A World Without (Big) Banks, Part I

 

Originally posted March 28, 2014  -  Part II linked at the bottom

 

Jeff Nielson for Sprott Money

 

 

In our Wonderland Matrix; we are frequently sold perversion by our corrupt governments, criminal banks, and (of course) the parrots of the Corporate media. Black is white. Down is up. Bad is good.

 

With respect to the latter perversion; while we have many examples to choose from, there could be no better selection than the obscenity dubbed by the Big Banks themselves as “too big to fail”. Regular readers are already familiar with my condemnation of this fraud, as too-big-to-fail is literally nothing but (very) thinly-veiled blackmail.

 

However, merely vilifying the criminal insanity of TBTF does not go nearly far enough here. As has been pointed out in the past; from a risk standpoint alone, the assertion of being “too big to fail” is really a confession that these institutions have become too big to exist.

 

In my previous commentary, all that was necessary was merely to refer to the nature of corporations, and of our capitalist system itself. Corporations are simply disposable parts, only the “system” itself is Too Big To Fail. Yet in our 21st century Wonderland Matrix; we’re told that preserving these “parts” (supposedly) justifies jeopardizing our entire capitalist system – and subjecting us to the economic slavery implicit with continually “bailing out” (or “bailing in”) our Blackmailers.

 

 

To truly understand the magnitude of this insanity, however, requires going much further. It requires envisioning a sane world: a world where there are no Big Banks. In such a world, it wouldn’t matter that our regulators are corrupt. It wouldn’t matter that our governments were servile puppets. It wouldn’t matter that the Corporate media spin-doctors do their best to cover-up/minimize financial crime.

 

The reason why we need honest regulators, independent governments, and a vigilant media (i.e. a real “free press”) in the realm of markets/economics is to CONTROL these mega-bank monstrosities. Previous commentaries have detailed the reason why the abominations known as “monopolies” and “oligopolies” are (supposedly) absolutely prohibited in any capitalist system – in any sector.

 

In particular, such concentration in size in the financial sector doesn’t suggest we will have problems in our markets, it guarantees it. This wouldbe true, even in a world where the bankers were all honest. While that fantasy is nothing but wishful thinking; we will assume for a moment that the word “banker” is not a synonym for “criminal”.

 

The point here is that the mere size, alone, of these corporate entities guarantees problems in our markets, and (ultimately) our economies and entire capitalist system. All of the virtues of capitalism are based upon a relatively small set of fundamental principles. One of the most-important of these principles is “free and open markets”.

 

 

 

The concept of an “open market” is easy to grasp. It is simply where anyone/everyone has access to these markets (either directly, or via some agent). While the concept of “free markets” is frequently parroted by the Corporate media, our regulators, governments, and bankers; it is never defined.

 

This is deliberate, because if the concept of “free markets” was ever properly/explicitly defined; we would immediately realize we do not have free markets – and haven’t had them for many decades. The concept of a free market begs an obvious question: “free” from what?

 

The answer to that is equally simple: free from influence, domination, or control, by any entity. It is here that most readers will immediately comprehend the reason why we can never allow any financial entity (such as a bank) to achieve too great a mass.

 

As soon as any of these entities grew too large (even if their intentions were benign); it is inevitable that they would quickly begin to “influence” our markets. Here the appropriate metaphor is simple: the tide coming in; the tide going out.

 

 

 

As these entities target their “investments” (any form of investing is ultimately a form of gambling); their large bets, themselves, become self-fulfilling prophecies. A so-called “bank” piles into a particular niche/sector, and the simple (but massive) inflow of capital alone causes that market to rise.

 

Conversely, if the bank then cashes-out its bets, and moves on to another sector (or simply chooses to “short” a particular company/sector), it can similarly induce artificial depression in that company/sector. Understand that this is true even in a world where the banks/bankers were all honest. Now let’s return to the real world.

 

In the real world; obviously these financial institutions understand their own capacity to cause “the tide” to come in or go out, to make their bets self-fulfilling prophecies. If one knew that they could win all their bets simply by placing very large bets, how many of us could resist the urge to cash-in on that power?

 

This is precisely why we previously had a rigid, detailed regulatory regime, and vigilant regulation, because even as these banks (and other financial institutions) began to grow too large; it was obvious that this was the only way that the sanctity/legitimacy of our markets could be maintained. One of the most-obvious forms of regulation was a simple one: requiring the “gambling” (i.e. pure investing) entities to stay entirely separate from traditional banks.

 

The principle was simple: you had to choose between being a “bank” or a “casino”. The reason was/is equally simple: to avoid allowing bankers (who know they can influence/dominate markets) from using the massive funds available in bank deposits to back their (large) bets in markets.

 

 

Thus there are two equally large, equally obvious “evils” which that law prevented. It stopped the financial institutions with the largest pools of capital from distorting/perverting our markets with ever-larger bets (and thus fraudulently manipulating those markets). Equally, it prevented banks from putting the capital that their depositors had entrusted to them at risk.

 

In the United States; this regulation was the famous Glass-Steagall Act. It was erased by the (corrupt) Clinton regime. Then the (more corrupt) Bush regime multiplied this insanity (exponentially) by giving us “too big to fail” – as soon as these Mega-Gamblers suffered inevitable, massive losses on their mega-bets.

 

Now we have our corrupt regulators, servile governments, cheerleading Corporate media, and (of course) criminal bankers telling us that nothing could be more natural than to have banks (ab)using the money of their depositors to place the largest bets in the history of markets, knowing that these (so-called) bets will, in fact, simply manipulate whatever market these Gamblers (criminals) target, in whatever direction they desire.

 

This is the world as it exists today, a world which should have never been allowed to evolve. In the concluding installment; readers will see what the world should look like – a world where there are no Big Banks.

 

Jeff Nielson for Sprott Money

 

Part II  -  Originally Posted April 2, 2014