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#26 Eat the Bankers - Compounding – Exponential Increase: Debt Grows Like a Cancer

June 11th, 2010 by sinclair

(Part of a series, with links to prior articles.)

Any inflation is unsustainable because inflation, like interest charged, is compounded and grows exponentially. The formula for compounding is known as the Rule of 72’s. The rule says that to find the number of years required to double money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double money at eight percent interest, divide 8 into 72 and get 9 years. Debt of $100 at 8% interest grows to $200 in 9 years, and $400 in 18 years, and $800 in 27 years. If one penny had been loaned at 8% interest in the year 1 A.D., then by the year 2010 the amount due would be:

$151,966,733,600,974,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.00

I’m not even sure what to call a number that large, but to give it some scale, if you took that money and bought gold at $1,000 per ounce you would have enough gold to make huge balls of gold the size of the earth, and you could then stack these golden planets one on top of the other and they would stretch out far beyond our solar system.

Still too big to wrap your brain around it? Try this; the US has about 300 million people; if each person borrowed $100 for 30 years (that’s a total of $30 billion) at 8% compounded interest, at the end of 30 years we would owe $301,879,706,672.00 (>$301 billion).

Now for something a little closer to reality; total revolving credit card debt in 2009 was right at $931 billion; if interest is compounded at 14% over 10 years, the amount owed would be $3,451,423,043,444.39 (>$3 trillion). That’s just credit card debt, not including mortgages, business debt, and governmental debt.

The point is that debt is unsustainable. As long as usury and the resulting inflation are allowed to exist, the only way to absorb the constant loss of buying power is to increase economic growth. This is a losing game. There are limits on economic growth and consumption. Most people in America already have shelter, food, clothing, and transportation. Most people don’t want or need 10 houses or a new car every few months; they couldn’t afford the purchases, or the effort and expense of maintenance. So, why is consumerism promoted with an evangelical fervor? We must feed the insatiable usury of the bankers.

The annual advertising budget in the US tops $280 billion and that’s just traditional media advertising. There are billions more spent on subtle exhortations, displays, and enticements. The business of America has become fabricating desires rather than producing necessary goods and services. The most frequent topic of conversation in America is shopping; what we buy, where we buy, when we buy, and allegiances to purchases made or planned; this is considered valuable information and an important part of communication with strangers and loved ones. We are constantly bombarded with the message that spending will provide satisfaction and inner fulfillment. If you want to feel better, go shopping. To find love you need to spend lavishly. Shop till you drop. We are taught at an early age to seek the lifestyles of the rich and famous, despite the fact that many of the rich and famous are neurotic and unhappy. Business schools teach techniques for marketing to toddlers and teens. Americans, led by the Baby Boomers, have been living like spoiled children for 30 years. In many ways, we allowed the corporations to market to us as if we were children, with instant self-gratification as a major aspiration.

Most Americans took on significant amounts of debt not just because they wanted to, but because they had to. The reality is cold and simple. The American worker is still a whirlwind of productivity. Despite the increase in two-income families, wages have been stagnant for thirty years. The cost of goods and services, especially basic or durable goods and services, like cars, education, housing, and healthcare has exploded – fuelled by inflation which is fuelled by usury. When your income isn’t going up, borrowing becomes the least bad option. The result is an economy where the middle class lost. Americans had to borrow because they weren’t part of a shared prosperity to begin with.

Corporations have become experts at extracting value, but not at creating it. Prosperity wasn’t shared because corporations weren’t built for sharing. Workers are considered a liability, at least by the unenlightened. Corporations were built to create value for shareholders and to maximize profits by any means necessary: through lobbying, monopoly power, cost cutting, or by grabbing trillions in bailouts. Capitalism has been very good at taking value from workers and redistributing it to shareholders, redistributing wealth from the poorest to the richest. For the worker busting his or her butt to provide for a family, debt seemed like the only option to avoid poverty. The idea was that if you work your butt off you should be able to make a decent living, and if you’re not making it now, take on a little debt to bridge the gap, because the hard work will surely pay off down the road; it did pay off, but not for the productive worker.

Sinclair Noe
Eat the Bankers

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#4 Eat the Bankers - Philosophers and Leaders – What is Money? Why is Usury Wrong?

March 4th, 2010 by sinclair

Usury became a problem in ancient Greece shortly after the introduction of coins. Before the widespread use of coins a farmer would borrow various commodities to plant his crops and he would repay the loan with the harvest. When coins were introduced the farmer had to borrow money to buy supplies; the commodities were in high demand and priced high at planting season; at harvest time the commodities were plentiful and priced low. The farmers could not pay back the loans; they lost their farms and land ownership became concentrated in the hands of the elite, or oligarchs. The farmers were subjected to slavery.

Around 600 BC, Solon introduced the idea of Seisachtheia, which means shaking off burdens or debts. Solon canceled debt contracts, returned farm land to peasant farmers, ruled that slavery could no longer be used to enforce debt contracts, and set minimum prices for agricultural products. Solon did not set a limit on interest rates, but his reforms seemed to keep usury under check.
Meanwhile, in Rome there was a similar situation; the peasant farmers were falling into debt. Rome set limits on interest rates without changing the laws on debt. Outlying provinces still faced ridiculous usury, and bad debt often resulted in slavery, more or less, for the borrower. Julius Caesar eventually adopted the legislation of Solon, and in 88 BC, interest rates were set at a maximum of 12%, but by then the Roman middle class had been effectively destroyed. Eventually, Justinian set rates at 6% and 8% for mercantile loans.

Aristotle formulated what is considered a classic case against usury. Religious leaders had already denounced usury as a malum in se, a sin in and of itself. Aristotle understood usury to be a sin because it was a type of theft. Aristotle explained why it was also a sin against nature. Money is sterile and according to Aristotle it exists not by nature but by law. Because usury forces money to breed more money it was a perversion of the natural process of procreation because only natural organisms can procreate. Aristotle used the word tokos to define usury, but the word also meant offspring, or birth. Usury became associated with sexual perversion. The poet Dante would later take that association a step further, placing those who have committed sins against nature, sodomites, blasphemers, and usurers, on the same metaphysical plane – the seventh circle of Hell.

Aristotle argued that money is a store of value. It represents a good or service produced. Money, in and of itself, does not produce anything of value. Usury allows someone to gain wealth without working for it. According to Aristotle: “The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice.”

