Thursday, 5 October 2017

Taxpayer backed support for banks and depositors is absurd.

A bank is an entity at which you deposit money. The entity then invests or lends on your money so as to earn interest for you. Plus the entity makes the absurd promise that your money is totally safe: you’re guaranteed to get $X back for every $X you put it.

That promise is absurd because money which is loaned on or invested is never totally safe.

Indeed, if you deposit money at an entity which does exactly the same job as the one set out above, but it does not have the word “bank” over its front door, then the entity is SPECIFICALLY FORBIDDEN from making the above promise. Examples of those other entities include stock–brokers, unit trusts (“mutual funds” in the US), etc.

So what’s the big significance in ordering the letters B,A,N and K from a sign manufacturer and putting them over your front door, as opposed to putting the letters U,N,I,T, T, R,U,S and T over your front door?  Darned if I know.

Does it make a difference exactly how the letters are attached to the wall or what colour they are? I look forward to enlightenment on that point....:-)

That’s not to say there should NEVER be any sort of taxpayer backed support for those with bank accounts: everyone is entitled to a totally safe bank account. But they are most definitely NOT ENTITLED to let their money be loaned on or invested and then go running to taxpayers for help if the loan or investment does not pay off.

Ergo it’s justifiable to have taxpayer funded support for bank accounts where money really is totally safe: i.e. where it is NOT loaned on or invested (e.g. where the relevant money is simply lodged at the central bank). But there is no excuse for such support for investors and money lenders.

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