Interest rates going up soon...

[hornet]

retrorider said:

John Dempsey, of Sovereign Trust, explains in absolute detail how the Magic Bank operates.


(Sovereign Trust, btw, don't employ any form of magic/fraud. They do it honestly, openly, candidly, and all above board)


Veronica: of the Chapman family

(January, 2009)

Source http://www.fmotl.com/LoansScam.htm

Edited by retrorider on Sunday 19th October 11:08

On the basis the above seems to be an oft-regurgitated blog piece exploiting distrust of the financial industry to promote something called "Sovereign Trust", I decided to do a quick search for "John R Dempsey Sovereign Trust". Yeah...


This is a good starting point :-

http://www.scam.com/showthread.php?t=127076

Following the links posted on that thread gets you into any number of sovereign citizen rabbit holes, mostly seeming to involve fake mortgage rescues, investment fraud and court cases involving this sort of thing :-

John Ruiz Dempsey said:

I want to make it clear at this point, my name is John-Ruiz: Dempsey, not JOHN RUIZ
DEMPSEY all capital letters as it appears on the style of cause. John-Ruiz: Dempsey
and JOHN RUIZ DEMPSEY ALL CAPS are not the same; JOHN RUIZ DEMPSEY ALL CAPS is a
fictional name created by the state, it is not me, yet you and the law[less] society
used that name to drag me into this muddle.
Do you understand the difference between the ALL CAPS name and the real Christian name?
The bottom-line here is: which one is more important to you, is it the People, or
the law[less] society. Your action speaks volumes, you don’t care about justice, you
don’t care about mercy, you don’t care what’s going to happen to all the real People
I represent, these are not fictional characters created by your statutes; these men
and women are created by God and by interfering with my work, you are interfering
with God.

From Here

The owner of that blog is himself in prison for mortgage fraud. The whole setup seems to be playing on the sovereign citizen / conspiracy theory / truth movement mindset to scam people out of money and secure fraudulent loans.

[loafer123]

There sure is alot of crap talked about the banking system on here.

Basically, if a bank lends money it has to set aside a capital requirement, essentially shareholders funds to deal with the risk. The size of that capital requirement varies depending upon the amount of risk.

The amount of cash not funded by shareholders capital is funded by liquidity - either commercial borrowings or deposits.

The issue of not having money available to repay on demand is the difference of depositors to call on their cash in the short term whilst borrowers are only obliged to repay over a longer term.

The capital of the bank should cover losses over the portfolio of loans, but didn't in the recession which is why the banks needed more capital they didn't and couldn't simply create it out of thin air, which is what many people on this thread seem to consider is possible.

[turbobloke]

loafer123 said:

There sure is alot of crap talked about the banking system on here.

Basically, if a bank lends money it has to set aside a capital requirement, essentially shareholders funds to deal with the risk. The size of that capital requirement varies depending upon the amount of risk.

The amount of cash not funded by shareholders capital is funded by liquidity - either commercial borrowings or deposits.

The issue of not having money available to repay on demand is the difference of depositors to call on their cash in the short term whilst borrowers are only obliged to repay over a longer term.

The capital of the bank should cover losses over the portfolio of loans, but didn't in the recession which is why the banks needed more capital they didn't and couldn't simply create it out of thin air, which is what many people on this thread seem to consider is possible.

From 'thin air' absolutely, in circulation maybe, but perhaps as a banking savvy PHer you could critique this book extract. The people who wrote it may well know squat diddly.

---

We identify that the UK’s national currency exists in three main forms, the second two of which exist in electronic form:

Cash – banknotes and coins, less than 3% of total money in the economy
Central bank reserves – reserves held by commercial banks at the Bank of England.
Commercial bank money – bank deposits created either when commercial banks lend money, thereby crediting borrowers’ deposit accounts, make payments on behalf of customers using their overdraft facilities, or when they purchase assets from the private sector and make payments on their own account (such as salary or bonus payments).

Only the Bank of England or the government can create the first two forms of money, which is referred to in this book as ‘central bank money’. Since central bank reserves do not actually circulate in the economy, we can further narrow down the money supply that is actually circulating as consisting of cash and commercial bank money.

We find that the most accurate description is that (commercial) banks create new money whenever they extend credit, buy existing assets or make payments on their own account, which mostly involves expanding their assets, and that their ability to do this is only very weakly linked to the amount of reserves they hold at the central bank. At the time of the financial crisis, for example, banks held just £1.25 in reserves for every £100 issued as credit. Banks operate within an electronic clearing system that nets out multilateral payments at the end of each day, requiring them to hold only a tiny proportion of central bank money to meet their payment requirements.

---

TIA

[loafer123]

Still more confusion over "creation" of money and reserves in item 3 there.

Banks may only have relatively thin capital in comparison to the money they lend, but that doesn't mean they have created the money they lend - they haven't - they have borrowed it themselves, either from despositors, or commercial paper, or through liquidity provided by central banks to encourage lending or many other sources.

