Drakkith said:Also, the buying and selling of shares does NOT mean that a company has no funding. Profits from the business are the primary source of funding for companies. The owners of the company (The primary shareholders I mean) can use their shares to get more funding to expand or fund other projects by selling them, giving others a larger share of owership of the company in return for cash.
Nev said:If the loss of confidence in a company due to market conditions has no impact on its ability to find funding from profits to maintain its operations, why is it that widespread contagion of such loss of confidence can frequently lead to a major down-turn in economic activity, if not as serious as the Wall Street Crash?
Nev said:If the loss of confidence in a company due to market conditions has no impact on its ability to find funding from profits to maintain its operations, why is it that widespread contagion of such loss of confidence can frequently lead to a major down-turn in economic activity, if not as serious as the Wall Street Crash?
Drakkith said:I've read a few articles online, and from what I've read it takes a combination of events to cause something like a depression from a Stock Market crash. The thing is that the stock market is directly connected to the economy and the money supply. When the economy does bad it isn't the Stock Market to blame, it is the economy. The market merely reflects the economy.
I don't know all the details, so I hope someone can explain better than I can. I've only looked around at wikipedia and a few articles such as this one: http://www.amatecon.com/gd/gdcandc.html
Sure, but would ONLY that cause the economic problems? Just from some quick reading it seems vastly more complex than just that. Know any good links on the issue?WhoWee said:The 1929 Crash was fueled by speculation and credit - it was a bubble. Much like our recent real estate bubble where people bought homes of ever increasing value with nothing down - investors in the late 1920's bought stock on broker credit - or margin.
Drakkith said:Sure, but would ONLY that cause the economic problems? Just from some quick reading it seems vastly more complex than just that. Know any good links on the issue?
WhoWee said:I think one of the dangers in a highly speculative (leveraged investments also think derivatives) market is that capital is siphoned away from IPO's and bonds. Fresh capital is needed for growth.
Drakkith said:Ah ok, I see. Thanks Whowee.
Drakkith said:I've read a few articles online, and from what I've read it takes a combination of events to cause something like a depression from a Stock Market crash. The thing is that the stock market is directly connected to the economy and the money supply. When the economy does bad it isn't the Stock Market to blame, it is the economy. The market merely reflects the economy.
Nev said:I accept that any problem affecting the global economy, such as sudden shortage of oil, can have a serious impact on the value of shares worldwide. But in any case, I see money, the means of exchange, as something totally different from a product produced by someone's labour for human consumption or use, which is the only way to create wealth, whereas the notion that trading in money can somehow make more money is simply fiction.
Of course there are some who gain from the trade, or it wouldn't exist, but I suggest that their winnings are far outweighed by the losses of others and the risks to the wider economy when such gambling falls on its head.
WhoWee said:Are you now referring to currency trading?
Nev said:I'm sorry if I confused the issue over the exchange of money. Clearly it is involved in stock market transactions as well as the currency market and also in credit or loans from banks, which attract interest.
Nev said:As I have stated before, I am convinced it is unnecessy for interest on loans to be charged as an incentive for debts to be repaid. All business, as I have said before, is based on trust, whether a company does work for which it expects to be paid once the job is completed or one expects an item to be delivered when payment is made in advance to a reputable company. We know how reckless lending by banks for profit can cause havoc with the global economy, even their own survival, unfortunately at huge cost to the taxpayer. Once again, I suggest if banks worldwide were no longer able to charge interest, their operations funded by the state, I feel certain the cost to the community at large would be far outweighed by the advantages to both business and consumers, thereby leading to greater stability and potential for growth in the global economy. Meanwhile the risk of another banking crisis in Europe would recede, as countries with huge deficits would stand a far better chance of repaying their debts once the burden of crippling interest was removed. Of course huge vested interests would fiercely oppose such a change, but politicians surely have more power than bankers.
WhoWee said:You're suggesting that banks no longer pay interest on deposits as well?
Drakkith said:WhoWee, I think Nev is saying that banks wouldn't be for profit anymore, but run by the state. I personally don't want the government further entrenched in the Economy, so I don't like that idea at all.
