User talk:WouNur

Fractional-reserve banking

Hello, and welcome to Wikipedia! Before making tendentious edits at the article on Fractional-reserve banking, please read your source material again. Also, read the Wikipedia article and the related talk page carefully. Famspear (talk) 21:17, 12 November 2015 (UTC)

The link you cited was not to an abstract of a paper, not to the language of the paper itself. The abstract states, in part:

In this paper it was found that banks combine what are effectively very different operations, namely deposit-taking and granting of loans under one roof, because in this way they can invent new money in the form of fictitious ‘customer deposits’ when purporting to engage in the act of ‘lending’.

Part of the problem is that this is the viewpoint of the person who wrote the abstract. It may or may not represent the view of the person who wrote the article itself.

Another part of the problem is that some people who are not trained in this subject do not understand that there is nothing "fictitious" about "inventing new money" in this way.

The abstract does seem to refer to the admittedly misleading standard terminology of banking, such as "making a deposit" and "making a withdrawal." However, bankers do not generally lie to a depositor about the nature of the transaction for making a deposit. And bankers do not generally lie to a borrower about the nature of the credit that the borrower is receiving.

Banks are not merely "purporting" to engage in "lending." Banks ARE lending when they debit the asset account on their books (e.g., loans receivable, etc.) and credit the liability account on their books (e.g., customer deposit liability, etc.).

The fact that the customer's deposit account does not consist of actual paper currency and coin is not a deep, dark secret that is being kept hidden. Famspear (talk) 21:30, 12 November 2015 (UTC)

Dear WouNur: I just checked a PDF copy of the original source material, and it appears that the quote was indeed from the original source, not from the abstract. I apologize for my mistake.

Nevertheless, the idea that the way banks invent new money is somehow "fictitious" is a view presented in the source material. In Wikipedia, we can't take sides. So, perhaps the material can be re-introduced further down in the body of the article, and re-worked to clearly state that it is the opinion of the author, Richard A. Werner. Famspear (talk) 21:40, 12 November 2015 (UTC)

For the record, the article is entitled "How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking," by Richard A. Werner, Centre for Banking, Finance and Sustainable Development, Southampton Business School, University of Southampton, United Kingdom, published at 36 International Review of Financial Analysis pp. 71-77 (2014).

In the article, Werner makes statements like these:

The ‘lending’ bank records a new ‘customer deposit’ and informs the ‘borrower’ that funds have been ‘deposited’ in the borrower's account. Since neither the borrower nor the bank actually made a deposit at the bank—nor, in connection with this transaction, anyone else for that matter, it remains necessary to analyse the legal aspects of bank operations. In particular, the legality of the act of reclassifying bank liabilities (accounts payable) as fictitious customer deposits requires further, separate analysis. This is all the more so, since no law, statute or bank regulation actually grants banks the right (usually considered a sovereign prerogative) to create and allocate the money supply....

I don't know what Werner's educational background is, but it almost appears as though he believes he has "discovered" something about banking that is not routinely taught in school. Maybe it's not taught in schools in Britain? The article is from the University of Southampton in the United Kingdom. Perhaps his claim (that there is no law, etc., actually granting banks this "right" to create money) is true for the United Kingdom. I live in the United States.

I need to read the entire article later, but Werner is explaining concepts that are considered pretty basic stuff in a college course on money and banking in the United States. Famspear (talk) 22:04, 12 November 2015 (UTC)

Also, if you are in any way connected to Richard A. Werner, you need to state so. It is Wikipedia policy that potential conflicts of interest need to be declared. Additionally, if you have edited Wikipedia before using another account, you need to clearly state so on your userpage. LK (talk) 06:12, 13 November 2015 (UTC)

Regarding this edit: [1], we've seen these kinds of comments over and over and over again in Wikipedia. There seems to be some sort of belief among certain people that economics texts -- or at least some economic texts -- do not teach the essentials of money creation with respect to banks. The essential is that banks create money when a loan is made by debiting an asset account (called "loan" or "loan receivable," etc., etc.) and crediting a liability account (the customer deposit account).

