Is Dr Eamonn Butler the director of the Adam Smith Institute or of the Socialist Internationale?

The FSA and bank reserves     
Written by Dr Eamonn Butler     
Wednesday, 07 October 2009 06:04 
http://www.adamsmith.org/blog/tax-and-economy/the-fsa-and-bank-reserves-200910074238/?dsq=19288147#comment-19288147
SNIP
The Financial Service Authority’s new rules on bank reserves is bad news for business and mortgage borrowers
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Now it says that the banks should keep more cash in their reserves, to make them stronger so they don’t collapse again. What it means, of course, is that they should keep more government bonds in their vaults. Which is nice for the government, who will at least get someone to buy its rubbish IOUs. But it’s bad for the banks, who will have to spend an extra £6bn doing so.
UNSNIP

Ivo replies;

“Now [the FSA] says that the banksters should keep more cash in their reserves, to make them stronger so they don’t collapse again. [...]   But it’s bad for the banksters, who will have to spend an extra £6bn doing so.”

Is this the Adam Smith Institute or the Socialist Internationale?

A bank earns its living by taking money in from depositors, and lending the money to its customers or investing it and the bank’s gross profit is the difference between the interest it earns and the interest it pays, and because a bank generally can earn a greater return on loans than on investment, it will lend out as much of its money as it dares, says Harry Browne.
A bankster fails when it doesn’t have enough cash available to pay the depositors who want to withdraw their money – even if the bankster’s assets are worth enough money to pay everyone eventually.

MATCHING MATURITIES

Matching maturities, LIQUIDITY, the availability of enough cash (or assets that can be converted to cash immediately) to honour all withdrawal requests is the key for a bankster, says Browne. To be liquid, a bankster doesn’t need to have all its money in the vault.
But it does need to arrange its loans and investments to allow for the promises that the bankster has made to its depositors.
The virtue of “matching maturities” – matching one year loans to one year deposits and so on – is a lesson taught in basic college finance classes.
And it is simple common sense. But unfortunately, [...] banksters don’t do business that way. But a bankster with mismatched maturities is however an illiquid bankster.
(Harry Browne, “The Economic Time Bomb”, New York, St Martin’s Press, 1989)

Yes, banksters will have to spend an extra £6bn for conducting business in a somewhat less dishonest way.

Of course, if the money is spent to buy guv’mint paper, it doesn’t make any difference.

Who’s the greatest gangster?

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

The euro is the first currency that has not only SEVERED ITS LINK to gold, but also its link to the nation-state, said the late European Central Bank president Wim Duisenberg on 9 May 2002. (1)

Lorenzo Bini Smaghi, a board member of the same ECB, said yesterday, 06 October 2009, that China for one needs to bite bullet. “I think the best way is that China starts adopting its own monetary policy and DETACH itself from the Fed’s policy.”  (2)

Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel/

NOTES

(1)
International Charlemagne Prize of Aachen for 2002
Acceptance speech by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002
http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

(2)
China calls time on dollar hegemony
You can date the end of dollar hegemony from China’s decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners.
By Ambrose Evans-Pritchard
Published: 7:33PM BST 06 Oct 2009
http://www.telegraph.co.uk/finance/china-business/6266790/China-calls-time-on-dollar-hegemony.html