For all practical purposes, fractional reserve banking ended in 1934 when we went off the gold standard. Today’s banking is not reserve constrained.

At best, this is a case of innocent fraud.

Telling that Kucinich was convinced to go along with this.

Nor are there any critics in the media I’ve seen who know any better.

AMI wrote:
Dear Friends of the American Monetary Institute,
(Please pardon multiple emails)
 

A positive note and appeal on the last day of the year:
 

On December 17th, major progress occurred towards monetary reform when Congressman Dennis Kucinich (D, Ohio) introduced legislation which changes a corrupt private money system using bank credit for money, into to a sustainable and just system based on using government created money, under our constitutional system of checks and balances. It ends whats known as fractional reserve banking!
 

He called it the National Employment Emergency Defense Act (“NEED”) HR 6550 because it would solve the unemployment crisis our nation is in. It solves many other crises as well. Please ask your representatives, whether Republican or Democratic to read it here http://www.govtrack.us/congress/billtext.xpd?bill=h111-6550
 

This is an important monetary step forward for our people and for humanity. Progress consists of taking such steps in the right direction, educating people and gaining their support. It will take time and a sustained effort. It needs to be supported, both verbally and financially. We deeply thank those of you who are giving such support.
 

Now if you have not gotten to that stage yet, the American Monetary Institute does need your help: If you understand the importance of what we do, and appreciate the work we do, please make a tax deductible donation to the institute of $25, $50 or more, by sending your check payable to the:
 

American Monetary Institute
P.O. Box 601,
Valatie, NY 12184
 

You can also donate through PayPal using the donate buttons at our website at http://www.monetary.org
If you have not yet read The Lost Science of Money book, this is a good time to order it, at our home page.
 

The stage has been set by Congressman Kucinich for 2011 to be an important year to discuss and gain support for this “NEED” Act, HR 6550. Thats a part of what we do. Please help the American Monetary Institute continue to develop materials that educate our citizenry on how beneficial this non-partisan Act would be for our nation and give what you can.
 

I hope you had good Christmas holidays and wish you a Happy New Year!
Warm regards,
Stephen Zarlenga

[Skip to the end]

(email exchange)

The ‘short cut’ would be to allow banks to mark to model aggressively and then write off the losses over 20 years so the losses don’t alter capital ratios.

And while it does drive down their ‘economic net worth’ and reveals ‘actual shareholder equity’ immediately, as long as they can fund themselves with insured deposits and central bank funding operations, they are not affected.

They may even be allowed to pay dividends based on reported (though arguably overstated) earnings.

And they can still raise new capital if the new investors can get in at levels that give sufficient returns on investment.

Also, as is the case in the various US plans, the price the assets are sold at is critical.

The government does not want to overpay and subsidize bank shareholders, and there is no advantage for a bank to sell too low.

This plan also adds to the ‘financial stress’ of the German national government and weakens its creditworthiness as their economy continues to deteriorate and deficit funding needs grow.

While more support from the ECB has been discussed, it is not a certainty.

>   
>   On Wed, May 13, 2009 at 7:07 AM, wrote:
>   
>   Original Message 5/13 7:02:27
>   The German government today approved a “bad bank” plan to take
>   toxic assets off the balance sheet of banks. The plan will likely be
>   passed by parliament within six weeks.
>   
>   The key idea of the plan is to give banks up to 20 years to cover their
>   losses from toxic structured assets without putting much taxpayer >   money at risk.
>   
>   
>   Judging by the initial draft, the key elements of the plan are:
>   
>   Banks can deposit toxic structured assets at 90% of the book
>   value in an in-house special purpose vehicle (“bad bank”).
>   
>   In return, the banks receive bonds that are guaranteed by the
>   government’s bank support agency (SoFFin) against a fee. The
>   banks thus swap bad assets against good assets.
>   
>   Independent auditors will determine the “true” value of the toxic
>   structured assets.
>   
>   The banks than have up to 20 years to build up reserves in equal
>   annual instalments to cover the difference between the face value
>   (minus the 10% haircut) and the “true” value. In the end, the banks
>   will also have to make up for any difference between the “supposed
>   ”true” value of the toxic assets and the amount that their “bad
>   banks” realise upon winding down the bad assets.
>   
>   
>   The problems of the Landesbanken, which go well beyond toxic structured
>   assets, will be dealt with by a separate procedure to be unveiled within a
>   few weeks.
>   
>   We haven’t seen all details of the law yet, and it may well be changed
>   in parliament.
>   
>   For banks, participation in the scheme is voluntary. The basic idea, namely
>   to ease bank balance sheets constraints up-front and to give them up to 20
>   years time to build up reserves against losses from toxic structured assets,
>   looks sound. As usual, the devil could be in the detail. So far, German banks
>   have accepted government support only late and reluctantly because they
>   consider the conditions attached as too harsh. If few banks participate, the
>   ”bad bank” plan may not much impact on lending behaviour of banks.

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