The Larceny of Lending

Your friendly neighborhood banker, ready to lend a hand!

Henry Ford
It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
‐Henry Ford

As we discussed, in the last section, the Federal Reserve is little more than licensed larceny, which victimizes all Americans. But, as we will soon explore, though, that’s only where the bamboozling begins, not where it ends. The next step in the scam also involves a nice, normal‐sounding term, “Fractional Reserve Lending”, to be specific.  That doesn’t sound terribly bad, yet, does it? Yes, and “Federal” sounds, well… Federal, too, huh? So much for that notion.  Wolves prefer to appear as sheep – for obvious reasons.

To be clear, “Fractional Reserve Lending” isn’t a misleading term, in any sense.  It’s perfectly accurate.  But, it doesn’t really sound like wholesale, long-term thievery, does it? Well, guess what? That’s exactly what it is. First, let’s define the term.  Fractional Reserve Lending requires banks to keep a fraction of deposits, in reserve, rather than lending all money deposited out to people.  We need to do this to prevent runs on banks which are over–extended.  In the US, our reserve rate for banks is 10%.  So, if we deposit $100, the bank can only lend out $90 of it.  That makes sense, right?

Well, sure that sounds reasonable, until we shift our point of view just a tad, that is.  When we look at things from a different angle, we might surmise that this whole thing is a well‐couched and well‐worded scam!

Here’s what that other angle looks like: let’s say DuPont, as an example, sells a million dollars’ worth of future toxic waste site material to the all–wise and all–knowing government.  Ok, what does DuPont do with that loot? Well, they put it in the bank, right? (Or they leave it in the bank, as it happens.  That sounds like six of one or a half dozen of the other.) Alright, then, what does that mean, from the banker’s perspective? Well, it means, the bank can lend out 90% of that money, right? $900,000.  However, if they keep all that money, in reserve, doesn’t that mean they can lend out ten times that amount? Why, yes, that’s precisely what it means.  How’s that sound for a day job? Multiplying everything by ten and laughing all the way, well, back to work, it seems.

Can you imagine how easy life would be if you only had to hold other people’s money to reap a 1000% profit?

Well, some folks just got it like that.