. It should be obvious that the bankers (and their staff) must
derive income from the service they provide or they starve to death. There
is also the capitalization and amortization of the bank and the bank
vault. The bank will have borrowed money to create the bank and to pay
for the land and the safe and the pens and paper to facilitate the the
banking business. And all these costs must be paid by income from interest
on loans. There is also the odd borrower that does not repay a loan. AND
ALL OF THESE COSTS MUST BE PAID BY INTEREST ON MONEY LOANED TO HONEST
PEOPLE.
If there is no way to collect interest on idle funds (the gold coins held
in reserve for normal day to day withdrawals and deposits), then more
income must be derived from the active loans. ALL income must inevitably
be derived from the interest on loans to the public.
But let us now move forward to the fiat money system where money is not
"hard" and where money can be created at will. In this system there is no
fixed amount of money. Unlike the gold system the banks as a whole as
governed by the elected government can create additional money at need.
It is important to understand that the banks can create money only to the
extend that the elected government allows/forces the banks to create
money. The myth of the independent Federal Reserve is, indeed, a myth,
and the Fed (created by and inevitably controlled by the elected
government) is charged with the regulation the banks.
But in a fiat system we see that the cost of the banks (the cost if credit
and finance) can also be paid by the money holders (the
depositors/savers/hoarders of money). For as more money is created then
money will lose value; the money in the vault or on the books as loans or
savings will become worth less than it was. In effect, the holders of
money are being charged for the costs of the financial system. THERE IS NO
WAY TO PAY FOR THE BANKING SERVICES BUT THROUGH THE INTEREST ON LOANS. But
we see that as money becomes less scarce then less interest can be
commanded by the holders of money (the savers).
Within the reality described above let us examine the notion that the Fed
will pay interest on the money in the vault (the money held in reserve to
support the day to day activities of bank users):
In the big picture nothing has changed. If the Fed creates money with
which to pay the interest then money will become worth less due to the
decreasing scarcity of money. It is somewhat irrelevant as to the
mechanism used to create new money but for the fact of who gets the new
money FIRST. The money in total will lose value and those who "HAVE
MONEY", will seem to suffer the loss. But who gets to use or abuse the
new money? If the banks get the money, then the banks are made more
wealthy and the rest of us get the green weeny. On closer observation, the
people who have more money than they no what to do with are not harmed by
the creation of more money so long as the new money ends up in their bank
accounts. The people who must live from wages and who must also acquire
assets for retirement are, of course, screwed.
--
"I know no safe depository of the ultimate powers
of society but the people themselves; and
if we think them not enlightened enough to
exercise their control with a wholesome
discretion, the remedy is not to take it from
them, but to inform their discretion by
education." - Thomas Jefferson
http://GreaterVoice.org/extend
Lantern
Dan in Philly
>> Federal Reserve policymakers will discuss paying interest on
>> bank reserves in a closed door meeting on Wednesday.
The money would come from some combination of money creation (by the Fed)
and government spending (either taxes or borrowing, the latter being
postponed taxes).
The money would go to some combination of bank profits (to shareholders),
higher interest to depositors, and lower interest rates for borrowers.
I wonder: would this mechanism allow us to get rid of the reserve
requirement? Instead of requiring banks to keep reserves equal to e.g. 10%
of loans, we could simply adjust the interest rate paid on reserves to
achieve the same result. This might also get investment banks into the
system voluntarily, making them a little safer and avoiding
Bear-Stearns-style bankruptcies.
Dan in Philly
Lantern
> "Money Man" <Mo...@Man.com> wrote in message wrote:
> >> Federal Reserve policymakers will discuss paying interest on
> >> bank reserves in a closed door meeting on Wednesday.
> > Who would be paying - or where would the interest payments come from?
>
> The money would come from some combination of money creation (by the Fed)
> and government spending (either taxes or borrowing, the latter being
> postponed taxes).
Le t me see if I understand. This rumored new law, will pay banks
interest on their reserves. You suspect the payment would come from
the government, the FED or gov. spending. This would be a heckuva gift
to the banks. But you may be right.
The Trucker
He is correct as far as it goes. It would be better to just do away with
the reserve requirement and regulate the banks in a different way. I
loath the day when the banks can turn a profit without lending.
Les Cargill
This is bit of a right turn, but ... isn't there an educational
component to all this? If someone's credit score is low
enough, we could require people to go to "credit school", and
pass that in exchange for a shot at credit.
If the potential borrower had to pay for it, it would
be a net gain for whoever provides the service, no taxpayer
money involved. It would add a bit to transaction costs for lenders, but
if it reduced lending risk by 1%, how could it *not* be a banging
success?
And this answers for once and for all that lenders are
"predatory", luring the unsuspecting into a trap. How
could they oppose it?
--
Les Cargill
Les Cargill
The Fed is desperately trying to figure out how to get more money
into circulation. This would not surprise me.
Okay, so we do things like this to enrich banks, then tax hell out of
it. What's wrong with that scenario? We mostly launder Fed money through
the general economy anyway....
I have just reinvented Harry Truman's domestic economic
policy, haven't I?
"What is time? it is a snake which eats its own tail, like this." -
Vonnegut.
--
Les Cargill
Lantern
How about to pay interest on bank reserves, we set up a new
industry...Ready Money Corp. will be a new business with a fleet of
trucks on the ready to get cash to banks if run emminent? Banks
subscribe to this service, pay a fee of course but in turn, can place
former "reserve" monies into interest earning investments. You read it
here.
reinhardt
the middle