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Eric Cantona - he of the kung fu school of football and sardine school of poetry - is calling on protestors to simply withdraw their cash from banks as a form of protest.

http://www.bbc.co.uk/news/magazine-11811238

He correctly points out that if everyone withdraws their cash, the banks will be in trouble - as we all know that most of the money in bank accounts around the world doesn't actually exist in any tangible form.

Interesting tactic on the part of the Gallic footballer - but I suspect the protestors may not take heed.

Cheers,
Shafique

I sat next to El on a flight from Paris Charles de Gaulle to Manchester. What a nice man he seemed and very quietly spoken. I liked him even tho' he used to play for the enemy.

What a complete stupid and irresponsible idea. Banks have been brought down by money runs, causing a lot of agony for their customers and costing tax payers a lot of money and can bring a whole economy down when done a wide scale. I understand his frustation, but this is plain stupid. In some countries people calling for a bank run can be liable for prosecution.

His point is that this will cause more damage than just protesting.

The criticism is not that he's wrong, but that this would be irresponsible (judging by the criticisms on line as well as FD). I agree - bringing down the banking system would indeed cause a lot of harm.

But that's the point - the system relies on people accepting the fact that the majority of the money doesn't actually exist, and that if they ask for their money the illusion is broken and reality bites (i.e. Banks will fail).

I don't think the French protestors will bring down banks - but 'King Eric' has made a good point, I think.

Cheers,
Shafique

they will ony listen to him, if he becomes the president/prime minister of France. But yes some hardcore united fans will be supporting him! They supported him for his kung fu fighting and they will support him for this idea too!

Well he is a film star now so will have some pull, and yes, United fans will support him. I'm not sure how many Utd fans are french, but probably more there than in England

Sorry, but I just have the urge to type....

Oooh, Ah.. Cantonah!!

Shaf, his accent was quite delicious, had I not been the very respectable woman I am, I may have been tempted to join the Mile High Club. Having said that I am now glad I saved myself as I have a new heart throb in Zinadine Zedane. If his voice does not win the Qataris the 2022 bid, I can only assume there are no women voting. My friend at work has a contact at the FA. The Yanks are favourite for 2022 and we (England) are equal in the running for the 2018 bid with Spain/Portugal. It all rests on who can persuade who in the voting. At close of play the Trinidad vote rests of whether they can persuade us to build them a Football School of Excellence in Trinidad. Apparantly we have sent our best man to talk them round. I eagerly await the results of his visit on December 3rd.

Bethsmum wrote: Apparantly we have sent our best man to talk them round.

Who did they send?

Gary Lineker?

John Barnes?

Surely not Sir Alec Ferguson? They wouldn't understand a word he says!



Knight

BM - you are a fount of knowledge regarding the world cup etc. However, you have given us a little bit more info that was necessarily required - you could have just said you fancied King Eric and left it at that!

I've been amazed at how erudite (educated) and cultured most of the French football players are - like Thierry Henry, Zidane and Cantona. Lineker could put together a few words without sounding too dumb - but compare
the classy French guys with Beckham and (shudder) Rooney and it is embarrassing.

So, DK's joke apart - who is our 'best man' that has been sent round - is he an ex-footballer..

Cheers,
Shafique

No Shaf, not a footballer, someone from the FA involved in the bid. I will quiz my friend at work this morning and report back. BM on a mission! Too much info LOL, Oh you know me, I just say what's on my mind at the time!

-- Wed Nov 24, 2010 6:03 pm --

Well Shaf, I can report that the man who has been sent to rescue our bid is David Dein, the ex Arsenal chairman. He has been working for the FA since leaving Arsenal. The Trinidad FIFA fella has control of 3 votes, so I'm told so is very important to us. My friend's friend is heading off to Geneva, where FIFA has it's headquarters, next week where the voting will take place for both years on December 3rd. Mr Cameron, David Beckham and Prince William will all be there and give speeches in support of our bid. Mr C has increased the time he intended to stay from 1 to 3 days so obviously giving this event some importance! Apparantly Prince William is excellent in these situations, my friend's friend (lady) has to brief them on the FIFA fellas and he never forgets a thing and flatters all their wives too!
The man from Trinidad returned a Mulberry bag that his wife was given from the FA when he was accused of taking bribes. Someone leaked the fact that the FA had bought Mulberry bags to give to all the wives, so now my friend's mate is sitting on a shed load of handbags in her flat which she can't do anything with till after Dec 3rd. I do like a nice Mulberry bag and have my eye on a nice patent fake leopard skin one that I'm hoping will fly my way after the results are in! All the bidding countries have been giving special presents to the FIFA fellas and that's why they didn't make too much fuss when our handbag error came to light.
Oh and her boss at the FA is on £590,000.00 per year. Bloody hell where does the FA get all it's dosh from?

