We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Samizdata quote of the day During the Middle Ages and Renaissance, Christians were not supposed to charge interest. Therefore, the most common moneylenders-to-kings were Jews. They could loan money at a profit, and were thus more likely to lend it.
But whenever the King’s debts got too large to repay, he began to demonise the Jews. And eventually came a pogrom. And hey-ho, the debt went away along with the Jews.
I’m seeing the demonisation of banks. I wonder how long before government throws a pogrom?
– Ellen Kuhfeld
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To be fair, the Jews cleared all debts and set free all slaves every 7 years.
The current financial system will bleed you for the rest of your life if it gets the chance.
I think there is a lot to be said for “Jubilee Years” in finance. It encourages responsible lending for one thing.
… but discourages long term lending, JadedLibertarian, and also discourages even short term lending in the year before the Jubilee year.
I believe that in Biblical times they did have some sort of work-around or get out clause that allowed loans longer than seven years to take place. (I read this somewhere but have forgotten where). All in all, I think that the Jubilee year was, like the Jewish dietary requirements, a custom that may have been beneficial in that time and place but which we should be wary of extending to our time and place. Responsible lending is best encouraged by removing the moral hazard of state bailouts and the like.
Not that I would have anything against some sort of non-compulsory Jubilee in which people made a special effort to be forgiving of debts, particularly when the debtor is the victim of circumstances rather than an irresponsible person.
I am also in favour of freeing the slaves 😉
Getting back to the original QotD, I think the recent US Department of Justice moves against Standard & Poor, obviously in retaliation for the downgrading of the US credit rating, have a little echo in them of the king positioning himself to move against the Jews.
1) Smited!
2) The link in this piece is a very nice one about Japanese anime but does not contain any quote from Ellen Kuhfelt, unless I’ve stared straight past it.
Consider the real value of the banking system to the support of the various political agendae, through debasement of legal tender resulting in non-tax revenue.
The banks garner in deposits (and business “balances”) which are guaranteed by the U S. But, what the guarantee says is that the depositors will get back nominal dollars, not adjusted for inflation.
Politicians spend creating debt, forcing inflation to ameliorate debt, thus paying off any guarantees with paper of less value than the original deposits, the difference having gone to political purposes.
Not likely to cause a “killing” or driving out of the banks which are acting as the gatherers of funds.
A further thought on the U S “Business Economy:”
Much is made of the “earnings” and “cash reserves” of businesses. If one projects out the coming effects of the debasement of legal tender that has already occurred, one would have to discount the ultimate value of those earnings and reserves. When it comes time to redeploy them as capital, they will acquire less as prices reflect the debased dollar (already begun, selectively).
No wonder Microsoft, Berkshire, and other solid earners are borrowing, creating debts to match large parts of their reserves, which will be repaid with the “new” dollars of lower purchasing power.
Answer, buy the borrowers, not the debt.
The link is to her site, the quote was one she left on Samizdata.
Hilarious.
Governments aren’t going after the banks. They depend on them to borrow into existence the counterfeit cash that keeps the gravy train rolling.
Banking is supposed to be an honourable profession. They are meant to accept savings which are to be shrewdly invested and the profits shared between banker and customer.
That is not what modern banks do. Many of them are talking about scrapping interest paying accounts altogether and charging a fee for investing your money and profiting from it.
The money is supposed to be shrewdly invested. It isn’t. It is increasingly in high risk investments.
The money is meant to be loaned wisely. It isn’t. Instead of start-up businesses with prospects, and young families on reliable incomes – the banks took to lending to chavs on benefits (especially if they had a mortgaged home). The cynic would say that housing boom inspired them to loan to people they knew could not repay in the hope of taking their appreciating-in-value homes.
And what do they do when all of these metaphorical chickens come home to roost? They go to the government for a handout.
These people are not bankers. What they are does rhyme though…..
He’s Spartacus,
Quite a likely outcome might be for the government to “make an example” of one or two prominent bankers in order to remind the rest who is boss. That has historical precedent.
However something that also has historical precedent is that kings and rulers start by wanting to do no more than demonstrate their power by punishing a few well chosen scapegoats but then find that the passions they have stirred up are no so easily sated. That way, even rulers who depend on the moneylenders can end up destroying them, for fear of the mobs they themselves let loose.
Not saying that this extreme scenario is an inevitable or even a particularly likely one – but it is far from impossible. Read the Guardian’s comment pages to see how virulently some people hate “banksters”.
JadedLibertarian,
I agree with much of your critique, particularly your just scorn for those who take the profits in the good times and then go whining for a bailout in the bad times.
