Week Three - The Privatization of Money

1. Economics for
Activists
Week Three – The
privatization of
Money
Mechanics Institute Limerick
May 2013

2. “The process by
which money is
created is so simple
that the mind is
repelled.”(John Kenneth Galbraith)

3. Mary Mellor – Chapter Two: The Privatisation of Money
1. Banking and the State
2. Banks, States and Debt
3. Money Creation and the Banking System
4. From Regulation to Deregulation
5. Liquidity and Solvency
6. Innovations in Banking: Securitised Finance
7. Private Good; Public Bad
8. Conclusion

4. “… a tangled interaction
between the market and the
state….”

5. The commercial creation of debt has
slipped from public control…

6. The commercial creation of debt has
slipped from public control…
Although not from public liability.

7. The commercial creation of debt has
slipped from public control…
Although not from public liability.
While the capitalist financial system has
privatised the money system, it remains a
system of social trust.

8. The commercial creation of debt has
slipped from public control…
Although not from public liability.
While the capitalist financial system has
privatised the money system, it remains a
system of social trust.
The market alone cannot sustain it.

11. Page.32
State endorsement of bank debt
means that banks are able to issue
liabilities at will.

12. Page.33
Unlike state-issued ‘fiat’ money which,
when issued becomes the property of
the receiver to dispose of as they will,
money issued by banks has to be paid
back with interest.

13. Page.33
Unlike state-issued ‘fiat’ money which,
when issued becomes the property of
the receiver to dispose of as they will,
money issued by banks has to be paid
back with interest.
Control of money issue passes from the
state to the banking sector and with it
the benefits of seigniorage, that is,
financial profit from making loans.

14. Page.37
This creation of credit-money by lending in
the form of issued notes and bills, which
exist independently of any particular level
of incoming deposits, is the critical
development that Schumpeter and others
identified as the differentia specifica of
capitalism.
If banks could not issue money they could
not carry on their business.
Credit creation is the actual business of
banking

18. Page.39
It is clear that in the late twentieth and
early twenty-first centuries, the bank credit
creation system was not just responding to
the needs of production but to the demands
of speculative inflation.
Page.40
As states were receiving the product of
uncontrolled credit creation, the public
would eventually have to pay the price in its
role as guarantor of the money system.

19. Page.47
Money was seeking a way to make more
money, but with so much ready money
available, there was a limit to where viable
investments could be found.
Page.48
Securitisation – ‘originate to distribute’

38. LIQUIDITY AND FINANCIAL ASSETS
Like a real asset, a financial asset may have more than one function. In addition to serving as
a store of wealth, a financial asset may make it possible to transfer risk from one person to
another, and may make it possible for speculators to make "bets" on the fortunes of a
particular company.
But these functions are separable. There is no reason why the person who supplies the money
for a financial asset should take the risk associated with the asset. And the risk can be
transferred from one person to another independently of any transfer of the money investment
from one person to another.
…a long term corporate bond could actually be sold to three separate persons. One would
supply the money for the bond; one would bear the interest rate risk; and one would bear the
risk of default. The last two would not have to put up any capital for the bonds, although they
might have to post some sort of collateral.
- Fischer Black, “Fundamentals of Liquidity” (1970)

39. Residental / Commercial Mortgage Backed Securities

42. Failing to see that commercial money
creation was behind the flood of money in
the new financial world, bankers and
financiers congratulated themselves on the
amount of money they were making.
As money markets have grown, bringing
together a wide range of financial
organisations including the banks, the
privatised financial system is effectively
creating money for itself.
Mary Melor, The Future of Money (Pluto Press, 2010), p.53

58. Irish Mortgage-Backed Securities listed on Irish Stock Exchange, April 2012
AIB Mortgage Bank (AIB) - €11.87 billion
Celtic Residential Irish Mortgage Securitisation - (Ulster Bank) - €20.6 bn
Phoenix Funding Limited - (KBC Bank) - €11.55 billion
Emerald Mortgages (EBS) - €4 billion
Kildare Securities (Bank of Ireland) - €3.45 billion
Fastnet Securities (Irish Life & Permanent) - €23.774 billion
Lansdowne Mortgage Securities (Start Mortgages) - €729 million
Total listed (of those found) : €75.973 billion
http://dublinopinion.com/2012/04/02/irish-mortgage-backed-securities-initial-notes/
http://dublinopinion.com/2012/04/04/irish-mortgage-backed-securities-part-two/
http://dublinopinion.com/2012/06/08/update-on-amoroin-securities-from-clare-day-td-6-june-2012/
http://dublinopinion.com/2012/09/06/bank-of-ireland-mortgage-backed-securities-april-1988/