First thing first, after the Feds decided to drop rates by 0.5%, many banks have been following suit with ING Direct’s interest rates now down to 4.30% and HSBC Direct announcing a drop to 4.50%. Oh well, I’d wait a bit before deciding if I should move my money around, since I’m pretty sure more banks will drop in the next few weeks.
Speaking of which, the $50 ING sign up bonus is back! Well, for awhile. Exclusive $50 bonus for nytimes.com readers who open an account with an initial deposit of at least $250 by 10/01/07! For those who haven’t opened an ING account yet, this is a great bargain as the usual bonus is $25 for you and $10 for your referrer.
Anyway, the main topic of this blog is the Corrupt Banking System. I knew banks created money out of thin air, but when CMDCC asked how it was done, I wasn’t able to give a detailed explanation. However, the following documentary was posted on YouTube and is a must watch if you’re into how banks work: Corrupt Banking System.
It’s a 5 part series:
Currently America is over $9 trillion in debt, but how did we get into this situation? Who are we borrowing from? Who has all that money to loan to us? Many people actually don’t know that the Federal Reserves isn’t actually part of the government, but is controlled by a small group of board of directors, usually major banking players. They’re the ones in charge of our nation’s entire financial situation, including printing money. How can we outsource printing of money to private organizations? You can read more about The Fed on Wikipedia.
Back to the videos. I’ve only watched 2 of them so far, but it’s told me more than I need to know about how banks can create money out of thin air. Today, when banks loan you money, I always thought they can only loan you money they already have (from deposits and reserves), but apparently that isn’t the case. Banks can loan you money backed by some small amount of reserve and the promise you’ll repay the debt. To give you an example, the current ratio (I forget the terminology) is 9:1. For every $1 the bank has, they can loan out $9. That is to say if the bank has $1000 in its reserves, it can loan out $9000 just based on the promise that you’ll repay the debt. In other words, $8000 was created out out of thin air, loaned to you, and now you have to pay interest on that $8000 that didn’t exist in the first place.
After realizing that, I just couldn’t stop thinking HOW CAN THEY DO THAT!?!?!?
The documentary goes further into proving that for every $1 that a bank has, it can eventually loan out $90 (90x the original investment). Banks expect money they loan out to be paid to someone, who’ll eventually deposit the money back into a bank. Because the banking system is a closed system, all the money just circulates within themselves. And with the new deposit, they have new money to loan out, each time, less than what they can loan out previously. And with a simple area under the curve calculation, it comes out to the fact that you can loan out 90x what you originally have.
This gets me really pissed off just thinking about it. Imagine a $360,000 mortgage loan (pretty close to what I have). Basically the bank only needs to have $40,000 in order to issue me that loan. And it would make sense if I had to pay interest only on the amount they have. But no, they’re charging me interest on the full $360,000 amount. No wonder banking investments are so lucrative.
This got me thinking… If I have $40,000 just lying somewhere, can I issue myself a $360,000 loan and just make monthly payments back to myself? It took me awhile to get my head wrapped around that idea, because basically every monthly payment I make would disappear into the abyss because it never really existed in the 1st place, but that’s basically how the banks do it. Then it also got me thinking, can I issue myself a interest-free loan? That’d be sweet!
Maybe I should get into the banking business after all. Create money out of thin air and make interest off of it.