However I must make one point in defence of the bankers in the US who lent to chavs, or whatever the equivalent American term would be. They did not just do this because they wanted to. It was not seen as profitable at first, and only briefly became so under the influence of the bubble it helped cause (to my limited understanding of these matters). Rather, the bankers lent to people who could never realistically pay back because of heavy government pressure in the form of the Community Reinvestment Act.
This is but one example of the way that government interference encouraged bankers to throw caution to the winds.
My understanding is the Muslims also have a prohibition against interest. If my facts are correct, they get around it fairly easily and directly. They charge rent on the money instead.
Oh I agree completely. But as the wheels start coming off, as they are clearly doing, guess who they are going to blame?
Natalie,
I believe that in Biblical times they did have some sort of work-around or get out clause that allowed loans longer than seven years to take place.
Not in Biblical times, but starting in the post-Biblical period. The Prozbul procedure was instituted by Hillel the Elder, allowing debts to persist beyond the Sabbatical year, specifically because the periodic forgiveness of debts was causing lending to be unacceptably constrained. The Prozbul is still used today by religious Jews.
Steve,
My understanding is the Muslims also have a prohibition against interest. If my facts are correct, they get around it fairly easily and directly. They charge rent on the money instead.
Not precisely, but correct in principle. There are a number of methods used, such as “mark-up” sales that simply increase the principle amount of a zero-interest loan in lieu of charging interest, or nominal investment partnerships that actually pay predictable “dividends” instead of interest. Rather similar to the medieval Triple Contract, which was used to evade the Christian ban on usury.
Most of these methods involve additional administrative expense. One article I read on the subject quoted an anonymous Muslim banker as saying cynically, “The cost to get into Paradise is fifty basis points.”
I am actually in the middle of writing a book on this very topic. If it ever gets finished, I’ll be sure to let you chaps know 🙂
Aargh, smited.
Thanks for the info, Mastiff.
Regarding the banks, I’m still trying to make sense of it all, but there also seems to be a strong link between the government and the banks.
Is there a kind of person who is a traitor to everything, even sometimes to themselves? George Soros, for instance?
It definitely seems to me there is a cross over.
The Fed in the US was established by the banks, is independent, but somehow is part of the state apparatus.
The Reserve Bank in South Africa is similar.
The BoE, I don’t know.
It seems to me that there is more to this than meets the eye, with no cheap conspiracy theories intended. If for no other reason that such a simplistic scenario could not survive over time.
Everything leaks.
There has already been the demonisation of fat-cat bankers, of course.
But I do get a strong deja vu sense of Tweedledum and Tweedledee engaged in an enrichment game at the expense of those outside the game.
How, for instance, can people go along with Keynesiansm other than by being deceived, or if they perceive the deception of the something-for-nothing, philosopher’s stone principle, than by being beneficiaries of the fraud?
It must be kept in mind the “bankers” we have today are people who thrived in the modern financial structure of the USA. Filled with regulatory requirements and prima facie bias for having a sensible lending method. “Good” bankers got the hell out and those who were left behind, who could play the Fed’s game, remained. It’s the dialectic behind the corpora-fascism we now have.
John B, throughout history there has always been “a strong link between the government and the banks”, if by “banks” you mean “sources of financing”. In the Middle Ages it was the Jews; during the industrial revolution it became the great merchant bankers (the Rothschilds, Barings, Vanderbilts, etc.); and in the 20th Century governments apparently became tired of being beholden to wealthy individuals and created their own central banks, which they could control (and which, in turn, could completely dominate the residual private banking sector). I think we can all see how well that has worked out. Frankly, I prefer the Rothschilds.
Laird, did not those merchant banks substantially become the government?
By banks I mean those who facilitate the cash flow.
Originally the goldsmith, I guess, who issued promissory notes to clients for the gold he held on their behalf.
I don’t think that’s entirely accurate, John B, although I guess it’s somewhat a matter of interpretation. Certainly JP Morgan never “became the government”, although he did more or less singlehandedly stop the Panic of 1907, and I’m sure he had an important influence on the secret Jekyll Island meeting which paved the way for the Federal Reserve Act (he wasn’t there, but one of his partners was). Undoubtedly the leading bankers in Europe (Barings, various Rothschilds, etc.) had significant influence upon their respective governments, but I wouldn’t say they “became” the government. In fact, in the US anyway, the Morgan bank was broken apart in 1933 by the Glass-Steagall Act, with its commercial banking and investment banking activities separated into unrelated companies. If they “were” the government they wouldn’t have permitted that.
I do agree with you about the goldsmiths, though.
