Banks for Nothin'

Two of the most important things for responsible citizens to understand and act upon are that the government does not have its own money and that the banks do not have their own money, either. So many of our perceptions and our society's dominant paradigms and narratives ignore these twin truths.

All of the wealth in the United States belongs to the people. You and me. The government and the banks do not have their own money. Every single cent they spend and invest is on our behalf; it's our money. But so many of their actions depend on people being fundamentally ignorant to this fact.

The way the government spends society's money is grounds for endless debate and analysis. In fact, nearly every political debate revolves around this point to some extent. The important thing to remember is that this is no abstraction; the "government's" money is the people's money.

The government, of course, has every motive to obscure this fact, the most ingenuous instrument of that obfuscation being the federal withholding tax, which gives citizens the illusion of tax "refunds" at the end of the year.

Imagine if, instead of having your income tax withheld, you had to pay it every week. So on friday afternoons, after cashing your check for, say, 500 bucks, your next stop before the liquor store or Best Buy or the grocery or whatever else would be the tax office. And at that tax office, every payday, you would physically hand over 20% of the check you just cashed.

One can imagine that under such a scenario, citizens would be much more in tune with the true nature of the relationship.

Banks operate in a similar way. Banks, like the government, seem to have trillions of dollars at their disposal. But, like the government, this is an illusion. If you and I didn't go to the bank every friday and deposit our pay checks, the banks wouldn't have a dime.

Here's how banks work. They hold your money for you. How then do banks make money of their own? Well, if you deposit 100 bucks, the bank will instantly lend 90 of your 100 bucks to someone else. It will charge that other person interest. When that other person pays the bank back (gives your money back to the bank) the bank keeps the interest as profit.

That's all banks do. They profit by lending your money to someone else. That's it. They create no wealth of their own. They simply operate a shell game, the most fundamental assumption of which is that no more than 10% of the people at any given time will come to the bank and demand all their money.

Here's the difference between banks and governments: banks are private, for profit businesses. The government is not. Banks serve their shareholders. The government serves the people.

Therefore, like with all for-profit ventures, the governments job is to regulate that venture in the interest of all the people. For example, it would be cheaper for McDonald's to sell beef that has not been inspected, but aren't we all rather glad that we have socialist meat inspectors out there somewhere, infringing on McDonald's freedom to sell spoiled beef?

The Great Depression was caused largely by a lack of such regulations. The banks, being out for profit, were reckless with the people's money. The government failed to defend the peoples' interest, allowing banks and investment firms to gamble away millions of peoples' savings.

One of the reactions to this catastrophe was the implementation of government regulations of banks. And lo and behold, there was no national banking crisis between the Great Depression and Ronald Reagan. And the came Reagan, who did away with decades of regulation, calling it nothing but red tape and liberty squashing.

And we have seen the results. Without regulations, greed flowed freely. Greed is like running water; it will invariably find the path of least resistance. Even if no such path is apparent, running water can ultimately destroy mountains. Reagan gave the banks loopholes wide enough to drive trucks through.

Here's one example of something the banks were once again able to do thanks to deregulation: make loans that they know wouldn't be paid back. Why would a bank do that? Why would it lend a poor person a million bucks? Because without rules, these types of things make sense.

Here's how: I'm a bank. I loan a homeless guy a million bucks. I have a piece of paper saying Mr. X owes me a million bucks. But I know he can't pay me back. What do I do? I go to another bank and I say, "hey, would you like to buy this debt? This guy owes me a million bucks, but I'll give it to you for 500 grand".

Now this other banker says, "why not? If the guy pays me, I'll clear half a mill. If he doesn't, I'll just sell this debt to someone else, hidden in a pile of more secure loans".

So I have just made 500,000 dollars by selling a promissory note for 1,000,000 to a third party. This can be, and was, done over and over and over and over.

That was illegal until Reagan. Until Reagan, if a bank lent a crackhead a million bucks, that bank had to hold that debt. This was intended to prevent banks from doing the sort of thing explained above. And this is but one example of the schemes that were carried out writ large across our economy after Reagan and Bush's deregulations.

So the banks betrayed us, but we can hardly be angry at them. We should rather be angry at our government for deregulating the banks. Being mad at the banks misses the point. It's like after the show tiger attacked the guy in Vegas and everyone talked about how the tiger went crazy. Quoth Chris Rock: "That tiger didn't go crazy...that tiger went tiger!"

Banks are tigers. Government is the leash. Take of the leash....what do you expect?

The ultimate scandal, of course, is the reaction. The government simply gave the banks more of our money to replace the money of ours they had already stolen. Stolen? Yes, stolen. If you, as a banker, take a man's pension and trade it for a bundle of mortgages taken out by unemployed felons in a state you've never visited, that amounts to stealing.

And how is this stealing punished? By cutting checks to the robbers. As usual, Bob Dylan said it best. "They say patriotism is the last refuge to which a scoundrel clings. Steal a little and they'll throw you in jail. Steal a lot and they'll make you king".