a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

For the bank, it is functionally a loan. For someone with a personal account, it functionally isn't a loan. Government regulation makes both of these statements true. The modern world is full of these matters of incommensurate perspective. If you truly want to use a bank to safely store your money and have it not be a loan, rent a safe deposit box and fill it with cash. But that strategy doesn't even simplify the transaction, really. Money isn't real. You're really just buying a different kind of risk.

re KAPITAL: i am not convinced that the rest of the book *is* harder that that chapter -- but i have only read small sections of it. it's a famously poetic chapter, which some may see as making it the hardest? personally i feel that the chapters preceding it (which are largely definitional) are *much* harder. they're certainly more boring.

there are later chapters that are both more entertaining and more straightforward as storytelling (albeit of pertinent examples in political economy and so on)

re governments: there's an ongoing story right now in south korea about the governor of a prefect who decided unilaterally not to pay for something his predecessor promised to pay for -- it has caused immense chaos and collapse in trust in governmment bonds!

https://foreignpolicy.com/2022/11/10/legoland-south-korea-bond-market-crisis/

One might gloss that with the advent of fiat currency “money” as such ceased to be a “thing” you can “have”, on some level money is all debt. (This may not be orthodox economics.)

"For the bank, it is functionally a loan. For someone with a personal account, it functionally isn't a loan."

Interesting statement! Might actually clarify things (... by ... making them less clear).

"The modern world is full of these matters of incommensurate perspective."

Can you give any more examples? Are they all about money?

what was money before the advent of fiat currency?

Mark S: I agree that it's very rhetorical, at least. I'm not sure that's why I find it incomprehensible. I think it's just the concepts. After reading it very closely I didn't know what it said.

This makes me think that Marx, in translation, as I have read him, is not a very clear writer. Though nor were any of the philosophers before him.

big sacks of precious-metal specie I guess xp

silby: yes, sorry, i was being dumb

forgot what fiat referred to

I mean it's hard to put my finger on exactly what the difference is between having a claim on the bank for a chest full of doubloons and having a claim on the bank for a database entry that says you have $69,420 but it has a different vibe. To the point that some crazy people are still mad about it!

If a bank really did lose all my money, then I would no longer have enough money to pursue a claim to recover it from the government (for instance, I couldn't use a mobile telephone or internet).

I cannot imagine being confident that the UK government would give me £85,000 in any circumstances.

Not to complicate the conversation by bringing in an entirely different financial instrument, but the collapse of the FTX crypto exchange is a nice illustration of why we have bank regulations and what they do. FTX more or less operated like a bank — people could deposit money there and then easily use it to buy whatever cryptocurrencies they wanted. Theoretically, FTX was supposed to make money by charging a tiny commission on each transaction (making it somewhat more like a credit card company than what we think of as a bank). But it turned out that in addition to that, FTX was actually lending out its customers' money — to a separate crypto trading company that was actually owned and controlled by the same guy who owned FTX. So he was functionally accepting people's deposits and then lending their money to himself — which is the kind of thing that regulated banks have a whole lot of limits and safeguards against.

The crypto world doesn't have any of that, and nobody realized what was going on until crypto tanked and all of that money he'd borrowed (about $10 billion) basically disappeared as his own investments via the other company tanked. And when people got panicked and came to get their deposits out of FTX, a lot of them couldn't because the money was no longer there. (He had essentially issued IOUs to FTX in the form of a cryptocurrency he created out of thin air, which had no collateral backing at all.) This kind of thing used to happen in real-world banking too, which is why most developed economies now have lots of rules about exactly how banks can use their customers' money and what kind of collateral they are required to keep, and they also have the backup of government insurance of their deposits up to certain amounts.

Of course, those regulations are still pretty fallible and corruptible too, as the 2008 crash illustrated. In that case, banks had made excessively risky loans in the form of mortgages that people were not actually going to be able to pay, and then resold those mortgages to other banks and investors with the (false) promise that they were "good" loans. Then the music stopped and there was no more cash coming into the system and people couldn't pay their mortgages and the banks and investors holding the loans were out gazillions of dollars, collectively.

