You mean in trusting another human being to keep their money!?!?
This was the question asked by Maggie Gee yesterday morning on Start the Week (she shared the panel with Charles Calomiris, Harris Irfan, and Adair Turner). She was arguing that depositors should never lose money during banking crises, since such crises are caused by bankers taking excessive risks. But, she was asked, haven’t depositors also taken risks? To this, she replied, indignantly, with the question above.
It’s odd but true that the massive misunderstanding implicit in that question is common, not just among people who don’t care to know how banks work but even among people (like Gee) who do. Trusting another human being to keep their money. That’s what she thinks people depositing their money in banks are doing. She thinks, in other words, that when you give your money to a bank you retain ownership over it. The bank is just ‘keeping it safe’ for you.
According to the market researcher ICM, working for the Cobden Centre, 74% of people in the UK make this same mistake. They think they own the money in their bank accounts. But why would you own the money in your bank account any more than you own the money you hand over to the car dealer? In both cases you’ve given money in exchange for something you’ve bought. In one case, it’s a car you’ve bought; in the other it’s a promise – a promise from the bank to make payments on your behalf up to the value of your deposit.
Since caveat emptor applies when you buy a car, surely it should also apply when you buy a promise. In fact, it should apply much more. When you give your money to the car dealer, the car she gives you has to exist in some physical form. It can’t be made entirely out of promises others have made to her. A bank, by contrast, can meet its obligations to you using assets that it creates for itself when it makes loans.
The fact that people can sign up for this and yet think that in doing so they’re not taking any risk would be astounding if it weren’t patently clear that most people haven’t got the slightest idea that they’re doing it. Like Gee, they think that when they deposit their money into a bank the banker just puts it in some big box and keeps it warm for them.
What is annoying is that since people don’t even understand this about banks, they fail to see the big picture, namely that the SINGULAR AND ENTIRE PURPOSE of our current economic system is to channel wealth away from workers and towards a rentier class. I am sick of hearing people on the left complaining about this or that change to the welfare system, or this or that cut to some government program. What difference do those details make when every single moment a parasitic politico-financial sector is extracting rent from all of us? It’s like bleeding to death and complaining that somebody’s turned the heating off.
Once you realize that banks don’t ‘keep your money safe’, you start to realize that the truth is the reverse. It’s not the bank that holds money that somebody else owns; it’s you. Your money is on loan from the banking sector, which alone has the legal right to create it. For this ‘service’ ordinary firms and households pay interest, which is just unearned income paid over to rent-seekers who have produced nothing tangible at all. To afford this rent, firms have to raise prices and cut wages. Since it’s your wages getting cut, and prices for things you need getting raised, you get poorer. Then you have to consume less. This reduces the income of firms even more, so that they have to cut wages and raise prices more. The cycle continues.
Ann Pettifor’s new book (pamphlet?) Just Business includes some good examples. Did you know that the Glazer family of Tampa, Florida has extracted something like £1 billion in rent from Manchester United? Or should I say, from you, if you ever buy anything football-related. In this system, everybody gets poorer except the banks, those rich enough to speculate in assets, the lawyers and lobbyists they hire, and the politicians they bribe.
In no way did this have to happen. Gee gives the same impression as many ordinary Brits. She seems to be convinced that everything is the fault of a few greedy bankers rather than the inevitable result of a system of finance capitalism whose creation she and her fellow citizens happily allowed. The British people blithely voted in a series of governments that made no secret of their intention to completely financialize the UK economy and to give the control of both the supply and the price of money over to a rentier class.
Intellectuals did their part too. Orthodox economists (those whom Andrew Lilico says are ‘almost always right about almost everything‘) continue to propound the absurd theory that money and debt don’t play any significant role in how the economy works, so that the existence of an exploitative, parasitic monetary system can’t be a real problem. Paul Krugman, whom Nicholas Kristof recently praised as a rare publicly engaged academic, contributed to the public a model that explains how finance works. In his model banks don’t exist and interest rates are determined by bargaining among savers and borrowers. Selling the public dreams like that just blinds them to a reality they might otherwise seek to change.
Still, there’s no seller without a buyer. After the crash in the UK there stood for election three major parties. Each had a slightly different version of the same policy: to help out the process of debt deflation, which, without government assistance, was bankrupting firms, killing off jobs, driving people into poverty, and squeezing their few remaining pennies out into the pockets of already wealthy asset-holders at an unacceptably sluggish rate. Each party advertised its intention to visit as much pain as possible upon the most vulnerable in society. Society opted for the two that promised the most pain (I want to ask all those Lib Dem voters inspired by Vince Cable’s devotion to ‘reforming’ banking why they find it so preferable to be sucked dry by firms in one arrangement rather than another, or with employees receiving slightly smaller bonuses for the privilege of reducing us all to penury).
Frankly I don’t understand why bankers should be blamed for a system of exploitation in which the public willingly enlists itself, deliberately selecting the ugliest possible version. When they rub their eyes, stare into their empty wallets, and say plaintively ‘I thought I was just trusting another human being to keep my money’, it’s hard to keep a bit of contempt from diluting the pity.