Nationalisation of Northern Rock signals the End of Banking as we know it

It’s astonishing but not entirely unexpected. The British taxpayer is the proud owner of the Northern Rock and 100bln worth of loans. It’s a sad reflection on the state of the UK banking system that they can’t find a buyer for this.

But this simply hastens the decline of the banking system as we know it. In 10-20 years time we will look back on this and see how important this moment was. What the banking system or indeed money looks like remains to be seen but our trust in current arrangements must be questioned.

More importantly for football fans is the Northern Rock’s sponsorship of Newcastle. Surely the taxpayer won’t be happy about this. Supposedly the sponsorship is safe but they said that about Northern Rock.

Financial Advisors paying up for bad decisions

2007 was a poor year for investors in finance companies but it was a worse year for the financial advisers who directed those investors. Many investors, or more accurately, clients are taking legal action against their advisers. Some of the stories are quite unbelievable with advisers directing money into investments which struggled to meet any kind of benchmark relating to their clients risk parameters and investment goals.

Sadly many financial advisers have little market experience and come from the selling side of the business. It’s the old “churn and burn” mentality. They can’t manage risk because they don’t know much about it. They simply direct the traffic into a range of investment choices differing marginally in yield.

Many advisers are now paying clients out in full to avoid legal action. Fair enough. They act in a position of trust and supposed expertise and should be accountable.

Basic Income: What’s possible?

I came across this new journal on basic income and thought it would be worth passing. there are many good and thought provoking articles available. What I have found interesting is this political slant given to some of them. Quite frankly who cares?

It actually falls neatly into and out of most of the political spectrum. Where it diverges is on the issue of control. Politics is all about who is in control whether Blue, Red, Yellow or Green or any shade in between. Basic income is about giving everyone access to the financial commons and allowing them the just get on with it. It isn’t a social policy its an expression of freedom and a right.

It will be interesting to see how this debate develops but I’m glad to see it taking on a more formal conversation.

The Ripple Effect - Money but not as you know it

The P2P lending sector is growing all the time with the main companies starting to increase custom and size. The rise of P2P lending is helping bring money and its nature into the wider consciousness. Alongside this sits other proposals for fully distributed money systems. Many of these revolve around traditional and tested complimentary currencies such as LETS, Time$ and other locally based systems.

One proposal is Ripple. It’s been around for a few years and there is some good information on the site including the initial paper from Ryan which I have posted up in the research section. There’s plenty of commentary around about it which is worth a look at. Essentially it proposes to replace bank created debt money with personally created credit through a fully distributed network based system. What is good about this proposal is that it takes the concept of local currency systems to its logical conclusion which is a globally based one with servers finding the right path to the appropriate relationship or network.

The most important part of this is identifying that most of what we think of as money is in fact simply an IOU. So why should banks create this? Well the main reason is trust. What Ripple proposes is the creation of that trust through networks, which as we know are already widely in use.

Jamesey proposes a further layer on top of this adding in microfinance structures and leveraging off the Paypal system.

We also have very well embedded and established credit card systems (Amex and Visa) who already have the distribution systems. So the trust system is going to be a key issue. Who is in your network? Who can you trust? I’d suggest and I hope that VortexDNA will play a role in helping this kind of global protocol to develop.

The main problem is the control of supply. One would like to think that a complex system, such as proposed, would regulate itself constantly adjusting to feedback. We know that the current system is close to imploding because of rampant money creation. So cculd it be any worse? Could governments participate also?

It’s open season and anything is possible.

Fed ups the ante but market calls

Its like watching a disaster movie in slow motion. To see the Fed so far on the back foot is disconcerting to say the least. The recent $40bln credit injection has just left the market needing more and stocks floundering.

For the first time I am asking myself whether we have a Japan style bank crisis developing. My immediate response is to say no because we haven’t had the screaming bubble of the equivalence they experienced in Japan but one could look back to the bubble of 2000/2001 and feel it was merely reinflated by the post 9/11 easing. This easing further invigorated the property bubble and took it to new heights along with financial practices that were dubious at best.

We have a situation where the banking system, in the wider sense, is stuck with a serious number of non-performing loans and this number could easily escalate if the recent liquidity measures don’t work. In Japan the policy response was to duck it and hope it would go away. The US has addressed it head on so far but will they allow banks to go under and house prices to tumble further. The maintenance of confidence is crucial in any fractional reserve fiat based money system and so far it seems like the US authorities are no taking any chances.

What if this doesn’t work? Then we will have a serious problem and global stock markets will take a 20-30% hit. I’m not making any predictions but cash still works for me.

The End of the $?

Following on from my post on the Amero I came across this article which explores the fallout for the $ from the current financial crisis. The hard question the Chinese, Russians, Arabs and other holders of $ must be asking themselves is what to do with them.

Well I think we’ve been seeing the answer in action for some time now. Buy overseas assets not paper. In other words buy into industries, land, property but not continue to finance the US deficit by buying US treasury stock.

We’re starting to see the Arabs and Chinese buying up assets in many sectors, especially finance and resources. Makes sense doesn’t it?

Nothing confirms this more than the Abu Dhabi Investment Authority buying 5% of Citbank for $7.5bln…….structured as a convertible loan paying 11%….now that is a junk rate.

What a deal for the Arabs. And the irony of having to bail out a huge US financial behemoth.

No doubt there has been plenty of sucking wind going on in Washington and Wall Street.

It’s a simple game from here on in. It’s called “Show me the Money”.