Nicholas Shaxson talks about the UK banking system and tax avoidance. He's right that although I've always been a UK citizen the existence of a "City of London Corporation" with it's own mayor separate from the mayor of London is a completely new revelation to me. Nothing in my education or in the popular media (newspapers, TV, etc) informed me about this. It sounds almost like a state within a state, with it's own laws and a voting system which allows companies as well as citizens to vote. This merely goes to show that you can live in a country and still not know very much about it.
I really had very little idea about banking until the current recession began a few years ago, and it turns out that my thinking on this topic was comically naive. It seems very clear that more transparency, regulation and democratic oversight is urgently required in the financial sector in order to avoid the catastrophic failures that we've witnessed in the recent past.
One potential big disruption coming to the banking system is the emergence of cryptocurrencies. The way that money moves around at present is already electronic to a high degree, so using cryptocurrencies is no different in that regard, except that it would be likely to be more secure and readily facilitates online micropayments with negligible computational or administerial overhead. Their principal advantage is that they don't require centralised banks, which can collapse or engage in arbitrary money printing and other questionable practices. If cryptocurrencies become popular this doesn't necessarily resolve the issue of tax avoidance though, and without further regulation identical shenanigans could continue unhindered, regardless of the form in which money itself is implemented.
Until quite recently I had no idea that private banks created money from nothing whenever a new loan is issued. That is, they don't need to hold any assets in order to be able to issue loans. This violates the commonsense notion of lending something. For instance, if I lend a book to you I typically need to own the book in the first place, otherwise I'd be regarded as a thief attempting to launder his ill-gotten gains, and money is really just a meta system which stands for things of value, like books, and allows convenient exchange of value which is more efficient than barter.
To me this was also a revelation, because it means that at the heart of what I had thought of as a fairly sober and responsible type of business activity is something akin to large scale fraud. Of course, the amount of money in circulation does need to expand in order to adequately represent the goods and services available, but giving this ability to private companies sets up an unvirtuous cycle where it's easy to see that there's a compelling incentive towards irresponsible or "sub-prime" lending - the very type of lending which caused the collapse of the financial system and consequent public bailouts or buyouts.
One way to implement monetary reform would be to have some non-commercial independent organisation under democratic oversight deciding upon how much money was needed to represent goods and services based upon an analysis of the overall economy. The other way, which I think is more viable in the long run, and less susceptible to human fallibility, is the way that inflation occurs within the Bitcoin cryptocurrency. Under that system inflation of the number of coins in circulation occurs continuously over time and at a rate which is entirely predictable. This predictability should allow for steady expansion in goods and services, and discourage bubbles and crashes. It's also good for business in that completely predictable inflation allows you to plan for the future with greater confidence. It would also mean that private banks would have to behave responsibly, and lend in accordance with their assets with no incentive to lend more than they can really afford to.
I really had very little idea about banking until the current recession began a few years ago, and it turns out that my thinking on this topic was comically naive. It seems very clear that more transparency, regulation and democratic oversight is urgently required in the financial sector in order to avoid the catastrophic failures that we've witnessed in the recent past.
One potential big disruption coming to the banking system is the emergence of cryptocurrencies. The way that money moves around at present is already electronic to a high degree, so using cryptocurrencies is no different in that regard, except that it would be likely to be more secure and readily facilitates online micropayments with negligible computational or administerial overhead. Their principal advantage is that they don't require centralised banks, which can collapse or engage in arbitrary money printing and other questionable practices. If cryptocurrencies become popular this doesn't necessarily resolve the issue of tax avoidance though, and without further regulation identical shenanigans could continue unhindered, regardless of the form in which money itself is implemented.
Until quite recently I had no idea that private banks created money from nothing whenever a new loan is issued. That is, they don't need to hold any assets in order to be able to issue loans. This violates the commonsense notion of lending something. For instance, if I lend a book to you I typically need to own the book in the first place, otherwise I'd be regarded as a thief attempting to launder his ill-gotten gains, and money is really just a meta system which stands for things of value, like books, and allows convenient exchange of value which is more efficient than barter.
To me this was also a revelation, because it means that at the heart of what I had thought of as a fairly sober and responsible type of business activity is something akin to large scale fraud. Of course, the amount of money in circulation does need to expand in order to adequately represent the goods and services available, but giving this ability to private companies sets up an unvirtuous cycle where it's easy to see that there's a compelling incentive towards irresponsible or "sub-prime" lending - the very type of lending which caused the collapse of the financial system and consequent public bailouts or buyouts.
One way to implement monetary reform would be to have some non-commercial independent organisation under democratic oversight deciding upon how much money was needed to represent goods and services based upon an analysis of the overall economy. The other way, which I think is more viable in the long run, and less susceptible to human fallibility, is the way that inflation occurs within the Bitcoin cryptocurrency. Under that system inflation of the number of coins in circulation occurs continuously over time and at a rate which is entirely predictable. This predictability should allow for steady expansion in goods and services, and discourage bubbles and crashes. It's also good for business in that completely predictable inflation allows you to plan for the future with greater confidence. It would also mean that private banks would have to behave responsibly, and lend in accordance with their assets with no incentive to lend more than they can really afford to.