Taking the idea a step further, the usurer can have no rightful claim to any portion of the labor of the borrower, without surrendering some portion of his property back to the borrower as compensation for services received. This was the problem faced by the peasant farmers in ancient Athens; the farmers provided all the labor to work the fields but kept none of the fruits of their labor. The conditions found in ancient Athens are not so different from today. Entrepreneurs struggle under the burden of debt, sacrificing profits to pay the bankers, impoverishing their own families to enrich the bankers. If the businessperson fails, he fails; if the banker fails, the businessperson must bail him out.

It is legitimate to think of interest as profit only when it is participation in profits, but when there is no participation in production, when it merely finances current consumption, it is wealth without work, growing rich without adding anything useful to society; indeed, it is growing rich by sucking value out of society; no better than a parasite or a cancer.

St. Thomas Aquinas was one of the Church scholars known as Scholastics (1100 -1500 AD) who created the study of economics, and their main concern was usury. St. Thomas quotes Aristotle as saying that “to live by usury is exceedingly unnatural”. Aquinas argued money‘s function is to measure the fruits of economic activity – it is a medium of exchange. Money is a measure of things that are sold – it is a store of value. But money, in and of itself, does not create the fruits of economic activity. Money is not itself a commodity that can be sold. Aquinas essentially said that your money, once spent is used up. Aquinas argued that it was morally wrong for someone to sell a cake, charge for the cake, and then charge again for the person to actually eat the cake. This was double billing or theft.

Aquinas further argued that usury was a method of selling time – the repayment of usury must be paid with the energy and time of the borrower. But time only belonged to God, so not only was usury a type of theft; it was stealing from God himself.

Lending at interest for guaranteed returns, with no risk and no work, was a sin, but it was also agreed that if the lender shared in the profit and the risk, the loan was legal; this was the idea of a joint venture, which is still acceptable today in Islamic banking. Commerce, with attendant risks and rewards, was not a sin. Over time it became acceptable to charge for losses because the borrower was using money. The difference between the amount loaned and the profit the lender might have made, was charged as interest - if it could be proved that there was a lost opportunity to make money. Contracts also included penalties for late payment.
In Italy, the Medici family built large and powerful banks; they did not charge interest on loans but they did accept gifts from their clients. Change the metaphor and you change the opinion. It was no longer usury, it was interest. Usury was sinful, interest was a benign gift.

The basic question of the philosophers and early economists really boiled down to, “What is money?” Money has assumed different forms and shapes: coins, salt, tally sticks, seashells, furs, feathers, wheels, coconuts, paper, beads, plastic, and digital entries – all have been used as money. Money is anything that people will accept in exchange for goods or services, in the belief that they may in turn exchange it, now or later, for other goods or services.
Money is a medium of exchange. Money is a measure of value. Goods and services are produced by people. Money does not produce goods and services. Usury is a scheme to use money to create more money, but it does not create goods, services, or anything of value; therefore, usury steals part of the value from the people that did produce goods and services. Usury steals from the future to pay for the present.

The first bank of deposit and discount was the Bank of Venice. The bank began its association with the Republic of Venetia in 1171; both the bank and the republic collapsed in 1797. The republic was impoverished following war with the Emperor of Greece. The republic forced the citizens to make a loan to the state. In return, the citizens were given stock in the bank. Stock in the bank was a loan to the state at four percent annually. Eventually all payments for everything was handled by the bank, entered as credits by the Chamber of Commissions. The bank issued credits backed by pure gold ducats, which replaced other gold and silver coins. The bank credits were convenient and easy to use. The bank demanded and received a premium for credits; credits weren’t worth more than gold; the premium collected did not add productive value to the Venetian economy, it just made the rich richer and the poor poorer. Venetia started as a pure republican democracy, electing a ruling leader, or Doge, and council to represent the citizens; but as the bank grew, so did the bank’s involvement in government; democracy gave way to councils which represented the bank. Representative government became less so, shrinking to a Council of Ten, then a Tribunal of Three. Over a period of 600 years, the wealth of Venice was centralized and democracy faded.
By the late sixteenth century, usury was increasingly tolerated despite pragmatic opposition.

In 1569, Thomas Wilson wrote A Discourse Upon Usurye: “Usury overthrows trade, decays merchandise, undoes tillage, destroys craftsmen, defaces chivalries, beats down nobility, brings dearth and famine, and causes destruction and confusion.”

Theologians remained opposed to usury, but commerce and law ruled; usury was allowed if the loan was made with good intentions. Who determined good intentions? It was generally left to individuals to decide if their intentions and actions were sinful.

Still there were limits. In 1571, England set a maximum interest rate of 10%, labeled An Act Against Usury, the aim was to lessen the exploitative part of usury by making it legal. England had already established certain limits on usury in the Magna Carta. In 1624, the Parliament passed the Act Against Usury and lowered the maximum rate to 8% per annum, but the loans still could only be made in good conscience. This of course led to secular debate about state control on matters of conscience, but with interest rates falling, the debate lost steam.
In 1689, William and Mary began their reign over the Kingdom of England, but only by taking out a loan of 1,200,000 pounds sterling. The loan was never meant to be repaid, but interest at the rate of eight percent per year was to be paid forever. The loan created the Bank of England and the Bank has held the purse strings to the kingdom since that time, privately run and generally impervious to direction; the monarchs became the servants of the Bank. The Bank in turn financed the empire, but always at a cost. At the beginning of the 21st century, Britons were still paying off debts from the Napoleonic Wars. The creation of the Bank of England provided state sanctioned legitimacy to usury. “The bank hath benefit of interest on all moneys which it creates out of nothing.” - William Paterson, founder of the Bank of England in 1694.

Even though usury grew to be accepted, it was still denounced. Shakespeare mocked the usurer Shylock in the Merchant of Venice. In Hamlet, Polonius advised: “Neither a borrower nor a lender be.”

The Dutch determined that bankers were a seedy lot: “Bankers were excluded from communion by an ordinance of 1581, joining a list of other shady occupations—pawnbrokers, actors, jugglers, acrobats, quacks, and brothel keepers—that were disqualified from receiving God’s grace. Their wives were permitted to join the Lord’s Supper, but only on condition that they publicly declared their repugnance for their husband’s profession! Their families shared the taint and were only permitted to join communion after a public profession of distaste for dealing in money. It was not until 1658 that the States of Holland (the representatives of the estates of nobles and commoners to the court of Holland) persuaded the church to withdraw this humiliating prohibition on Lombards.”

