[GJM] Campaign for paying the Principal only

[robert searle]

Dear Chris Cook,

             Thank you for clearing this up! 



Regards,

R. Searle.





--- chris cook <cojock at hotmail.com> wrote:

> Dear Robert
> 
> 
> > It is ludicrous that governments in the rich 
> world seem powerless to curtail interest charged by
> banks especially when one realizes that they still
> can
> > make profit from the principal being paid off.
> 
> You share a  misconception with several on this
> list.
> 
> When Banks create the principal as a "loan", they
> simultaneously create a matching "deposit".
> 
> When a "Loan" is repaid a Bank gains nothing from
> it: it merely extinguishes the credit created in the
> first place. The bank credits the borrower's account
> and debits its account with the bankling system.
> Nothing accrues to the Bank's profit and loss
> account.
> 
> A Bank makes its profit from the difference between
> the Interest received from borrowers and that paid
> to depositors on the pool of money it has created.
> 
> So does a Credit Union, which takes in Deposits and
> lends them out again.
> 
> The difference is that Credit Unions are not in the
> business of credit/money creation - they are lending
> PRE-EXISTING credit/money. So the pool of funds
> available, and hence their income is relatively
> small.
> 
> A bank on the other hand creates credit/Money as a
> multiple of their capital base and therefore is able
> to pocket the difference on a large pool of deposits
> and loans.
> 
> However, if loans go "pear-shaped" a Bank takes a
> hit against its retained Capital - and it does not
> take a very high default rate for a Bank to be in
> real trouble: this depends on quite how high the
> multiple is of loans against the capital base.  This
> multiple is of course what the Basel Accord is all
> about.
> 
> Best Regards
> 
> Chris Cook
> 
> 
> 
>
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