Economics for Activists Week Three: Mechanics Institute Limerick May ’13
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Economics for Activists Week Three: Mechanics Institute Limerick May ’13

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Week Three - The Privatization of Money

Week Three - The Privatization of Money

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Economics for Activists Week Three: Mechanics Institute Limerick May ’13 Presentation Transcript

  • 1. Economics forActivistsWeek Three – Theprivatization ofMoneyMechanics Institute LimerickMay 2013
  • 2. “The process bywhich money iscreated is so simplethat the mind isrepelled.”(John Kenneth Galbraith)
  • 3. Mary Mellor – Chapter Two: The Privatisation of Money1. Banking and the State2. Banks, States and Debt3. Money Creation and the Banking System4. From Regulation to Deregulation5. Liquidity and Solvency6. Innovations in Banking: Securitised Finance7. Private Good; Public Bad8. Conclusion
  • 4. “… a tangled interactionbetween the market and thestate….”
  • 5. The commercial creation of debt hasslipped from public control…
  • 6. The commercial creation of debt hasslipped from public control…Although not from public liability.
  • 7. The commercial creation of debt hasslipped from public control…Although not from public liability.While the capitalist financial system hasprivatised the money system, it remains asystem of social trust.
  • 8. The commercial creation of debt hasslipped from public control…Although not from public liability.While the capitalist financial system hasprivatised the money system, it remains asystem of social trust.The market alone cannot sustain it.
  • 9. Page.32State endorsement of bank debtmeans that banks are able to issueliabilities at will.
  • 10. Page.33Unlike state-issued ‘fiat’ money which,when issued becomes the property ofthe receiver to dispose of as they will,money issued by banks has to be paidback with interest.
  • 11. Page.33Unlike state-issued ‘fiat’ money which,when issued becomes the property ofthe receiver to dispose of as they will,money issued by banks has to be paidback with interest.Control of money issue passes from thestate to the banking sector and with itthe benefits of seigniorage, that is,financial profit from making loans.
  • 12. Page.37This creation of credit-money by lending inthe form of issued notes and bills, whichexist independently of any particular levelof incoming deposits, is the criticaldevelopment that Schumpeter and othersidentified as the differentia specifica ofcapitalism.If banks could not issue money they couldnot carry on their business.Credit creation is the actual business ofbanking
  • 13. Page.39It is clear that in the late twentieth andearly twenty-first centuries, the bank creditcreation system was not just responding tothe needs of production but to the demandsof speculative inflation.Page.40As states were receiving the product ofuncontrolled credit creation, the publicwould eventually have to pay the price in itsrole as guarantor of the money system.
  • 14. Page.47Money was seeking a way to make moremoney, but with so much ready moneyavailable, there was a limit to where viableinvestments could be found.Page.48Securitisation – ‘originate to distribute’
  • 15. LIQUIDITY AND FINANCIAL ASSETSLike a real asset, a financial asset may have more than one function. In addition to serving asa store of wealth, a financial asset may make it possible to transfer risk from one person toanother, and may make it possible for speculators to make "bets" on the fortunes of aparticular company.But these functions are separable. There is no reason why the person who supplies the moneyfor a financial asset should take the risk associated with the asset. And the risk can betransferred from one person to another independently of any transfer of the money investmentfrom one person to another.…a long term corporate bond could actually be sold to three separate persons. One wouldsupply the money for the bond; one would bear the interest rate risk; and one would bear therisk of default. The last two would not have to put up any capital for the bonds, although theymight have to post some sort of collateral.- Fischer Black, “Fundamentals of Liquidity” (1970)
  • 16. Residental / Commercial Mortgage Backed Securities
  • 17. Failing to see that commercial moneycreation was behind the flood of money inthe new financial world, bankers andfinanciers congratulated themselves on theamount of money they were making.As money markets have grown, bringingtogether a wide range of financialorganisations including the banks, theprivatised financial system is effectivelycreating money for itself.Mary Melor, The Future of Money (Pluto Press, 2010), p.53
  • 18. Irish Mortgage-Backed Securities listed on Irish Stock Exchange, April 2012AIB Mortgage Bank (AIB) - €11.87 billionCeltic Residential Irish Mortgage Securitisation - (Ulster Bank) - €20.6 bnPhoenix Funding Limited - (KBC Bank) - €11.55 billionEmerald Mortgages (EBS) - €4 billionKildare Securities (Bank of Ireland) - €3.45 billionFastnet Securities (Irish Life & Permanent) - €23.774 billionLansdowne Mortgage Securities (Start Mortgages) - €729 millionTotal listed (of those found) : €75.973 billionhttp://dublinopinion.com/2012/04/02/irish-mortgage-backed-securities-initial-notes/http://dublinopinion.com/2012/04/04/irish-mortgage-backed-securities-part-two/http://dublinopinion.com/2012/06/08/update-on-amoroin-securities-from-clare-day-td-6-june-2012/http://dublinopinion.com/2012/09/06/bank-of-ireland-mortgage-backed-securities-april-1988/