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Banking is Beyond Broken. Here's How to Fix It Overnight
Two simple ideas for remedying a century of corruption
For-profit banking is destroying the economy, the planet, and human well-being.
Right now, human beings are enslaved to banks to the tune of $300 trillion.
And that number isn’t slowing down.
Because that’s not how compound interest works.
Archaeologists have discovered ancient cuneiform tablets that taught Babylonian accountants how debt destroys society:
The real economy (growing crops, building houses, etc) grows incrementally, but the parasite economy (interest, rents, shareholder profits) compounds exponentially.
Inevitably, the parasite economy demands so much interest, rent, and profit from the real economy that the real economy grinds to a halt (and all the smart young people flee, like what’s happening in Canada right now.)
Eventually, when the masses have been reduced to debt peonage and rent slavery, a bloody revolution takes place and the parasite class loses their heads (see: Rome, France, etc)
But the Babylonians were smart. They wanted to avoid stages 2 and 3, so they declared debt jubilees every eleven years on average.
Israel was commanded by Yahweh to take it a step further and not only jubilee the debt every seven years but ban interest altogether. They ignored the command, which left them in a perpetually weakened state that allowed them to continually get smoked by the Egyptians, Philistines, Assyrians, Babylonians, Greeks, Romans, etc.
As economist Michael Hudson reports:
Babylonian accountants realized how debt creates inequality, poverty, and slavery, which undermine social cohesion and political stability. Babylonian accountants advised the rulers to periodically cancel debts and free debtors from bondage, which restored economic balance and social harmony.
So naturally, today’s banksters will do everything in their power to keep us bound in economic chains.
Here are two ideas to remedy the major corruptions in modern banking:
1. Stop letting banks create money
100% of the American money in circulation today was created as debt by private banks:
The monetary base in April 2023 was ~$6.4 trillion — in other words, $6,400,000,000,000 was created by the Federal Reserve, the American central bank which is owned by commercial banks like JPMorgan.
The M2 money supply in April 2023 was ~$20.7 trillion — meaning that for every dollar created by the central bank, banks created about $2.20 through lending, for a total of $14.3 trillion created by private banks via the evils of fractional reserve banking.
So 31% of today’s US money was created by private banks pretending to be the government, and 69% was created by banks without even pretending to scam the public.
How the heck do banks have the right to make money? It’s actually quite simple (and dastardly.) When you make a $100 deposit, they loan it to someone else. Voila — there is now $200 in the money system. A $100 credit in your account, and a $100 loan repayable with interest.
This is the major reason why we have so much price inflation — because banks have been inflating the money supply. Your dollar is losing its purchasing power and you are getting materially poorer with every passing minute because banks create money out of thin air.
There’s a reason JPMorgan raked in more than $58 billion in profits this year despite not building a single house, farming a single field, baking a single loaf of bread, or contributing any new wealth to society:
They stole the right to make money from democracy.
Instead of letting banks metastasize the money supply via fractional reserve banking — it’s technically called the money multiplier effect — we need to return banks to full reserve banking.
That’s right: banks would be required to keep 100% of their deposits as reserves. No more lending to borrowers — they’re banks, not money lenders, after all.
If you deposit $100 in your full reserve bank, the bank will keep all $100 in its vault or in its account at the central bank. The bank can’t use it to make loans or investments. No more inflating the money supply. (The only way the bank can make money is by charging fees or commissions for its services, so obviously, banks will hate this idea.)
Another option is narrow banking, which is a middle ground between fractional reserve banking and full reserve banking. If you deposit at a narrow bank, they have to keep 100% in their vault and can’t use it to make loans or investments. But the bank itself can borrow money or use its own profits from services to make loans or investments, except now it will actually have real risk and a chance of personal loss if it screws up.
As one commentator put it:
Narrow banking is a middle ground between full reserve banking and fractional reserve banking, because it does not create any new money from deposits, but it also allows banks to lend money from a separate fund. Narrow banking is more stable and secure than fractional reserve banking, but less profitable and efficient. Narrow banking is also more profitable and efficient than full reserve banking, but less stable and secure.
