Busted: Bankers and The Global Economy

June 1, 2008

Repetition and Looking at the Short-Term

The Federal Reserve has been repeating itself a lot lately. That isn’t news. What is real news is that Fed Chairman Ben Bernanke maintains that future liquidity planning “will have to take into account the possibility of a sudden loss of substantial amounts of secured financing.” In the past, the world of banking has depended solely on the power of the fractional reserve.

Bernanke stated that even the best laid plans can have their faults, and that no matter how extensive and thoughtful the plans are, they “cannot ensure that liquidity crises will not happen again.” The truth is that bankers haven’t been very thoughtful beyond manufacturing new ways to make money aside from traditional banking. Instead, most bankers have elected to become involved in the world of speculative investing in a wholesale form.

Normally, the fractional reserve, which involves holding 10% of deposits as capital and loaning the rest on a repeating scale makes bankers quite wealthy. When creative bank finance and investment hasn’t worked, bankers have found that creating 90% of all money out of nothing can’t even save them. This proves the folly of modern banking philosophy.

The Fed has pointed out time and time again that financial literacy is the key to the problems that ail the banking and financial investment industry. Financial literacy is based on economic theory. Unfortunately, not all economic theory is proven or sound. This ignorance places the world economy at continued risk and at the beck and call of greedy bankers and investors that look only at the short-term.

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