The point that seems to be missed is that economic texts DO TEACH THESE ESSENTIALS. And, these essentials are clearly explained in Wikipedia articles.

Perhaps Britain is different. And, of course, I have not read every textbook used in every economics course in every university in the world. But, in the United States, I believe it is safe to assume that these basics are usually taught in an economics course on money and banking. (The course I took when I was attending university was entitled "Money and Banking".) Famspear (talk) 16:40, 14 November 2015 (UTC)

Example:

"Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits."

The point is that college and university textbooks in the USA clearly explain this. And nobody in his or right mind thinks that American banks routinely make loans by having the borrowers walk out of the bank building carrying huge bags of paper currency and coin. Bank lending creates deposits. That's a correct statement. It's not a secret. Famspear (talk) 16:47, 14 November 2015 (UTC)

Dear WouNur: On another editor's talk page, you asserted that the "Federal Reserve" is a "privately-owned central bank."

In Wikipedia, we see this nonsense over and over and over and over and over and over and over and over and over and over gain.

You are wrong.

The "Federal Reserve" is a term referring to the U.S. Federal Reserve System. The SYSTEM has both "privately owned" parts and governmental entities. Wells Fargo Bank, for example, is a member bank and is "privately owned." By contrast, the Board of Governors of the Federal Reserve System is a U.S. governmental entity.

The Solar System consists of the Sun, some planets, some asteroids, some space dust, and so on. The fact that the Solar System contains asteroids DOES NOT MEAN THAT THE SOLAR SYSTEM IS AN ASTEROID. The fact that the Federal Reserve System contains some privately owned banks does not make the System a "privately owned bank." Famspear (talk) 17:14, 14 November 2015 (UTC)

You are correct that it helps to be more precise. See my comments below.WouNur (talk) 17:34, 14 November 2015 (UTC)

This is NOT an appropriate analogyWouNur (talk) 17:34, 14 November 2015 (UTC)

Yes, this is an appropriate analogy. Famspear (talk) 17:55, 14 November 2015 (UTC)

The silly idea that the Federal Reserve System is a "privately owned bank" is based in part on the false idea that because the privately-owned (non-governmental) member banks "own" something called "stock" in the 12 regional Federal Reserve banks, the member banks somehow "control" the Federal Reserve System in the same way that a person controls property that he owns.

A member bank's ownership of stock in a Federal Reserve bank does not give the member bank "control" over that Federal Reserve Bank -- nor does it give the member bank control over the Board of Governors of the Federal Reserve System. Further, the "ownership" of the stock is not the same as someone owning stock in a company like Microsoft or Ford Motor Company. Famspear (talk) 18:03, 14 November 2015 (UTC)

From the United States Court of Appeals for the District of Columbia Circuit:

The Federal Reserve System, which was created by Congress in 1913 as this nation's central bank, is comprised of public and private entities organized on a regional basis with federal supervisory authority. The System includes a seven-member Board of Governors, the twelve regional Federal Reserve Banks, the FOMC [Federal Open Market Committee], the Federal Advisory Council, and approximately 5,500 privately-owned member commercial banks. [ . . . ] The primary role of the System in the conduct of monetary policy is to facilitate the achievement of national economic goals through influence on the availability and cost of bank reserves, bank credit, and money. Three basic mechanisms employed by the System to implement monetary policy are open market operations, regulation of member bank borrowing from the Federal Reserve Banks, and establishment of member bank reserve requirements.....

--Riegle v. Federal Open Market Committee, 656 F.2d 873 (D.C. Cir. 1981), cert. denied, 454 U.S. 1082 (1981) (footnote omitted).