Francis Bacon acknowledged the sin of usury: “They say that it is a pity the devil should have God’s part, which is the tithe. That the usurer is the greatest Sabbath-breaker, because his plough goeth every Sunday.”

Bacon then looked at arguments for and against usury. The argument against usury was that it made fewer merchants, and wealth was idled and not used for productive purposes, also it centralized wealth, and stifled innovation. The argument for usury was that the practice provided capital for enterprises, it was good to have the ability to borrow in times of catastrophe or emergency, and finally nobody will lend unless they can take a profit. This final argument for usury was pragmatic; usury is permitted because the usurers can get away with it. Under this logic, murder would be acceptable when the murderer is not caught and tried. Bacon concludes that usury must be allowed, but at a low rate, maximum 5%, which would force capital to look for higher returns from agriculture or manufacturing.

Adam Smith was a Scottish philosopher and is widely considered the father of modern economics. In 1776, in the Wealth of Nations Smith advocated limits on usury:

“The legal rate…ought not be much above the lowest market rate. If the legal rate of interest in Great Britain, for example, was fixed so high as eight or ten per cent, the greater part of the money which was to be lent would be lent to prodigals and projectors (promoters of fraudulent schemes), who alone would be willing to give this high interest….A great part of the capital of the country would thus be kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it. When the legal rate of interest, on the contrary is fixed but a very little above the lowest market rate, sober people are universally preferred, as borrowers, to prodigals and projectors. The person who lends money gets nearly as much interest from the former as he dares to take from the latter, and his money is much safer in the hands of the one set of people than in those of the other. A great part of the capital of the country is thus thrown in the hands in which it is most likely to be employed with advantage.”

It almost seems that Adam Smith was foretelling the breakdown of the derivatives and credit markets, as well as the subprime crisis that would hit 230 years after he wrote these words.

Public, artistic, philosophical, political, and economic opposition to usury could not stand up to the new, more powerful form of usury that was created out of the central banking scheme. Central banking worked on the principle of fractional reserves, an old trick learned by goldsmiths and money changers. The money changers would often hold gold or other metals as deposits, for a fee, and issue receipts or paper notes. The notes were accepted for many commercial transactions. The money changers and goldsmiths quickly discovered they could make loans based upon deposits held, and the loans were made in the form of paper notes. They figured they could issue more paper notes than the actual gold deposits held in reserve, because it was unlikely that all depositors would demand their gold at the same time. They issued notes based upon gold reserves even though there wasn’t enough gold to fully back the notes; they were creating money out of thin air.

This was another form of usury, souped up, faster, and more powerful. The usurer/central bank could take in $10 dollars in gold deposits and issue $100 dollars in loans in the form of paper notes. Note that the usurer/central bank used other people’s deposited money to create loans. Assuming a 10% interest rate, the interest charged on $100 would be $10 dollars. The usurer/central bank started with $10 and collected $10 in interest; the real interest rate was 100%.

Now there was $100 dollars in paper notes circulating through the economy, not just $10 in gold – more dollars but the same amount of products that could be bought - the result was inevitable: inflation, booms, and busts. Even the prudent citizen, who avoided borrowing or lending, now paid a higher price because of fractional reserve lending. The borrower had to repay $110 dollars, which means he had to increase his output by 10% just to repay the principle and interest; even then, any profit above the principle and interest was worth less because each dollar had been devalued by inflation. The businessperson had to increase his output even more if he hoped to increase his standard of living.

This is the basic blueprint for central banking. The plan is essentially unchanged over the past nine centuries. All governments have the inherent power to create their own currency.

One of the great unanswered questions of the past thousand years is: why the hell do we need central banks acting as middlemen to create currency?

- Sinclair Noe

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#3 Eat the Bankers - Religious Criticism of Usury – What Would Buddha, Krishna, Moses, Mohammed, and Jesus Do?

March 3rd, 2010 by sinclair

(This article is part of a series of articles collectively entitled Eat the Bankers. Each article has a link to the next or previous article.)

The earliest religious criticism of usury dates back 4,000 years. The Hindu Vedic texts from ancient India describe kusidin, or usurers, as lenders who charge any interest. Vashishtha prohibited priests and warriors from lending for interest. The Sutra describes several references to payment of interest. By the second century AD the definition of usury was softened to imply any interest beyond the legal rate.

The Holy Quran strictly prohibits usury, or riba. It is written in the Holy Quran: “Those who devour usury will not stand except as stand one whom the Satan by his touch hath driven to madness.” (2.275), “Allah will deprive usury of all blessing.” (2.276), and “As for those who persist in usury, they incur Hell, wherein they abide forever.” (2.275)

It is widely believed that Islam prohibits all interest, but there is a segment of Islamic thought that argues that usury only applies to loans made for consumptive purposes, while interest may be applied to loans for commercial investment. There is no debate that the Prophet Mohammed denounced usury in his teachings.

Of course, there were always loopholes. Delayment fees, mohatra contracts (or repurchase agreements), and the contractum trinius (a three-part contract where the lender would make an investment, insure the amount of the investment, and then sell any profits to the would-be borrower) were widely used throughout both the Christian and Muslim worlds, and effectively replicated interest-bearing contracts. The banning of usury complicated, but did not end, debt finance. The ban was eventually repealed, after the revision of the doctrine by the School of Salamanca and the gradual lifting of laws in Protestant countries in the mid-1600s.

An entire system of interest-free financial institutions now serves much of the Muslim world. Islamic banking is based upon usury-free financing principles including joint ventures and profit sharing plans. Mortgages can be handled by the bank buying a property and allowing installment payments by the people living in and purchasing the property.

The advantages of Islamic banking include a closer relationship between the bank and the client which results in less risk to the lender and more responsible and ultimately more profitable loans. With increased due diligence there is less volatility, more stability for the banks, and more equitable distribution of resources. Islamic banking is not without problems; the due diligence is sometimes considered excessive and requires endorsements from different boards that interpret Sharia law as it applies to the project and transaction. Systems and products lack uniformity from institution to institution and from country to country. Some argue that bank participation in profit or loss is just a roundabout way of collecting interest. The counter argument is that the lender has “skin in the game”, as opposed to the Western view that the lender gets paid even when the enterprise loses. Islam permits trade
but forbids usury, in part because trade is the result of initiative, enterprise, and efficiency. Riba, or interest, is considered surplus gain without counterpart value.

