Lehman Brothers Banking Collapse

 Posted by on September 16, 2008  Add comments
Sep 162008
 

What is money?

  21 Responses to “Lehman Brothers Banking Collapse”

Comments (21)
  1.  

    I’ll you what money was, in an oversimplified way then you can draw your own conclusions.

    Money / Cash, used to be a manifestation of a nation’s wealth. It was linked to the gold reserves of that nation. Hence, the more gold a country had in reserve, the more money could be printed and circulated. Hence the term “Federal Reserve”)

    In order to increase the supply of money (to pay for expensive wars for example, history repeating?) the printing of “Fiat” money was introduced (money which is not backed up by hard, precious metal) Now there were limitations to this, because (as seen in Zimbabwe) an unchecked introduction of notes and coins soon leads to hyper-inflation and the rapid devaluation of those notes and coins. So there is a device called liquidity ratios (which dictates how much of a bank’s deposits must be kept in cold hard cash by the bank) and interest rates (literally the price of money) which dictated who could afford to borrow newly created money.

    For example if I deposit 100 dollars and a bank is required to hold 20% in its vault, it is free to loan 80 dollars to someone else. Therefore 80 dollars has been created, essentially from thin air. The person who borrowed the 80 dollars, spends it, the person who he spent it with deposits it, the bank has to keep 16 dollars of that and is free to loan another 64 dollars. This is known as the multiplier and gives rise to the theory of wealth creating wealth. It is also a reason why we are encouraged to “Buy Irish” as if we buy a japanese stereo with our 80 dollar loan, that 80 dollars goes to a japanese bank (eventually) and then the japanese economy can create that 64 dollar loan.

    Now however, GW is like a kid with a photocopier, need 11 billion to give to AIG? no problem, need a few trillion for a few banks, no problem, sure we had the presses warm from printing the blocks of dollars that we ship to Iraq and eventually lose track of.

    The US is not the wealthiest nation, although it is creating paper wealth at a shocking rate. It is the most powerful ecenomy, and at this moment, the most fucked.

  2.  

    Rob – interesting post, I could never understand that stuff. Economics always beat me, couldn’t get my head around the concepts. Bohr orbits and Planck’s constant were much easier, but I finally settled on Denning and Vandervell’s case.

    On a point of info – when were you last asked to buy Irish? That campaign, and Guaranteed Irish etc, fell foul of EU competition law and was scrapped many years ago.

    http://www.kevinboone.com/lawglos_BuyIrish1982.html

    f2

  3.  

    This is true bolted, but you can still see the “Guaranteed Irish” symbol on certain items. The campaign is gone, but it now implied rather than promoted. I was just trying to explain why imports are bad for an economy and its money supply, interest rates and inflation.

    I find quantam physics incomprehensible. Were I in charge of Schrodinger’s Cat, you could rest assured it was dead, therefore undermining the experiment..

  4.  

    Here is documetary that explains it very well. It’s aound 2hours long but it’s easy to follow and explains exactly what money is. Or rather isn’t.

    http://video.google.com/videoplay?docid=-9050474362583451279

    It’s called Money as debt. That about says it all

  5.  

    It’s also worth noting that the “Federal” Reserve is about as federal as Federal Express. It’s a privatly held bank started by the Morgans, the Rockafellers and their pony
    Woodrow Wilson in 1913. The act was never ratified by the necessary number of states and so is technically illegal. But try saying that to the IRS (another private agency based out of Porto Rico)

    For more check out Aarron Russo’s excellent documentary America: Freedom to Fascism

    http://video.google.fr/videoplay?docid=-1656880303867390173&ei=DWTPSIqQHZuW2AKsw6TSAg&q=freedom+to+fascism&hl=fr

    Somebody needs to tell Willy Nelson…

  6.  

