Banking in a Nutshell
First let me say that a bank should be nothing more than a money warehouse.
Almost all warehouses keep all the goods for their owners (100 percent reserve) as a matter of course - in fact, it would be considered fraud or theft to do otherwise.
Physical artifacts stored in a warehouse are easily audited and any fraud would soon be detected. Sadly the same cannot be said for the warehousing of money. Bankers have for hundreds of years, in fact for so long it has become generally accepted as 'normal', been using the money in their warehouse for their own gain.
Yes, I know, the banks offer interest to their depositors on the basis that they will then lend the money they have on deposit at a higher rate of interest. On this basis the depositor 'accepts' that the bank will 'use' the deposited money while it is is in the hands of the bank when the money is deposited.
At this point let's accept this as a reasonable business deal. If the banks just lent out an amount equivalent to the amount they have on deposit then no harm is done to the financial system. In fact it could be argued that they are providing a social service by injecting money back into the system that would otherwise be dormant thus re-establishing the balance between the available wealth [goods] that the 'hived-away' money represents, thus avoiding deflation.
But, bankers being bankers they're not content with making a comfortable income without creating any real wealth by living off the backs of those who create wealth, they always want more.
Since they already have the thin edge of the wedge firmly in place having duped their investors into the illusion that their money is safe and available on demand, it's a simple [and understandably tempting] next step to start lending more than the money they have in reserve. After all, what are the chances of all their customers demanding their money back at the same time? And who ever carries out a spot audit?
[...and for some strange reason, if by chance all their depositors do ask for their money back, governments oblige by bailing them out - bizarre or what?]
Back to Blogs Central