[P2P-F] Bill Black at #Occupy L.A. video
Thomas Greco
thg at mindspring.com
Sat Nov 12 14:21:03 CET 2011
Michel,
There has been a lot of poor design and execution, but I know of no
significant fraud that has occurred within the local currency movement
in this country. There was some in Argentina at the height of the
financial crisis there when people jumped en masse into the "social
money" movement. Sergio and I wrote a report on that back in 2003.
Basically, a few people ripped off the system by a combination of fraud,
malfeasance, and stupidity. The key to preventing that is transparency
in operations and participants who are vigilant and knowledgeable enough
to spot problems before they get out of hand.
There have been a few shady operators in the commercial barter industry,
but they have mostly fallen by the wayside as businesses do in a
competitive environment.
Regarding the "free banking" era in America, none other than Alan
Greenspan had this to say:
While free banking was not actually as free as commonly perceived, it
also was not nearly as unstable. The perception of the free banking era
as an era of "wildcat" banking marked by financial instability and, in
particular, by widespread significant losses to noteholders also turns
out to be exaggerated. Recent scholarship has demonstrated that free
bank failures were not as common and resulting losses to noteholders
were not as severe as earlier historians had claimed.
Read the entire speech, below:
*Remarks by Chairman Alan Greenspan
/Our banking history /
Before the Annual Meeting and Conference of the Conference of State Bank
Supervisors, Nashville, Tennessee
May 2, 1998 * The theme of your meeting this year--Back to the
Future--made me think about how much the past tells us about the future
or, put another way, how much we can learn by, in effect, reading the
minutes of the last meeting. In this period of accelerating change in
the complexity of our financial structure, and a sharp uptick in the
size of merged firms, the uncertainty of where we go from here is
helpfully served by reviewing how we got here. For bank supervision,
reflections about our banking history also highlight the extent to which
our supervisory policies mirror the infrastructure and political
decisions that create the framework in which banks operate.
No matter how regulated and supervised, throughout our history many of
the benefits banks provide modern societies derive from their
willingness to take risks and from their use of a relatively high degree
of financial leverage. Through leverage, in the form principally of
taking deposits, banks perform a critical role in the financial
intermediation process; they provide savers with additional investment
choices and borrowers with a greater range of sources of credit, thereby
facilitating a more efficient allocation of resources and contributing
importantly to greater economic growth. Indeed, it has been the evident
value of intermediation and leverage that has shaped the development of
our financial systems from the earliest times--certainly since
Renaissance goldsmiths discovered that lending out deposited gold was
feasible and profitable. But it is also that very same leverage that
makes banks so sensitive to the risk they take and aligns the stability
of the economy with the critical role of supervision, both by
supervisors and by the market.
*Chartered Banking (1781-1838)*
At the very beginning of our banking history, American banks--like banks
in virtually every other nation--were, in fact, supervised by the
market. But--in contrast to other countries--our banking system evolved
the dual structure that so distinguishes our country from others. Those
seeking to circulate bank notes in the United States in our earliest
days usually sought a corporate charter either from state or federal
authorities. However, quite shortly after our founding, the chartering
was almost solely at the state level. Entry into the banking business
was far from free. Indeed, by the early 1800s chartering decisions by
state authorities became heavily influenced by political considerations.
Aside from restrictions on entry, for much of the antebellum period
state regulation largely took the form of restrictions inserted into
bank charters, which were individually negotiated and typically had a
life of ten or even twenty years.
The regulation and supervision of early American banks were modest and
appear to have been intended primarily to ensure that banks had adequate
specie reserves to meet their debt obligations, especially obligations
on their circulating notes.
Nonetheless, the very early history of American banking was an
impressive success story. Not a single bank failed until massive fraud
brought down the Farmers Exchange Bank in Rhode Island in 1809.
Thereafter, a series of severe macroeconomic shocks--the War of 1812,
the depression of 1819, and the panic of 1837--produced waves of
failures. What should be emphasized, however, is the stability of
banking in the absence of severe economic shocks, a stability that
reflected mainly the discipline of the marketplace. A bank's ability to
circulate its notes was dependent on the public's confidence in its
ability to redeem its notes on demand.
When confidence was lacking in a bank, its notes tended to exchange at a
discount to specie and to the rates of other, more creditworthy, banks.
