Monday, August 29, 2016


Almost two years ago I wrote about the three charts the banks don't want you to see. Specifically, these three charts made it clear (1) America's biggest banks are effectively bankrupt without federal subsidies, (2) Bank of America is spending billions of dollars defending criminal activities that seem to be a regular part of doing business, and (3) Bank of America spent more money defending itself in court than they earned between 2011 and 2014.

So, you're probably wondering, what's happened to our banking system? How did it become such a mess, and a threat to our domestic and global economies?

Godfrey Bloom, Member of European Parliament, explains what's wrong with our banking system on a general level, by taking a look at the bailout and easy money culture that's propped up our financial institutions both domestically and globally ...

In case the link doesn't work, this is what Bloom describes: The banks are broke, and have been able to survive only by lending money that's been created out of thin air with U.S.-led policies designed to make sure the banks don't go under.

All of this is made possible because of what the bankers confusingly refer to as moral hazard, quantitative easing, and repressed interest rates. Since most normal people aren't familiar with this kind of "bankspeak" I've broken down what it all means here:

1. MORAL HAZARD: This is bankspeak for bailouts and favorable legislation. Both enable the financial sector by letting them off the hook for reckless and stupid business decisions. 
2. QUANTITATIVE EASING (QE): This is another confusing bankspeak term. It means that Federal Reserve is effectively printing money (as it were), which they then dump into the financial system so the banks have something to play with and don't go under. Dumping money into the system creates a "beer goggles" effect that let's bankers pretend things look better than they actually are. If you want to get vulgar, yeah, you can say QE is counterfeiting - as Bloom suggests - since the Federal Reserve doesn't get any real collateral in return for the money they create and lend to the banks.
3. INTEREST RATES REPRESSED ARTIFICIALLY: As if bailouts and counterfeiting to save a broken system weren't enough, the Federal Reserve artificially keeps interest rates low so market players who borrow don't have to pay market prices for what they want buy and trade. Artificially repressing interest rates reduces operating costs by making everything cheaper, which keeps the economy humming along as if markets are healthy. They are not.
4. DEPOSIT GUARANTEES: This one is real simple. After the banks collapsed - because they were both incompetent and using their clients money to bet on Wall Street in 1929 - the federal government needed to rebuild public confidence in the banks. There would be no more "trust us, we know what we're doing in the market" mentality. The U.S. created the Federal Deposit Insurance Corporation (FDIC) which said, in effect, when the banks mess up the federal government will reimburse you for what you deposited with the banks. The banks pay a minimal fee (though many didn't before 2008) and get the full backing of the U.S. government / taxpayer.

So, in a nutshell, according to Godfrey Bloom, the global banking scam is built around regular government-backed bailouts, counterfeit cash, artificially cheap money, and taxpayer-backed deposit guarantees.

Does this sound like a financial system governed by free market principles, or a banking scam? You make the call.

- Mark 

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