to think we'd be better off without the banks

[lexiepix]

The banks allow house prices to go to crazy levels by allowing people to get into eye watering debt. If it wasn't for the banks, houses would be much cheaper and people wouldn't have debt, that is just modern slavery. Imagine a house that just cost 2 years wage, no banks just save up and buy it outright. Or am i being stupid? Banks seem to make everyone poorer apart from themselves.

(applauds beta)

That's precisely what I was trying to say, in my semi- economically literary way!

(am not impressed by the people deliberately missing the point of the very very very pertinent OP, by the way.)

MoreBeta
Good post.

I think people do mix up Banks and everyday transactional banking services with debt and derivatives.

Lax lending criteria and derivatives/complex financial products/securitisations undoubtedly contributed (or caused) the last financial crisis. Dealing with those issues is a priority not trying to replace the useful services that banks provide with bitcoins.

semi economically literate, perhaps. I am very literary, although hope I'm not too literal, most of the time .

stubborn
The issue isn't banks or currency. The issue is certain banking practices.

If the OP had come on and said banks should clean up their act or find themselves limited to providing transactional services for people and businesses. Would anyone really have argued?

The banks allow house prices to go to crazy levels by allowing people to get into eye watering debt. If it wasn't for the banks, houses would be much cheaper and people wouldn't have debt, that is just modern slavery. Imagine a house that just cost 2 years wage, no banks just save up and buy it outright. Or am i being stupid? Banks seem to make everyone poorer apart from themselves.

Nope, I still agree with all of that. It's bang on. I hate it when you get the semantic nit pickers- "Ooh, how would you manage without anywhere to deposit your money?"- when it's obvious that the OP wanted to raise a much, much bigger issue, and one that we all need to be discussing and raising awareness of.

Nope, stubborn I read that and it is pretty clear to me that the OP is just thinking 'ooh no banks, how great'. Without giving it wider consideration.

Agree with pretty much everything Beta wrote, we do have a problem, but stuffing money between the floorboards to save up for a house isn't the answer.

The issue is certain banking practices.

This is true, but the banking practices in question are very fundamental to the whole banking system. Banks are essentially able to create money. Most money is created by banks, by the creation of debts. The implications of this are stupendous, and a true change will require an overhaul of the whole system.

If you want to be literal.....you don't need a bank for the most basic of financial transactions. You could use a building society, or a credit union. .

As I said previously, you don't need to be a bank to make loans. If the banks didn't make house loans someone else would. If they didn't then I could see that all that would happen is that housing becomes more and more concentrated in the hands of the wealthy as they have the cash to buy property. Look at home ownership figures in the early part of the 20th century. The issue with housing is the obsession with home ownership linked to the lack of affordable alternatives e.g. social housing. Look to issues like the abolition of the Rent Act 1977 by the Housing Act 1998 and the introduction of Right to Buy in 1980.

stubborn
Building Societies could do the basic personal banking but they can't do the cross border business banking like Letters of Credit which are an important method of payment for the import / export trade.

Well, I agree with that totally, chaz! But why do we have this obsession with home ownership in this country? And, more importantly for the purposes of this debate, who does it benefit?

Who does an obsession with getting hundreds of thousands of pounds into debt to the banks benefit? Well, the banks, largely....

But who enabled this? Who eroded the rights of tenants, making it less attractive to rent? Who, indeed, introduced the RTB? Would this be the very same Government that also deregulated the financial services industry, thus creating a perfect storm of factors favourable to pushing housing prices up and up?

Oops Housing Act 1988

stubborn
I do think there is a really debate to be had about the housing market in this country and I say that as a homeowner. I look at property prices and wonder how my children will manage.

I would say, get them comfortable with the prospect of renting- and start campaigning for tenants' rights .

(Oops.....digressing...)

stubborn someone needs to own all the houses so why not the people who live in them? I don't believe it is banks who control the prices of houses - the prices are driven by market forces.

But how many people- of the child rearing generation- own their houses outright? Miss a couple of mortgage payments, and see what happens . One of these market forces to which you refer is/was the availability of cheap , under regulated credit....thanks to the banks (and the legislation, or lack thereof, which allowed them to run riot).

It is the responsibility of the homeowner not to miss a mortgage payment though.
If people want to be autonomous then let them, I find the idea that people shouldn't be allowed to own a house in case they fuck it up extremely sinister.

Personally I blame the selling off of council houses

Unfortunately OP, your post could only have been written by someone who has ABSOLUTLY NO FECKING IDEA HOW THE ECONOMY WORKS.
So....
Yes YABVVVVVVU for all sorts of reasons. I don't pretend to be an economics expert but I know enough to see that if the banks ceased to exist then the world economy would essentially revert to the stone age!

But yet you fail to mention any single reason and fail to add anything to the conversation other than trying to mock someone else. Nice.

I work in an investment bank selling interest rate and foreign exchange derivatives. They do not exist just for short term gain, it's an interest rate derivative that allows you to fix your mortgage for 5 years at current historical low rates. It's a foreign exchange derivative that allows companies to manage the risk of fluctuating exchange rates so they don't go bankrupt when a contract they bid for 18 months ago would otherwise become unprofitable because GBP/USD has moved from 1.50 to say 1.80. It's an energy derivative that allows you to fix your electricity and gas bill and an equity derivative that allows you to benefit from your company share save scheme. They are very valid risk management tools which play an important part in the wider economy.

And re building societies - I execute interest rate swaps (derivatives) with them all day long. It's how they can offer those 5 year bonds alongside the fixed rate mortgages.

No body would save
No body would be able to borrow to buy houses
No body would be able to borrow to start businesses
No body would be able to borrow to start businesses to employ people
No body would be able to be employed and have the money to buy things

The banks have lost their way because they have tried to be everything, and have pooled all their risks together - deposit taking, investment, lending, selling book debts to each other, merchant banking. They try to be all things to everyone and have taken on too much risk. When you save cash you are (at least long term) at the bottom of the investment pile, but if you are you do not expect your funds earning 1-2% interest to be exposed to the risk that they have been in some cases. Banks are OK, but its like cars..... it is the person who is driving that needs to be very able.

Edwin - yes what you say is of course correct. Problem is that derivatives are not just used for risk management. They are used to multiply risk as well by speculative trading.

I invented a derivative instrument a long time ago. It was and is still used for both hedging and speculative purposes by many banks and oil trading firms and users of oil now.

It is the vast amount of derivative trading for speculative purposes that really is out of control. Any potential default by a large investment bank on its derivative positions is what frightens central banks to death. Its why they dare not withdraw QE - nothing to do with helping the real economy.

The whole worlds econmany would fail causing riots because nobody would own anything. A certain leader the media choose to bash to spread lies about, tried to destroy his current econmany by turning his currency into gold then he got killed off and tarnished.