So, Bill deposits £100 with a Bank. The Bank has £10 of capital. Bob borrows £100 from the Bank. Bob has effectively borrowed Bill's money, and the Bank receives and pays the interest in return for acting as the intermediary, with the £10 capital being the guarantee that keeps Bill happy. That is a bit simplistic, but will do for these purposes.

What the Bank hasn't done is press buttons, created money on a screen, and then lent it out, so there is only one Bill and lots of Bobs.

[turbobloke]

Yes indeed and thanks for the response, but I still think that while explanations may possibly be more detailed and pernickety-accurate, the thin air bit is key - nothing is created out of thin air, but where is there a claim that it is? Just asking, IANAB.

[loafer123]

The book precis you quoted above effectively says that banks create money.

The debate/confusion comes from the mismatch in term - once the loans have bee repaid and the deposits repaid, the Bank ends up with their capital remaining (assuming no losses) demonstrating that no money has been created on a net run-off basis, but where a depositor can require payment, but a borrower does not have to repay due to the term of their loan, a bank can run out of liquidity whilst that run-off takes place.

That is a term risk, one of the issues covered by capital and liquidity reserves. If the reserves are too thin, they can't cover the gap in term by borrowing liquidity in the markets, which is what happened to Northern Rock.

[turbobloke]

loafer123 said:

The book precis you quoted above effectively says that banks create money.

Agreed but do the authors not explain, albeit inadequately perhaps, what they mean by that, and that it's not from thin air?

The Bank of England gets in on the same act.

"This article explains how the majority of money in the modern economy is created by commercial banks making loans."

http://www.bankofengland.co.uk/publications/Docume...

There is the BoE saying that commercial banks create money but not from thin air.

[Dixy]

Ok so if all the private individuals with deposit accounts that are paying sod all in interest withdrew all the cash and put it literally under the matters, as a protest, what would happen?

[loafer123]

I'm not really arguing with you.

Plenty of people think banks create out of thin air, but even those that try and explain properly get fundamental elements wrong or explain in overly and needlessly complex language.

[Foppo]

loafer123 said:

Still more confusion over "creation" of money and reserves in item 3 there.

Banks may only have relatively thin capital in comparison to the money they lend, but that doesn't mean they have created the money they lend - they haven't - they have borrowed it themselves, either from despositors, or commercial paper, or through liquidity provided by central banks to encourage lending or many other sources.

So, Bill deposits £100 with a Bank. The Bank has £10 of capital. Bob borrows £100 from the Bank. Bob has effectively borrowed Bill's money, and the Bank receives and pays the interest in return for acting as the intermediary, with the £10 capital being the guarantee that keeps Bill happy. That is a bit simplistic, but will do for these purposes.

What the Bank hasn't done is press buttons, created money on a screen, and then lent it out, so there is only one Bill and lots of Bobs.

So if there are to many Bobs and not enough Bills the bank goes topsy turvy.Is that what happened with the financial crisis?But why did banks let people have mortgages which they never could repay? in Amerika.Off subject I know but these bankers supposed to be responsible clever people.Or is it all a con the creation of money.

[loafer123]

Dixy said:

Ok so if all the private individuals with deposit accounts that are paying sod all in interest withdrew all the cash and put it literally under the matters, as a protest, what would happen?

The banks would have a liquidity crunch, and the Bank of England would provide liquidity, until balance was back in the system.

No-one would lose any money, as the loans would repay the liquidity as they are themselves repaid.

[loafer123]

Foppo said:

loafer123 said:

Still more confusion over "creation" of money and reserves in item 3 there.

Banks may only have relatively thin capital in comparison to the money they lend, but that doesn't mean they have created the money they lend - they haven't - they have borrowed it themselves, either from despositors, or commercial paper, or through liquidity provided by central banks to encourage lending or many other sources.

So, Bill deposits £100 with a Bank. The Bank has £10 of capital. Bob borrows £100 from the Bank. Bob has effectively borrowed Bill's money, and the Bank receives and pays the interest in return for acting as the intermediary, with the £10 capital being the guarantee that keeps Bill happy. That is a bit simplistic, but will do for these purposes.

What the Bank hasn't done is press buttons, created money on a screen, and then lent it out, so there is only one Bill and lots of Bobs.

So if there are to many Bobs and not enough Bills the bank goes topsy turvy.Is that what happened with the financial crisis?But why did banks let people have mortgages which they never could repay? in Amerika.Off subject I know but these bankers supposed to be responsible clever people.Or is it all a con the creation of money.

Much bigger question. The simple answer is that banking became about writing loans, packaging them up and then seling the package on. No-one was in it for the long term, and the people who lent the money didn't have a long term interest in them being repaid.

At the same time, the amount of capital reduced to very low levels, meaning banks were borrowing huge amounts of short term cash to write more and more business.

Eventually anyone who could fog a mirror could borrow large sums.

Then losses started, slowly at first, until investors realised that so-called low risk instruments were anything but, then the financial world came crashing down as it all unwound.

[retrorider]

loafer123 said:

Much bigger question. The simple answer is that banking became about writing loans, packaging them up and then seling the package on. No-one was in it for the long term, and the people who lent the money didn't have a long term interest in them being repaid.