Judaism has forbidden and discouraged usury. The Hebrew word for interest is neshek, which translates to bite, like the bite of a serpent. It is a fitting word because the venom from a snake bite spreads out and diffuses until it reaches the nervous system and vital organs, likewise the increase in usury starts out small and grows to devour a person’s substance.

There are numerous Biblical passages that clearly prohibit usury. Ex. 22:25: “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as a usurer, neither shalt thou lay upon him usury.”

There are many other prohibitions against usury, however for Jewish and Christian apologists for usury there appears to be a loophole: Deut. 23:19,20: “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury. Unto a stranger thou mayest lend upon usury; but unto they brother thou shalt not lend upon usury; that the Lord thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.” The broadest interpretation here is that usury was allowed by Jews dealing with non-Jews (strangers) but was not allowed when dealing with fellow Jews (brothers).

This loophole is closed shut in other scripture: Lev. 25:35,36: “And if a brother be waxen poor, and fallen in decay with thee, then thou shalt relieve him: yea, though he be a stranger, or a sojourner; that he may live with thee. Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.” Also, Ex. 23:9: “Also thou shalt not oppress a stranger: for ye know the heart of a stranger, seeing ye were strangers in the land of Egypt.”

The prophet Ezekiel considered “usury or increase” an abomination and comparable to fraud, violence, impurity, and idolatry. When there is fraud without dishonesty, and violence without injury, and adultery without impurity, and idolatry without false worship, then may there be “usury and increase” without injustice and oppression.

Despite the prohibition of usury there is considerable evidence to suggest that this rule was not always observed. Nothing more clearly marked the line between Jews and Christians during fifteen centuries than this one thing, that Jews exacted usury or interest from Gentiles, while Christianity forbade the practice.

The prohibition of usury was binding during the reigns of David and Solomon. The ships of King Solomon entered every port in the known world, but usury was never a part of the commerce in that prosperous time.

Christianity built upon the Old Testament prohibitions of usury with New Testament fervor. It is out of harmony with the life and teachings of Jesus that he should encourage or permit a means of increasing wealth forbidden by the laws given by Moses and classified as abominations and sins by the prophets.

The first disciples did not loan but gave to those in need: Rom. 13:8: “Owe no man anything, but to love one another:”

There was no question about the disciples’ dedication: Matt. 6:24: “No one can serve two masters. He will either hate one and love the other, or be devoted to one and despise the other. You cannot serve God and mammon.” Some versions reference: “You cannot serve God and money.” Christ counsels to make our best things the joys and glories of the other world, those things not seen which are eternal, and to place our happiness in them. The worldly man is wrong in his first principle; therefore all his justifications and resultant actions must be wrong.

The strongest rejection of loans at interest came from Christ in Luke 6:35: “Lend, hoping for nothing in return.”

The teachings of Jesus were, in large part, about love, peace, forgiveness, compassion, and service to others, especially those less fortunate. He was known to lend his hand to the poor, the sick, foreigners, prostitutes, and sinners – yet there is one instance where the Prince of Peace turned to violence; one instance where he destroyed property; one instance where he took a whip to another man – when he chased the money changers from the Temple. Matt 21:12: “And Jesus entered the temple of God and drove out all who sold and bought in the temple and turned the tables of the money changers and the seats of those who sold pigeons. He said to them, It is written, My house show be called a house of prayer; but you make it a den of robbers.”

Also, John 2:15 – “and he made a scourge of cords, and cast all out of the temple, both the sheep and the oxen; and he poured out the changers’ money, and overthrew their tables…”

This example of civil disobedience goes beyond the non-violent code. Jesus forgave the soldiers that crucified him on the cross, but He did not forgive the usurers in the Temple. Many people use a simple question as a moral compass: what would Jesus do? We know what He did with the bankers of His time. He turned to violence.

The Roman Catholic Church was emphatic in its condemnation of usury. Clergy was prohibited from taking usury by the fourth century; the prohibition was also extended to the laity. The Encyclopedia of Religious Knowledge says: “All the apostolic fathers condemned the taking of usury.” St. John Chrysostom said: “Nothing is baser in this world than usury, nothing more cruel.”

Saints Tertullian, Cyprian, Ambrose, Augustine, and Jerome can be quoted in their condemnation against usury. The popes followed the teachings of the fathers and imposed severe penalties. Priests guilty of this sin were degraded from their orders; laymen found guilty were excommunicated. Interest paid could be reclaimed, not only from the usurer but from his heirs. In the eighth century, Charlemagne, in France, made usury a general criminal offence.

A council at Westminster, in 1126, decided that all clergy who were guilty of practicing usury should be degraded. Archbishop Sands said: “This canker, usury, hath corrupted all of England.”

In 1311, Pope Clement V made the prohibition of usury absolute and wiped out all secular legislation in its favor, and a council in Vienna reaffirmed the denunciations: “If any shall obstinately persist in the error of presuming to affirm that the taking of usury is not a sin, we decree that he shall be punished as a heretic.” There is no record of the repeal of any of these edicts.

Usury proved a difficult temptation to deny. By 1465, Pope Paul II approved mons pietatis, “poor men’s banks”, the early version of pawn shops. These nonprofit banks lent to the deserving poor at very low rates of interest, and by the late fifteenth century, they began to accept deposits. By the sixteenth century these banks were spread by the Franciscans all over Europe, though not in England, where Parliament refused to legalize them.

As commerce spread, the debate grew. The early 1500’s saw challenges to the authority of the Church. Both Luther and Calvin opposed usury. Luther was vehement in his opposition. Calvin expressed some reservations. Luther said: “Whoever eats up, robs and steals the nourishment of another, commits as great a murder, as he who carves a man or utterly undoes him. Such does a usurer, and he sits the while on his stool, when he ought rather to be hanging from the gallows.”

John Calvin’s letter on usury of 1545 made it clear that when Christ said “lend hoping for nothing in return,” He meant that we should help the poor freely. Calvin acknowledged that “it is very rare for a man to be honest and yet a usurer.” Calvin expressed his opposition to usury and then relented: “It could be wished that all usury and the name itself were first banished from the earth. But as this cannot be accomplished it should be seen what can be done for the public good.” And he decided: “usury is not wholly forbidden among us unless it be repugnant both to Charity and Justice.” Even though Calvin enumerated seven examples where usury remained sinful, his position was considered as encouragement for taking interest.

