Northern “Wreck” A Numismatic View of Banking…
Until January 2007, executives of Northern Rock were paid performance bonuses based upon a simple formula:
For every 1% rise in profits, they would receive 5% of salary as a bonus, up to a maximum of 100% of salary. For this reason, every opportunity was used to it full extreme to create profits. As is sometimes in the world of high fiancé this was not enough.
To further ensure “performance” in January 2007 executives voted them selves a bonus increase. from 5 to 10% of salary for every one 1% of profit- up to a maximum of 200% of salary. Great work if you can find it. But exactly what do bankers do that they deserve to earn so much more than the average person? And is their work important enough to warrant such extravagance?
THE OLD LADY OF THREADNEEDLE STREET.
It is widely accepted that banking as we think of it today, began during the fourteenth century in Medici’s Florence. In Britain, the first bank was Coutts and Co founded in 1690, followed by world’s first “central bank”, under charter from King William III in 1694.
The events leading to the founding of the Bank of England occurred some 50 years earlier under King Charles I.
In 1640, King Charles faced raising and paying an army to invade and pacify Scotland.
He swiftly prepared to fund his campaign by seizing the gold held in the Tower of London. As events unfolded, the proposed war against Scotland petered out and eventually the gold returned.
Two years later, in 1642 the Great Civil War did break out between King and Parliament. Nervous citizens, fearing another seizure- from either side- removed their gold and sought another secure depository.
GOLD SMITHS- THE FIRST BANKERS
A natural option was an arrangement with London’s gold smiths, who had their own, private methods of storage. The gold smiths issued receipts to depositors, which rapidly became a freely circulating currency.
Very soon, the gold smith’s noticed that very few, if any, people returned to take possession of there gold, so the next step was taken. This was to issue additional notes to borrowers, in return for an interest charge.
This practice of producing twice the amount of money than deposits held became enshrined as standard banking with the founding of the Bank of England 52 years later
THE BANK OF ENGLAND
In 1694, King William the Third was facing a war against the French. Before he could seize the gold, a cabal of six London gold smiths offered the king a loan.
In return, the goldsmiths received royal charter to establish the first “Joint Stock Company” called the Bank of England. The world’s first central bank: Privately owned, responsible only to the stockholders, known as the Court of Directors.
In addition to the Million-pound loan to the king, the company was allowed to issue the public the same amount in paper- with an interest charge.
during the 300 years since, this original 2 million pounds has grown to a figure beyond comprehension.
In August 2007 total private debt in the UK broke 100% of GDP reaching an incredible 1.35 Trillion pounds, surpassing GDP at only £1.33 Trillion. Adding public and corporate debt, this figure surpasses £2 Trillion of public and private.
Approximately half total US Debt of $9 trillion, but America has 5 times the population and an economy that is almost 7 times the size.
THE NORTHERN WRECK Northern rock is one of dozens, perhaps hundreds, maybe even thousands of banks that took this simple deception of creating money from nothing to unimaginable levels.
Total deposits made by customers of Northern Rock are about £25 Billion Pounds. Their loan book is in the region of £105 Billion. More than four times deposits.
The question now is what will be the new business model?
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