This a fabulous article by David Malone, author of Debt Generation. Here he takes some time to explain our current system of global banking, as it exists subsequent to the massive bailouts and ongoing stimulus measures to keep our largest financial institutions cash-flow positive, at the expense of the real economy and the general public. When it comes to flawed policy, we have set the stage for another epic free-fall. Governments across the globe have made it more profitable for large banks not to lend money, but rather take those taxpayer bailouts and use the cash injections to enrich themselves wherever they can find a big payoff. The banks are patiently waiting, biding their time, to pick the carcasses clean when the time comes.
“And so we have a strange situation where the big banks are sitting on piles of bad assets. Should they have to sell, or should a whole sovereign be forced to sell at knock down prices in a disorderly collapse – or even in an orderly looting organized by former bankers who are now running in to the ground every austerity-wracked nation they have been given – then there will be epic fire-sales. Those with cash on hand could make the killing of a generation. Possibly by killing a generation, but why lower the tone by mentioning those who don’t really matter?
So I think the big banks are hoarding and waiting. Each hopes not to fall first. Those who do fall will be picked clean by those still standing. This is what the bail out money is being used for.
I don’t think the banks will lend in to the real economy because they calculate that such a socially useful strategy gives low returns to them. Should they ‘defect’ from this generous strategy and chose instead the selfish strategy of ‘hoard and wait’ then they could make not just a large return but an epic one. They could emerge as owners of everything people will need in order to rebuild their lives. Water, power, rail, hospitals, you name it.
This is what the banks are waiting for. And our politicians are giving them our money so they can.”