Banks are back to business as usual
Glenwood Springs, CO Colorado
“Most Wall Street financial innovations are nothing more than complex variations on the basic Ponzi scheme and should be illegal.”
– David C. Korten
In his book “Agenda for a New Economy,” David Korten does an excellent job of explaining in simple, everyday language how truly dysfunctional is our present financial system, which is entirely controlled by big Wall Street corporations. He has certainly convinced me that spending trillions of dollars of public money in an effort to restore a failed Wall Street was “a reckless waste of time and resources.”
I and many others argued at the time that banks considered “too big to fail” are too big, period. The government should have simply taken them over, broken them up, and sold them as smaller entities. Banks should never be so big we cannot allow them to fail and suffer the consequences of their own actions as other businesses have to do.
But that is only the beginning of our story. To look further, we need to understand a basic fact. Banks create money.
When any borrower is granted a loan by a bank, the result is simply two accounting entries. One is a bank deposit in the borrower’s name in the amount of the loan. This is a liability of the bank. The liability is balanced when the bank’s accountant enters as a new asset, the borrower’s promise to repay the loan.
So far, we have the following result. The borrower’s new bank credit, on which that individual or company can write checks, is new money. But unless the borrower invests that money in some productive enterprise that results in an increase in society’s real wealth, the ratio between the money supply and the goods and services to be bought becomes out of balance.
And today, too much new money is just financing speculative trading of existing assets, producing no new real wealth.
Up until the 1980s, when President Reagan started the neoliberal, deregulation revolution, banks accepting FDIC insurance had to follow strict rules limiting the amount of money they could create and for what purposes. But today, anything goes.
And that anything is not the old, tedious and messy process of lending to businesses that actually produce anything of value. Oh no, the banksters have discovered how much more fun and profitable it is to increase the money supply beyond all reason by lending each other, and various hedge funds, money with which to repackage and speculate on existing assets.
So we have huge amounts of money created for the sole purpose of financing the astronomical number of speculative transactions, largely short-term, that generate the fees and bonuses Wall Street traders collect. This results in inflation and asset bubbles that, before long, collapse and cause insolvencies.
These same traders have become expert at shifting the risk to others while they sock away their gains until the bubble bursts. The promises to repay that were the asset foundation are worthless, since no real value was ever created with the new money. Then the banks get the government (us) to bail them out.
There is a pretense that the Federal Reserve is regulating all this. But despite the word “federal” in its title, the federal government has little control over the Federal Reserve. It is controlled by its member banksters and does their bidding.
After the last bailout, the Fed made huge, virtually cost-free loans to member banks with newly created money. The banks simply used that money to buy treasury bonds paying higher interest. For this worthless activity, the banks made a ton of money.
And now they are back to business as usual, namely endless unproductive speculation, for which they award themselves huge bonuses. Obama has not even considered that this system needs reforming, much less done anything about it. In fact, his main financial advisors have been leaders and supporters of the system as it is today.
Do I need to mention that Wall Street has been Obama’s main campaign contributor?
“What Do We Really Want?” appears on the second and fourth Thursdays of the month. Mary Boland is a retired teacher and journalist, a proud grandmother, and a longtime resident of Carbondale. Follow her on twitter@grannyboland.
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