50p tax rate - perception or impact

[Jeremy]

Who know's what's right for the community? You'd hope the government would have a reasonable idea. Avoiding tax certainly isn't a good start, but alas it is the norm.

It really is a shame that you think of taxation as robbery. And it's a shame there are people who don't value the welfare state, to the extent that they choose to opt out by moving to an authoritarian state thousands of miles away. We're never going to agree on this one...

[StraferJack]

"you can think of no other way out of this impasse than 'people who have money cough up before the whole market crashes good and proper' "

it's true - I can think of no other way. And neither can you. Your efforts so far have been pretty poor, as I've pointed out in my last post. Your idea is for people to "make money" to raise the tax take that way - and you completely ignore the fact that people who want to do that are going to the wall day after day

so now what?

[Huguenot]

Jeremy you can f*ck right off if you want to claim that I moved to Singapore to avoid tax or the welfare state.

You have no f*cking idea why I make the choices I do, nor do you know how I contribute to the community.

With that piece of pointless, gutless abuse from Jeremy I'll find better ways to spend my time than listening to cocks.

[DJKillaQueen]

On this point I do agree with H, that facilitating job creation is better than shrinking an economy through cuts or increased taxation, but it's far easier said than done....especially when debt remains the core powerhouse of that economy. And given that when cashflow ceases, the factory and the resources to operate it don't misteriously disappear too! What is wrong with us that we give money (and ultimately the banks) all this power to shut things down?

"a system that rewards the few and enslaves the rest" .....Oh please. What bollocks. Modern UK has no idea what slavery is, people coming out with that should get around more.

I was talking globally, however you don't think that unnaffordale mortgages are not a form of enslavement? The increased cost of living is not a form of enslavement? The need for money itself in a world that has enough resources if they were used correctly to house feed and cloth every human being on the planet should be questioned. We are not economic in any true sense of the word. Again a different debate perhaps.

Of course I see pecking orders, but human nature is learned not born. There are examples of tribes that have lived in self sufficient communities without crime and pecking orders. So human nature can be nurtured that way too. It's a constant debate the nature vs nuture one between geneticists and psychologists and one I am very familiar with. If we reduce inequality we will also reduce crime and mental health issues. Every single piece of data in the world supports that theory. There is nothing good about a free market that promotes individualism and absolute profit, in that respect. It's nothing to do with tyrany or revolution. You need to get away from the idea that someone has to be in charge, or always will be in charge. Communities can collectively organise themselves without the need for any self appointed leaders, and where they do rely on leaders, it should never boil down to who has the most money. We live in a world where power is bought...and even you H should be able to appreciate the destructive nature of that.

SJ one of the terrible problems we have with a fractional monetary system is that there is never enough money in circulation to cover the outstanding debts. It's a really bad system to be operating under.

[DJKillaQueen]

And what do you think is more likely to create a market crash than taking the cash out of it and bunging into government?

I'd say that printing money that doesn't really exist, inflating it by loaning it to several times of its value (yes banks truly do not have assets to cover their loans) are what we should be worrying more about H. Taxation didn't create the recent financial crisis. You are focussing on the wrong fiscal triggers if you want to examine what causes the majority of economic crisis. If I want a loan I need collatoral. The Bank that loans the money to me needs nothing. That's why in a crash suddenly all this money disappears.....because it never existed in the first place. It was just a figure on a piece of paper created out of nothing. A bank can loan out a deposit to ten times of it's value. Let's regulate that kind of practise if we really want to create a more stable global economy under this system.

SJ is absolutely right. Thousands are going bankrupt everyday. And why? See above.