By 1745, the rhetoric softened substantially. Pope Benedict XIV wrote an encyclical saying: “One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small;” but then he added a loophole: “We do not deny that at times together with the loan contract certain other titles - which are not at all intrinsic to the contract - may run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract. Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts honest gain may be made.”

In 1891, Pope Leo XIII spoke of “voracious usury” which he described as: “an evil condemned frequently by the Church but nevertheless still practiced in deceptive ways by avaricious men.”

In 2005, Pope Benedict XVI condemned the “deplorable social plague of usury”. There was no question that the current definition of usury referred to “excessive interest”. In the 2009 encyclical, Truth in Charity, Benedict wrote, “The weakest members of society should be helped to defend themselves against usury”.

Usury has always been and will always be a sin.

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Sinclair Noe, Eat the Bankers

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#2 - Eat the Bankers: How Ignoring 4,000 Years of Economic Wisdom Has Led Us to the Brink - Does Anybody Remember the Primary Economic Principle?

March 3rd, 2010 by sinclair

Usury comes from the Latin word usuria, meaning interest. The definition is interest, premium, gain, or charge for the use of money in any circumstance; or interest charged above legal limits; or interest charged at excessive rates.

The distinction between usury and interest is wholly civic and legal. What is usury in one country or state is merely interest in another. If the laws forbid the taking of any increase on loans, then all interest would be usury. Perhaps the best definition came from Blackstone’s Commentaries on English Law: “When money is lent on a contract to receive not only the principal sum again, but also an increase by way of compensation for the use, the increase is called interest by those who think it lawful, and usury by those who do not.”

It’s important to start with the basic definition of usury because the majority of Americans do not know the word; in the past thirty years it has been nearly erased from our collective knowledge and conscience. The first economic principle is “thou shall not steal”; the corollary is that usury is theft. John M. Keynes, perhaps the most influential economist of the last century, said, “Provisions against usury are amongst the most ancient economic practices of which we have record.” Remarkably, we fail to see this ancient wisdom can guide us to economic recovery.

Anyone who has ever read the fine print of a loan contract knows gains are frequently disguised. Gains can include fees, leverage, fractional reserves, and insurance; the more gains are tacked on, the riskier the loan. The higher the hurdle is set, the more difficult it is to jump over. Every loan shark knows excessive gains for the lender increase the risk of default.

For most of history the taking of any charge on the use of money was considered usury, and usury was a grave sin, comparable to theft or even worse. The philosopher Cato, in De Re Rustica, was asked, “And what do you think of usury?” and his reply was, “What do you think of murder?”

Usury was condemned and reviled by all major religions: Christianity, Islam, Hinduism, Buddhism, and Judaism. Usury was further condemned by the greatest philosophers, politicians, and leaders in history including: Aristotle, Plato, Cato, Cicero, Seneca, Aquinas, Solomon, Charlemagne, Milton, Dante, Shakespeare, Bacon, Benjamin Franklin, Thomas Jefferson, and Andrew Jackson. In fourteenth century England, the taking of any interest was a capital crime. At various times in history usurers have faced penalties ranging from the confiscation of their wealth, exile, excommunication, prison, mob violence, or even death.

It was a very serious offense to collect any interest on a loan. Over time the definition was diluted to the more modern concept of charging excessive interest. One of the main justifications for allowing some interest was the need to finance wars and empire building.

Despite near universal condemnation, usury slowly and surely crept into common acceptance. Today, it is rare to hear criticism of usury in a church, synagogue, mosque or temple. This is sad because the family and finance are interconnected. Man as an economic being cannot be abstracted from other aspects of life. Every house of worship includes the faithful whose faith is tested by economic stress. The Golden Rule applies to all religions and it is not just an educational tool for children, it is a core principle for commerce and life. To ignore usury is to become the people Jesus warned us about.

Philosophers can’t begin to address social injustice without recognizing that “poverty is the worst form of violence” (-Gandhi) and “debt is the worst form of poverty” (-Lichtwer). Economists seem to enjoy making simple things sound complex. The most powerful economic formula is compound interest, yet economists seem to flit around the edges of this concept. They tend to look past the 8-ton elephant in the room, distracted by the peanuts. Political leaders avoid usury like the plague. They think their job security depends on campaign contributions. They delude themselves that they can accept bribes and still represent the People. They lie when they say they are serving one master while collecting money from another. When politicians serve the bankers and not the people, we face the destruction of democracy.

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#1 Eat the Bankers

February 27th, 2010 by sinclair

Bankers are evil. They are unrepentant. The bankers have pulled off the biggest theft in history and they continue to steal: jobs, value, sweat, blood, dignity, hard earned dollars, democracy, and freedom. Their assault weapon is usury, and it is a sin.

We are not alone. Our bravest heroes were also robbed. Sometimes it’s hard to make ends meet. This is especially true for the brave men and women who rely on a military paycheck; sometimes they fall into the debt trap. The Pentagon says excessive debt hurts troop morale and poses a potential security risk. Congress recognized the problem and rode to the rescue, enacting the 2007 National Defense Authorization Act. Among other things, the Act protected US troops from becoming the targets of predatory lenders. The Act made it illegal for lenders to accept military paychecks or car titles to secure high interest loans, sometimes at annual interest rates that topped 400%. Many of the lenders get loans from the Federal Reserve for less than 0.5%; they then jack up the rates for consumers. The Act made it illegal, with certain exemptions, to charge active military personnel more than 36% annual interest rates on consumer loans. Mission accomplished.

One year later, Bear Sterns and Merrill Lynch were taken under by competitors. Lehman Brothers was allowed to collapse. The largest savings and loan, Washington Mutual was gobbled up by JPMorgan Chase. The fourth largest bank, Wachovia was scooped up by Citigroup and then eventually taken over by Wells Fargo. The largest mortgage originator, Countrywide, was taken under by Bank of America. IndyMac and other smaller banks were taken over by the FDIC. Congress approved legislation based upon a three-page ransom note scribbled by Treasury Secretary Henry Paulson, which opened the vaults of the US Treasury and handed over more than $700 billion to treasonous, larcenous bankers.

