Bankers Who Don't Understand Banking

Today Ann Pettifor Tweeted a quote from the Financial Times:

RBS chief finance officer quoted in full: "Every banking group uses deposits to fund loans. It is the basic premise of banking"

{face palm} This is completely wrong. No banking group does this. Banks create loans which then attract deposits. This is how the Bank of England put it:

"Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits." (Money Creation in the Modern Economy, 2014).

Of course, when they say "modern economy" they mean, since the founding of the Bank of England in 1694.

Why is the CFO of a major UK bank confused about fundamentals of banking more than 300 years after modern banking was established? He probably learned economics at university. What universities teach about banking, loans, and deposits is the complete opposite of reality. They get loads of other things wrong as well. But whole generations of economists, journalists, and crucially, politicians, have been taught this stuff.

One of the chief problems with Neoliberalism is exactly this kind of disconnect between theory and reality. Neoliberalism is dangerous because the economic theories involved are unrelated to the real world. The theories do not work in practice. The standard undergraduate textbooks of economics contain no real-world examples whatever. Examples have to be strictly tailored to illustrate the theory, because the real-world does not behave in the way that the theory says it does. So to use a real-world would almost certainly disprove the theory. Apparently economics undergraduates aren't ready for the truth. The graduate texts are not much better. They might acknowledge that the theory is unrelated to reality, but they will argue that it doesn't matter because the models work. But the models don't work or they would have predicted the financial crash of 2008 - the biggest single perturbation of the world's economy since the Great Depression. No mainstream economist, journalist or politician saw it coming.They all assumed that the economic "miracle" wrought by the deregulation of credit would produce a never ending boom. Wired Magazine literally called it the Long Boom in 1997 - watch out they ban ad-blockers.

For more on this see for example Professor Steve Keen: Neoclassical economists don’t understand neoclassical economics.

So we get this seemingly never ending stream of politicians, bankers, financiers, and journalists who don't understand economics, don't understand economic policy, and don't understand the consequences of not understanding. They don't even understand that they don't understand.