[StraferJack]

Not sure I agree with most of that DJ

Whilst I accept there are communities and tribes that may collectively organise themselves, there is much about the modern world which I would be reluctant to give up, just so we can live like tribesmen (and that is what you are effectively saying)

The driver of most progress requires the current banking system and when it works it works well ? but when it seizes up, the current winners need to accept their responsibilities in the scheme of things. It?s not really that hard to figure out ? it just involves a small number of people accepting short-term pain for long term gain. Heck, it should already be in their DNA

[Jeremy]

Huguenot Wrote:

-------------------------------------------------------

> Jeremy you can f*ck right off if you want to claim

> that I moved to Singapore to avoid tax or the

> welfare state.

>

> You have no @#$%& idea why I make the choices I

> do, nor do you know how I contribute to the

> community.

>

> With that piece of pointless, gutless abuse from

> Jeremy I'll find better ways to spend my time than

> listening to cocks.

It was a low blow, I admit. But I do personally know people who have moved to Singapore or Hong Kong specifically to avoid tax. If you had other reasons, then I apologise.

But your statement "who can I rob to fill it again" to me strongly implies a dislike of taxation in principle. It riled me. And it is natural to make assumptions about people based on what they post on here.

Being abusive to underline a point is a popular tactic amongst some posters on here, but I do not consider myself to be one of them, so I will try to refrain from doing so in the future.

[DJKillaQueen]

I'm not saying we should live like tribesmen at all SJ, although it could be argued that we do still live in tribes - defined by class, or status, culture etc.

Technology will still evolve. After all...how many engineers, scientists and creators do you know who are obsessed with profit. On the the whole they are not, obsessed only with forwarding innovation. What I'm talking about is attitude and personal greed. I don't think most people are fullfilled by their greed anyway (i.e. nothing is ever enough). Resources are a finite thing. They don't disppear just because the financial institutions implode.

Part of the problem is that we are so entrenched in this way of life that it is hard for most of us to be able to imagine something else.......but I think it could start by shifting the idea of working for yourself to working for your community, country, the world. But I'm not sure such a large scale shift in thinking is likely to happen until forced on us...so a realist in that respect and pesimistic for the future of our world as a result.

I don't think the current banking system ever works well. I think when it works it works for the few, not the many. And how can it? It is a self serving institution. And like politicians, it doesn't really create anything. Inventors, scientists and visionaries are the people who create things. Politicians destroy countries and ivade them and then award lucrative contracts to repair the destruction to their own muti-nationals - see what I mean? It's a reference to iraq but it could be so many countries before her. And the ordinary population are effed in all of this. America spends more money on fighting terroirsm and econmic espionage than it does on fighting heart desease for example, even though heart desease kills far more people than terrorism.

What's required is a shift of power from economists, politicians, the federal reserve and the multinationals whose pockets they are in. But it's never going to happen and they will fight tooth and nail to preserve their status quo.

Right, I will return to this thread later.....have to go and do stuff :D ......but it's warming up nicely for a good debate I think!

[Senor Chevalier]

So DJ, when you get back from your "stuff" you can perhaps help me reconcile your various comments in this thread:

Access to loans/debt is restricted to the richer in society

People are enslaved by their mortgages... (aren't these cheaper than ever?)

Banks should not be allowed to lend without greater capitalisation

I'm confused. Are you saying that banks should make fewer loans, whilst lending more, without enslaving people through debt?

I do think we need to return to an old fashioned model of banking through a larger number of smaller banks / building societies within which judgement can be made by individuals as to which potential borrowers represent a good risk. They can then operate their business as they see fit, operating for profit or their members, lending to people with a sound business plan or with sufficient collateral.

Rather than the automated, tick box, call centre, shrink-wrapped model of banking in the main operates today which is designed to deploy products in large volumes, but lacks judgement and falls over when someone can't tick all the boxes and misses systematic risks when all the boxes are ticked.

[DJKillaQueen]

I'm saying banks should not loan money they don't have, which is what happens at the moment as banks are only required to hold 10% of any deposit in reserve. So a ten million pound deposit can become 90 million in loans as each successive loan is deposited. The bank doesn't have the other 80 million...it never did...it's one of the biggest cons of the fractional monetary system. Ironic then that a bank can loan you money without any collateral to offset against it but can take the home you borrowed that money for after a single default.