As for the government -- well, the UK government is corrupt, and I would not feel confident about getting any money out of it for anything.

Perhaps your government is better.

― the pinefox, Tuesday, November 15, 2022 12:53 PM (thirty-one minutes ago)

interesting - and totally fine, a lot of people hold the same perspective - the banks are corrupt and the government is not that much better.

there is an interesting contradiction here though - you don't trust the government to stand behind their deposit insurance guarantee, yet you do trust the government to stand behind the pound that it has printed

xp but to flesh that^^^ out

pinefox i don't know when you last sat down and read the words on a (UK) bank-note: alongside various less pertinent legends (which perhaps refer e.g to the person depicted etc) it says "i promise to pay the bearer on demand the sum of ten* pounds" -- and across from this is a signature, currently of the chief cashier on behalf of the "governor and company of the bank of england"

well those guys are the government and that promise is what keeps all the balls in the air. because i guess it's kind of a fungible promise -- the bank of england makes it so every bank signs on and every shop and every company and more or less every person, even me. we do't just say "this is a bit of paper with writing on it" we say "ok it;s money"

and it's why politicians and others often talk about confidence (as you just did): because confidence wavering is basically ppl thinking "that promise? will they pay? is this still money"

if enough ppl conclude they won't and it isn't then things go south pretty fast :) 👍🏽🚀

*or however many pounds it is, it's ten on the jane austen

here, it is appropriate to introduce the concept of what constitutes 'legal tender' https://en.wikipedia.org/wiki/Legal_tender

the hoohah abt insolvenet pension funds from the liz truss era was the tale of the govt (in the shape of the sotra-kinda autonomous bank of england) promising to step in to stop a "bank run" on a pension fund (in fact several pension funds)

in the event this promise alone calmed things down i believe, and they didn't have to make good on the last-ditch purchase they promised if things got too bad

the political fall out is that (a) the liz truss govt fell instead of the pension funds and (b) there is beef that the BoE acted deliberately to topple her by intervening this way

ps in relation to pension funds i've been meaning to read the LRB piece abt academic pension funds that you talked abt upthread, when i have a moment i will and we can talk that through also

Mark S: yes, I have definitely often heard of those words / that aspect. I have never really understood it. Perhaps it means ten pounds (weight) of gold, or something. They will hand over this weight in gold if you give them the note?

You are convincing in noting that this is 'the government' in which we have ... confidence?

But there is much evidence of corruption in the UK government - this is a fact - take eg:

https://www.lrb.co.uk/the-paper/v42/n21/peter-geoghegan/cronyism-and-clientelism
https://www.lrb.co.uk/the-paper/v43/n09/peter-geoghegan/short-cuts

I agree that we continue to trust the state for many things - health care, for instance (I hope).

But as I said, would you trust the UK state to give you £85k, if you had no money to make any claim for it (eg to use the internet)? Seems unlikely.

there is a very easy, practical, fix for that problem - keep your money in two banks. the chances of both banks failing at the same time are pretty slim in the modern era - even during 2007/2008, I don't believe any commercial banks (i.e. the kinds of banks you'd have accounts with) failed (the ones that were taken out to the back of the shed and shot were investment banks, which aren't retail-facing.)

There were commercial banks like Wachovia that got taken down by their mortgage lending, but even in those cases your average account-holders were OK because of federal insurance. It was the banks' shareholders that got screwed.

I actually quite like poster Jaime Pressly's statement above, that to a bank, money in a bank is a loan, and to a customer, it isn't.

This would give a rationale for banks not telling us that we are loaning them money.