In October 2008, a poll showed 90% of Americans thought the country was headed in the wrong direction. They were right. Money was printed and spent at a furious pace but it didn’t filter down to average families. Jobs are still hard to find and easy to lose; and once a job is lost it might never return. The cost of living keeps going up while the standard of living goes down. Around the world, poverty plagues more than 3 billion people worldwide, half the planet. America is now the largest debtor nation in history, the kind of distinction once reserved for banana republics. We are now stuck in a not so great depression. The middle class in America is less concerned with climbing the ladder of success than falling off the ladder and dropping into the pit of poverty.

By mid-2009, the price of the bailout grew to $2.5 trillion spent, with another $12 trillion to $24 trillion committed. All that money helped prop up Wall Street and the global financial system still teetered on the verge of meltdown; despite the greatest redistribution of wealth in history.

What went wrong? How did we get so far off track?

It is both easy and accurate to say that greed is the cause of the failure. We know that the love of money is the root of all evil, but that doesn’t provide answers to why we have seen such a massive collapse and how we can pull ourselves out of the hole.

The problems can be traced back to a single root cause, a blunt axe that chops away at our incomes, our savings, the economy, and our freedom – usury.

Most people do not even know the meaning of the word “usury”. The definition is: interest or gain paid on a loan.

That means any increase, any premium, any gain, or any interest on any loan. Over time that definition seemed too strict. The law recognized that interest is commonly collected on a loan. Countries and states set limits on usury. The legal definition for usury came to be known as the interest rate above the legal limit.

We have gutted the usury laws in the past 30 years. We have had our collective intelligence purged of the concept of usury. Most people who know what usury means associate it with a loan shark, a sleazy caricature willing to bash kneecaps to collect on a loan. Today the usurer/loan sharks wear suits, work in office buildings, and have national bank charters. The bankers are doing things that would make Tony Soprano blush. Usury infects our entire economy in ways no street criminal could imagine. For the past 30 years, the country has tried a radical experiment that embraced usury and the results are catastrophic. Usury has created volatile markets, increased inflation, allowed the usurers (people who collect the gains on a loan) to buy influence in government, subverted democracy, centralized wealth, created economic disparity, decimated the middle class, discouraged productivity, sent jobs off-shore, and pushed the country into a new depression. Now, we think of usury as excessive or outrageous interest on a loan. The problem is that bankers don’t know the meaning of the word “excessive”.

How’s this for excessive? More people have lost their homes to foreclosure than at any time since the Great Depression. Many of the same troops that risked their lives in Iraq and Afghanistan came back from war to find their homes were being lost to foreclosure. The sharp axe that chops the feet out from under our bravest heroes is usury; swinging that axe – bankers. It’s really not new. In the days of the Civil War, Abraham Lincoln gave this honest assessment of the real enemies of the Union: “The money powers prey on the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me, and the bankers in the rear. Of the two, the one at my rear is my greatest foe. As a most undesirable consequence of the war, corporations have been enthroned, and an era of corruption in high places will follow. The money power will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed.”

Today America is fighting two wars but the greatest danger still comes from the enemies to the rear – the bankers, because we’ve turned our backs on the collective wisdom of 4,000 years. Usury has been around ever since people have been borrowing property or money; and for most of history usury has been considered a big problem, a mortal sin comparable to murder, and so evil that there is a special place in hell for usurers.

Only in the last 30 years have we abandoned prohibitions and limits on usury. We have, for all practical purposes, legalized usury and excessive interest. We haven’t even stopped to consider whether there might be problems that arise from this radical acceptance of usury. This brief experiment has proven catastrophic. The bankers sold us a story that material wealth can grow exponentially and infinitely. The truth is that only debt can grow exponentially and infinitely, but nothing else in the natural world grows like debt, with the possible exception of cancer, but even there the host is put out of his misery.

Usury is condemned on moral, religious, and ethical grounds. All major religions condemn usury, yet today most people, even those that consider themselves devoutly religious, practice usury. Great civilizations have thrived while prohibiting or limiting usury. Throughout history, usury has been considered a root cause of social injustice, economic instability, inflation, disparity, inequality, violence, war, and poverty.

There is a direct relationship between usury and the current economic problems. Trade-offs were made, legislation was rewritten, rules were deregulated, laws ignored, and our democracy has been undermined; it did not happen in one dramatic act, but slowly and insidiously. The rise in usury led directly to predatory loans, foreclosures, personal and business bankruptcy, debts that spiral out of control and never seem to get paid despite good intentions. Many families have suffered quietly, blaming themselves for what was happening. Bankers have no moral compass. They reject compassion and try to shift culpability. Shame turns to anger as people realize that bankers were handing out predatory, misleading, false, and usurious debt like a pedophile offering candy to a child. We don’t blame the child for taking the candy.

Usury traps the most desperate; it is a form of regressive taxation that chops away at the middle class and working poor. Usury enslaves the borrower and oppresses the poor. Peasant farmers in ancient Greece were forced into slavery when they could not pay their debts. Monarchies have a long history of economic enslavement of their subjects. America was a radical concept in 1776, because We the People were more important than the nobility and the elite few. Today’s corporate nobility is no different than the monarchs, oligarchs, and tyrants of old. Leopards don’t change their spots.

Usury wasted a great economy by shifting investment capital away from productive purposes. Money seeks the greatest return, and manufacturing and entrepreneurial enterprise can’t compete with the hefty returns of usury. Money has been sucked out of the middle class and centralized in the hands of an elite few, redistributed from willing hands of practical purpose to add to the abundance of those who already have more than enough. Without restrictions, the economy has gone through one crash after another, and incalculable damage has been done to individuals and our country.

Usury stunts economic development and perpetuates poverty. Bailing out the financial system has come with an astronomical price tag. This is money that could have been used for productive purposes; this is money that could have created jobs; this is money that could have eliminated worldwide poverty in our lifetime. Instead, this is money that has been sucked into the dark, bottomless hole that is the bankers’ pockets. We had a chance to try to achieve worldwide prosperity versus extravagant lifestyles for an elite few. A choice was made and it will be the lasting legacy of this generation, but it is not too late to change that legacy.

