I just don't get it!

Sometimes you have that nagging feeling, “…I just don’t get it”. This is the way I have felt since the financial crisis and trying to understand why everything seems to hinge on banking. It is even more of a mystery with the European crisis. Then out of the blue comes an epiphany.

How is banking supposed to operate? It is suppose to be funded by deposits. It leverages those deposits to increase revenue through loans and other investments. Confidence is critical. No bank has enough money on hand to cover deposits if people demanded their money back. This is referred to as “a run on the bank”.

Think of banking under the best of circumstances like “musical chairs”. The music is controlled and slow. The music has played pretty much continually since the 1930s. It is because of confidence. The depositors believe that if the music stops, it will start again immediately. To be left standing is a momentary situation and your money is safe in the banks hands.

Banking has gravitated increasingly to higher yield and greater risk ventures. This means even less money on hand to meet obligation calls. Banks have forgone the “mutual” model in favor of the “investor” model. The latter means profits leave the bank to pockets of large investors, instead of being recycled in the system. The investors have an immediate return view of things, hence the drive to quick profits and accompanying high risk.

It appears that the worst case banking scenario is the “rule rather than the exception”. Banking today is a “ponzi scheme” and has no way to meet obligations with a significant margin call. When this happens you have two choices, new influxes of cash to keep the game going or allow the system of things to crash. That is why there is constant bank bail outs. It is an effort to keep the system going. The big problem in Europe is that contagion from one nation’s banks failing will drag other nations with it due to financial interdependence.

The call for banks to hold greater reserve funds for margin calls is very unpleasant to the banks and the big investors. Withholding funds in a liquidable posture means low yields and less profits.

What about America? America is the grandmaster of the banking ponzi scheme. It has the wherewithal to keep its game intact due to an abundance of faith. Everyone believes they are smart enough not to be the odd man out if things crash (Lehman’s is forgotten).

Clueless.

Clueless! In a word, the best description of the American mindless masses. They move about in a world seeing and not seeing, hearing and not hearing, and wrapped in the fantasy created by their manipulators.

What is this system of things? The system has one rule, acquire all the wealth. From this wealth springs power. From the power springs the ability to get more wealth. It is perpetuating, barring a stumble.

To see, you need to understand the game. Such as why the rich keep getting richer in seemingly dismal economic times? The answer is simple. Their wealth is based on increasing the return on investments or “growth”. Now you know why in America we only hear about “growth” and making it rise. The rise of growth increases their wealth, literally money from nothing.

What is the engine of “growth”? It is simply money’s movement in the economic system.  This is why Goldman and Morgan Stanley make money regardless if their clients do so or not. Who was the hands down winner in the FaceBook IPO fiasco? It is the brokerage firm.

Now you can understand why the rich panicked initially with the 2008 Financial Crisis. Money stopped moving causing their wealth engine to crash to a halt. They quickly regrouped and marshaled their “owned” politicians to inject massive amounts of money in the financial system. This restarted a movement of money. The result? The rich today are wealthier than they have ever been.

If things are going so well for the rich, why push an austerity public agenda? The answer is America is a business welfare state. The benefits heaped on industry in tax breaks, legislation exemption, unbelievably low fees for licenses of resources in the public trust, low interest loans and wars that facilitate privateering are not enough today to feed their "growth" engine.

America has two sets of financial books like any business. There is the publicly presented balance sheet and the real private accounting. The really rich and powerful know that for decades the public trust has been looted on their behalf. There have been several attempts to see what gold is left in Fort Knox. The real big issue with Social Security, that does not get mentioned, is where is the money that was there? The account was mysteriously edited to be less and create fear at the time investing it in the stock market was being pushed. There is a recurring rumor that money was siphoned to fund the wars. 

There have been gargantuan amounts of money spent in America over the years that is off the balance sheet, especially related the military industrial complex. This is money that was obfuscated in sanguine legislation or cloaked in secrecy. The response to the incident of 911 should have been merely a "police action". It was labeled a "war" for political and financial reasons. As a police action it would have cost closer to several hundred million dollars, as opposed to many hundreds of billions of dollars lining pockets and dramatically increasing the budgets of certain agencies.

The rich people's traditional indirect methods of acquiring wealth in the public domain is running dry. More direct methods are being employed. This fact is being cloaked in the "austerity" panic as money is shifted from the public to the private sector. For the rich to continue to get rich at public expense, they now need to tap public fund allocations directly under the guise of austerity savings. Look closely where the retrieved funds of austerity end up.

In this game if you want the rich to scream and cry bloody tears, restrict the movement of money or curtail “growth”. Can anyone be a player? You just need two things. First,  a sizable amount of money in the financial system at moderate to high risk with the potential of tremendous short term returns. Second, access to privileged information that can be painted as a "grey" legal area if need be by your lawyers. The SEC and IRS do not have a good track record with prosecution and avoids them.