Economics For Activists Week Three Rialto 25 June 2013

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Week three of economics for activists 25 June 2013

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Economics For Activists Week Three Rialto 25 June 2013

  1. 1. Economics for ActivistsWeek Three – Theprivatization of MoneyF2 Building, New Fatima, Rialto25 June 2013
  2. 2. “The process by whichmoney is created is sosimple that the mind isrepelled.”(John Kenneth Galbraith)
  3. 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. 4. “… a tangled interaction between themarket and the state….”
  5. 5. The commercial creation of debt has slipped from publiccontrol…
  6. 6. The commercial creation of debt has slipped from publiccontrol…Although not from public liability.
  7. 7. The commercial creation of debt has slipped from publiccontrol…Although not from public liability.While the capitalist financial system has privatised themoney system, it remains a system of social trust.
  8. 8. The commercial creation of debt has slipped from publiccontrol…Although not from public liability.While the capitalist financial system has privatised themoney system, it remains a system of social trust.The market alone cannot sustain it.
  9. 9. Page.32State endorsement of bank debt means thatbanks are able to issue liabilities at will.
  10. 10. Page.33Unlike state-issued ‘fiat’ money which, when issuedbecomes the property of the receiver to dispose of asthey will, money issued by banks has to be paid backwith interest.
  11. 11. Page.33Unlike state-issued ‘fiat’ money which, when issuedbecomes the property of the receiver to dispose of asthey will, money issued by banks has to be paid backwith interest.Control of money issue passes from the state to thebanking sector and with it the benefits of seigniorage,that is, financial profit from making loans.
  12. 12. Page.37This creation of credit-money by lending in the form ofissued notes and bills, which exist independently of anyparticular level of incoming deposits, is the criticaldevelopment that Schumpeter and others identified as thedifferentia specifica of capitalism.If banks could not issue money they could not carry ontheir business.Credit creation is the actual business of banking
  13. 13. Page.39It is clear that in the late twentieth and early twenty-firstcenturies, the bank credit creation system was not justresponding to the needs of production but to the demandsof speculative inflation.Page.40As states were receiving the product of uncontrolled creditcreation, the public would eventually have to pay the pricein its role as guarantor of the money system.
  14. 14. Page.47Money was seeking a way to make more money, but withso much ready money available, there was a limit to whereviable investments could be found.Page.48Securitisation – ‘originate to distribute’
  15. 15. LIQUIDITY AND FINANCIAL ASSETSLike a real asset, a financial asset may have more than one function. In addition to serving as a store of wealth, a financialasset may make it possible to transfer risk from one person to another, and may make it possible for speculators to make"bets" on the fortunes of a particular company.But these functions are separable. There is no reason why the person who supplies the money for a financial asset should takethe risk associated with the asset. And the risk can be transferred from one person to another independently of any transferof the money investment from one person to another.…a long term corporate bond could actually be sold to three separate persons. One would supply the money for the bond;one would bear the interest rate risk; and one would bear the risk of default. The last two would not have to put up anycapital for the bonds, although they might have to post some sort of collateral.- Fischer Black, “Fundamentals of Liquidity” (1970)
  16. 16. Residental / Commercial Mortgage Backed Securities
  17. 17. Failing to see that commercial money creation was behindthe flood of money in the new financial world, bankers andfinanciers congratulated themselves on the amount ofmoney they were making.As money markets have grown, bringing together a widerange of financial organisations including the banks, theprivatised financial system is effectively creating money foritself.Mary Melor, The Future of Money (Pluto Press, 2010), p.53
  18. 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/

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