Bethsmum wrote:I sat next to El on a flight from Paris Charles de Gaulle to Manchester. What a nice man he seemed and very quietly spoken. I liked him even tho' he used to play for the enemy.

I once sat next to him Heathrow - Riyadh. He commented that he thought it 'good' I was reading a book. We talked briefly about large print and small print then ignored each other the rest of the flight.

Our conversation was rather more animated than that

Back on topic - his idea of withdrawing money is nuts - if people listen to him its not a protest it will be a disaster for the people that were unlucky enough to be standing in line to withdraw their money as the bank closed its doors. Presto...a bank run. Banks rely on people not withdrawing all their money yes - the reason - because they lend it out (or used to) for mortgages, business's.

I like Cantona even though he clearly played for the wrong team - admire the fact he walked away from it at his peak but this is ridiculous idea. If we ever got into power he would retract this suggestion immediately.

BM - thanks for the info - very enlightening. That's a nice salary.. isn't it!!

Joe - yes, back to the subject.

Yes, Cantona is trying to precipitate bank runs - and yes, this is bad for the banks and there will be bad consequences if bank runs happen. But that is his point - if people did this, the result would be more effective than protesting in the street.

No one disputes this fact.

Fractional reserve banking also means that banks literally create money that doesn't exist - not just that they lend out what depositors give to them. That is a large part of why trillions of dollars can literally disappear overnight and require trillions of dollars to be given to banks 'to restore confidence'.

The money that disappeared didn't exist (if it did, the money would be sitting in someone else's bank account).

Look up 'Money as Debt' - a good video from a few years ago which explains this in an interesting way - and gets this point across really well (but does sacrifice some economic subtleties in the telling - but this does not change the overall message's truth).

Cheers,
Shafique

Shafique - not sure I get you or maybe I misunderstood the point - my reply was just aimed at the fact that precipitating banks runs is in no ones interest. Thats all.

On your point regarding the money is printed - sure thats the case after the gold standard was abolished and nothing apart from a country's GDP, etc backs its printed money, however your point that if the money was in someone else's account is somewhat irrelvant. Even if banks lent 1:1 for every $/£/Dhs deposited they can't ask for loans back when someone comes to withdraw money. In reality banks access money markets and sometimes lend a lot more than they receive in deposits and earn the spread difference - apart from a few exception HSBC HK - this is generally the way the business of banking is run. In our paper society Cantona's request is going to harm the very people he is asking to object.

Joe - the people who do get their money out and can, say buy gold, with it - will not loose their wealth.

The point I was making about imaginary money that doesn't actually exist is exactly that the money doesn't exist.

I'm not talking about money that did exist and did go to buy assets. I'm referring to money that never existed and then just disappeared - but before it disappeared, people just 'believed' it existed.

Fractional reserve banking means that the banks create money - not just lend out money that previous depositors gave. It is not even paper money - but an entry in a computer somewhere.

It is actually this fictional money that makes a run on the bank so dangerous today - and why the banking world is scrambling to paper over the cracks, and why governments are desperately trying to reform the banking capitalisation and regulation (and not doing a good job of it so far).

Banks accessing money markets is fine - they are borrowing from investors who are lending to them (and works as long as they can repay, and if they can't then the investors lose out - a risk they entered into voluntarily).

But the critique of fractional reserve banking is that under this system, banks create money by lending out money they don't actually have.

What is even more crazy, when you think about it, is that Governments borrow money that doesn't exist from institutions that rely on the Government to give it money if they are in trouble. The Government then pays interest on money that never existed.

It's so crazy that many can't believe that is how the current system actually works - and want to believe that there is some economic theory that justifies this craziness.

But Cantona was just saying - a more effective way of protest is to withdraw your money from the banks. On that point, he's right.