I like this list of defunct banks in the UK: https://en.wikipedia.org/wiki/Category:Defunct_banks_of_the_United_Kingdom

customers of cocks biddulph bank, where are they now?

pinefox i went to see how you would go about an FSCS (financial services compensation scheme) claim and it's true that the first big picture you see is of someone with red-painted fingernails about to start typing on a laptop!

https://www.fscs.org.uk/making-a-claim/

but they do include a snail-mail address so all you ultimately need is a pencil, a sheet of paper and i guess a stamp (plus the relevant paperwork proving it was yr account and so on)

here it is just in case:
Financial Services Compensation Scheme
PO Box 300
Mitcheldean
GL17 1DY

If you truly want to use a bank to safely store your money and have it not be a loan, rent a safe deposit box and fill it with cash. But that strategy doesn't even simplify the transaction, really. Money isn't real. You're really just buying a different kind of risk.

― Jaime Pressly and America (f. hazel), Tuesday, November 15, 2022 12:56 PM (one hour ago)

that is another solution for the pinefox, to withdraw all his money from his bank and to keep it under lock and key, perhaps in a safe deposit box (which would also be at the bank.)

historically, the chinese have been distrustful of banks, and some are like the pinefox in that they prefer to keep their money in a safe deposit box rather than the bank itself, to the point that when banks open a branch in chinatown, they outfit the branch with more safe deposit boxes than usual: https://www.nytimes.com/2005/07/08/nyregion/keeping-luck-under-lock-and-key.html

A feng shui master has already checked the new Commerce Bank building that will open today at 155 Canal Street in Chinatown to confirm "that everything is facing the right way," said William G. Leung, the manager of the new branch.

Befitting its prominent corner location in Chinatown, at Bowery Street, the bank will have trilingual cash machines in Chinese, English and Spanish. And its 30 employees will converse in Cantonese and Mandarin, as well as in English.

It is hardly a coincidence, furthermore, that today, the eighth, because some people of Chinese descent consider eight a lucky number, "is a fortunate day, good for business," said Mr. Leung.

Oh. One more thing.

The new bank will have 7,500 safe deposit boxes, instead of 500 in the average Commerce branch. "Culturally, this is something very different for us," said Gregory B. Braca, a senior vice president of the company who manages the 38 branches in New York City.

In fact, construction work on the bank was nearing completion in January until "we began hearing that we needed more safe deposit boxes," Mr. Braca recalled. "We didn't know. So we began rebuilding from the bottom up, until we had a brand new building -- and an extra floor, just for the boxes."

Chinatown, in fact, is safe deposit box country, one aspect of the highly competitive, and escalating, bank war in the neighborhood. Across the street from the new banking interloper, the domed HSBC branch at 58 Bowery has 21,000 safe deposit boxes. And the HSBC branch at 11 East Broadway has 12,000.

What is going on here?

"There is a waiting list for safe deposit boxes in Chinatown, and that can become Commerce Bank's competitive advantage," said Charles Lai, executive director of the Museum of Chinese in the Americas at 70 Mulberry Street. A safe deposit box "gives you a sense of privacy," said David S. Chen, the executive director of the Chinese-American Planning Council, a community group that provides social services. "Chinese don't flaunt their wealth, especially the old-timers. And when you have a bank statement, anyone could know how much you have."

Some Chinese immigrants live principally in a cash economy, with many family members pooling their income, Mr. Chen said.

And immigrants sharing rented rooms "don't want to keep their valuables around," Mr. Lai said, "since keeping everything under the mattress was for the 1940's and 1950's."

Many apartments are small, and so residents entrust to the boxes items like cash, significant paperwork, bankbooks, checkbooks, sentimental photographs, mementos and jewelry, "because it's portable and can be worth a lot of money," Mr. Chen said.

"My parents are a good example," said Paul W. Ho, senior vice president for the Asian market domain at HSBC Bank U.S.A., a unit of HSBC Holdings Corporation. "Every time they get invited to a wedding, they go to the safe deposit box. They retrieve their jewelry, and go to the wedding. Then they put it back. That's my mom."

