Two more items to add to the

December 19, 2012 at 6:14 pm #86789

Keymaster

Two more items to add to the file.First, there was an article in yesterday's London Evening Standard by Anthony Hilton entitled "Peer-to-peer lending is here to stay" which opens:

Quote:

Travel agents put people who want to go on holiday in touch with tour operators and airlines who will take them there. Insurance brokers take people with vehicles they have to insure and find them companies willing to take the risk. Banks gather up the savings of individuals and lend their money to people or businesses who want loans. All three are intermediaries, and they come into existence because individuals could not easily learn about or get access to the services they needed other than by going through them and paying them a commission.

Peer-to-peer lending is not lords lending to each other. It's people with savings lending directly to people or businesses who want money without going through the intermediary of a bank. Note the way Hilton automatically assumes that banks are intermediaries that lend other people's savings.Second, is a report in today's Metro on a study by the New Economics Foundation which claims that the lower interest rates at which the Big Four banks can borrow money because they are considered as too big to fail (and so will be bailed out by the government) amounts to a subsidy of £34bn from "taxpayers". Actually, this is not really a subsidy but a notional figure based on what these banks would have to pay in higher interest on what they borrow if they were not considered too big to fail. Coming from the NEF (which has published a booklet Where Does Money Come From? which endorses the view thar banks can create credit out of nothing by a mere keyboard stroke), one of the criticisms they make of this is curious as well as revealing. Metro reported:

Quote:

Lylia Prieg, a researcher for the Foundation, said the figures hughlighted the 'privileged position' of the big banks. 'There is no good economic rationale for allowing over-sized banks to benefit from subsidised borrowing costs, as this encourages reliance of short-term and more risky funding instead of funding their activities with customer deposit,' she said.

So, when it comes down to it, the NEF accept that banks do need to borrow the money they lend, whether short-term from the more risky money market or from customer deposits. They can't have it both ways: arguing that banks can create money to lend from nothing and arguing that they have a privileged access to the funding they need for their loans.