From an economics textbook:

The Federal Reserve System can be described as a pyramid having a private base, a mixed middle level and a public apex. At the apex stands the Board of Governors (frequently referred to as the Federal Reserve Board or FRB). [ . . .] At a level of equivalent authority to the Board itself, but in the "middle" of the public-private pyramid, stands the statutory Federal Open Market Committee. [ . . . ] The Reserve Banks are quasi-public institutions: their capital stock is subscribed by the member banks -- all national banks and about one-third of the state-chartered banks [ . . .] Off to the side stands the final element of the statutory organization, the Federal Advisory Council (FAC).

--Michael D. Reagan, "The Political Structure of the Federal Reserve System," American Political Science Review, Vol. 55 (March 1961), pp. 64-76, as reprinted in Money and Banking: Theory, Analysis, and Policy, pp. 151-152, ed. by S. Mittra (Random House, New York 1970).

More from the text:

[ . . . ] the "ownership" of the Reserve Banks by the commercial banks is symbolic; they do not exercise the proprietary control associated with the concept of ownership nor share, beyond the statutory dividend, in Reserve Bank "profits." [ . . .] Bank ownership and election at the base are therefore devoid of substantive significance, despite the superficial appearance of private bank control that the formal arrangement creates.

--Michael D. Reagan, "The Political Structure of the Federal Reserve System," American Political Science Review, Vol. 55 (March 1961), pp. 64-76, as reprinted in Money and Banking: Theory, Analysis, and Policy, p. 153, ed. by S. Mittra (Random House, New York 1970).

From Paul Horvitz, in another economics textbook:

[ . . . ] the member banks can exert some rights of ownership by electing some members of the Board of Directors of the Federal Reserve Bank [applicable to those member banks]. For all practical purposes, however, member bank ownership of the Federal Reserve System is merely a fiction. The Federal Reserve Banks are not operated for the purpose of earning profits for their stockholders. The Federal Reserve System does earn a profit in the normal course of its operations, but these profits, above the 6% statutory dividend, do not belong to the member banks. All net earnings after expenses and dividends are paid to the Treasury.

-- Paul M. Horvitz, Monetary Policy and the Financial System, p. 293, Prentice-Hall, 3rd ed. (1974). (Horvitz received his Ph.D. from Massachusetts Institute of Technology, and was Director of Research at the Federal Deposit Insurance Corporation. He was an assistant professor of finance at Boston University. He also served as Associate Director of Research for the Office of Comptroller of the Currency, U.S. Department of the Treasury, and as Financial Economist at the Federal Reserve Bank of Boston.)

From the Congressional Research Service:

Because the regional Federal Reserve Banks are privately owned, and most of their directors are chosen by their stockholders, it is common to hear assertions that control of the Fed is in the hands of an elite. In particular, it has been rumored that control is in the hands of a very few people holding "class A stock" in the Fed.

As explained, there is no stock in the system, only in each regional Bank. More important, individuals do not own stock in Federal Reserve Banks. The stock is held only by banks who are members of the system. Each bank holds stock proportionate to its capital. Ownership and membership are synonymous. Moreover, there is no such thing as "class A" stock. All stock is the same.

This stock, furthermore, does not carry with it the normal rights and privileges of ownership. Most significantly, member banks, in voting for the directors of the Federal Reserve Banks of which they are a member, do not get voting rights in proportion to the stock they hold. Instead, each member bank regardless of size gets one vote. Concentration of ownership of Federal Reserve Bank stock, therefore, is irrelevant to the issue of control of the system.

--G. Thomas Woodward, Economics Division, Congressional Research Service, Report No. 96-672 E, "Money and the Federal Reserve System: Myth and Reality," Congressional Research Service, Library of Congress (July 31, 1996) (italics in original).

From the Board of Governors:

Member banks must subscribe to stock in their regional Federal Reserve Bank in an amount equal to 6 percent of their capital and surplus, half of which must be paid in while the other half is subject to call by the Board of Governors. The holding of this stock, however, does not carry with it the control and financial interest conveyed to holders of common stock in for-profit organizations. It is merely a legal obligation of Federal Reserve membership, and the stock may not be sold or pledged as collateral for loans.