It is the first Commerce Bank assault on the neighborhood, where some other competitors are long established. For example, as the modern-day descendent of the Hong Kong and Shanghai Banking Corporation, HSBC established its first Chinatown branch 28 years ago at 50 Bowery Street. Now it has three branches, Mr. Ho said, "and we're opening up another one soon."

Indeed, there are more than 30 bank branches in Chinatown, Mr. Leung said, and the number continues to grow. Within three blocks of the new Commerce branch are a Citibank, an Abacus Federal Savings Bank, a United Orient Bank, a Chinatrust Bank and a Bank of East Asia.

Why so many? "It's like the man said when they asked him why do you rob banks?" Mr. Braca said. "Because that's where the money is."

Financial institutions are responding to the high savings rates of Chinese-American residents, Mr. Lai said. "Saving isn't just for a rainy day -- when you see your entire life as a rainy day," he added. "Saving is an important part of the safety net -- in a mattress or in a bank."

Banks are also proliferating because "though Chinese may live in other neighborhoods, many open their accounts in Chinatown," Mr. Chen said. "When I came here 30 years ago, I lived in Brooklyn but I opened up my bank account on Mott Street."

Indeed, Manhattan has only 24 percent of the city's Chinese-Americans, or 90,158, according to the 2000 census ; 71 percent live in Brooklyn and Queens. Those of Chinese descent make up the largest Asian-American group in New York City, nearly half of the Asian-Americans in the city. Three-fourths of them are immigrants.

As a consequence, "Chinatown is an important economic engine for the banking industry in the city," Mr. Lai said. The aggregate deposits in Chinatown bank branches exceed $5.4 billion, according to a study by the Asian American Federation of New York, a nonprofit public policy organization.

"Plenty of competition is good for everybody," said Mr. Ho of HSBC.The 7,000-square-foot Commerce Bank branch will feature speckled white marble floors, blond figured-anigre wood, jazzy red neon striping and the company's distinctive red logo, "a fortunate coincidence," Mr. Braca said, "since our color signifies good luck."

Deposit boxes at the new branch will cost $50 to $250 a year, depending on their size. The bank will be open seven days a week; its Sunday hours will be 11 a.m. to 4 p.m. However, "Chinatown had seven-day banking more than a decade ago because it's busier on the weekend," Mr. Chen said. "Many Chinese who moved out of the neighborhood come back on weekends to shop, to buy food, to get a newspaper, and to visit relatives."

Like some of its other competitors, Commerce Bank will provide customer-service workers to make it easy for patrons to wire money transfers and buy money orders "since many immigrants have families back home, and they send them money," Mr. Lai said.

Like its Chinatown competitors, Commerce Bank will go after retail consumers, small businesses and nonprofit organizations. "It's so important to know everyone here," said Kelvin Kan, the commercial banking director in the new Commerce branch. "In Chinatown, it's all about credibility."

Therefore, the bank has sought local expertise in hiring its personnel, including Mr. Kan, who worked for HSBC for 10 years, and Mr. Leung, who has been a manager at North Fork Bank and Citibank.

To attract customers, the bank is sponsoring a lion dance promotion today at noon, as well as clowns, balloons, free hot dogs, pretzels and, bien sûr, dim sum.

And since it's Chinatown, there will be a raffle for the luckiest deposit box of them all: 888, since "many depositors want an account with lucky number eight at the end or the beginning," Mr. Leung said.

