I am tired and haven’t had a lot of good writing time today so I decided to write a short post related to yesterday’s post about banking, bailouts, and theft.  If you recall, the 700 billion dollar bailout was requested by the financial industry last fall.  It was presented to congress as a “do or die” scenario.   Either you give us this money or the entire world financial system will collapse.  The reasons given for needing the money revolved around losses due to subprime mortgage lending and the subsequent freezing of credit markets.  There was a lot of talk in the news about banks being afraid to lend money even to each other.  The talk was that interbank lending had ceased and banks had quit loaning money to basically anyone.  We heard it straight from Secretary of the Treasury Henry Paulson and head of the Federal Reserve Ben Bernanke.


The problem with this is that none this was even close to true. A report from the Minneapolis Federal Reserve Bank titled “Working Paper 666” states that “Figures 5A and 5B display data for interbank loans made by all U.S. commercial banks.

These Figures show that, at least in the aggregate, interbank lending is healthy. The second claim, that the volume of interbank lending has fallen sharply, is false, at least as of October 15.”   As far as lending to businesses and consumers the report states, “Figure 1B displays the same data from the beginning of 2008 onward. Bank credit consists of the aggregate amount of assets held by these banks excluding vault cash. As is clear from these Figures, bank credit has not declined during the Financial crisis. Indeed, bank credit appears to have risen relative to trend in the month of September. Figures 2A and 2B display analogous data for loans and leases made by U.S. commercial banks. Again, we see no evidence of any decline during the  Financial crisis. Figures 3A and 3B display data for commercial and industrial loans. Again, we see no evidence that the Financial crisis has affected lending to non-financial businesses. Figures 4A and 4B display data for consumer loans and show no evidence that the financial crisis has affected consumer lending.”


Again, why are we giving the financial industry our money?  Why aren’t we fixing infrastructure, investing in education, and providing health care with this money instead?  


Where does money come from? This is one of the most important concepts in our society, and I have met very few people who can answer the question. At least 90% of our money is created out of thin air through bank loans. It isn’t handed out by the government or printed as cash. It is created at local banks through loans.
When you go into a bank to get a loan to buy a house, you fill out a bunch of paperwork, the bank checks your credit etc., you sign the mortgage, and the bank credits your account with the money. You then pay for the house. Many people think that when the bank credits your account with the money, the bank is transferring money from the bank’s pile of money into yours. This is not true.
Banks are subject to a reserve requirement imposed by the Federal Reserve. This reserve requirement was essentially eliminated by Allen Greenspan. This reserve requirement stipulates how much money can be loaned in relation to the banks assets which include cash and deposits held for the bank at Federal Reserve banks. What are the reserve requirements? According to a paper at the Federal Reserve Bank of New York’s Web Site, for 70% of banks they are zero.
What does this mean? This means that when you go into a bank and sign the promissory note (mortgage) for a $200,000 house, the bank can just credit your account with $200,000 without moving any money from anywhere. This is stated directly in a report by the Federal Reserve Bank of Chicago. The have literally created $200,000 with that transaction. In reality they have also created the need for much more money, since you need to pay interest on that $200,000. I’ll address the interest in the future. With this system in place, why do we need to give the banks what amounts to $2,200 for every human in this country?