--from "The Federal Reserve System: Purposes and Functions," p. 12, Board of Governors of the Federal Reserve System (9th ed. June 2005).

Hope this helps. Famspear (talk) 18:06, 14 November 2015 (UTC)

Actually, ownership and governance are two separate compartments of the U.S. Federal Reserve System. Shares of the U.S. Federal Reserve System are held by the member banks and NOT the U.S. Government. On these shares, a 6% dividend is guaranteed to be paid by the U.S. Government to the shareholders of the U.S. Federal Reserve System. You are correct in stating that Chairman of of the U.S. Federal Reserve System is a U.S. Presidential appointee. WouNur (talk) 17:34, 14 November 2015 (UTC)

See my post above. Again, you're not saying anything new. Famspear (talk) 18:14, 14 November 2015 (UTC)

PS: ALL the members of the Board of Governors of the Federal Reserve System are appointed by the President of the United States, by and with the advice and consent of the Senate, for terms of fourteen years. Further, a member of the Board may be removed by the President "for cause" (although I don't think that has ever happened). Famspear (talk) 18:19, 14 November 2015 (UTC)

PS: As you can see, there is no such thing as a "share of the Federal Reserve System." You are quite wrong. The shares held by the member banks are only shares in the applicable regional Federal Reserve bank -- and the "ownership" of THOSE shares does not connote control over the applicable regional Federal Reserve bank. Famspear (talk) 18:53, 14 November 2015 (UTC)

To understand ownership, not governance, the first question that needs to be answered is, "who receives the guaranteed 6% dividend"? The second question is, "6% of what?" Before commenting further, I will await your reply. WouNur (talk) 19:05, 14 November 2015 (UTC)

I'm not here to answer your questions. I'm here to teach you about Wikipedia, and about fractional-reserve banking. The question you need to ask yourself is: Is it important to know who receives the dividend, or what the dividend consists, of and if so, why? I will await your reply. Famspear (talk) 19:34, 14 November 2015 (UTC)

Famspear, than may I suggest that you then teach me how to interact, rather than posting nonsense. For example, as stated above, "::PS: As you can see, there is no such thing as a "share of the Federal Reserve System." You are quite wrong. The shares held by the member banks are only shares in the applicable regional Federal Reserve bank -- and the "ownership" of THOSE shares does not connote control over the applicable regional Federal Reserve bank." WouNur (talk) 20:03, 14 November 2015 (UTC)

The shares of the Federal Reserve System are held by the twelve district Federal Reserve Banks as described in the Federal Reserve Act, Section 5. Stock Issues; Increase and Decrease of Capital, Section 1. Amount of shares; increase and decrease of capital; surrender and cancellation of stockWouNur (talk) 20:03, 14 November 2015 (UTC)

The Federal Reserve Act, Section 7. Division of Earnings, (a) Dividends And Surplus Funds Of Reserve Banks, states "After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock." WouNur (talk) 20:03, 14 November 2015 (UTC)

More importantly, WikiPedia defines Fraud as "In law, fraud is deliberate deception to secure unfair or unlawful gain." In "The Two Nations: A financial Study of English History", Christopher Hollis writes, "By 1672 they had developed quite a new technique. They had lent to their clients 'promises to pay' which they knew themselves unable to make good and were taking interest on them as if they were loans of cash. To me, this would appear to describe fraudulent behaviour. Am I wrong? WouNur (talk) 20:03, 14 November 2015 (UTC)

You still haven't answered my question. You've copied and pasted from the statutes. And you've cited an example of what the writer, Mr. Hollis, contends is fraud from hundreds of years ago. Whoopee!