Cheers,
Shafique

Shafique - I work in investment banking and have done for 18 years so am well versed in fractional reserve banking and the fact that money is a computer entry which finally ends up on a central banks computer systems. All of these things are reported - in the UK its M1, M2, M3 and the US has its only statistics on the Fed's balance sheet and credit creation. I don't believe any of this is relevant to the point of bank runs. There were bank runs even when the gold standard existed and if credit was zero ie banks lent 1 for 1 than as per my previous example there could still be bank runs and failures if everyone asked for their money back at the same time.

Joe - I think the only point I'm making that we may differ on is that the current level of fractional reserve banking (and even the wider measures of money, included in M4) is what is really behind the problems that have caused this economic crisis, and why the system is so fragile right now.

As you rightly point out, the US from about 5 years ago stopped publishing the wider measures of money - choosing to only show M0 and M1 (IIRC).

The issue is that a bank run in a system where there isn't irresponsible creation of fictional money (irresponsible lending, if you will, of money you don't have) - then the chances of a run are much less - and indeed if there is run, then the bank will ultimately get the money to pay the depositors.. eg by passing on the real loans to others with cash.

(But do you agree with the fundamental point that some still can't fathom - that the trillions of dollars that vanished and required the bail outs, did vanish into thin air - they didn't make some people trillions of dollars richer.. it just vanished.. Or am I mistaken here?)

I think the issue of fractional reserve banking and the financial crisis are inter-twined. In our region, Lebanon touts the fact that its banking sector hasn't been affected because it has tight banking regulation - and regulation that doesn't stifle industry etc.

I have friends who are quants and have former colleagues who went into investment banking (from Actuarial work) - they all agreed that the system is crazy and that the fundamentals would eventually come to bite - it was just that no one knew how long the confidence in the system could be sustained so that money could be made out of thin air. This used to be only at the margins, then it became larger and larger - to the point where crazy risks were taken by a minority - and hence we have the mess we're in.

But you're right, this is not new - re-reading Galbraith's history of the Great Crash shows that the 21st century follies are no different from the 20th century ones - only this time the scale is frighteningly much bigger.

But hey - that's a bit heavy for a thread about Cantona telling French protestors to withdraw their money from the banks!

Cheers,
Shafique

I think we have definitely bored the bejesus out of everyone else that was reading this thread at least - note to self - when talking about boring topics (or ones that only interest you) put an eye catching title about a french footballer

Here is where I stand on the main point I have tried to make in the last few posts -

Bank runs happen not because there is more credit but because there is a crisis of confidence - the amount lent and the fractional reserve varies all the time but a bank run can always be precipiated if ALL people want their deposits back today. Thats always been the case - before and after the gold standard. That was my main point in the last few posts - ie bank runs are not more or less likely because the financial system has changed they are entirely based on confidence in it. No confidence = people want their money out = bank run.

On your points -

(1) "The issue is that a bank run in a system where there isn't irresponsible creation of fictional money (irresponsible lending, if you will, of money you don't have) - then the chances of a run are much less - and indeed if there is run, then the bank will ultimately get the money to pay the depositors.. eg by passing on the real loans to others with cash. If banks lend more as you put it in the 2nd "

(a) Not sure what you mean by fictional money - money is created everyday by how central banks are willing to accept financial securities (bonds+other debt) from banks and lend back to them. Right now central banks are creating money like no tomorrow - as Jim Rogers puts it the Fed wants to kill all the trees in the world

(b) Banks always lend money they don't have because the only money they do have is their capital - their deposits are their liabilities and the loans they make are their assets. If they lend irresponsibly (which normally means lending to people who won't/can't pay it back) than they sustain losses to their earnings and it those are insufficient to absorb it then their capital. The lending the banks did pre 2008 was entirely irresponsible in 2 ways primarily -
(i) they lent 100% on unrealistic property valuations - in the UK you could even borrow 125% agains the purchase of a house in 2007. This leaves little scope for price falls and when prices fell the banks have a capital loss if the borrower is unable to pay (cos he loses his job, etc)
(ii) lots of retail banks held AAA securities that were essentiall ABS (asset backed securities) where the underlying where these dodgy loans in (i) -- some of these being sub-prime loans as was termed in the US. These securities were rated AAA because of again unrealistic ratings models (moody's/S&P made a fortune for the last 7 years rating pure crap AAA). Banks structured theses and sold off the capital structure (the lower tranches AA, BBB, BB) to investors and often retained the top slu which was super senior AAA peice. When these loans (as described in (i)) started to default and house prices started falling these securities were no longer AAA and the losses (due to the sheer volume held) were tremedous and this is what led to Lehmans and others banks getting into huge problems not (i) as the effect of that takes time.