What you mean to say is that you believe that the cost of propping up an over extended bank is greater than the cost of letting it fail. Many would agree with this.Nev said:What does it really matter if a few banks should fail due to their reckless lending for profit, which has led to massive national debts and severe hardship for many as austerity measures are applied in an attempt to rectify the situation?
Try to connect your sentences better. You said something would happen. You didn’t say after what event. Should I add something like “After a bank failure” to the beginning of your sentence?Trade and industry worldwide will continue as ever, albeit tragically at a much slower pace than before.
I understand many people dislike profit motive but clearly if a bank doesn’t make a profit it fails. So we should conclude that maximizing profit does not lead to failure even though greed can lead to failure. A lot of the negative effects of greed in banking could be eliminated by eliminating bank bonuses but the counter argument is that people should be rewarded for success.Have we not seen down-turns in economic activity before for the same basic reason - ie because banks are managed for profit,
I presume you aren’t really looking for an answer to the last question. If you wish to discuss it in another thread we can. Banks cannot be run as a free service though. You will either pay for it though fees, trough taxes or by accepting risk. We do already to a degree pay for banks though taxes because we grantee their deposits at rates I suspect do not adequately insure the current risk in the system.when they should be run as a free service to the community, funded by the state on a sane and sensible basis by universal consent? How else can we expect to obtain the financial stability necessary for sustained growth in the global economy?
An economy needs a system to allocate resources for production. When someone allocates resources it is not unreasonable for them to expect a return on the resources (dollars) they allocate. Well, our system is far tfrom perfect at this, it is far more efficient than any form of state allocation.After all, money in essence is merely a means of exchanging useful goods and services, not a tool which by itself can create wealth. Clearly banks in their current form, trading in money for profit and competing with everyone's money in markets governed by fickle confidence, do more harm than good.
If credit doesn’t drive growth why is credit vital?The world's capacity for growth can only be driven by its industrial output, not by banks gambling on a grand scale with its means of exchange, which so often leads to cycles of 'boom and bust', leading to drastic reductions in vital investment and credit to business worldwide.
John Creighto said:If credit doesn’t drive growth why is credit vital?
Nev said:Have we not seen down-turns in economic activity before for the same basic reason - ie because banks are managed for profit, when they should be run as a free service to the community, funded by the state on a sane and sensible basis by universal consent? How else can we expect to obtain the financial stability necessary for sustained growth in the global economy?
Only the world's leaders acting in unison with courage and determination can provide a financial system which truly serves the needs of the community, instead of itself, and so bring the stability we so badly need. As long as overpaid, invulnerable bankers, with their myopic vision obscured by unbridled greed for profit, remain unaccountable to the wider public, so long will millions of innocent, vulnerable citizens continue to suffer the consequences of such a flawed financial system!
Nev said:Only the world's leaders acting in unison with courage and determination can provide a financial system which truly serves the needs of the community, instead of itself, and so bring the stability we so badly need. As long as overpaid, invulnerable bankers, with their myopic vision obscured by unbridled greed for profit, remain unaccountable to the wider public, so long will millions of innocent, vulnerable citizens continue to suffer the consequences of such a flawed financial system!
Drakkith said:EVERYONE that I know that has credit problems got themselves into it.
Nev said:I accept that imprudent borrowing by nation states and individuals is clearly a major part of the picture, but I suggest as long as banks are managed for profit the temptation to lend to the point where serious defaults are likely, will continue well into the future, especially as banks are currently immune from failure.
Drakkith said:EVERYONE that I know that has credit problems got themselves into it. You can try to shift the blame all you want, but people have almost full control over their own finances, not banks.
