Ignorance is strength

At least when it comes to banking:

Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's Ministers has revealed.

City Minister Paul Myners disclosed that on Friday, October 10, the country was 'very close' to a complete banking collapse after 'major depositors' attempted to withdraw their money en masse...

But 60-year-old Lord Myners was accused last night of being 'completely irresponsible' for admitting the scale of the crisis while the recession was still deepening and major institutions such as Barclays remain under intense pressure...

Ruth Lea, economic adviser to the Arbuthnot Banking Group, said last night that it was 'highly irresponsible' for Lord Myners to reveal the scale of the problems because it could serve to further wreck already fragile levels of confidence.

There is something almost ghoulish about being constantly reminded that one should not tell the truth, because if people knew the truth, the entire economic world would collapse around them.

That might seem a little hyperbolic, but I assure you it's not, because Ms. Lea doubtless speaks for many in positions of authority who would criticize telling the truth about our modern banking system, if their doing so would not simply draw more attention to the problem. But even then, they see the wrong problem: they see confidence as a cause, rather than an effect, of a functioning banking system.

The cause-effect difference is obvious if one puts it in a little different perspective. Let's say that you discover that your friend's husband is cheating on her with his secretary. Because she is ignorant, your friend has complete confidence in her marriage. Telling your friend the truth will likely wreck her marriage - her confidence in it will be destroyed. To not tell your friend the truth means that she will be deceived and betrayed, not only by her husband but her friend, until that day that she pays him a surprise visit at the office and learns the truth for herself. You will not have saved your friend's marriage by withholding the truth from her, nor will you likely be able to save your friendship if she discovers your duplicity*. While in ignorance, your friend may have confidence in her marriage, and it may even have the appearance of being functional (this is the government's attitude: it is better for you to live happily in ignorance) but it is a sham that will - must - someday fail.

The major result of the government valuing this ignorance/confidence as a cause of sound banking rather than the experience of dealing with sound banking, is that it must generate that confidence through all manner of symbolic measures - interest rate adjustments, guarantees, even show trials - designed to 'save' the marriage by keeping the betrayed partner ignorant of the truth. To stand Churchill on his head, in banking, falsehood is so precious that should always be attended by a bodyguard of lies.

The weakness of the comparison is obvious in the actual solution - that the husband should be faithful to his wife: you obviously cannot control his actions, you can only choose from bad alternatives. But there is no such excuse in the case of government, for banks have not the husband's free will: as creatures of government they do what they do at the behest of government and under the auspices of government. They only exist because banking laws create them.

The real solution to the problem of confidence in the banking system is to create a banking system that doesn't need it in order to function**. Such a system naturally creates confidence, not by ignorance and propaganda, but by experience. Any other solution is an ignorant and betrayed wife: at some point her misplaced confidence will give way to the painful truth.

Britain was three hours from discovering that truth, and the U.S. maybe six. But the truth will come, eventually, with all the screaming and thrown lamps it deserves.

* especially if you are the secretary.

** To do so is simple. Not easy, but simple. The Fed and fractional reserve banking should be eliminated and all deposits lent out should be time deposits, meaning that you lend the bank x dollars for x years at x rate with no expectation of early withdrawal. "Your" money is not in the bank, so don't show up asking for it. If you want the bank solely to hold and protect your money - i.e. if you want it on demand - then you pay the bank for that privilege, just like you pay the storage facility to hold all those old clothes you might fit into again someday.