Fictional Reserve Banking

In an earlier post I commented on Lord Bernanke’s demand that banks be allowed to run 0% reserves. In this post Washington’s blog points out that due to CDOs and other leveraging instruments the banks already effectively have no reserves.

Washington’s blog reports:

And as Steve Keen notes – citing Table 10 in Yueh-Yun C. OBrien, 2007. “Reserve Requirement Systems in OECD Countries”, Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2007-54, Washington, D.C:

The US Federal Reserve sets a Required Reserve Ratio of 10%, but applies this only to deposits by individuals; banks have no reserve requirement at all for deposits by companies.

So huge swaths of loans are not subject to any reserve requirements.

With theBill Moyers that while – on paper – there are 10-to-1 reserve requirements, banks like JP Morgan were using 100 to 1 leverage. She said that, with derivatives, leverage might be much higher.

And remember that most of the credit in our economy is actually through the shadow banking system, not through traditional depository banking.

The criminal insanity the bankers are allowed to get away with never ceases to amaze me.

I cannot believe the people of America have not risen up to throw these piles of trash in prison for life.

Washington’s post goes on to describe the blatant fraud of the fractional reserve banking system and why the bankers themselves demanded government protection in the form of a cartel.

You people better wake up. We don’t have much time left.

bernanke_submarines