I whole heartedly agree with your view on a return to local banking. I think that would definitely be a step in the right direction.....but it won't happen because it will compromise profits.

Loans and debt should be restricted to those with a realistic chance of paying them back. That is not the case at the moment. Credit cards that for example allow people to only pay the interest...how is that ever a good idea? It works for the bank because it maximises the income they make on the debt of course but for the consumer it's a poor deal.

Mortgages are cheaper than ever in order to keep the over inflated housing market bouyant....and for no other reason. It's a discussion that's been had many times in this forum with regards to the various ways in which banks and mortgages lenders have insulated the housing market from normal market forces. But mortgages are just another form of debt. You don't own anything until you've paid off every penny plus interest. And what is the point of a cheap mortagage when house prices are increasingly beyond the reach of growing numbers of people?

[Senor Chevalier]

Banks take the money that is deposited with them (which they do not own) and lend it to others at a premium allowing interest to paid on deposits and their operating costs to be covered. If they were only able to lend what they had (their equity) then debt would be incredibly expensive. And then what would banks do with deposits - lock them in a vault and charge depositors for safe custody? Or should banks not take deposits?

I don't think that's the answer. Banks should be allowed to operate their business model as they see fit. Their leverage ratio should be published so consumers can determine whether they are a safe pair of hands. In accepting that Banks do take some risk then they should be capable of failure without systematic upset.

As for step to local banking. I have been trying to get a mortgage for a slightly unusual property (self-build) and have given up on all the big banks as they were hopeless despite speaking to the call centre, relationship manager, underwriter, mortgage specialist etc ad tedium. I have now ended up dealing with a small Yorkshire-based building society and when I call them the person that picks up the phone (or their colleague) are the people dealing with the application and able to make a sensible judgement on the merits of the application. It's amazing - I say hi it's me again, and we get straight down to it without some ridiculous pets' maiden name identity check. A very refreshing experience and a reminder that in all the progress in banking services we've actually taken a retrograde step.

Banks will continue to focus on profit as you say, but consumers can as ever vote with their feet...

Oh and the 50% tax rate should be dropped as discussed above... in fact the whole tax system should be overhauled and simplified to balance some key principles:

Maximising tax revenue

Seeking an equitable distribution of tax burden (balance between taxing income, wealth and consumption)

Ensuring that tax rates are consistent between different forms of income or capital growth

Ensuring taxation is progressive without discontinuities

Minimising complexity and overhead of operation

Ensuring that work always pays

Having regard to competitive position vis-a-vis other countries

Frankly they should be able to get it all down to a few pages of A4.

[DJKillaQueen]

But they loan up to ten times more than what is deposited - that's the problem. That's why in a crash money suddenly 'disappears'...because it never existed in the first place. What other business can magically invent money this way? It would be fine I think if interest or profit on investment were the only method of making money banks use, but it's not. As result there is more debt in the global economy than there is money (or the equivalent) to cover it (up to ten times more). It's a facinating business model, which is inherently inflationary (inflation just being another form of tax really), drawn up by the Federal Reserve (have a read of 'modern money mechanics' published by that Federal Reserve for example).

There is an inverse relationship between the supply of money and the value of money, so the more you inflate the pool of debt....the lower the value of any money already out there. It's a myth to say that more money in the system creates wealth because most of it is debt and the money that really does exist is devalued as a result.

When the USA for example, reintroduced the fractional reserve banking system in 1913 (after it's predacessor had been abolished by President Jackson in 1835, to return America back to being a debt free nation) $1 equalled $1 in value. In 2007 $1 in circulation needs ?21.60 to match value. That's a 96% devaluation in value of the currency. Is it any wonder we are now seeing wealthier economies beginning to collapse.