The roots of Fractional Reserve Banking are fraudulent. This fraud empowered goldsmiths to create the Bank of England, to finance slavery and to establish the banking practices of the United States. (See: Slavery and the Building of Britain, "Provincial banking emerged in the 18th century because of the need for credit in the long-distance Atlantic slave trade.") Lincoln abolished slavery by creating the American Monetary System, which used the Greenback to finance the Civil War. Although Lincoln won the war, he lost the American Monetary System to the British Monetary System. THIS is important...BECAUSE of how money is created today. Fractional Reserve Banking IS a Ponzi Scheme, it must perpetually grow debt exponentially. There is NEVER enough money in circulation to repay both outstanding principal and interest. THIS IS IMPORTANT...because the system collapses when debt fails to grow and the inflated money supply, since 2008, puts the U.S. at risk of not being able justify the exponential increase of debt. WouNur (talk) 21:03, 14 November 2015 (UTC)

Focus on the concept of banking as it exists today. In order for today's process of money creation (by having the customer sign a note for a loan of a certain amount and by crediting the deposit account of the customer for the same amount) to be "fraudulent," there has to be some sort of misrepresentation made by the bank to the customer. Where is the fraud? Famspear (talk) 20:17, 14 November 2015 (UTC)

Hint: You don't seem to be grasping the concept. Owning shares -- or receiving a 6% dividend -- does not give the owner, the recipient, "control" over the applicable regional Federal Reserve bank. Go back and re-read the materials I posted above. Famspear (talk) 20:23, 14 November 2015 (UTC)

I DO understand the governance structure. But who selects, elects and directs the politicians in power? Who finances elections? Think deeply about this one. WouNur (talk) 21:01, 14 November 2015 (UTC) Sir Francis Baring writes, "Very few foreigners have understood the Bank...They have always considered their notes as Government paper." WouNur (talk) 21:01, 14 November 2015 (UTC)

John Jay Knox, Controller of the Currency wrote, ""The History of banking...before the (civil) war will make plain to anyone that the note issuing privilege was much abused to the great detriment of individuals and the public. Banks were started for the sole purpose of foisting worthless notes upon a trusting public..." WouNur (talk) 21:01, 14 November 2015 (UTC)

The foundations of a system as powerful as the one that creates money determines the structure of governance. That is why precision is important in this matter. WouNur (talk) 21:01, 14 November 2015 (UTC)

In June 1877, Peter Cooper wrote to Ulysses Grant, "The bankers will favour a course of special legislation to increase their power...They will never cease to ask for more, ...so long as there is more that can be wrung from the toiling masses of the American People." WouNur (talk) 21:01, 14 November 2015 (UTC)

Wikipedia and copyright

Hello WouNur, and welcome to Wikipedia. Your addition to Money creation has had to be removed, as it appears to have added copyrighted material without permission from the copyright holder. While we appreciate your contributing to Wikipedia, there are certain things you must keep in mind about using information from your sources to avoid copyright or plagiarism issues here.

• You can only copy/translate a small amount of a source, and you must mark what you take as a direct quotation with double quotation marks (") and a cited source. You can read about this at Wikipedia:Non-free content in the sections on "text". See also Help:Referencing for beginners, for how to cite sources here.
• Aside from limited quotation, you must put all information in your own words and structure, in proper paraphrase. Following the source's words too closely can create copyright problems, so it is not permitted here; see Wikipedia:Close paraphrasing. (There is a college-level introduction to paraphrase, with examples, hosted by the Online Writing Lab of Purdue.) Even when using your own words, you are still, however, asked to cite your sources to verify information and to demonstrate that the content is not original research.
• Our primary policy on using copyrighted content is Wikipedia:Copyrights. You may also want to review Wikipedia:Copy-paste.
• If you own the copyright to the source you want to copy or are a designated agent, you may be able to license that text so that we can publish it here. However, there are steps that must be taken to verify that license before you do. See Wikipedia:Donating copyrighted materials.
• In very rare cases (that is, for sources that are public domain or compatibly licensed), it may be possible to include greater portions of a source text. However, please seek help at the help desk before adding such content to the article. 99.9% of sources may not be added in this way, so it is necessary to seek confirmation first. If you do confirm that a source is public domain or compatibly licensed, you will still need to provide full attribution; see Wikipedia:Plagiarism for the steps you need to follow.
• Also note that Wikipedia articles may not be copied or translated without attribution. If you want to copy or translate from another Wikipedia project or article, you can, but please follow the steps in Wikipedia:Copying within Wikipedia.