I do agree with you Drakkith but I have to add another dimension to this discussion. Lots of people (in the UK at least) in the recent past were duped by banks offering credit cards and loans by the bucket load. Whilst it is those peoples' fault that they borrowed more than they could afford the problem was that banks unwisely marketed and offered money to people who had no way of paying it back, people who were demonstrably unintelligent with money. This was a failure of both unwise consumers and unwise business practice.Drakkith said:It is against a banks best interest for anyone to default on a loan. They no longer receive income from the interest and in many cases they only get a partial return on whatever property they can legally take in lieu of payment. And that's assuming there's actually something for the bank to take, which isn't always the case. Sometimes they simply have to bite the bullet.
Nev said:I accept that imprudent borrowing by nation states and individuals is clearly a major part of the picture, but I suggest as long as banks are managed for profit the temptation to lend to the point where serious defaults are likely, will continue well into the future, especially as banks are currently immune from failure.
WhoWee said:Please clarify with specifics.
Nev said:By "a free service to the community", I don't necessarily rule out some measure of interest on loans to fund wages and salaries etc, but that banks' operations should no longer be run for profit, with strict limits on how much capital can be employed to provide mortgages etc and loans and long-term investments to business to boost the economy. Any surplus revenue could then go to the government, rather than into the pockets of shareholders or greedy, self-serving staff by way of massive bonuses. We have already seen how gambling for a quick profit in company capital led to the dreadful Wall Street Crash and the Great Depression of the 30's, as well as the recent credit squeeze which resulted from the debacle caused by excessive lending by banks for profit, which could not be sustained, in the sub-prime mortgage market.
I see no reason why banks should not be run as a reliable, dependable service to the community with no profit motive involved, their operatives accountable to the state and hence the taxpayer, with strict rules to prevent high risk initiatives, which can so easily lead to disaster for the wider economy, as millions of jobs are lost and all that such a scenario means to the quality of life of all who are affected.
I appreciate such a radical change to the system would require worldwide consensus, but I am convinced the benefits to trade and industry and everyone's quality of life would be substantial and ongoing.
Nev said:By "a free service to the community", I don't necessarily rule out some measure of interest on loans to fund wages and salaries etc, but that banks' operations should no longer be run for profit, with strict limits on how much capital can be employed to provide mortgages etc and loans and long-term investments to business to boost the economy. Any surplus revenue could then go to the government, rather than into the pockets of shareholders or greedy, self-serving staff by way of massive bonuses. We have already seen how gambling for a quick profit in company capital led to the dreadful Wall Street Crash and the Great Depression of the 30's, as well as the recent credit squeeze which resulted from the debacle caused by excessive lending by banks for profit, which could not be sustained, in the sub-prime mortgage market.
I see no reason why banks should not be run as a reliable, dependable service to the community with no profit motive involved, their operatives accountable to the state and hence the taxpayer, with strict rules to prevent high risk initiatives, which can so easily lead to disaster for the wider economy, as millions of jobs are lost and all that such a scenario means to the quality of life of all who are affected.
I appreciate such a radical change to the system would require worldwide consensus, but I am convinced the benefits to trade and industry and everyone's quality of life would be substantial and ongoing.
John Creighto said:Well, it is an admirable to want a better banking system worldwide may I suggest doing as Gaundi said and” be the change you want to see”. Now to some degree this is difficult. Carrying a debit card around is easier the carrying cash. Carrying cash around is easier than carrying gold. We often need a checking account for our job and most things today require a credit card. However, there are not for profit banks they are called credit unions. As a depositor in a credit union you are an investor in it and have a say in the organization in proportion to what you invest.
“In the credit union context, "not-for-profit" should not be confused with "non-profit" charities or similar organizations.[20] Credit unions are "not-for-profit" because they operate to serve their members rather than to maximize profits.[21][22][23] But unlike non-profit organizations, credit unions do not rely on donations, and are financial institutions that must turn what is, in economic terms, a small profit (i.e. "surplus") to be able to continue to serve their members.[24][25] According to WOCCU, a credit union's revenues (from loans and investments) need to exceed its operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency[26] and "credit unions use excess earnings to offer members more affordable loans, a higher return on savings, lower fees or new products and services".[citation needed]”
http://en.wikipedia.org/wiki/Credit_union
Now if you don’t like the business practices of a particular credit Union consider organizing a new one.