Early in the 1800s, private money brokers seem to have made their first
appearance. These brokers, our early arbitrageurs, purchased bank notes
at a discount and transported them to the issuing bank, where they
demanded par redemption. Moreover, the Suffolk Bank, chartered in 1818,
entered the business of collecting country bank notes in 1819. In
effect, the Suffolk Bank created the first regional clearing system. By
doing so, it effectively constrained the supply of notes by individual
banks to prudential levels and thereby allowed the notes of all of its
associated banks to circulate consistently at face value.
*Free Banking (1837-1863)*
The Second Bank of the United States also played an important role in
limiting note issuance all over the country by presenting bank notes for
specie payment. The resultant intense political controversy over the
charter renewal of the Second Bank of the United States, and the wave of
bank failures following the panic of 1837 led many states to reconsider
their fundamental approach to banking regulation. In particular, in 1838
New York introduced a new approach, known as free banking, which in the
following two decades was emulated by many other states.
Free banking meant free entry under the terms of a general law of
incorporation rather than through a specific legislative act. The
public, especially in New York, had become painfully aware that the
restrictions on entry in the chartered system were producing a number of
adverse effects. For one thing, in the absence of competition, access to
bank credit was perceived to have become politicized--banks' boards of
directors seemed to regard those who shared their political convictions
as the most creditworthy borrowers, a view not unknown more recently in
East Asia. In addition, because a bank charter promised monopoly
profits, bank promoters were willing to pay handsomely for the privilege
and legislators apparently eagerly accepted payment, often in the form
of allocations of bank stock at below-market prices.
While free banking was not actually as free as commonly perceived, it
also was not nearly as unstable. The perception of the free banking era
as an era of "wildcat" banking marked by financial instability and, in
particular, by widespread significant losses to noteholders also turns
out to be exaggerated. Recent scholarship has demonstrated that free
bank failures were not as common and resulting losses to noteholders
were not as severe as earlier historians had claimed.
Nonetheless, it is fairly clear that the strength of banks varied from
state to state, with regulation and supervision uneven. As a consequence
mainly of the panic of 1837, the public became aware of the possibility
that banks could prove unable to redeem their notes and changed their
behavior accordingly. Discounting of bank notes became widespread.
Indeed, between 1838 and the Civil War quite a few note brokers began to
publish monthly or biweekly periodicals, called bank note reporters,
that listed prevailing discounts on thousands of individual banks.
Throughout the free banking era the effectiveness of market prices for
notes, and their associated impact on the cost of funds, imparted an
increased market discipline, perhaps because technological change--the
telegraph and the railroad--made monitoring of banks more effective and
reduced the time required to send a note home for redemption. Between
1838 and 1860 the discounts on notes of new entrants diminished and
discounts came to correspond more closely to objective measures of the
riskiness of individual banks.
Part of this reduction in riskiness was a reflection of improvement in
state regulation and supervision. Part was also private market
regulation in an environment in which depositor and note holders were
not protected by a safety net. That is, the moral hazard we all spend so
much time worrying about today had not yet been introduced into the system.
*National Banking (1863-1913)*
During the Civil War, today's bank structure was created by the
Congress. It seems clear that a major, if not the major, motivation of
the National Bank Act of 1863 was to assist in the financing of the
Civil War. But the provisions of the act that incorporated key elements
of free banking provide compelling evidence that contemporary observers
did not regard free banking as a failure. These provisions included free
entry and collateralized bank notes.
The 1863 act introduced competition to state banks, but in 1864, the
Congress adopted an important amendment which called for taxing the
issuance of state bank notes. It is not clear if the intention was to
assure only one kind of currency or to force the states out of the
banking business. But whatever its purpose, with the tax on notes the
number of state banks fell from about 1,500 in 1864 to 250 by the end of
the decade.
Any forecast at that time would quite reasonably have concluded that
state banks would become historic relics. Such a projection, however,
would have been quite wrong, beginning what has become an unending
stream of such erroneous forecasts about the demise of state banks.
Forced to find a substitute for notes, state banks pioneered demand
deposits. Within ten years after the note tax, state banks had more
deposits than national banks--a lead maintained, I might add, until
1943. By 1888, only 20 years after the low point, there were more state
banks than national banks (approximately 3,500 vs. 3,100), a lead
maintained to this day.