It's very important that contributors understand and follow these practices, as policy requires that people who persistently do not must be blocked from editing. If you have any questions about this, you are welcome to leave me a message on my talk page. Thank you. --I am k6ka ^{Talk to me!} _{See what I have done} 15:24, 14 November 2015 (UTC)

November 2015

Hello, I'm C.Fred. I noticed that you made a change to an article, Fractional-reserve banking, but you didn't provide a reliable source. It's been removed and archived in the page history for now, but if you'd like to include a citation and re-add it, please do so! If you need guidance on referencing, please see the referencing for beginners tutorial, or if you think I made a mistake, you can leave me a message on my talk page. There is no source supporting your assertion of the notes being "fraudulent". That must be backed up with a source. —C.Fred (talk) 15:31, 14 November 2015 (UTC)

Fractional reserve

You currently appear to be engaged in an edit war. Users are expected to collaborate with others, to avoid editing disruptively, and to try to reach a consensus rather than repeatedly undoing other users' edits once it is known that there is a disagreement.

Please be particularly aware that Wikipedia's policy on edit warring states:

1. Edit warring is disruptive regardless of how many reverts you have made.
2. Do not edit war even if you believe you are right.

If you find yourself in an editing dispute, use the article's talk page to discuss controversial changes; work towards a version that represents consensus among editors. You can post a request for help at an appropriate noticeboard or seek dispute resolution. In some cases it may be appropriate to request temporary page protection. If you engage in an edit war, you may be blocked from editing.

This is to advise you that there's a very limited tolerance for disruptive editing on this and related articles. Please read WP:BRD. Kindly remove the text you reinserted and present your views on the talk page.

SPECIFICO talk 15:36, 14 November 2015 (UTC)

Other

If you don't like Werner's work, you may appreciate the Bank of England's, "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money." http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf _____________________________________________________— Preceding unsigned comment added by WouNur (talk • contribs)

Dear WouNur: You're missing the point. The Wikipedia regulars here are familiar with how fractional reserve banking works. You need to review Wikipedia's policies and guidelines. Famspear (talk) 16:15, 14 November 2015 (UTC)

Here is a good link: WP:FIVEPILLARS Famspear (talk) 16:22, 14 November 2015 (UTC)

And:

1. WP:NPOV;

2. WP:V;

3. WP:NOR.

Yours, Famspear (talk) 16:27, 14 November 2015 (UTC)

Dear WouNur: Regarding your quote from the Bank of England: "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money."

You've just helped me make my point. That's precisely how fractional-reserve banking works (i.e., that's how that part of the process works), and that's precisely how it's taught in universities in the United States. Now, you're admitting that the Bank of England teaches you (and everyone else) the same thing.

Please read the entire article on Fractional-reserve banking carefully. This basic concept is already explained -- and was already explained in the Wikipedia article long before you arrived at Wikipedia. It's also discussed on the talk page for the article. You have not discovered something new. Famspear (talk) 17:35, 14 November 2015 (UTC)

Notice of Edit warring noticeboard discussion

Hello. This message is being sent to inform you that there is currently a discussion involving you at Wikipedia:Administrators' noticeboard/Edit warring regarding a possible violation of Wikipedia's policy on edit warring. Thank you. See [2]
SPECIFICO talk 16:42, 14 November 2015 (UTC)