It may be too much to imagine that we can eliminate all interest, but it is pure insanity to accept excessive usury. The fundamental right of people to be protected from exploitation if they seek credit must be reasserted. Equity, financial fairness, and caps on excessive interest rates are not new concepts. Until laws against usury were repealed in 1980, in most situations and in most states, it was illegal to charge more than about 10%. Somehow banks survived before 1980; somehow bankers made a good living without multi-million dollar bonuses; somehow the US was the most productive economy in the history of the world before we abandoned restrictions on usury; somehow we have fallen.

The root cause of our problems can be traced to usury. The solution to our problems will come from putting an end to usury.

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California is Broke

July 2nd, 2009 by sinclair

California is in a state of fiscal emergency; Governor Schwarzenegger made the proclamation yesterday.

California is out of money and so they are cranking up the printing press and they are issuing their own pseudo-currency; a promise to pay on October 2. State officials decided they will pay 3.75% on IOU’s issued by the state. California expects to print 28,742 registered warrants/IOUs today, worth approximately $53 million. The State Controller plans to print about $3.4 billion more IOUs this month.

Bank of America and Wells Fargo say they will accept the IOUs, at least for the next week. It will be interesting to watch this relationship between state government and banks to see which sucks the life blood out of the other.

S&P affirmed its A rating on California’s general obligation debt, but kept it on CreditWatch with negative implications. So the way to get an A rating is to declare a fiscal emergency – who knew?

There is significant finger pointing and posturing: politicians blame citizen backed initiatives, citizens blame politicians, republicans blame democrats, democrats blame republicans, and the rest of the country seems to think there is a problem with California’s DNA. The problem is more basic and more profoundly disturbing – it’s the economy, stupid.

California’s economy is in dire straits; unemployment, foreclosures, and bankruptcies now get the extra hit of plummeting tax revenues, insolvent state government, and significant spending cuts. The federal government is disinclined to ride to the rescue because many other states face similar problems to California. Ohio is working with a stop-gap 7-day spending plan. Indiana barely avoided a shutdown. Pennsylvania lawmakers appear stuck. Arizona legislators are holding a special session to work out unresolved problems.

A fed bailout of state government(s) does not fix the underlying problem of a rapidly deteriorating economy. While it is possible that California politicians may structure some sort of budget plan, they cannot cure the underlying problem even if they unfurl a banner that claims “Mission Accomplished”. The adage is that as California goes, so goes the country; this is a trite, well-worn, overlooked, and extremely accurate adage. California is broke.

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Wells Fargo Loan Sharks

June 30th, 2009 by sinclair

A couple of weeks ago I told you that credit card companies were cutting deals with delinquent clients (Credit Cards Cutting Dead Wood Deals). Basically, if you call Wells Fargo or American Express (the only two that admit they’re making deals) the call center phone clerks are empowered to strike a deal to knock off 50%, maybe more, from your delinquent credit card balance. The phone clerks can reach a settlement right there without supervisory approval.

The thought process is pretty simple; if you don’t pay anything against your credit card bill for six months the banks are forced to write off the account as a loss. Therefore, it is better to get fifty cents on the dollar rather than nothing. The bankers realize that credit card defaults are at historic rates, topping 10%, and likely to grow.

A friend recently put it to the test. She faced an all too common dilemma: medical bills that were not fully covered by her insurance left her with about $6k in credit card debt. She missed a payment and her credit card interest rates shot up to 29% plus penalties. There was no way she could pay the entire amount.

After reading my article, she called Wells Fargo and was able to negotiate a 50% settlement of her credit card debt. She sent in her payment yesterday and today she called to confirm that the debt had been wiped out. The Wells Fargo clerk told her the debt had not been discharged, not quite.

The debt would not appear on her credit report as a late payment but it would still appear as a debt due of approximately $2,900. She countered that this was not her understanding of a settlement, but the clerk said it was policy; the debt would still show as being due, would continue to show on her credit report for the next five years, but would not be considered a late payment, and Wells Fargo would not make further attempts to collect.

“They just want to punish me,” she said. “I know I’m not paying the full amount, but they’re taking a write off against their taxes. I’m making the payment on the settlement as promised. They don’t gain anything by dinging my credit.”

It would be interesting to dig into Wells Fargo’s tax returns and see if they write off that $2900 for tax purposes, even though they haven’t really written off the debt on their books and on the credit report. It smacks of tax fraud, but will probably never be investigated.

My friend will never call the IRS, she’ll just try to move on with her life, but she now has a deep and abiding hatred for Wells Fargo; she will never do business at Wells Fargo again; she will recommend that her friends never do business with Wells Fargo; she is the ultimate negative word-of-mouth advertiser. If Wells Fargo had just made the settlement as promised my friend would have been appreciative and said what a fair and decent company Wells Fargo is; but they are not. Maybe my friend is just complaining, after all she was trapped in the jaws of a loan shark and she survived. Of course, the shark got it’s pound of flesh, but that’s just the nature of the beast.

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SCOTUS Slaps Banks

June 30th, 2009 by sinclair

June 30, 2009

The Supreme Court has issued a major rebuke to the nearly unfettered powers of national banks’ attempts to grab immunity from state law.

In a 5-4 decision the Supreme Court has decided that states are allowed to investigate national banks for discrimination and violation of state fair-lending laws. The decision in Cuomo v. The Clearing House Association partially reverses a 2nd Circuit Court of Appeals ruling from 2007.

The tie breaking vote came from Judge Antonin Scalia. The Clearing House argued that on the federal government has the ability to investigate national banks, in this case through the Office of the Comptroller of the/currency.

Scalia disagreed:

The foregoing cases all involve enforcement of state law. But if the Comptroller’s exclusive exercise of visitorial powers precluded law enforcement by the States, it would also preclude law enforcement by federal agencies. Of course it does not…In sum, the unmistakable and utterly consistent teaching of our jurisprudence, both before and after enactment of the National Bank Act, is that a sovereign’s “visitorial powers” and its power to enforce the law are two different things. There is not a credible argument to the contrary.

The case involved an attempt by former New York Attorney General Eliot Spitzer to discover predatory mortgage lending practices to minorities. (see “Predatory Lenders’ Partner in Crime”) The Clearing House Association and the Office of the Comptroller of the Currency filed suit to stop the investigation. After Spitzer resigned, Cuomo picked up the case in appeal.

Cuomo argued that the federal agency’s interpretation shielded national banks from states’ enforcing their own laws to protect consumers and prohibit discrimination.

