Jeff Nielson: This is a commentary that should never have needed to be written. What is euphemistically called “fractional-reserve banking” is obvious fraud and obvious crime. By its very definition, it transforms the banking sector of an economy into a leveraged Ponzi scheme; as with all Ponzi schemes, there is no possible happy ending here.
Mathematical principles are often illustrated best through the use of an extreme numerical example. We have no need to construct any hypothetical extremes, however, when we already have real-life insanity in our current monetary/regulatory framework.
Here it is important to note that in order to conceal the criminality and insanity of our present system to the greatest degree possible, the bankers have to hide their dirty deeds within their own convoluted jargon. Thus, presenting “fractional-reserve banking” to readers requires some brief investment of time in definition of terms.
Fractional-reserve banking evolved from the opportunity for all bankers to perpetrate fraud. Down through the centuries, under normal circumstances, it has always been observed that only a tiny percentage of depositors will claim their actual wealth at any one time. Thus the temptation is for bankers to “lend” more funds than they actually possess; they are “lending” what does not even exist. This is “fractional-reserve banking” – the ultimate euphemism of banking and fraud.
It goes without saying that any person or entity that endeavours to “lend” something that does not exist is perpetrating fraud. But before examining this inherent fraud more closely, it is important to back up and look at the Law. Even when banks “lend” money that they actually do hold on deposit (as trustees for the depositors), it is already wholly illegal. This is the crime known as“conversion.”
A person who knowingly or intentionally exerts unauthorized control over property of another person commits criminal conversion.
When your bank lends out money you deposited, which it claims to be “holding” for you as trustee, does it seek your prior authorization before lending out your property and thus putting it at risk? Of course not. The banks get around the naked criminality of their lending operations through general authorization. In the small print of all bank deposit contracts is a clause whereby the depositor “authorizes” the bank to lend out their property to Third Parties.
We therefore start with a basic fact: “banking” as we know it (bankers taking deposits, and then lending those deposits) is literally institutionalized crime. But “fractional-reserve banking” goes far beyond this original level of criminality.
Not only are banks allowed to lend what they don’t own, they are allowed to lend what they don’t even possess – and by many multiples. “Banking” is institutionalized crime. “Fractional-reserve banking” piles on a systemic and enormous element of fraud by “lending” what does not even exist. But this isn’t even the most shocking aspect of fractional-reserve fraud.
Here, readers need to understand the consequences of allowing banks to lend what they do not possess. A simple, hypothetical example will illustrate the principal of insanity that is the basis of our current monetary system.
Suppose JPMorgan holds $1 billion in total deposits. In the original form of our fractional-reserve fraud, the fraud ratio was set at 10:1. This meant that for every dollar that a bank actually held, it was allowed to “lend” $10. Now for the simple arithmetic.
JPMorgan is holding $1 billion of other peoples’ property, but it is allowed to “lend” a total of $10 billion. Where does the other $9 billion come from? It is conjured out of thin air via fractional-reserve fraud. Thus, for many readers, this represents their first actual glimpse of the full scope of fraudulence of our current monetary system.
In the original form of our “fractional-reserve” monetary system, for every $1 that our central banks officially printed, the banking system created an additional $9 out of thin air via fractional-reserve fraud. Simply put: 90% of all the actual “money” in our monetary system and our economy was conjured out of thin air by private banks via fractional-reserve fraud.
This is fractional-reserve banking presented as the naked fraud that it is: bankers “lending” not only more than what they possess, but lending out “money” which grossly exceeds the amount of capital in existence. Conjuring oceans of paper out of thin air. It is inherently criminal. It is inherently fraudulent.
It automatically transforms our monetary system into an institutionalized Ponzi scheme. By definition, all “fractional-reserve banking systems” would automatically collapse if all depositors simply claim a tiny portion of their deposits at any one time.
Depositors claiming their deposits is euphemistically known as a “run on a bank.” Here, however, the euphemism is intended to insinuate that the mere act of depositors taking possession of their own property is somehow a “crime” against the financial system. Indeed, directly implying as much, our own governments will institute “bank holidays.” This is yet another banking euphemism where depositors are legally prohibited from taking possession of their own property. The most recent example of such financial oppression was in Greece.
How can governments justify such financial oppression? While it is never explicitly acknowledged, the justification is entirely singular: to prop up a Ponzi scheme. It thus becomes necessary for governments to abandon the Rule of Law and legally prevent their citizens from taking possession of their own property as the only means of preventing the complete implosion of that system.
Observe how totally perverted and criminalized the current system of fractional-reserve fraud is. The banks are legally allowed to commit the crime of conversion, or “lending” what they do not own. The banks are legally allowed to commit fraud by “lending” what does not even exist. But if depositors seek to take possession of their own property, they are treated like criminals.
The bankers are granted absolute legal protection to perpetrate their fraud/crime, at the direct expense of the law-abiding citizens of that society.
However, this marks only the starting point for our present system of monetary/financial fraud. In its original form, fractional-reserve fraud was already entirely criminalized and entirely fraudulent. Why would our governments have ever turned our entire financial system into such institutionalized fraud?
They were convinced to do so on the basis of the promise of the bankers. The bankers promised that they would respect the enormous legal privilege that they had been granted by acting in a responsible manner and doing nothing to jeopardize this institutionalized Ponzi scheme.
In reality, the banks have done the precisely the opposite. First the Big Bank crime syndicate had their servants in our puppet-governments tear up the legal distinction between “banking” (institutionalized fraud) and “investing” (institutionalized gambling). Overnight, our banks were transformed into bank-casinos.