Seems
from this source that the EZ elite have tumbled to the blindingly obvious,
namely that with leverage ratios of 33:1 as advocated by the UK’s finance
minister, George Osborne and not vastly better leverage ratios proposed by Basel
III, it doesn’t take a huge drop in bank assets for a bank to become insolvent.
To
be exact, and assuming a ratio of 33:1, bank assets only have to fall in value
by 3+%, and the bank is technically insolvent. And of course bank assets have
on numerous occasions over the last 50 years (and doubtless over the last 150
years) fallen by that much. In other words those respectable and supposedly
stable institutions where you’ve deposited your money in recent decades are a
farce.
Moreover,
after the recent Cyprus bank fiasco, it was obvious that money in other
periphery banks was no longer entirely safe.
Seems
from the above source (which does not look 100% reliable, I must admit) that
the EZ authorities are now making it EXPLICIT that depositors money is no
longer safe. Well at least they’re honest.
This
form of honesty has of course been advocated by Positive Money, Profs Laurence
Kotlikoff and Richard Werner and other advocates of full reserve banking for
years, but with a difference, and as follows.
Simply
making it possible to bail in ALL DEPOSITORS is a crude solution to the
problem. A much better solution (proposed by the advocates of full reserve) is
to give depositors two basic options. First they can have accounts that are
100% safe and guaranteed by the state. But so as to avoid taxpayer exposure and
bank subsidies, that money is not put at risk: nothing is done with the money.
Second,
depositors can choose to act in a commercial manner: have their bank lend on
their money, and that means interest is earned. But that’s commerce. And a
normal rule of commerce is that the person who stands to gain when things go
well, also takes a hit when things go wrong.
Unless
of course you think that depositors are entitled to present taxpayers with a “heads
I win, tails you lose” set up.
And
finally, while that “two account” system is pretty much part and parcel of full
reserve, the reverse does not apply: that is, it’s perfectly feasible to
implement the two account system without implementing full reserve lock stock
and barrel.
Hat
tip to “Pollik” on the Positive Money Forum.
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