Not to mention four raffles today and tomorrow, Mr. Leung said, "for prizes of $888 in cash."

re defunct banks, i remember feeling a great pang as a child when i learned (how?) that martin's bank had been folded into barclay's -- bcz my uncle is called martin and he is a very sweet man and i somehow felt the family was under attack. i asked my dad why we hadn't been banking at martin's bank and as i recall he gave no very satisfactory answer

The name GIROBANK is familiar.

lol just found a webpage devoted to the relevant branch of martins: http://www.martinsbank.co.uk/11-80-70%20Shrewsbury.htm

(this answers the "how" i think: this is an extremely prominent spot in shrewsbury so someone will have commented on the frontage change)

but, safe deposits aren't safe. crucially, they are not insured by the government! so if a bank misplaces your safe deposit box, you have even less of a chance of getting anything back than you do with deposit insurance.

https://www.nytimes.com/2019/07/19/business/safe-deposit-box-theft.html

There are an estimated 25 million safe deposit boxes in America, and they operate in a legal gray zone within the highly regulated banking industry. There are no federal laws governing the boxes; no rules require banks to compensate customers if their property is stolen or destroyed.

Every year, a few hundred customers report to the authorities that valuable items — art, memorabilia, diamonds, jewelry, rare coins, stacks of cash — have disappeared from their safe deposit boxes. Sometimes the fault lies with the customer. People remove items and then forget having done so. Others allow children or spouses access to their boxes, and don’t realize that they have been removing things. But even when a bank is clearly at fault, customers rarely recover more than a small fraction of what they’ve lost — if they recover anything at all. The combination of lax regulations and customers not paying attention to the fine print of their box-leasing agreements allows many banks to deflect responsibility when valuables are damaged or go missing.

“The big banks fight tooth and nail, and prolong and delay — whatever it takes to wear people down,” said David P. McGuinn, the founder of Safe Deposit Specialists, an industry consulting firm. “The larger the claim, the more likely they are to battle it for years.”

Seemingly Girbobank was a public utility, then became part of a private bank.

I expect we were swindled somehow, as usual.

https://en.wikipedia.org/wiki/Girobank

re the "government refunds £85k" claim, what about people who have more than £85k in a bank? They lose the rest of the money, I assume.

Still not good value for the government to pay the £85k.

pinefox i don't know when you last sat down and read the words on a (UK) bank-note: alongside various less pertinent legends (which perhaps refer e.g to the person depicted etc) it says "i promise to pay the bearer on demand the sum of ten* pounds" -- and across from this is a signature, currently of the chief cashier on behalf of the "governor and company of the bank of england"

one cool thing about hong kong is that the legal tender there is all issued by banks, not the government. so a ten hong kong dollar note could be issued by standard chartered, the bank of china, or HSBC. it looks like this is the de facto norm in commonwealth territories? i have never been to england.

re the "government refunds £85k" claim, what about people who have more than £85k in a bank? They lose the rest of the money, I assume.

Still not good value for the government to pay the £85k.

― the pinefox, Tuesday, November 15, 2022 2:24 PM (five minutes ago)

an easy way around this is, if you have more than £85k, to split it up at two separate bank accounts. i'm not sure what the best choice of action is when you're obscenely wealthy - my suspicion is that if you're obscenely wealthy, you don't actually keep your value as cash, but instead you have it in investments in stocks, real estate, asset classes, and you only keep around enough cash to pay your bills.

Bank branch burns down, good luck getting your cash in the safety deposit back.

At least in the US there is a commonly accepted concept of “too big to fail”. If your bank is big enough, presumably the government can’t afford to let it fail. So for example when Washington Mutual failed in the 2008 financial crisis the government arranged it so no depositors lost money even if they held more than the insured limit. However a smaller bank, IndyMac, also failed, and though the government did retroactively raise insured limits to try and protect as many depositors as possible, some of them with particularly large deposits did lose money.

Just looked up cash savings in the UK.

https://www.finder.com/uk/saving-statistics

>>> Whether you’d rather hide money under your mattress or more wisely put it into a savings account, savings are key to helping people plan their future, deal with accidents and secure a comfortable retirement. How much has the average person saved in the UK? And are we getting better or worse?

