Monday, April 12, 2010

How Banking Really Works

(Or Sachs, Lies, and Video Clips)

Henry Ford once said that, if the American people knew how the banking system really worked, there would be a revolution. Let me tell you how the banking system really works.
Most people think that it works pretty much like commerce. In fact, the British use the same word for rent and borrow. They hire a car and hire money. In practice, there’s no comparison.
When you rent a car, the car rental place gives up some of the value of a car (wear and tear on the vehicle) in exchange for your money. Your money has value because of the time and effort you sacrificed to get it.
In short, both you and the car rental place are giving up something of value (cost) to gain something of value (reward.) All commerce is based on the three elements of Social Exchange Theory: cost, trust, and reward.
In banking, the cost is almost entirely one sided. That’s because banks have the power to create money out of thin air. Banks can create “money,” but they can’t create value.
Let’s skip over the history of banking, which, I’m sure, every one of you has heard.
Dollars no longer take the form of silver or gold. They may not even be in the form of something tangible, such as a check. Because of the intangible nature of money these days, bankers can monkey with it in ways that’ll curl your hair.
For every dollar that’s deposited in a bank, the bank can lend thirty dollars or more. The ability to lend more money than they actually have is called fractional lending.
Where do they get these extra dollars? They create them out of thin air, based on the supposed authority granted to them by Federal Reserve Bank (the Fed.) This cartel isn’t federal any more than Federal Express is. It has no reserves, and it’s a privately owned banking cartel rather than a single bank.
Any value assigned to this “money” comes from dollars already in circulation. With each dollar that’s created out of thin air, each dollar already existing becomes worth less until, finally, it becomes worthless. (Compared to the value of the dollar in 1929, today’s dollar is valued at less than four cents.) It’s a form of invisible taxation, and not one American in a thousand is aware of it.
It doesn’t cost a bank any more to lend $30,000 than it does to lend $1,000. By contrast, a car rental place can rent out only one car—not thirty or more—for each car that it has. The car rental place is limited to getting rental fees for each car they have; but banks can gain interest payments on thirty times the amount of money they have on deposit.

Now let’s look at how this applies to the “bailouts” of Goldman Sachs and other banksters. I placed the word bailout in quotes because Goldman Sachs and the other banksters suffered no losses; thus, no losses needed to be covered.
They created money out of thin air (being fiat money, it had no intrinsic value) and loaned it to people to buy houses (which, of course, have value.) The borrowers agreed to repay the fiat money with money they had earned through the sweat of their brow. Thus, they borrowed something with no intrinsic value and agreed to repay it with something that had value—plus interest.
Remember Social Exchange Theory: cost, trust, and reward? Those loans didn’t cost the banks anything, yet they’re expecting value in return.
Goldman Sachs then set up a parallel system in which they made bets that their own system would collapse. So what happened when the system collapsed?
Well, it’s not as if the borrowers never repaid anything. Goldman Sachs and the other banksters did get some money that had value as repayment for money that the banksters had created out of thin air. When the borrowers fell behind in their payments, the banksters also received the houses—which had value—and those who had bet that the system would collapse thus made hefty profits when the system did collapse.

Then Goldman Sachs and the other banksters went crying to congressmen who had received hefty campaign contributions from them. Congress then voted to embezzle trillions of dollars (which have value, as the taxpayers had worked to earn them or must work to repay them) to “compensate” the banksters on their supposed losses.
It’s reasonable to ask, “If all this is true, why did Bear Stearns and other corrupt outfits go bankrupt?” They went bankrupt because even banksters have financial obligations that have to be met with real money. Not everyone can be played for saps. Each time a borrower defaults on a loan, the bankster can expect fewer real dollars to meet his obligations.
Who controls this corrupt system? It’s controlled by the Federal Reserve—the same privately owned banking cartel I mentioned earlier. Under the United States Constitution, the Congress has complete responsibility for coining money, borrowing against the credit of the United States, and paying it back.
In 1913, Congress voted to violate the Constitution by placing this responsibility into the hands of a few large banks. It was about that time that Mark Twain said that congressmen were idiots. Since idiots can’t be trusted to handle money (I’ve often wondered: If a fool and his money are soon parted, how did the fool and his money get together in the first place?) Congress voted to place that responsibility in the hands of bankers.
The rationale for the Federal Reserve System was that bankers’ expertise was needed to avert another crisis like the Panic of 1908. When Congress voted to create the Fed, then Congressman Charles Lindbergh (the father of Lucky Lindy) said, “Now depressions will be scientifically created.”
The Panic of 1908 is largely forgotten, but everyone has heard of the Great Depressions of the 1930’s and the present day.

Maybe it’s a silly question, but, since the Federal Reserve is in control of all of America’s money supply, shouldn’t the Fed be audited once in awhile? Yes, I believe so. That's why HR1207 was introduced. Maybe it’s a sillier question, but, since the Federal Reserve has completely failed in the only purpose given for its existence, do we really need it? Congressman Ron Paul and many others say, “No.”

Recommended reading:
The Creature from Jekyll Island. Despite its flippant-sounding title, it’s the most important book pertaining to the Federal Reserve that I’ve ever read. Of necessity, I’ve breezed through a lot of important points concerning the Fed. The Creature from Jekyll Island will fill you in on the details. If you can’t find the book and still can’t trust Internet purchases enough to buy it on line, click here to begin watching the twelve-part You Tube videos by G. Edward Griffin.

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