    Money is a dream. It’s nonsense that works because we all buy into it, and having bought in we cannot easilly leave it behind. As Rob says it used to be something concrete, coins of valuable metal. Even then monarchs would raise money by debasing the coins (drop the purity by, say, 10% to put 10% more into circulation). Now money has become an abstraction and the wealth of a nation resides (theoretically) in the productivity of it’s serfs population, which is ensured by debt. It’s just a fucking dream of social mobility, bettering ones lot. But you can bet that the social position you aspire to will be ..just…out..of ..reach. Oh, and like sex, it becomes most important when you aren’t getting any :-)

  7.  

    A good post Rob.

    My response to “What is money ?” is that it’s an instrument of the State. A small part of a larger machine that keeps everybody in check – nicely alluded to by Thriftcriminal.

    Incidentally, it sounds like if you were in charge of Schrodinger’s (albeit dead) cat, it would bounce and everyone would sell their shares ! ;-)

  8.  

    Without getting all Marxist about it money is capitalism’s flotation device.

    Money is the essence of commerce, it empowers bodies corporate at the expense of the person and humane society.

    It distances a person’s ability to feed themselves by aggregating food production as a form of industrial, regional output, further and further away from the ‘consumer’.

    It conditions humanity to accept life as a series of commercial transactions. It is instrumental in creating a set of values which commodify nearly every aspect of human existence.

  9.  

    Real wealth or money only occurs when people make something that adds value. Bits of wood into furniture for e.g. I think all the rest of the hokum in our fair land and throughout the world, rests on this. Without added value we have nothing. All services, public or private rely on this, yet somehow manufacturing is kind of sneered at, in this country where image is everything and substance devalued. Thanks Rob for economic post.

  10.  

    I’m not sure money and wealth are the same thing.

  11.  

    Bock: Spot on, money comes into our posession and leaves almost as quickly, wealth is another matter altogether. Money lubricates commerce, wealth is not a dream, but hard assets and influence that can be wielded.

  12.  

    Beer of course.

  13.  

    There’s nothing wrong with money as such. It allows you to get away from the barter economy, into division of labour etc.

    The problem is not keeping an eye on the shysters who exploit the system for their own gain and put everyone else at risk.

    That’s the broad picture.

    The details get a bit more complicated but if you keep the broad picture in mind and act on it you’ll be OK and better off.

    Unfortunately, lots of people, and many of those in positions of trust and power who are supposed to be looking after our interests, can’t resist the temptation of the fast buck. And they are often not prepared to admit they don’t understand things like derivatives which eventually become gambling brought to the limits of insanity.

    Pride comes before a fall. They are proud and we fall. Look at the mess Bertie left after him when he sailed off leaving First Lieutenant Cowen to get the ship off the rocks.

    You’d laugh at them if you weren’t crying for yourself and yours.

  14.  

    But what is money?

  15.  

    It’s an IOU more or less backed by the State. I mean money and not just cash.

    It’s based on trust which is why it needs to be regulated.

    The present situation is essentially a breach of trust and a failure of regulation.

    In economics it is a store of value and a medium of exchange but getting into this morass at this stage will simply obscure the issue.

    The regulators have failed in their duty of care.

  16.  

    But what is it an IOU of?

  17.  

    I think money is the power to grant wishes.

  18.  

    the power to grant wishes

    If you mean the power to print money to finance the Vietnam or Iraq war you are correct.

    But only in the short term. The chickens do come home to roost.

    But what is it an IOU of?

    Ultimately, goods or services to the value of the money, from somebody, and this overseen by the State/Regulator. If you get too far away from this concept you are in trouble.

  19.  

    That’s what I think too.

    It’s a shaky enough notion anyway, and when governments and major banks start messing with it, the whole thing loses credibility.

  20.  

    QED!

  21.  

    I’ve never fully understood what investment banks do and I’m not interested in the theory of economics. But I heard a reference this morning to the likes of Leyman Bros “betting on interest rates” among other things. For heaven’s sake. These people are getting filthy rich by *betting* on figures on a computer screen. It’s insane. And when it goes wrong somehow the whole bag of shit makes its way, eventually, down to us.

    I swear I’d go back to barter in a shot. If you think about it, you’ll find you have lots to barter — things you can make or services you can offer.
    (No cracks about services please.)

    PS – Thanks Rob, Benny. For elucidation.

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