Most people don’t understand the legal arrangement they enter into when opening a bank account. Simply put, the balance of your account is a line of credit that you extend to your bank. I bet you didn’t know you were that generous. In fact you are so generous that these days you pay account fees for the privilege of loaning them your money to do with as they please. Not only do you pay your bank to use your money, you are sooo generous that you agree to bear all the risk. That’s right nice guy, according to your loan agreement you are the last creditor they are required to pay back if things go bad. Pretty sweet huh? Next time someone tells you what a prick you are, you can tell him or her how well you look after your bank.
If you think the FDIC (Federal Deposit Insurance Corporation) has your back you are sorely mistaken. The FDIC claims to guarantee up to $250,000 of your deposits, unfortunately in 2014 they admitted their entire insurance fund contained only a fraction of a percent of all deposits in the system. They have to have money to back your money. Even the FDIC admits it's not ready for the next banking crisis according to Zero Hedge.
This arrangement begs the question, “What do banks do with our money?” They loan it to people just like you; home loans, auto loans, education loans, business loans, etc. Years ago they had strict lending standards and required a 10-20% deposit to cover market corrections; these days a pulse and a job are optional qualifications under the right circumstances.
After they loan your money out they then package that loan with other loans and loan it out again in the form of a Collateralized Debt Obligation (CDO) for a fat fee. Here’s Ryan Gosling in the movie The Big Short to explain.
This is where the fun really begins.
Now the big institutional money (hedge funds, pension funds, etc.) can bet on the rise or fall of these CDOs. If you haven’t seen the movie it’s a must if you are interested in the flow of your money. As if that weren’t enough they add another layer between you and your money. Some of these loans are so weak that nobody wants them so they package them with other weak loans and sell them as synthetic CDOs. Here’s Senator Claire McCaskill to explain.
McCaskill is right, it’s gambling plain and simple. Not only is it gambling, it’s bizarro gambling because the gambler doesn’t even know that he or she is gambling. Every bank deposit that you make is a chip in the casino of global finance. The deck is stacked and the house always wins. At the poker table they say if you can’t spot the sucker…
Blockchain technology is disrupting the bank's ponzi business model. If you feel you’ve been taken advantage of and want to do something about it, educate yourself. Start with Bitcoin then move into other blockchain innovations like Ethereum. If you don’t ‘get it’ at first continue to saturate your mind with information until it clicks. Once you have that ‘Aha!’ moment you will never be the same.
Always question. Never accept status quo.