House Financial Services Committee Grilling Bank CEOs
Posted by The Interest on February 11, 2009
Today on Capital Hill the House Financial Services Committee is grilling some bank CEOs about various issues surrounding lending, compensation, etc. The discussion is leaning toward blaming the banks for the problems of the economy. This discussion is misdirected or at least incomplete at best.
In order for new money to be introduced into the system via the government, the government must create treasuries that the Federal Reserve purchases thus giving the government the money that it needs. The Federal Reserve then sells these securities to investment banks like Goldman Sachs, Morgan Stanley, etc., who then deposit this money into commercial banks like JP Morgan, Citibank, or Bank of America. Thus, the cycle of fractional-reserve banking gets rolling.
So, you see it takes three to dance. The Fed, the investment banks, and the commercial banks. Since government outsourced its currency creation to the Federal Reserve and the system of banks, it doesn’t control how the operations of these banks work. Add to this the need for spending by the government for pet projects and pork in order to get elected, the government actually needs the banks to monetize the debt that the government creates.
The other currency creator in all of this are the commercial banks where they create, out of thin air, loans for automobiles, homes, businesses, etc. These loans are a very large part in the creation of the currency in our monetary system.
The discussion of bank executive pay by Congress and this government is ridiculous. The banks were doing just what the government wanted them to do, and right now they are being dragged on the coals to be made out as the bad guys. There may be some bad guys in there, but the problem isn’t the compensation of the bank executives. It is the outsourcing of the most important asset of a country. Its currency.
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