At the same time, the amount of capital reduced to very low levels, meaning banks were borrowing huge amounts of short term cash to write more and more business.

Eventually anyone who could fog a mirror could borrow large sums.

Then losses started, slowly at first, until investors realised that so-called low risk instruments were anything but, then the financial world came crashing down as it all unwound.

Known in the trade as securitization...

[loafer123]

retrorider said:

loafer123 said:

Much bigger question. The simple answer is that banking became about writing loans, packaging them up and then seling the package on. No-one was in it for the long term, and the people who lent the money didn't have a long term interest in them being repaid.

At the same time, the amount of capital reduced to very low levels, meaning banks were borrowing huge amounts of short term cash to write more and more business.

Eventually anyone who could fog a mirror could borrow large sums.

Then losses started, slowly at first, until investors realised that so-called low risk instruments were anything but, then the financial world came crashing down as it all unwound.

Known in the trade as securitization...

Indeed, RMBS and CMBS, plus lots of other less well known types, too...CLO, CDO, Conduits...

[anonymous-user]

loafer123 said:

I'm not really arguing with you.

Plenty of people think banks create out of thin air, but even those that try and explain properly get fundamental elements wrong or explain in overly and needlessly complex language.

FWIW I've had to explain this so many times now the simplest way I've come up with, without delving into reserve ratios and term liquidity etc... is to say; imagine there is only 1 bank and it makes loans using cash it has on deposit in people's accounts. Some buy a car, some buy a house, some buy groceries. All that money is paid into the house sellers account, into the car dealers account and into Tescos account. All the money loaned is deposited back at the bank that lent it, it's just in different accounts and the bank can lend it out again. The bank has created credit but it's not lending money that doesn't exist, just the same money over and over. 'Thats the same thing!', is the usual reply. Until it's realised that the house seller, car dealer and Tesco's arn't really depositing that money back in the bank but lending it to them. I know it's not perfect but the bit that people seem to struggle with IME is that most loans don't leave the banking system and many are loaned/deposited right back to the same bank.

[gumshoe]

fblm said:

FWIW I've had to explain this so many times now the simplest way I've come up with, without delving into reserve ratios and term liquidity etc... is to say; imagine there is only 1 bank and it makes loans using cash it has on deposit in people's accounts. Some buy a car, some buy a house, some buy groceries. All that money is paid into the house sellers account, into the car dealers account and into Tescos account. All the money loaned is deposited back at the bank that lent it, it's just in different accounts and the bank can lend it out again. The bank has created credit but it's not lending money that doesn't exist, just the same money over and over. 'Thats the same thing!', is the usual reply. Until it's realised that the house seller, car dealer and Tesco's arn't really depositing that money back in the bank but lending it to them. I know it's not perfect but the bit that people seem to struggle with IME is that most loans don't leave the banking system and many are loaned/deposited right back to the same bank.

Actually, at the core of it, money IS being created. Since all money is debt anyway, the bank is increasing the supply of money.

Bob deposits 100 into the bank
Bill borrows 100 from the bank

Yes Bill is effectively borrowing Bob's money, but the debt to Bob is still owed by the bank, and the bank STILL shows Bob as having 100 deposited with them. Bob can take that 100 at any time (in theory).

Bill has taken those funds and has 100 in his hand now. Ergo, money supply has expanded by 100.

That's why there are different measures of money, and you'll note that notes in circulation are FAR less than total money in the system.

Yes, banks do effectively create money. Most seem to misunderstand how though.

[anonymous-user]

gumshoe said:

Actually, at the core of it, money IS being created.

I was referring to the language 'out of thin air', usually preceded by something like 'banksters just create money'. Everyone can effectively 'create money out of thin air' by writing an IOU. Yes, the money supply increases, so yes I suppose money is created but this is extremely misleading because it implies banks can create assets from nothing and just make money appear in their accounts and if 2008 taught us anything it's that they can't!

[anonymous-user]

gumshoe said:

Bob deposits 100 into the bank
Bill borrows 100 from the bank

Yes Bill is effectively borrowing Bob's money, but the debt to Bob is still owed by the bank, and the bank STILL shows Bob as having 100 deposited with them. Bob can take that 100 at any time (in theory).

Bill has taken those funds and has 100 in his hand now. Ergo, money supply has expanded by 100

Bob leaves his car at your house
You lend it to bill

You owe bob a car and bill also has one. Bob can pop round any time in theory to pick up his car.

Bob is happy he has a car at your house and bill is driving round in one. You've expanded the car supply by 1 but have you actually created one?

Edited by anonymous-user on Tuesday 21st October 03:59

[GTIR]

Then Bob sells his car to Bill then Bill then lends it back to Bob if he wants to use it and still keeps it at Bob's friends house.

[BlackLabel]

" David Cameron has said it would be "lovely" for interest rates to remain at historic lows "forever" because it will allow families “to buy the homes they can afford”.

The Prime Minister said that Britain’s low interest rates are “good news” because it has made owning a home more affordable.

He agreed with a voter who told him that a rise in rates could make life “very hard” for homeowners. "


http://www.telegraph.co.uk/finance/personalfinance...