The Banking Crisis – The Question That’s Never Asked

This article was first posted here on 24th September 2008.

It might be the end of round 1 in the current Credit Crunch, but it’s by no means the end of the crash itself. This week there’s been a pause (so far) from last week’s tumultuous events, but I feel there’s more to come soon.

The question I’m asking relates to all the billions of pounds and dollars, borrowed by the British and US Governments to shore up the crumbling edifice of the banking system. When this money has been taken up in rescuing the current lot of collapsing banks and financial institutions, what’s going to happen when the next row of dominoes starts to go the same way?

The US rescue plan involves pumping an estimated one trillion dollars - that’s one thousand billion dollars, a figure beyond most people’s comprehension - into the economy. The British government is spending at least £200 billion (about $360 billion - over a third of the American sum) in the same way. But where is this money really coming from? We know the taxpayer will ultimately have to pay it, but where is it actually coming from now?

None of the establishment media asks this question. That’s because they don’t want people to know the true nature of the sick financial system - that the whole process is a racket, with money being created out of nothing all the time by banks under a kind of licence from the central bank (Bank of England, Federal Reserve Board, etc).

We’ve just seen a classic example of how banks lend many times the actual amount of money on their books - Merrill Lynch was “exposed” to risk that was more than thirty times its capital. That means it was lending around thirty times the actual money in its possession - the money it could lawfully lend. And that only related to the so-called “toxic debt” of dodgy home loans. It didn’t count the less risky loans on its books. So the actual ratio was probably about forty or fifty times its actual money. Where I come from this is called deception and

When this devastating fact became known it was almost inevitable that the FBI would investigate fraudulent dealings that helped lead to the current crisis. That is one good thing that has resulted from all this. But remember that the FBI is answerable to the Secretary of the Treasury, Hank Paulson, who has played an instrumental part in the crisis, in effect deciding which financial institutions are to be saved and which are to be allowed to perish. And, of course, he is a former CEO of Goldman Sachs, themselves tottering on the brink.

But for now, the billions of dollars come flooding into the markets, literally from nowhere, to save the day. Or at least to save the present day or two for the bankers and politicians embroiled in the mess. The price is to saddle this and future generations with a further mountain of debt.

What is happening is that the British and US Governments are borrowing the money from the money masters - their respective central banks, which are themselves simply creating the money out of nothing. Why don’t these respective governments themselves create the money? After all, then they wouldn’t have to pay it back, thereby relieving future generations of a colossal tax burden, if not of the burden of inflation.

Because that would mean defying the most powerful, organised and ruthless group of people in the entire history of the world. And when you’re a shifty politician with no ideology or principles and a skeleton or two in the cupboard, there’s no way you’re going to do that.

That’s all for now.

Spread the word!

Philip Gegan