They don't lend you money, they
don't really have it, they lend you their 'credibility' and sell you DEBT
Banks are an almost irresistible attraction for that element of our society which seeks unearned money.
J. Edgar Hoover 1895-1972
I am afraid that the ordinary citizen will not like to be told that the banks can and do create and destroy money. And they who control the credit of a nation direct the policy of governments, and hold in the hollow of their hands the destiny of the people.
Richard McKenna 1913-1964
- In 2005 Paddy buys a house from Mick for 500,000.
Paddy goes to the bank to borrow the full amount.
After talks, forms, negotiations, etc. Paddy finally gets approval from the bank to borrow the money, amortized over 30 years, with a ten year fixed rate of 6.5%.
As long as the interest rate remains constant over the whole 30 years of the mortgage, Paddy will pay 3132.02 a month, and 627,519 in interest (a total of 1,127,519 over 30 years).MORE THAN DOUBLE THE ORIGINAL LOAN
This amount however does NOT include any additional costs such as payment protection, etc.
BUT WAIT... Just a second.
In 2005, Ireland's Bank capital to assets ratio (CAR) was only 4.7%.
What is CAR? In layman's terms, the bank is required to have at least roughly 23,500 (4.7% of 500,000) in REAL cash or valuables, to lend you 500,000.
- That's right, the other 476,500 never existed, except of course, on paper, in 'Credibility' ( get it? credit... credibility).
In other words, "the bank 'was good for it' mate".
And poor Paddy is essentially paying a total of 1,127,519 plus fees and insurances over 30 years for the bank's measly 23,500 'and their good word'.
"We sometime didn't get enough to buy oats for our horses. Most banks had very little money in them."
Frank James, 1843-1915, Bank Robber, Jesse James Gang
- Did Paddy ever see the 500,000? No he didn't.
Did his solicitor? No they didn't either.
And my guess is they would not have the right to.
But what about Mick? Did he ever see the 500,000?
The odds are no. He would have the right to, after undoubtedly many red tape scenarios, delays and hassles. But the odds are, and the bank knows this...
It will rarely EVER be necessary to physically show the money.
So, in effect, the money doesn't necessarily exist.
- This all falls within parameters of FRACTIONAL RESERVE BANKING, and also of the Basel Accord which governs 'CAR'.
CAR, Capital Asset Ratio, is the percentage of how much capital the bank must actually hold ( in Paddy's scenario 23,500) in relation to its risk-weighted asset (the 500,000 loan).
Weights are defined by risk-sensitivity ratios whose calculation is dictated under the relevant Accord.
- While this hypothetical scenario may be rough, and possibly not 100% accurate, it clearly demonstrates to the layman, a very important principle to be addressed in our current situation.
Paddy only truly borrowed 23,500 in actual capital, the rest was in 'credibility', and since the banks have now shown they have little or no credibility, there exists a strong moral and ethical support in argument for adjustments... within Ireland itself and also in relation to Ireland's external debts.
Banks 2 continued ..HERE..
"Honesty is for the most part less profitable than dishonesty.
Plato, Ancient Greek Philosopher