Surely there has to be a better business model than that for a monetary system. Of course there is, but the banking institutions are never going to be interested in anything that makes them work harder for their money, or makes them relinquish the absolute power they hold on our entire economy, a power that subconsciously holds governments to ransom and imo is a greater debaser of democracy than any tyrant or dictactor out there.

So I can't agree that banks should operate their business model as they see fit......and recent events (regarding sub prime lending and derivatives) should more than anything be a perfect indication of that. Who did the government borrow the money from to bail out the banks for example? It's a game of roulette the banks can never lose as things stand.

But you do make some good suggestions. Detailed publication of the operation of banks should be available and customers need to be better informed of how banks operate and the potential consequences of their business models. After all, the biggest threat to a bank as a business is a run on it by it's depositors. And we should be able to let banks fail when they go bust (just as with any other business) as well. If they face that kind of pressure they'll soon self regulate.

The personal banking thing is I think important. Most customers feel valued if they can build relationship with a service provider. Most banks though don't want personal relationships with their customers. It's all just about numbers. And that I think is what fuels most people's disdain towards the banking industry, more than any perceived profiteering and greed.

And I couldn't agree more with you regarding overhualing the whole tax system. Most people beyond income tax and NI have no idea what they are really paying in tax and the number of loopholes and complexities create anything but a fair and progressive system.

Edited to add....that it really does matter what kind of monetary system we have banks operating under. The world banking institutions are in the hands of a tiny percentage of the globes population. When they mess up, the consequences are dire for billions of people. We can not have so many at the risk of the actions and decisions of an unchallenged few.

[Senor Chevalier]

I think you've lost me.

Banks can only loan money that they have to lend, whether it is their own funds or it is money that has been lent to them by depositors etc. So how can they lend 10x what has been lent to them? Where would the money come from?

The loans they can make are funded by deposits and the banks' own equity. Because they on-lend the majority of deposits, they are also exposed if depositors suddenly ask for their money back and the loans they have made cannot be called.

Banks can also borrow money by issuing debt and borrowing from each other rather than taking retail deposits, but it is broadly the same.

The assessment of bank risk in my mind is a function of:

1) how much of their own money is in their lending pot, versus deposits etc.

2) the quality of the borrowers on the loans they have made

3) the mismatch in term between deposits and loans, e.g. all deposits are instant access whereas loans are long term

I don't see any lending 10x what they have been lent magic cash creationism in the business model.

The recent problems occurred when some of them pushed (1) too far, i.e. had almost no equity buffer and funded themselves almost entirely with debt, and when (2) they ignored creditworthiness of borrowers so that some loans made had little prospect of being repaid.

[Loz]

SC - Watch this

- it'll show how the fractional reserve banking system works.

[mockney piers]

There are some very odd misunderstandings there DJKQ, not to mention some conflation in the roles of retail and investment banks.

There's nothing intrinsically wrong with what banks do, it's just with laxer regulation and a misplaced trust in the number crunchers, they've had much riskier operating models.

If it wasn't for the fractional reserve system we wouldn't have the modern world frankly, it really is money that makes the world go round. After all, many of the failed businesses due to the recession failed because of the credit crunch, ie the banks reluctance to lend money meant they couldn't get the short term loans needed to operate their businesses.

The 'disappearing money' wasn't anything to do with the fractional reserve system, that's all accounted for, it's to do with the market driven downward pressure on the values of the investments,ie shares,funds and to a much lesser extent, bonds.

----

If you want to do some good in the world, democratise and take out the middle man in the whole lending and borrowing game using a non fractional reserve lending model then you can do worse than take part in this worthy project and lend some of your hard earned cash to those who need it rather than dump it in a bank for some computer programme to determine who will get it for their buy-to-let mortgage ;)

http://www.kiva.org/

[Senor Chevalier]

Thanks Loz - had a feeling I might have been missing something. Here's the bit I now still don't get. How does this power to "create" paper money fall to individual banks? I mean say I want to take out a mortgage of 100K. Barclay's can't just print 100k and hand it to my vendor can they? I guess they borrow that cash from another Bank using my mortgage as collateral until eventually the chain in effect leads to borrowing from the bank that takes the deposit that my vendor has made from the sale proceeds.