While the emphasis on demand deposits showed the creativity and
innovation of state banks, I must tell you the first Comptroller of the
Currency won the rhetoric contest. In the 1863 Annual Report of the
Comptroller of the Currency, he proposed that the National Bank Act
. . . be so amended that the failure of a national bank be declared
prima facie fraudulent, and that the officers and directors, under
whose administration such insolvency shall occur, be made personally
liable for the debts of the bank, and be punished criminally, unless
it shall appear, upon investigation, that its affairs were honestly
administered. (p. 51)
So much for moral hazard! And, surely, here we observe the intellectual
origin of prompt corrective action!
*Central Banking and the Safety Net*
By the latter decades of the 19th century, both the economy and our
banking system grew rapidly. A fully functioning gold standard governed
monetary expansion and was perceived to provide an "automatic"
stabilizing policy. It was only with the emergence of periodic credit
crises late in the century and especially in 1907, that creation of a
central bank gained support. These crises were seen largely as a
consequence of the inelastic currency engendered by the National Bank
Act. But, even with the advent of the Federal Reserve in 1913, monetary
policy through the 1920s was largely governed by gold standard rules.
*Creation of the Federal Safety Net*
When the efforts of the Federal Reserve failed to prevent the bank
collapses of the 1930s, the Banking Act of 1933 created federal deposit
insurance. The subsequent evidence appears persuasive that the
combination of a lender of last resort (the Federal Reserve) and federal
deposit insurance have contributed significantly to financial stability
and have accordingly achieved wide support within the Congress.
Inevitably, however, such significant government intervention has been a
mixed blessing. The federal safety net for banks clearly diminishes the
effectiveness of private market regulation, creates perverse incentives
for some banks to take excessive risk, and requires that we substitute
more government supervision and regulation for the market discipline
that played such an important role through much of our banking history.
To cite the most obvious and painful example, without federal deposit
insurance, private markets presumably would never have permitted thrift
institutions to purchase the portfolios that brought down the industry
insurance fund and left taxpayers responsible for huge losses. To be
sure, government regulators and politicians have learned from this
experience and taken significant steps to diminish the likelihood of a
recurrence. But, the safety net undoubtedly still affects decisions by
creditors of depository institutions. Indeed, the lower cost of funds
provided to banks by the federal safety net provides a significant
subsidy to banks, and limiting this subsidy has proved to be one of the
most difficult aspects of current efforts to achieve financial
modernization.
While the safety net requires more supervision and regulation, in recent
years rapidly changing technology has begun to render obsolete much of
the bank examination regime established in earlier decades. Bank
regulators are perforce being pressed to depend increasingly on ever
more complex and sophisticated private market regulation. Indeed, these
developments reinforce the truth of one of the key lessons from our
banking history--that private counterparty supervision is still the
first line of regulatory defense. This is certainly the case for the
rapidly expanding bank derivatives markets and other off-balance sheet
transactions. The complexity and speed of transactions and the growing
complexity of the instruments have required both federal and state
examiners to focus more on supervising risk management procedures rather
than actual portfolios. Indeed, I would characterize recent examination
innovations and proposals as attempting both to harness and simulate
market forces in the supervision of banks. Again, the lessons of early
American banking should encourage us in this endeavor--a real move back
to the future. Indeed, state supervisors are used to adjusting to market
realities, having led their federal counterparts in permitting more
experiments and flexibility, from NOW accounts to adjustable rate
mortgages, from insurance sales to regional compacts.
It is not just the experimenting and the flexibility that state banking
has brought to the system that is so beneficial. The dual banking system
also offers protection against overzealousness in regulation by
permitting banks to have a choice of more than one federal regulator by
the act of selecting a state or federal charter. That choice has served
as a constraint on arbitrary and capricious policies at the federal
level. True, it is possible that two or more federal agencies can engage
in a "competition in laxity"--but I worry considerably more about the
possibility that a single federal regulator would inevitably become
rigid and insensitive to the needs of the marketplace. In my judgment,
so long as the existence of a federal guarantee of deposits and other
elements of the safety net call for federal regulation of banks, such
regulation should entail a choice of federal regulator in order to
ensure the critical competitiveness of our banks.
*Back to the Future*
For all of these reasons, as well as our historical experience as a
nation, we at the Federal Reserve remain strong supporters of the dual
banking system. Our experience with examination partnerships with the
states has been positive, and the empirical evidence on failure rates
speaks well for the quality of state bank examinations. The ability of
the states to produce an innovative and vibrant alternative to the
federal structure has continued for over 130 years and can only be
applauded.
