First Bank of Scott

The recent financial catastrophe, in which America's five largest investment banks have disappeared, the world's largest insurance corporation and largest mortgage holders taken over by the government, and the unemployment rate nearly doubled, has gotten me thinking. Although I'm a polymath, I typically shy away from economics. I've never given much thought as to why. I've come to realize that the language of economics sets off my bullshit detector. It's a deceptive, manipulative language, a contrived complexity. But lately, being curious why and how 13 trillion dollars of American money has disappeared has forced me to try and learn this language of bullshit.

Starting with questions like "where does money come from?" One might assume it is created by the U.S Treasury. Not so. The treasury's money comes from the taxpayer. So where does the taxpayer get it from? A glance at a green bill in one's pocket yields the phrase "Federal Reserve Note," leading one to believe that our money is created by the Federal Reserve, the central banking system created by an act of Congress. Not quite so. After some digging, I'm fairly certain (again, the language of bullshit is thick in this arena, so I'm straining here) that the Federal Reserve monitors and controls how money is created. However, the Federal Reserve is merely a collection of private banks, run by a board appointed by the U.S. President. The money, however, is actually created by the private banks themselves, in the form of credit. Out of thin air. Poof. The Federal Reserve regulates how this is done, but remember, the Federal Reserve is a fancy name for a consortium of private banks. Making this consortium a Federal Reserve gives the banking industry a back-door into the U.S. Treasury.

If you read an economics textbook, it will tell you that a customer stores his money in a bank, and the bank then lends that money to someone else plus interest, then keeps the profit. Under this paradigm, the bank always has enough money in circulation to cover its deposits. Ah, how sweet a fable that is. It hasn't worked that way for quite a while.

Banks use what's called fractional reserve banking. That means that a bank isn't actually expected to have all the money. They're usually expected to have a dollar for every three or four that they lend. This 3-to-1 or 4-to-1 ratio is called leverage. I've always considered this dangerous, but it worked pretty well for a long time. However, decades of erosion in the laws that regulate capital, many of which were constructed in the wake of the Great Depression (an era we'd all do well to study), allowed investment banks to skirt the rules. Clever men in business suits, armed with MBA's and PhD's, cloistered in Manhattan power firms, found more and more clever ways to maximize their leverage. Some of these investment banks, such as Lehman Bros. and Merryl Lynch, were leveraged as much as 40-to-1.

Now, this isn't rocket science. If you have 40 dollars in outstanding debt for every dollar you possess, you are headed for failure. This is essentially a Ponzi scheme. As long as you keep new investments coming in, you can keep paying the previous investors. For a while. As long as the richest nation in history continues to get richer, everything is fine.

But everything is not fine. Everything is fucked. National governments around the world are teetering on collapse because of this. Millions of people are hungry because of this. The world's economy has ground to a halt, and you can almost hear six and a half billion people holding their breath.

But I know that the system will not clean its own corruption. The American system is terminal. Much of the profit in this system has has been invested in the political process. The investment banks were top donors to both major candidates in the 2008 presidential race. Most secretaries of the treasury and directors of the Federal Reserve are investment bankers. The bankers own this shit. They own you. They own me. We belong to them. You think you own your house? A bank owns it. You think you own your car? A bank owns it. How does your employer pay you? In a check issued by a bank. They own this shit.

A banker in an office in mid-town Manhattan creates money in a database. POOF! He transfers some of it to himself. POOF! Then he buys food with it. All of the people involved in making that food worked their asses off- the farmer who planted and harvested it, the trucker who hauled it to the grocery store, the clerk behind the cash register, they all worked for that money. But not the banker. The banker is a tick on the ass of the American people.

Not happy with food, the banker wants more. A mansion, a sports car, a yacht. Still not content, he begins to contrive more and more complex ways of creating money. More risk, more greed, trying to squeeze blood out of American workers as they labor to build the mansion, build the car, build the yacht, clean his house, grow his food. Eventually the schemes of the bankers crash the system. But remember, the system belongs to the banker. So the bank begs the Federal Reserve for an emergency bailout. But remember, the Federal Reserve is run by the bankers. In the interest of the banking system, the private banks that fund the Fed may bail out a fucked up investment bank. However, when the entire banking system goes belly-up, the Federal Reserve goes to the Treasury and begs the Treasury to bail out the banks. And the Treasury, which is run by a former investment banker, does so. It takes trillions of dollars of money from us, the taxpayers, and gives it to the banks.

So not only do the banks create money out of thin air, using it to get American workers to create their homes and cars and food, they get to steal tax money from those same workers. Trillions. The U.S. Government so far has given, loaned, or committed $13 trillion to the American banking system. How much is $13 trillion? I'll tell you how much. It's enough money to feed, clothe, and educate every single human being on Earth. It's enough to make a huge leap forward in the evolution of the human species. Instead, it'll be used to keep the richest humans in the history of the world rich.

If you ask a banker or economist if that's how it really works, they'll roll their eyes and pat you on the head and assure you that it's much more complicated. Then they'll refer you to complex texts involving statistical analysis. But that's bullshit. It's contrived complexity. The cold, hard, fact is that every time a bank makes a loan, it is creating money out of thin air. While coins and bills are printed by the Treasury, coins and bill represent a tiny portion of our money supply. The vast majority of money is credit. Bankers, after they've waved their magic wand and created money, spend the rest of their time obfuscating the deed by using euphemistic language and complicated arithmetic to distract us from their greed. We don't have time to penetrate the bullshit because we're too busy working to get money. From a bank. That's a scam.

I'd be furious, but I know better. I'm done wasting my emotional energy on things I cannot change. So instead, I've decided to start my own bank. Hey, if you can't beat 'em, join 'em. I want to create some money. I could use it to do good things instead of bad.

So I've downloaded an application to create a bank in the State of California. The application is one page long. All I need is a $5,000 fee. Then I must convince the state banking commissioner that I am a reputable person with a solid business model.

So here's my plan: raise $5,000 (venture capital, anyone?), glad-hand the commissioner, get a license, move my headquarters to the Cayman islands (so I don't have to pay taxes), apply for entry to the Federal Reserve System, bribe a few Fed governors, then declare bankruptcy, beg for a bailout, and retire to write my memoir "I am a Rich Asshole, and You are a Poor Schmuck". Then I'll go on a speaking tour. Of course, I'll donate the proceeds to charity.

I'll be in Switzerland by Christmas, where I'll apply for a job at the Bank for International Settlements.