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| Authored by: Anonymous on Wednesday, July 11 2012 @ 07:39 PM EDT |
The World has the power! When the leverage is high enough bankruptcy is
imminent. When there are more money going round than real assets, money loses
its value. That's it!
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| Authored by: sproggit on Wednesday, July 11 2012 @ 07:54 PM EDT |
... the interesting bit is shown in the section of the graphic that carries the
sub-title "What Actually Happened"... because it shows that more than one bank
had to be involved in this scam if it was to work properly.
This is
because if Bank A lied about the amount of money it was borrowing or lending to
Bank B, and the counter-party (Bank B) gave a different story, then it should
not take long before regulators would spot discrepancies...
In short:
it takes two [or more] to tango. Remember, this was happening in the middle of
the financial crisis. Financial Regulators across the world were in daily
contact with their domestic banks, and were tracking liquidity and cash
positions on almost an intra-day basis.
They had to do this because
the scenario everyone feared was that the banks were all playing a game of
financial Musical Chairs, and that *when* [not if] the music stopped, there
would be at least one bank left standing without the liquidity to cover it's
exposures. The bank would be instantly insolvent, and would fail.
All
the regulators were afraid that the "insolvent" bank might in fact be one of
"theirs" and were thus supposed to be tracking things incredibly closely to make
sure that respective national interests were OK.
Best case scenario is
that there were a small number of banks involved in this.
Intermediate
scenario is that there were a number of banks involved in this and the
regulators didn't spot what was going on because, despite being in the middle of
a financial crisis, they weren't watching the markets because they weren't
competent...
Worst case scenario is that there were a number of banks
involved in this and the regulators *did* know what was going on, but chose to
turn a blind eye to it because the alternative was to lose one or more of their
national financial institutions, with the inevitable run on that nation's
currency and the likely economic implosion that would follow.
So how
did we get in this mess in the first place. It's a little bit complicated, but
in simple terms you can trace it all the way back to something known as Fractional
Lending", also known as Fractionl Reserve Banking.
In simple
terms, this is an arrangement whereby a bank only keeps deposits for a small
amount of the monies that have been deposited by investors. The rest is loaned
out to other clients and interest is charged on those loans... A banking license
allows the bank to lend out more cash than the deposits it has on hand.
Put that another way: at any given point in time, a bank, in the
normal course of business, is technically insolvent. It has "IOU's" to cover
it's deposits, but if every investor turned up at the same time and asked for
their cash, the bank would be unable to honor all of those requests.
In good times, banks want to run the ration of loans-to-deposits as
high as they can, because the more they lend out, the more interest they can
charge, and the more profits they can make. But there's a problem: what happens
if the loans go bad, and then depositors want their money back?
And
things were going bad, remember? The US was in the middle of the sub-prime
mortgage financial crisis. There was the potential that a vast amount of money
had been loaned out on property for which the "owners" could not afford
repayments. [Some US banks giving mortgages to unemployed people on the basis
that 'they might get a job in the future...'].
This problem becomes
it's own worst enemy, because when the risk of the mortgage debt becoming toxic
starts to surface, what happens? Nobody wants to buy or sell homes, because
people are frightened. Property prices fall. When prices fall below the value of
the bank loan, then the bank starts to "lose"... But this isn't "real" money
backed by the deposits it has taken, it's this fictional money that it magicked
up through the wonders of fractional lending. And *that's* the problem. When
things go wrong, the fractional leverage *increases* the banks exposure to the
risk [because there is much greater probability of impact]. The rumor of a
collapse can quickly become reality. And that's what happened.
So the
bit that really interests me is not the fact that Barclays or possibly even
several banks were found manipulating LIBOR. The interesting bit is that in the
middle of the financial crisis, regulators in the UK, US, Europe and Asia didn't
detect what was going on:
Daily meetings between High Street banks and
Central Banks.
Regulators camped out in bank Headquarters.
The
International Monetary Fund watching individual governments.
And no-one
spotted this at the time?
Hands up all those who believe this happened
the way we're now being told?
Thought so...
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