Meaning - Ben Dyson: Why we should redesign banks

Adam Tinworth
Adam Tinworth

Warning: Liveblogging. Prone to error, inaccuracy and terrible, terrible crimes against grammar. This post will be improved over the next 24 hours

Ben Dyson

Ben Dyson wants to make banking and money work positively for society.

Economists explain the world as if it’s made up of rational, calculating people. For example, the suggest that people will walk into a supermarket and buy the things that make you most happy, but that’s not true. You fall prey to impulse buys, and forget critical items. We’re not that rational. For our brains to work the way they think it does,. it would need to be heavier than the whole universe…

The book Grip of Death answered his question: where does money come from. Money is power – so what does it mean to have the power to make money?

Coins and paper money only make up 3% of money. The rest is electronic money, create by the banks. Banks have the ability to create money. The money in your account is not base don the Mint or the Bank of England. It’s created when people take out loans. Whenever anyone go into debt, new money is created.

In the run up to the financial crisis, the banks created vast sums of new money – that’s what create the boom. 51% of it went into money and commercial property. 31% went to financial markets. Only 8% went into businesses. And another 8% went to credit cards and debt.

When money and debt are the same thing

We all have the idea that money is good and debt is bad. The problem is that our system makes them the same thing. What would happen if everyone pays of their loans? The money disappears. Repaying bank loans destroys money. This is why personal debt has not fallen since the crisis.

The number of houses is growing faster than the population. So why do house prices rise so much? The growth of mortgage lending. This makes houses inaccessible to many – and the growth of inequality. The bottom 90% are paying interest to the top 10%.

If you can get on the housing ladder – you benefit. If you’re renting, you’re paying someone else’s mortgage. At the worst end 5,000 people are made homeless every year. The worst off owe 4x their annual income.

Designing a banking sytem

The current banking system is an accident of history. It was not designed. In the 1840s, Banks were printing money that led to a financial crisis – and the government and to step in. The 1844 law to stop the creation of paper money has never been updated.

What do we need to do?

  1. Take the power away from the banks – but don’t pass it to politicians.
  2. Create a money creation committee – which would create money, and pas it to the government.
  3. The Government decides how to get that into the economy. Government spending? Tax cuts? Citizen dividend? Any would work.

This change the equation – we can now have more money with less debt. Banks would revert to lending the money from savers, as we assume they do work.

This new money needs to go straight into the real economy, not financial products. We need more people with money in their pockets, rather than more bank lending. Martin Wolf, the chief financial commentator of the Financial Times, has written in support of this idea.

Money is power. Who do we want to have that power?

On Monday we’ll see the first parliamentary debate on this subject in 170 years.

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Adam is a lecturer, trainer and writer. He's been a blogger for over 20 years, and a journalist for more than 30. He lectures on audience strategy and engagement at City, University of London.