Quick overview
In 2022, the average Brit has £7,509 saved.
On average, savings in 2022 have increased 11% since 2020.
1 in 5 (20%) Brits have no savings at all in 2022.
Among the regions, East England (£10,398) had the highest average savings in 2022 and Northern Ireland (£5,340) had the lowest
Among the cities, people in Edinburgh had the highest average savings of £11,791 and Nottingham had the lowest at £4,248.

In 2021, almost half of Brits (47%) of people made sure that they saved for their retirement. How much does the average British person have in savings? According to our 2022 survey, 1 in 5 (20)% of the respondents had no savings at all. The average savings in 2022 was £7,509. There is an 11% rise in savings compared to 2020 when it was £6,757. It is recommended that people should have 3 months of expenses saved.

£7k won't go far if you lose all your income, will it? You might burn through it in, say ... 3 months? Maybe that's a conservative estimate, I realise some people pay huge amounts for rent.

I'm sure you don't think banks are doing this out of altruism...

When I was little...3...4 years old?...my mum would take us into the bank to get some cash before going round the supermarket. I genuinely believed at that time that banks were offices where rich people would give money to poor people so that they could go shopping. I now realise that isn't the case.

under communism,

the best choice of action is when you're obscenely wealthy - my suspicion is that if you're obscenely wealthy, you don't actually keep your value as cash, but instead you have it in investments in stocks, real estate, asset classes, and you only keep around enough cash to pay your bills.

https://www.kkr.com/images/insights/62-images/charts-6.png

turns out the seriously rich have more of their money in cash than the merely very rich (via https://www.kkr.com/global-perspectives/publications/wisdom-compounding-capital).

UHNW = ultra high net work, > $30m in assets
HNW = > $1m

one cool thing about hong kong is that the legal tender there is all issued by banks, not the government. so a ten hong kong dollar note could be issued by standard chartered, the bank of china, or HSBC. it looks like this is the de facto norm in commonwealth territories? i have never been to england.

still true in scotland - the royal bank of scotland printed one pound notes long after they'd been withdrawn by the bank of england. technically scottish notes aren't 'legal tender' in the uk but they can and should be accepted, i've flummoxed a few shopkeepers with them but never had one refused.

South Korean media have compared Kim to disgraced former British Prime Minister Liz Truss, an apt analogy. "For purely political reasons, both leaders caused an entirely gratuitous self-inflicted wound to their countries’ economies, destroying trust in what was supposed to be a sure thing—pension funds for Truss, government-backed bonds for Kim. The same lesson applies to Britain, South Korea, and everywhere: Electing bad politicians leads to a bad economy."

https://foreignpolicy.com/2022/11/10/legoland-south-korea-bond-market-crisis/

I am taking different lessons from this story. More like, economics: wtf have we done?!

That South Korean story also worth keeping in mind as we approach yet another dumb debt-ceiling standoff in the U.S.

BBC radio news says that the UK PM is returning to the UK to tackle inflation.

I think inflation means something like: money can no longer buy so much. The value of money has decreased.

I don't know why. Nor what the PM would do to change it.

Strange that a decrease in the value of money is called inflation rather than ... deflation?

one cool thing about hong kong is that the legal tender there is all issued by banks, not the government. so a ten hong kong dollar note could be issued by standard chartered, the bank of china, or HSBC. it looks like this is the de facto norm in commonwealth territories? i have never been to england.

Come to Scotland, the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank all produce bank notes.

still true in scotland - the royal bank of scotland printed one pound notes long after they'd been withdrawn by the bank of england. technically scottish notes aren't 'legal tender' in the uk but they can and should be accepted, i've flummoxed a few shopkeepers with them but never had one refused.

I've had them refused and certainly scrutinized and questioned. The thing is banknotes are not legal tender in Scotland, so if Scottish banknotes are refused in the England then English banknotes can be refused in Scotland by the same (spurious ) reasoning.

Oh and four banks in Northern Ireland produce banknotes: Bank of Ireland, First Trust Bank, Danske(!) Bank and Ulster Bank.