I have posted
a really comprehensive entry
on my blog explaining how we got into the mess that requires that banks need a huge bailout to cover their blunders. It's fairly easy to read and you might consider it a bit humorous. Some quotes:
- Recent reports of the $700,000,000,000,000,000,000,000,000 bailout of the U.S. banking system compels me to write a little about how finance works in the U.S.
- The occurrence of severe local depressions caused the "Federal Reserve Act" (1913) to establish a national bank so that now, the Federal government had the power to change what would be local depressions into national ones.
- If you ever saw the bank run as shown in Its A Wonderful Life you'll know that a bank doesn't have the deposits in the vault, they've loaned out their depositors money. Before deposit insurance, if too many depositors show up, the bank closes its doors, and the banker tries to run out of town before the angry depositors lynch him.
- Upton Sinclair's 1907 book The Jungle tells of a scam that mortgage brokers used on unsuspecting immigrants. (That it doesn't look much different from the scams mortgage brokers use today shows how little imagination mortgage brokers have.)
- Originally, you had to have a good job and good credit to get credit cards; if you didnt, your friendly neighborhood ghetto department store sold you junk and financed you at rates that, until now, were basically just south of usury. Today you can get over-the-phone loans from companies that advertise on TV at interest rates that would embarrass a loan shark, [who could never be anywhere near that greedy].
- The joke [in the 1980s over the S&L crisis] was if you wanted to rob a bank, you were better off looting it, because armed robbery was a crime but using your friends to loot a bank was likely to not be prosecuted.
- Those with money had a field day screwing around with the bankruptcy laws to make them less favorable to the debtor and more favorable to the guy who was owed money. Those of us who didnt have the money to pay lobbyists to protect us got screwed.
- Lets you and I open a bank with $1,000 between us. If theres a 5% reserve, we have to deposit $50 with the Federal Reserve and can loan out $950. Thats how you might do it, but Im smarter than that; I figured out a way to legally loan out money we dont have, a practice that in other industries would get you 3-5 in Baltimore's Supermax prison for fraud, but perfectly legal as long as you're a bank.