A lot has been written has about the "banking crisis", the "credit crisis", "foreclosure crisis", etc. A lot of the talk is diluted by discussions of derivatives (CDS's), irresponsible homeowners, predatory lenders, the SEC and on and on and on.
All of this is used to simply pass blame, distract from the real problem and to muddy the real status of the financial health and stability of our country.
Every time I remembered about what is going, it makes me mad hell and wonder why there is not more honest and passionate outrage about this. I want to tell you what is going on in a way that paints a very clear picture about what has been done to YOU, along with every other citizen in the country.
You will be outraged if you were not already. And yes, this is one matter when being a concern troll is totally appropriate. To be anything but would mean you do not know what is really going on, or, you do - but you are too baked to really care. I see no middle ground here.
We can talk all day about all the actors that played a role in this, but it all comes down to who directed and financed it.
Irresponsible homeowners, predatory lenders, derivatives and other investment vehicles... all of those things are just roles. The roles wouldn't exist without a venue.
Now, let us look at the people who financed it all... banks.
Normally, you think of a bank as a company who is there to provide a valuable service to its customers, hence making a profit through satisfaction and continued growth.
A bank with a poor track record isn't going to get business when you can take your money to one of hundreds of other banks. Well, what happens when all of the banks are bad?
First, think on the macro level what you expect from a bank and how it profits.
- You keep your money in a bank a safe and convient way to store your money and make transactions using their systems (ATM, Debit, Credit Cards, Checks)
- Now, the reason you don't give much thought to what a bank does with your money is because you trust them, and your money is insured. Banks have usually been pretty dependable, right?
- The bank takes your money and it lends it out to other people at a premium. That is how they make money.
Now, what started this whole thing was greed. It was not an accident or a unwanted side effect. A few greedy bastards got together and started pushing the limits. They used sweeps to effectively reduce their reserve requirements from the 10% of deposits and demand to virtually nothing. This meant a bank was able to invest more and make more profits on sterile (non interest bearing money; ie: cash).
Now, when Bank A increases their revenue and their stock holders are jumping up and down in glee, the rest of the banks start to realize they need to increase revenues to keep their stock holders happy and keep competitive.
So, now you have all of these banks with all this extra money they want to invest also. For those who want to really get the most bang for their buck, they lever it with investment vehicles that allow for 20x - 50x leverage. These were the OTC derivatives, like the notorious Credit Default Swap (CDS).
All of this money creation saturated the economy, which is what made the dollar drop in value and caused inflation on all of your household goods. The supply of cash made for easy and cheap credit. This fueled bubbles galore.
Now, you, the client - the one whose money they are using - have no idea they are doing this, you just trust your money is safe. After all, it is insured.
Well, not so much... See, your car is insured, but you don't drive blindfolded just because there is no repercussion if it crashes. There is. You have to pay a deductible and increased premiums.
However, that is exactly how the banks were acting with your money, total disregard. For them, your money was a free roll. If these bet on "red" and won, they got rich. If it came up "black", oh well, it was just your hard earned money, no big deal, everyone else is doing it and we'll just get the Fed to pony up. No one is going to let banks like us fail.
This is the mentality that took advantage of a system that was designed to take advantage of people already.
So how screwed are you, really?
Let me put it this way. Virtually all of your hard earned money you have in your bank account - which is of course just a facade, a computer screen with numbers on it - it is all gone. The banks are insolvent.
Ok, so they lost pretty much every penny you had saved your whole life, but I am insured, so I really didn't lose it, right?
Wrong, they lost your money plus they used your money as collateral on bets of upwards of 20x your money. For every $1 you put in and they lost for you, they really lost you $20.
See, this where the problem in. There is not enough money to pay the debts created. The only way to pay those debts is to create a UNTHINKABLE amount of new money to put a bandaid on it.
Guess who is paying for the bailouts? Yes, you...
Let me repeat...
Not only did the banks lose virtually all of your hard earned money you kept in their banks, you are going to pay for it also, and it will end up being much more than the average person had in their account.
If you are someone who only has a couple grand ever saved in the bank, or never really had a savings, you got royally screwed. Your tax liability for to save these ineffective and downright fraudulent companies will exceed what you even gave them to hold on to for you. Your kids and unborn kids are also on the hook.
It is a travesty.
What is done is done right?
Well, it isn't done. I think we will be lucky if we get out of this without a bankrupted country and government. Since I am an optimist I can only assume LAWKI will continue.
Under that assumption, what is the solution?
The solution is an end to current banking system and evolve with the times to a solution that fundamentally sound, one that let's the people decide how their money is invested and what risks they allow for those who control their money.
What I am talking about is P2P lending, also known as microlending. This model is showing promise in the small models it is currently used it and should be able to scale to larger models that function in the real world.
Yes, without unchecked money creation our economy cannot grow like it is on steroids, but that is good. Such growth is a bubble, and as we are seeing right now, it will eventually pop.
The government should also provide simple savings for those who do not wish to invest their money, who not want to allow it to be risked like it was. A simple non-growth, free bank account paid for via the companies who make the money on the debit/charge transactions. This is nothing more than a cash account, a place to store your money and checks. This is really what 99% of people think their bank account is, and all they want. I mean, with interest at a fraction of a 1 percent, that is really all the current bank accounts we are accustom to our anyways.
The bottom line is...
The banks are responsible for this 100%. The government is responsible for allowing banks to have such control over our country and then not keep them closely monitored and checked.
Demand breeds supply. Without all the new, easily created money out there demanding to be invested, there would not be the demand for all of those bad investments. Supply came in and filled the demand by giving loans to people who shouldn't have gotten them, taking on high risk/reward strategies to stay in the game...
With the banks willingly taking us to the edge of the end of LAWKI (who knows which way we fall yet), why would want to stay with the current model the banking cartel has designed to allow them to repeat such atrocities in the future?