However, as you look back to your roots for inspiration and example, we
should all be aware of the challenges you are facing. On the one hand,
state banks have increased their share of the number of banks each year
since 1965, but on the other, your share of banking assets, after rising
each year since 1989, fell by about 2.5 percentage points last year as
interstate consolidation began to leave its mark.
It is too early to tell whether this is the beginning of an irreversible
trend or a short-term adjustment. Clearly, conventional wisdom argues
that interstate branching is less burdensome for national banks dealing
with one supervisory authority. However, in 1997, all of the components
were put in place for you to revise this perception. In July of last
year, the Congress enacted the home state rule for state banks. This
legislation, as you know, permits home state laws to apply in host
states to branches of out-of-state banks, and for such branches to get
equal footing with national banks for permissible activities. The
congressional action followed the 1996 state/federal protocol and
nationwide supervisory agreement designed to facilitate the seamless
supervision and examination of interstate, state-chartered banks.
I am told that the agreement is generally working well and that state
and federal regulators are continuing to refine their coordination and
cooperation. The State-Federal Working Group is planning a survey to
find out exactly where impediments exist and how further enhancements
could be made. But, if state jurisdictional issues make it inefficient
for state banks to branch across state lines, the national bank charter
will gain more adherents. Indeed, I must emphasize that state bank
supervisors, by how you use the flexibility now permitted to you,
control the future of the dual banking system. You have it in your own
power to recover from a federal action, as your predecessors did in the
1870s and 1880s. Or, if states make the costs of interstate expansion
relatively expensive for state-chartered banks, then the state banks
will continue to lose share to national banks, as occurred in the 1860s
and last year. Either way, the future you go back to is very much in
your own hands.
Thomas H. Greco, Jr.
thg at mindspring.com
Mobile phone (USA): 520-820-0575
Beyond Money:http://beyondmoney.net
Tom's News and Views:http://tomazgreco.wordpress.com
Archive Website:http://www.Reinventingmoney.com
Photo gallery:http://picasaweb.google.com/tomazhg
Skype/Twitter name: tomazgreco
My latest book, "The End of Money and the Future of Civilization" can be ordered from Chelsea Green Publishing, Amazon.com, or your local bookshop.
On 11/11/2011 4:34 AM, Michel Bauwens wrote:
> hi Thomas ,
>
> I know you dealt with the fraud issue regarding compl. currencies,
>
> do you have any reference? (and from o-hers)
>
> Michel
>
>
>
> On Fri, Nov 11, 2011 at 12:55 PM, <ideasinc at ee.net
> <mailto:ideasinc at ee.net>> wrote:
>
> Bill Black is a extraordinary speaker, imo, clear, direct,
> empirical, and
> intelligent. In that he holds a dual posting at the University of
> Missouri
> at Kansas City in both the Law School and in the Economics
> Department is
> not an accident. His pursuit of the dysfunctionals of the banking
> sector,
> both as a regulator and as a professor is part of the reform in MMT
> monetary reform and the regulation of the dys-functional as per
> Functional
> Finance.
>
> In this context I have yet to see anyone anywhere promoting the lesser
> forms of community currencies and exchanges, which I will not list
> here,
> in all the possible breathlessness applied in promoting these
> "community
> alternatives" I have yet to see even a single clause recognizing the
> massive potential for fraud within the nominal "alternative"
> category.
> There simply are no standards whatsoever relative to transparency or
> accountability. This is the Ronald Reagan/Margaret Thatcher version of
> opening access to fraud under the pretense of higher principles,
> TINA. It
> seems that this is an "alternative" version of a TINA assertion,
> presented
> as a recitation of various mantras as "community, " "Free!,"
> ALTERNATIVE," and then multiple attempts to compartmentalize the
> perpetration of fraud.
>
>
> As I referenced way earlier The US had a period of monetary
> history which
> became known as the "Free Banking" era. By most measures it was a
> major
> fiscal disaster, levels of fraud had not been exceeded from that
> era up
> until the late 1980'a and the beginnning of the US Savings and
> Loan crisis
> which Black was a lead prosecutor
>
> Tadit
> .
>
> http://www.youtube.com/watch?feature=player_embedded&v=N_AuvLTJNh0
> <http://www.youtube.com/watch?feature=player_embedded&v=N_AuvLTJNh0>
>
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