Thanks!<br><br><div class="gmail_quote">On Sat, Nov 12, 2011 at 8:21 PM, Thomas Greco <span dir="ltr"><<a href="mailto:thg@mindspring.com">thg@mindspring.com</a>></span> wrote:<br><blockquote class="gmail_quote" style="margin: 0pt 0pt 0pt 0.8ex; border-left: 1px solid rgb(204, 204, 204); padding-left: 1ex;">
<div bgcolor="#FFFFFF" text="#000000">
Michel,<br>
<br>
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.<br>
<br>
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.<br>
<br>
Regarding the "free banking" era in America, none other than Alan
Greenspan had this to say:<br>
<br>
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. <br>
<br>
Read the entire speech, below:<br>
<br>
<b><font size="+2">Remarks by Chairman Alan Greenspan<br>
</font> <i>Our banking history </i><br>
Before the Annual Meeting and Conference of the Conference of
State Bank Supervisors, Nashville, Tennessee<br>
May 2, 1998 </b> 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.
<p> 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. </p>
<p> <b>Chartered Banking (1781-1838)</b><br>
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. </p>
<p> 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. </p>
<p> 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.
</p>
<p> 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. </p>
<p> <b>Free Banking (1837-1863)</b><br>
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. </p>
<p> 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. </p>
<p> 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. </p>
<p> 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. </p>
<p> 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. </p>
<p> <b>National Banking (1863-1913)</b><br>
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. </p>
<p> 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. </p>
<p> 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. </p>
<p> 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 </p>
<p> </p>
<blockquote> . . . 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) </blockquote>
<p> So much for moral hazard! And, surely, here we observe the
intellectual origin of prompt corrective action! </p>
<p> <b>Central Banking and the Safety Net</b><br>
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. </p>
<p> <b>Creation of the Federal Safety Net</b><br>
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. </p>
<p> 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. </p>
<p> 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. </p>
<p> 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. </p>
<p> <b>Back to the Future</b><br>
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. </p>
<p> 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. </p>
<p> 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. </p>
<p> 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. </p>
<br>
<br>
<pre cols="72">Thomas H. Greco, Jr.
<a href="mailto:thg@mindspring.com" target="_blank">thg@mindspring.com</a>
Mobile phone (USA): 520-820-0575
Beyond Money: <a href="http://beyondmoney.net" target="_blank">http://beyondmoney.net</a>
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</pre><div><div></div><div class="h5">
<br>
On 11/11/2011 4:34 AM, Michel Bauwens wrote:
<blockquote type="cite">hi Thomas ,<br>
<br>
I know you dealt with the fraud issue regarding compl. currencies,<br>
<br>
do you have any reference? (and from o-hers)<br>
<br>
Michel<br>
<br>
<br>
<br>
<div class="gmail_quote">On Fri, Nov 11, 2011 at 12:55 PM, <span dir="ltr"><<a href="mailto:ideasinc@ee.net" target="_blank">ideasinc@ee.net</a>></span>
wrote:<br>
<blockquote class="gmail_quote" style="margin: 0pt 0pt 0pt 0.8ex; border-left: 1px solid rgb(204, 204, 204); padding-left: 1ex;">Bill Black is a extraordinary speaker,
imo, clear, direct, empirical, and<br>
intelligent. In that he holds a dual posting at the University
of Missouri<br>
at Kansas City in both the Law School and in the Economics
Department is<br>
not an accident. His pursuit of the dysfunctionals of the
banking sector,<br>
both as a regulator and as a professor is part of the reform
in MMT<br>
monetary reform and the regulation of the dys-functional as
per Functional<br>
Finance.<br>
<br>
In this context I have yet to see anyone anywhere promoting
the lesser<br>
forms of community currencies and exchanges, which I will not
list here,<br>
in all the possible breathlessness applied in promoting these
"community<br>
alternatives" I have yet to see even a single clause
recognizing the<br>
massive potential for fraud within the nominal "alternative"
�category.<br>
There simply are no standards whatsoever relative to
transparency or<br>
accountability. This is the Ronald Reagan/Margaret Thatcher
version of<br>
opening access to fraud under the pretense of higher
principles, TINA. It<br>
seems that this is an "alternative" version of a TINA
assertion, presented<br>
as a recitation of various mantras as "community, " "Free!,"<br>
ALTERNATIVE," �and then multiple attempts to compartmentalize
the<br>
perpetration of fraud.<br>
<br>
<br>
As I referenced way earlier The US had a period of monetary
history which<br>
became known as the "Free Banking" era. By most measures it
was a major<br>
fiscal disaster, levels of fraud had not been exceeded from
that era up<br>
until the late 1980'a and the beginnning of the US Savings and
Loan crisis<br>
which Black was a lead prosecutor<br>
<br>
Tadit<br>
.<br>
<br>
<a href="http://www.youtube.com/watch?feature=player_embedded&v=N_AuvLTJNh0" target="_blank">http://www.youtube.com/watch?feature=player_embedded&v=N_AuvLTJNh0</a><br>
<br>
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