Banks should lend from their capital, not from money conjured out of the thin air of cyberspace, writes Deborah Orr in her article in Guardian on Friday 13th July 2012.
Here is a short extract:
Much lip service is paid to the idea that over many years in Britain there has not been enough investment in manufacturing. What is overlooked is that one sector did a gargantuan amount of manufacturing during this period. The big international banks manufactured money, using very simple raw materials. All they needed were computers and borrowers. Every time they made a loan, the banks simply typed the amount they were lending into their computer system, transferred it to their victim’s account, and charged interest for the privilege. The late media entrepreneur, Roy Thomson, once described his ownership of Scottish Television as “a licence to print money”. The banks didn’t even have to go to the trouble of printing the stuff.
As for “risk” and “investment”, the banks didn’t have to seek out real-economy enterprises that could at some point in the future be financially successful. The more mortgages they made available, the more house prices rose, the safer investment in housing seemed, and the more willing people became to take on bigger mortgages. When the banks ran out of safe prospective home owners, they started lending to unsafe prospective home owners. And when that too had run its course, they stopped lending pretty much completely. That’s it. That’s all that happened.
How did this outrageous scam ever get started? The pressure group, Positive Money, explains it well. The Bank Charter Act, of 1844, removed from banks their licence to print money. The Bank of England printed the money, and the banks bought it. The state retained the seigniorage – the difference between the cost of creating the physical currency and its face value. Now, only 3% of the “money” in Britain is cash from the Bank of England. The rest is electronic, created by the banks, simply by virtue of the fact that the Bank Charter Act didn’t foretell the advent of computer-screen credit, and no one stepped in to arrest its development. Positive Money campaigns for the establishment of electronic seigniorage, which would establish a nice little earner for the state. Obviously, this responsibility could not be placed in the hands of politicians. Positive Money suggests that the Monetary Policy Committee could take on this function, gauging the release of currency to the rate of inflation – including house-price inflation. Frankly, the fact that the banks had been gifted with the closest thing to alchemy that humanity has ever contrived, and still managed to screw it up, suggests that a state institution could do no worse than they on this matter.