I think I'd better pipe down and leave it to the grown ups until I've digested a few more of the cartoon guides...

[DJKillaQueen]

The reserve bank creates the money in return for governemnt bonds. Commercial banks then expand the money through loans and the fractional reserve policy...which is 10% of the value of the loan. So a bank can loan ?90 for every ?10 deposited whereas you and I, can only loan ?10 if we are given ?10. That's how it works.

Just to illustrate....

You deposit ?10 into the bank. Now it can loan that ?10 to someone else and charge interest. When it makes that loan, the rules only require it have ?1 of that ?10 in reserve. So after that intial loan of ?10 to someone it still technically has ?9 it can loan to the next person...and then ?8.something and so on.......that's how money is created that doesn't intitially exist. In other words, it's loaning you money it didn't have until you pay the loan back.

[DJKillaQueen]

The mortgage issue is an interesting point Senor. In 1969 someone in America facing foreclosure argued in court that the money loaned to him by the bank had no collatoral in reserve to cover the value of his home....and the judge and jury agreed with him.

[DJKillaQueen]

I'm probably several posts behind when I post this (internet connection problems today).

I don't in essence disagree with your points MP but I do think we need to restore regulation to make the banking institutions more accountable than they are and to stabilise the propensity towards recurring crashes. And given that the US Federal Reserve is the Powerhouse of the IMF and World Bank it should be perfectly possible to bring about global change without too much difficulty....but the will isn't there because the focus of those running it is in a different place to what the world really needs.

Where I disagree though is in that fractional reserve banking is the best system and we should thank it for everything we have - most people in the world have nothing or very little it has to be remembered.

As you may already know MP, during the civil war President Lincoln turned down the high interest loans offered by European banks and wanted to create an independent and debt free currency called the Greenback. He introduced the currency. Shortly after, in a secret document in 1862 written by the European and US banking institutions, they wrote 'slavery is but the owning of labour and with it carries the care of the labourers. The European plan is that capital shall control labour by controlling wages. This can be done by controlling the money. It will not do to allow the Greenback as we can not control that'. This is the premise under which the fractional banking system was pushed, to indebt.

The same resources still exist whatever system we have and knowledge and innovation have nothing to do with money anyway. Man didn't need a fractional reserve system to invent the wheel anymore than to discover penicillin.

I think what offends me really is the pursuit of profit over wellbeing, rather than the system, because I think in that it is far easier to identify the destructive consequences. A good example is in the manufacture of goods. Goods are purposely designed to fail so that a constant consumer market exists. A constant argument is that we need that consumer market to keep people in jobs making the stuff and in turn to earn the money to buy the stuff.

But if things last as long as they can and tenchnolgy wasn't dribbled out bit by bit to keep us upgrading then the cost of living would be lower and we'd have to work less anyway. The technology already exists to replace something like 90% of all jobs....but in this system it would be economic suicide to use it. We will eventually run out of mined resources and what then? We'd better figure out something.

There are tons of examples of how production, distribution and costs of food fuel etc could be far better managed but the prevailing economic systems don't want any of it and I can't thank them for that.

[Jeremy]

DJKillaQueen Wrote:

-------------------------------------------------------

> You deposit ?10 into the bank. Now it can loan

> that ?10 to someone else and charge interest. When

> it makes that loan, the rules only require it have

> ?1 of that ?10 in reserve. So after that intial

> loan of ?10 to someone it still technically has ?9

> it can loan to the next person...and then

> ?8.

Maybe I've misunderstood, but I think you're slightly confused. If a bank has total deposits of ?10, it can lend out a total of ?9. If that ?9 is paid into another bank, then the second bank can lend out ?8.10. etc.