“To be fair, the Jews cleared all debts and set free all slaves every 7 years”
Although this is written in the Bible, there is no evidence of this being practised, to my knowledge.
The jewish religious law of canceling debts and freeing slaves was not every 7 years but every 49 years (or 50 depending on interpretation)
http://en.wikipedia.org/wiki/Jubilee_(biblical)
this mitzvah did not apply outside the land of israel. its premise is a pre-commercial form of land ownership, under which land could not readily be sold but was ancestral property, rooted in tribal membership, as can be seen in the book of ruth
The problem is based on confusion of terminology. In fact, the bank doesn’t “lend” money any more than Hertz “lends” cars, and we’d all be better off if ol’ Lorenzo had made that clear in the beginning.
Regards,
Ric
Ric, while I agree with your economic analysis of the transaction, your terminology issue is just silly. You seem to be insisting that “borrowing” and “lending” refer only to casual, non-commercial (and uncompensated) transactions between friends. That’s an unnecessary limitation, and not supported by standard definitions. Compensation (or the lack thereof) is not a necessary element of the transaction, which merely refers to permitting another the temporary use of one’s property (or money) on the condition of its return, with or without payment. “Lend” is a term of art for the specialized “renting” transaction involving money. That’s neither wrong nor confusing.
Jetty,
While there is no direct evidence that the Israelites practiced debt forgiveness, there is considerable indirect evidence. First is the need for the Prozbul procedure which I mentioned above. Second is the fact that debt forgiveness was actually a very common political tool in the Ancient Near East, used by monarchs to rally popular support (often in the face of a foreign invasion). See Michael Hudson’s paper here.
Mike M,
Not quite correct. Debts were also canceled in the Sabbatical year. Properly understood, the Jubilee year was sort of a super-Sabbatical. However, indentured servitude contracts, while limited to six years, were not tied to the Sabbatical cycle and were only canceled during the Jubilee year.
Additionally, while it was part of a complex of economic laws including the restrictions on land alienation, the law of debt forgiveness is separable from them in principle. (It would not have its full efficacy, granted.)
Well…yeah…of course the animosity towards the bankers couldn’t have anything to do with the fact that the Bankers made 100s of billions of dollars of bad bets, the government bailed them out of their bad bets, they paid themselves billions in bonuses and then proceeded to assert the moral hazard of reducing the amounts owed by families on thier home mortgages. Unfortunately American families aren’t in the TBTF category. See this book review for example.(Link)
Since you’re talking Bible economics I think the more relevant story might be this:
Matthew 19:23 (NLT) “Therefore, the Kingdom of Heaven can be compared to a king who decided to bring his accounts up to date with servants who had borrowed money from him. 24 In the process, one of his debtors was brought in who owed him millions of dollars. 25 He couldn’t pay, so his master ordered that he be sold—along with his wife, his children, and everything he owned—to pay the debt.
26“But the man fell down before his master and begged him, ‘Please, be patient with me, and I will pay it all.’ 27Then his master was filled with pity for him, and he released him and forgave his debt.
28“But when the man left the king, he went to a fellow servant who owed him a few thousand dollars.l He grabbed him by the throat and demanded instant payment.
29“His fellow servant fell down before him and begged for a little more time. ‘Be patient with me, and I will pay it,’ he pleaded. 30 But his creditor wouldn’t wait. He had the man arrested and put in prison until the debt could be paid in full.
31“When some of the other servants saw this, they were very upset. They went to the king and told him everything that had happened. 32Then the king called in the man he had forgiven and said, ‘You evil servant! I forgave you that tremendous debt because you pleaded with me. 33 Shouldn’t you have mercy on your fellow servant, just as I had mercy on you?’ 34 Then the angry king sent the man to prison to be tortured until he had paid his entire debt.
Indeed, I don’t think you will get much of an argument over that in this here parish.
But I think you slightly miss the point: it is said people who bailed them out (i.e. the governmental class) who are starting to ‘demonise’ the very people whose behaviour they aided and abetted (and indeed in oh so many ways mandated).
Most of the anti bank rhetoric seems to come from the left (Labor/SDP). Maybe to divert attention from Labor, who maxed out the nations credit cards and now sit there saying how mean anyone who wants to try to pay some of the debt off is.
Mandated is indeed the word.
The governments (for example the British and American government) pushed the “easy credit” policy as much as they could – especially (in the American case) in the housing market.
And they are still doing it.
I question the accuracy of Ellen Kuhfeld’s pop history in the quote of the day.
Ms. Kuhfeld supposes the Medici family (and dozens of other Italian banking families) were Jewish? And the Fuggers died in a pogrom? Who knew?