The ruling does effect some 1600 national banks but it probably has limited effect because it applies only to a small number of state laws dealing with predatory lending. Most other state laws affecting national banks are enforced by federal agencies.

The importance of the case might grow because of President Obama’s recent proposal to create the Consumer Financial Protection Agency that would allow states to enact and enforce tougher consumer protection laws. If the CFPA goes forward it will broaden and strengthen Cuomo v. Clearing House.

For many years the national banks have been circumventing state law. The 1978 Supreme Court decision Marquette National Bank v. First of Omaha Service Corp. concluded that national banks, such as Bank of America and Citibank, can charge the highest interest rate allowed in the bank’s home state, regardless of where the borrower lives. Marquette essentially institutionalized usury which many states’ laws prohibit. The consequence of decades of abusive business practices towards consumers has lead, in part, to the subprime crisis.

The banks have been trying to push a PR spin campaign against Cuomo for years. A few years ago, they argued that they were only trying to provide mortgage loans to people that would not otherwise have access to mortgage loans, they were making the dream of home ownership available to more people; the truth is they were making predatory loans that suckered the most vulnerable.

Now, the American Bankers Association says it will be difficult to serve consumers in today’s high tech mobile society where people and bank services move constantly across state lines; they are saying that they have to offer fewer products, such as credit cards. This is an outright admission that national banks’ business model is predatory lending practices and usury; when they don’t get their way they threaten to take away service from their customers.

With any luck (don’t hold your breath) state legislators will start to write consumer protection laws against usurious rates and fees, they will actually start to look out for their constituent s instead of looking out for the banking lobby.

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Buy or Sell Banks?

May 11th, 2009 by sinclair

No doubt the bank stocks have seen a tremendous run up in price. Is now the time to buy or sell? A couple of tidbits from CNBC today clearly demonstrated that they don’t have a clue and so they are happy to straddle the fence.

First an interview with well known banking analyst Meredith Whitney (my comments are in parenthesis:

(On Bank of America): “This is the great government momentum trade,” Whitney said on why bank stocks had seen some improvement lately. “But the underlying core, earnings power of these banks is negligible.”
(How do you make $4 billion in quarterly earnings? Start with a $45 billion dollar bailout, toss in one-time gains from a sale to China, sprinkle in Fed Funds rate at Zero, bake 90 days and serve with a straight face.)

“They cut more than $200 billion in credit card lines in the first quarter of this year,” said Whitney. “Consumers are not going to spend money.”

(That’s $200 billion taken out of circulation, without warning; this will surely slam many families and small businesses. Whitney nailed this one.)

Whitney also said that the rules of trading have changed because of the government’s role. “For investors, you invest on what you know to be the rules of the game,” said Whitney. “But with the government involved, no rules apply.”
(Obama has been named Auto Industry Executive of the Year; Geithner named as Banking Industry Executive of the Year. You can invest with Uncle Sam as your partner, or you can invest with the banking morons who screwed it up in the first place.)

Meanwhile, On the Money contributor Bill Losey listed 6 reasons he is buying:

1.       The results are in and not as bad as expected. Nine banks don’t need more capital.

(More than half the class  flunked the Stress Test, which was not as bad as expected. I’ll bet dimes to donuts that all 19 will need more capital, a lot more capital in the next 18 months. If Losey is so certain the Big 19 banks won’t need more capital, then let’s say right now – they won’t get more capital!)

2.       The bleeding has stopped.

(Zombies don’t bleed.)

3.       The additional cash needed is to cope with a worst-case scenario (which many economist don’t feel will happen).

(The Baseline Scenario was exceeded in April. The More Adverse Scenario is closing in quick, very quick. Consumer spending is flat line and credit contraction continues and credit card defaults are jumping. Unemployment hit 8.9% and it was only that good because of temporary Census hiring; aggregate hours worked – a better indicator – continues a cliff dive decline. GDP will continue to decline for at least the remainder of the year.  The More Adverse Scenario calls for an additional $600 billion in capital, but what about the Much, Much More Adverse Scenario – currently known as California. What happens if unemployment hits 13%, not just 10.3%? What happens if home prices in the East start shrinking like Stockton?

4.       The glass is half full now instead of half empty. The doom-and-gloom media is starting to focus on the positives instead of the negatives.

(The glass is half full because of bailout money. We are one nasty bond auction away from that glass springing a leak. When the media is full of doom-and-gloom an investor should be positive. When Cramer says sell, you should buy, and vice versa.

5.       There are many bargains to be had for patient investors.

(Enron was a bargain at $30. Lucent was a bargain at $30. WorldCom was a bargain at $20. Lehman was a bargain at $40. If you bought any of those stocks at those prices, don’t worry, just be patient.)

6.       There will be more regulation so this mess won’t happen again.

(I have a feeling of déjà vu, my mind began to wander, I was drifting back in time, to 1989 and the S&L Crisis, back in time to 1930, back in time……..)

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Banks Protest Too Much

May 5th, 2009 by sinclair

May 4, 2009

The Bank Stress Test results have been delayed until May 6, or possibly May 7, as bankers get a chance to try to finagle their way out off raising more capital to assure they can cover their mistakes. The regulators have and have had plenty of info to work with; if the regulators are seeing this information for the first time in these current Stress Tests then they have proven themselves woefully incompetent. So why the delay? The answer is probably a political power struggle between the banks and regulators. If the banks really have no problem with running a solid institution, then they should have no problem with the regulators.

And the regulators are showing their impotence. From the NYT, Breakingviews.com, May 3, 2009:
That regulators are wrangling with banks over the results of these tests shows that they are not confident in their ability to understand the institutions. That gives banks too much power because regulators are forced to rely on many of their assertions about, say, complex products’ values. It would be better for watchdogs to demand that they reduce their complexity to comprehensible levels. Otherwise the banks will retain the upper hand and no amount of testing will be sufficient to diagnose their problems.

…bank risk managers (not the most credible group these days) tend to view these tests as a public relations stunt that regulators will use to force their institutions to toe Uncle Sam’s line. That, in itself, is worrying. Regulators shouldn’t have to invent justifications for regulating properly. The right response by a bank when its overseer says jump is, “How high?”

Methinks they doth protest too much, and if the banks prevail in this tug of war they will surely exacerbate the problems in the financial sector of the economy.

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