Full reserve banking (no loans or investments)
Narrow banking (makes loans and investments with bank-owned or bank-borrowed money)
Fractional reserve (makes loans and investments with customer deposits)
Clearly, full reserve banking and narrow banking are must-haves compared to the corrupt, anti-democratic, inflationary world of magical money-making via fractional banking.
2. Eliminate moral hazard
Moral hazard in banking is a situation where banks or their customers take excessive or risky actions because they believe that they will not bear the full consequences of their actions. For example, banks may lend out more money than they can afford to lose, or customers may borrow more money than they can repay, because they expect that the government or the central bank will bail them out if things go wrong. Moral hazard in banking can create instability and inefficiency in the financial system, and it can also encourage irresponsible and unethical behavior.
Banksters constantly risk customer deposits by making shady loans and insane investments. They invest in war, guns, fracking, deforestation.
The number of cases of fraud numbers in the millions.
Call me crazy, but we need to limit limited liability and make bankers accountable for their actions.
In fact, C. Hoare & Co., which is the oldest private bank in the United Kingdom, does so voluntarily.
Founded in 1672, the family-run London-based firm is one of the oldest and most stable banks in the world. UK’s oldest privately-owned bank stewards more than £6.68 billion on behalf of its clients, and… wait for it…
For twelve straight generations, the family has had unlimited liability if it loses its depositors’ cash.
Think about that for a second.
A bank that is actually held responsible for its actions? What a concept!
Their website explains:
“We continue to be owned entirely by the Hoare family on an unlimited liability basis with no external financing. We have a highly conservative attitude to risk which is monitored closely and managed within strict limits. Members or shareholders have a joint and several non-limited obligation to meet any insufficiency in the assets of the company to enable settlement of any outstanding financial liability in the event of the company’s formal liquidation.”
In English: If we lose your money, we lose our house.
And their customers love them for it.
Imagine how well you’d sleep at night if all bankers were held personally responsible for their actions:
Banks would only make sound loans — no more NINJA (no income no job no assets) loans, no liar’s loans, no subprime mortgages.
Banks wouldn’t invest in predator monopolies that bleed investor cash.
Banks wouldn’t gamble on highly leveraged derivatives that set off global stock market crashes.
Hoare’s Bank is technically called an Unlimited Company, which is a fancy way of saying that its shareholders are entitled to all the corporation’s profits and all its losses.
(Don’t give me the extremist right-wing corporatist propaganda that with real accountability “no one would invest.” The Equitable Life Assurance Society is unlimited. Credit Suisse International was unlimited. Sole traders and partnerships are unlimited. Nearly every freelancer, consultant, hairdresser, plumber, and electrician you know has unlimited liability, which is why they aren’t trying to cut corners, rob the poor, or destroy the planet. Humans have been making unlimited liability investments for more than 4,500 years.)
If we want to save ourselves from inflation, poverty, and compounding debt loads that eventually crush the real economy, we know what to do:
Democratize the central bank instead of letting it be owned by for-profit commercial banks, and only create new money democratically and debt-free.
Stop letting commercial banks create new money out of thin air by making them full reserve banks or narrow banks.
Eliminate moral hazard and high-risk investment and lending by making bankers accountable for all of their financial decisions.
Sadly, most of the people reading this article are profiting from corrupt banks via their 401k/RRSP/pension plan.
Luckily, you can extricate yourself from this wicked system of oppression right now:
Sell your bank stocks and bonds
Bank with a credit union or co-operative
Get out of debt so you stop enriching parasites
Stop voting for corporatist political parties
Convince, compel, and cajole everyone you know to do the same (you can start by sending this article to friends and family)
It’s the least we can do to make a fairer world.
There are obviously plenty of other macro things that I would personally do to reform banking:
I’d turn all banks into not-for-profit utilities or cooperatives so they loan and invest in what’s necessary to society, not what’s most profitable to shareholders.
But at the very least, let’s agree we should democratize debt-free money creation, stop banks from creating money out of thin air, and hold them accountable for their actions.
The only people who are against these sensible ideas are anti-social hyper-individualist corporatists.
In other words… the entire class who rules our world.
Recommended summer reading: My new myth-busting biography explores the radical politics, economics, and philosophy of history’s most influential revolutionary.
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