Section One, Part Three

MONEY FOR NOTHING - Central Banks In the late 1980's and early 1990's, the central bank of Malaysia operated a particularly active currency trading operation, ostensibly designed to make significant profits. It succeeded for a while, before inevitably failing. Trading is always about knowing that a win:loss ratio of 60:40 will put you into the very wealthy category, but most inevitably go through the 40, and then the ruler comes down and says " no more ". What was laughable was that Alan Greenspan frowned upon the Bank Negara, on the basis that it was falsely distorting the market for short term gain. ( must have been a bit anti-Muslim here, the Malaysian's contention was quite correct that the Plaza and Louvre Accords were (1) deliberately designed to distort currency relationships; (2) a policy development without consultation with groups that would be affected by it; and (3) a form of "gentlemen's club" between USD, YEN and Deutschemark, who thought that the rest of the world would thank them for imposing a financial loss on the non-consulted countries.) Central banks have also operated the same way, the beneficiaries refusing to recognise the debt owed to benevolence should be to the whole community, and again violating the social contract. But let us build the argument. Firstly, central banks already exist in the money-for-nothing world. The rights that accrue to seigniorage guarantee that central banks are highly profitable entities. They print money, and the actual printing cost is much less that the face value of the notes. ( unless you are Germany in the 1920's, in which case the value of the paper was worthless, because of no confidence in the central bank). The primary role of the central bank is to maintain confidence in the currency that they have just printed. That one should be self-evident. Everything else is secondary.....but may include supervising, and monitoring, the banking system ( this is systemic support, not focused on particular organisations, or other mates), and some are even given a economic stabilisation role, as well. This last one is absurd, it should never be the role of a special interest entity to look after the greater community....especially one which is unaccountable to that community. Greenspan might have pooh-poohed the Malaysians, but he should at least have been even-handed, and apply equal measure to the Bernanke's Fed performance. Bernanke's attributed research pieces into zero interest rates show you should avoid them, the outcome is unknown/unknowable, and their reversal has had no successfully demonstrated examples ( his research case was Japan, which has never emerged from their post-1989 funk). And yet, we have had QE1,QE2, QE3, and no repentance. The sole beneficiaries are the bank's carry trades.....no different to the prime broker role.....and still no knowable exit path. WHO PAYS IF THEY ARE WRONG about the path that will emerge from their unforecastable modelling. Amazing!!! Total unaccountability to those who will bear the cost for any downside ...to the 40 instead of the 60 in the trade-off ratio. Closer to home, we at least have a central bank which is universally owned, not like the US system, where the central bank is owned by the very banks it supervises/licenses.. BUT, what did the banks pay for the stability of the central bank guarantee for deposits( the taxpayers were allocated the moral hazard here). What did the banks do when they placed paper with the Future Fund in 2008 ( again the taxpayers have the effective moral hazard here ). Where is the supervision/ monitoring here. Was it the same supervision which allowed those same banks to arbitrarily decide to reduce the credit lines of highly viable organisations, and cause all sorts of real affects to those businesses activities, but still continue to ensure sufficient lobbying to maintain bank executive salaries. Just when did stability of the banking system become defined as " maintain our salaries, while we cut back on our obligation to customers, while making sure the moral hazard rests on the taxpayers". Truly, Money for Nothing. Least of all, responsibility.