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Jad Sabalbal
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MBA & MScIB student set to graduate in 2013.
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  • The Dark Age - Our Current Banking System 0 comments
    Mar 26, 2012 2:57 AM | about stocks: IMF

    The current banking system is a highly complex, vulnerable and risky structure which has contributed to the steady eradication of the middle-class and the widening of the gap between the rich and the poor. The current banking system preys on the hopeful and brings great prosperity to those in power - the 'elite' of society. More precisely, this exploitive system makes already successful corporations, their executives and the Federal Reserve richer at the cost of the rest of society (Mann, 1992). To expand further, one must understand the process of money creation to fully understand the current banking system.

    Creation is an accurate word to describe paper currency which is printed and controlled by the Federal Reserve. "Creation" literally means to make something that did not exist before. A lumberman is able to make boards from trees; build houses from lumber and a manufacturer is able to assemble automobiles with glass and metal parts. They are simply changing existing material into more valuable forms; unfortunately, this is not the case with paper currency as it has no real value (Mann, 1992).

    The current banking system which is highly influenced by the Internationally Monetary Fund (NYSE:IMF), World Bank, Western Powers, and the Fed's seemingly creates something out of nothing and attaches an artificial value to it. This is then borrowed to a consumer under the condition of repayment in addition to a hefty interest payment that puts most borrowers in an impossible position to fully repay their debt. This is due to the fact that they are often granted credit without the confirmation or proof in the first place that they are able to repay it.

    Thanks to the lenient rules of Generally Accepted Accounting Principles, accountants in the current banking system learned a trick of lending out money they did not have and putting it in an account of the borrower where it could be lent out again (Reuters, 2009). This is obviously a viciously risky maneuver that should sound alarm bells to any rational person; nevertheless, to our world leaders, regulators and finest economists'. Paper currency is then a very profitable human creation to those who have the power and influence to print it and control it, but a very destructive artificially man made tool to the rest of society, as evidenced in the late-2000s financial crisis (Reuters, 2009).

    The deregulation of lending has led to the ease of credit approvability which stems from the interests of governing bodies that own large number of shares in respective banks (Saussy, 1980). The notion that the more banks would lend, the more profitable they become is true as long as consumers were able to meet those payments; however, inflation eventually significantly hiked up prices in comparison to income and borrowers are now unable to pay back their loans - which were made up in the first place. This current system has evidently bankrupted itself and has impoverished peoples' lives without real repercussions to those players and parties involved; more importantly, it's frightening to see that there is no real indication of rectifying this exploitive system that threatens our economic future wealth creation, freedom and livelihood.

    The banking system is the catalyst of the 2000-financial crisis and the reason for this continuous fear we have of yet another recession this year or the coming years. Rather than tackling the aforementioned root causes of this infectious disease, we are simply masking its long-term symptoms by postponing the inevitable collapse rather than treating it. As mentioned earlier, the easy credit conditions, weak and fraudulent underwriting policies, deregulation, over-leveraging by banks, financial innovation and complexity, mismanagement and bailouts without repercussions are the causes to what got us in this fragile position in the first place.

    To show you the extent this current banking system is fraudulent, deceptive and harmful to both our future and well-being; the system allows bankers who control currency and the world's money supply can approve or disapprove large loans to big and successful corporations. This is significant because when bankers refuse a loan, they depress the price of a corporation's shares on the stock exchange (Mann, 2012). This enables the bankers' agents and those with the power to influence such a decision to buy large blocks of shares at the depressed share price (Mann, 1992). Furthermore, they then can approve the multi-million dollar loan which will lead to the share prices increasing dramatically. This then leads to the bankers and the 'elite' of society - which include people from congress, politicians, and heads of major corporations - to sell their shares at an inflated price, which results in significant profits which makes the rich even richer.

    The complexity of the financial system and the dozens of pages of policies and fine print makes it difficult to detect the problematic nature of these products for the ordinary man; thus, allowing those with power to maneuver and take advantage of a system that they have created to thicken their wallets. Unfortunately, the selfishness of those who created and are in this destructive system and their inability to manage their operational, credit, and market risk has led to a tarnished reputation for banks, our leaders, and our current and future economical wellbeing (Thirlwell, 2011).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: economy Stocks: IMF
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