Saturday, 13 December 2014
Lending clubs = full reserve banking.
Lending clubs seem to be doing well in the US. Far as I can see, they are fully compatible with the principles of full reserve banking. Under both regimes, saver / lenders carry any loss stemming from the loans they have chosen to make, rather than taxpayers carrying some or all of the loss. (That's in stark contrast to the sub-human scum running large Wall St banks who have recently been trying to get taxpayers and ordinary depositors to stand behind their derivative bets.)
The only difference between lending clubs and full reserve is that under full reserve, at least as advocated by Laurence Kotlikoff, Positive Money and others, saver / lenders choose what CLASS OF borrower to lend to (e.g. safe mortgagors, NINJA mortgagors, businesses, etc), whereas with lending clubs, saver / lenders choose which INDIVIDUAL borrowers to lend to.
To be more accurate, under full reserve banking, the bank industry is split in two: a totally safe half with lodges money only at the central bank and perhaps also invests in short term government debt, and second, a lending half. Lending clubs (to repeat) comply with the rules of governing the lending half as proposed by Kotlikoff, PM, etc. But obviously they don’t supply the above “totally safe” method of lodging money. However, that totally safe facility is already in existence in some countries sort of (in the form of National Savings and Investments in the UK). NSI does not provide quite the flexibility (e.g. issuing cheque books and debit cards) that is needed, but NSI gets close – money can be withdrawn from NSI within about 24 hours via telephone I believe.