Industry | 2010.01.26
Letters: Bankers' failure to fulfil their role
I was astonished to read Lord Myners\'s assertion that banks use our deposits to lend out to businesses and homebuyers. ( Comment , 25 January). This is simply not the case, and has not been the case since 1694 when the British banking system was established, and intangible bank money began the process of creating deposits in the banking system.
We have just lived through a period of asset price inflation fuelled by credit-creation that bore little relation whatsoever either to a) our deposits in banks, or b) to the underlying value of assets.
Far from the bank starting with a deposit or reserves as a basis for lending, the bank starts with an application for a loan, the asset (eg property) against which to guarantee or secure repayment, and the promise to repay with interest. A bank clerk then enters the number into a ledger/computer, and charges it to the account of the borrower. This is credit and has been known since 1694 as bank money – intangible and essentially free.
The bank does not need savings, deposits or reserves to create credit. If this were the case there would only be as much credit as there are deposits in the bank. These limits would have constrained an asset price bubble, as assets would not have been artificially inflated by underregulated credit creation. Once the loan is agreed, the bank then applies to the Bank of England for the cash element, which is a very small proportion in these days of debit/credit cards.
The fact that small businesses cannot obtain loans from banks, except at high rates of interest, has nothing to do with our deposits, but with the failure of bankers to fulfil their role and meet the needs of society and the economy. Which is why Lord Turner was right to dismiss them as "useless". That failure may not have occurred if the Treasury had a better understanding of monetary theory and practice.
Ann Pettifor
Fellow, New Economics Foundation
• I welcome Lord Myners efforts to ensure there is no future repetition of the need for the taxpayer to bail out the banking industry. But will he and the government echo President Obama\'s determination to "recover every single dime" of the bailout losses? And if not, why not?
Ray Flood
Dundee
• Lord Myners says: "We all need banks to take risks." Sure, but what kinds of risk? What do we want of our banks? We want them to receive our incomes, pay our bills on request, and keep us informed of these transactions. If we lend them money we want them to pay a fair rate of interest. We expect them in turn to lend that money to trustworthy businesses or individuals at higher interest. We don\'t expect them to engage in casino-style gambling and then come cap in hand when the bubble bursts.
What are banking services worth for watching over our money? Nurses watch over the sick, teachers watch over our young, social workers watch over the misfortunate, police watch over our safety. Comparable jobs merit comparable remuneration. Obscene rewards for playing the markets, advising on mergers that cost workers their jobs, and recklessly endangering the environment, are just causes for our anger. Investment banking may contribute to economic growth but little to the quality of life or the wellbeing of the nation. Yes, we are right to be angry.
Michael Bassey
Newark, Nottinghamshire
• John Harris\'s article on aspiration was fine as far as it went, but it ignored a problem with the politics of aspiration that\'s been bothering me for a while ( Comment , 25 January). The focus on aspiration by the major parties entrenches a kind of caste system which makes it impossible for those who spend their lives in what we used to call "dead-end jobs" to have any dignity in labour. It wasn\'t a tenet of old Labour policy, but it always seemed to be understood that we needed cleaners, shop assistants, bus drivers, dustbin men etc, and there was a respectability in our interdependence. The politics of aspiration simplistically portrays those people as losers. Why can no politician bear to posit the concept of a society at ease with itself? Why are the inequalities of affluence exacerbated by inequalities in levels of respect by the political classes?
Nick Whitmore
Newcastle upon Tyne
For more information, please visit
http://www.guardian.co.uk/business/2010/[...]s-failure-to-fulfil-their-role