[DJKillaQueen]

Yes and no. What you have to remember is that when a bank gives you a loan...nine times out of ten it pays it into the account you hold with the bank making the loan to you.....so it is in effect the same bank perpetually loaning out that initial new deposit.

So it goes like this. You give me ?10 to look after....and I loan ?9 of it to Mockney. He then asks me to hold his ?9 too, so I then loan out ?8 to Loz. But the day after Mockney deposits his ?9...he needs to withdraw it to spend it on whatever he loaned it to pay for in the first place. Now technically I have a problem...because I only actually have ?2 in real money because Loz now holds the other ?8.....unless of course he asks me to hold onto it for him. But if Loz deposits the ?8 then after Mockney's withdrawal I would have no physical capaital over ?2 to loan. That's how it would work for a street money lender, and that's why money lenders need to get repaid on time.

But somehow the banks are able to get round this....and the reason they can get round it is because although the currency that they are loaning doesn't physically exist, as keepers of the currency that doesn't matter - so long as the system keeps turning over. And protection of that system is exactly why they work together, do business with each other and so on. It's a bit like a cartel in some ways and one that is too powerful to challenge, and the pursuit of money and profit is the only reason they are in business for. Everything they loan is based on one thing only....the figures in the deposit column, but as demonstrated above those deposit figures do not have any relationship to the money that really exists. And it's also why they are so easily able to write off bad debt.

Edited to add an interesting stat. Something like 98% of all transactions are now done electronically in the US. Only 3% of the nations money on paper actually exists as hard currency. This suits the banking system perfectly.

[KidKruger]

My understanding is that banks / institutions lend cash to each other via the money markets at a rate better than the man on the street can obtain, this can then be lent on at a margin. These tranches of borrowing back-up (and in a large way form the basis of) the products available to the retail customers/borrowers at that time.

Deposits may form part of the funding for a bank's lending but I don't think they are the 'only basis' for lending.

Just my view / what i understood.

[Senor Chevalier]

The simple examples work well when everyone who borrows puts the money back on deposit in the same banks. In reality people borrow because they need the money for something. But I guess the argument is that inevitably the money ends up in one bank or another sooner or later and the interbank lending system (when it works) is supposed to glue it all together and keep the merry go round turning.

In any case, in all these examples, even though money is borrowed deposited and re-lent several times, the total amount of borrowing is equal to the total number of lending is it not?

So we are back to a system that would work as long as banks maintained their equity capital ratios and were judicious in who they lend to. The other issue is the systematic accumulation of risk as assets are lent and relent a number of times especially where asset values are highly correlated. But again if banks equity capital is high enough and if banks were able to fail and had to compete for depositor cash by dint of their creditworthiness (or pay materially more for FSCS membership) then surely things ought to get better over time...

[KidKruger]

I don't know if there is something in place for banks but in the insurance world (well, Europe at least) the Solvency II reporting obligations will go some way to ensuring that those types of organisations are (or say they are) adequately capitalised against minor, medium and major (like once every 200 yrs) incidents where the drawings on policies will need that money to be available and liquidisable (!).

I would have thought there's something equivalent for banks, doesn't Basel II/III go some way in that respect ?

[Senor Chevalier]

Yep supposed to. Problem is how you set the level of capital requirements so as to be achievable without putting too many banks out of commission and without causing debt costs to soar hurting Joe Public.

In any case, whatever level of safety is built in to the system, the correlation between risks in the system (e.g. asset values) means that capital in the system can easily be eroded when things turn (as would be the case now if bank loan assets were all revalued at a market rate).

Regulation of this sort should only have an effect on banks too irresponsible to operate a prudent business model off their own volition and transfers responsibility from banks to regulators. If banks have to compete for deposits and are allowed to fail if they get it wrong, then operating a prudent business model becomes a necessity rather than a constraint to be structured around by financial innovators who will always find a way to arbitrage regulatory models.