Hence irresponsible lending leads to loss in capital and first a loss in confidence in the bank (nothing is ever secret and everyone on Wall Street knew who was the most exposed). This crisis in confidence can precipitate bank runs - as my first point stated its always about confidence. For investment banks where there are no retail deposits this crisis in confidence is not evidenced by depositors trying to withdraw money but rather by other banks not lending to them in the money markets and simultaneously making large collateal calls for $$$ against them. This is what killed Bear, Lehman and Merrill - albeit it was somewhat contrived.

(2) (But do you agree with the fundamental point that some still can't fathom - that the trillions of dollars that vanished and required the bail outs, did vanish into thin air - they didn't make some people trillions of dollars richer.. it just vanished.. Or am I mistaken here?)

Not sure what you mean here. What dissappeared where - please elaborate.

(3) I have friends who are quants and have former colleagues who went into investment banking (from Actuarial work) - they all agreed that the system is crazy and that the fundamentals would eventually come to bite - it was just that no one knew how long the confidence in the system could be sustained so that money could be made out of thin air. This used to be only at the margins, then it became larger and larger - to the point where crazy risks were taken by a minority - and hence we have the mess we're in.

The system has very little fundamental basis now if it ever has even during the gold standard. As my entire explanation elludes to the financial system, operation of banks, acceptance of money is all based on confidence. You are able to spend $100 Dhs in Spinney because it is accepted as legal tender and people believe that Abu Dhabi has the wherewithall to support its currency - same goes for the USD, GBP, etc -- but in reality if Spinney's or you and I didn't believe in the Dhs than its worthless. Hence we will only descend into chaos when people and business's lose confidence in something. The Euro is having this battle right now as people/institutions are questions the ability for germany to be able to support what seems a growing number of extremely weak economics.


I think thats enough - I am sure that if anyone has bothered to read the above but I imagine that if they have they are less likely to be thinking about their money and the financial markets and more about slashing their wrists...or ours.

We are describing the same system - there's no disagreement over how the current system works.

I'm just fond of calling a spade a spade and looking beyond the jargon - and actually get to the fundamentals.

The crux for me is that the system relies on confidence - i.e. belief. It is akin to religion - but in this case it is a belief that what doesn't exist has value. I believe that fundamentally this cannot last forever and therefore the system is inherently flawed - 'corrections' occur from time to time when investors collectively decide to stop believing (i.e. there is a loss of confidence).

I am sure that if anyone has bothered to read the above but I imagine that if they have they are less likely to be thinking about their money and the financial markets and more about slashing their wrists...or ours.

I agree. But my issue (a philosophical one), is why do we insist on trying to get people to believe ( or 'restore confidence') rather than fix the issue that causes a lack of confidence? The issue, I submit, is that the system relies on fictional money.

You ask:

(But do you agree with the fundamental point that some still can't fathom - that the trillions of dollars that vanished and required the bail outs, did vanish into thin air - they didn't make some people trillions of dollars richer.. it just vanished.. Or am I mistaken here?)

Not sure what you mean here. What dissappeared where - please elaborate.

Before September 2008, to pick a date before the latest crisis, there existed in the monetary system of the USA (for example) many trillions of dollars more than existed before QE (1) injected over a trillion into the US monetary system. We can specifically look at the money that supposedly existed on Bank balance sheets. Over a trillion evaporated.

My question is where did this money go? If it existed (was real), then someone somewhere on earth (or even on Mars) will have this money now.

I believe the money wasn't real - people just had faith it existed. When they stopped having this belief, it disappeared.

I find that not using jargon, but using slightly different descriptive words for 'confidence' 'market valuations' etc is useful and de-mystifies what is essentially a simple concept. I do find most people are shocked to learn about how modern finance operates and who is actually in charge of creating money (and the fact that it is pretty much no longer under the control of Governments):

BTW - have you watched 'money as debt'? What do you think of how he presents the system and his conclusions?



(I think at this stage only us are reading/understanding this - I agree)

Cheers,
Shafique