Bank Karma

by Ingrid Naiman

Ellen Brown just published a new essay on what the future of banking might look like, but before interpreting her words, a few prefatory remarks might be helpful for those who have tuned into the doom and gloom station as well as those who might prefer one of the more rosy solutions presented by some elder brothers from somewhere in the Universe.

In the doom and gloom camp are those who see the pending Deutsche Bank failure as Lehman Bros. times 5 or 8 or 10, i.e., some bail out that saddles the tax paying middle class because of the corruption that is pervasive in the financial sector of Earth Life.

On the other end of the spectrum are the debt jubilee advocates who want a clean slate and more equal distribution of planetary resources.  There are dozens of “plans” to be found on the Internet, but no proof whatsoever that anyone is really privy to what goes on behind closed doors.

The differences here merely highlight the length of the spectrum between black and white outcomes with fear governing one end of possibilities and idealism the other end.

In the years I have been following Ellen Brown, I have determined that her great virtue is her common sense and grip on reality.

If we were to demonetize the economy, which is certainly possible but highly unlikely, the magnitude of the instability would be monumental, meaning there would be not only chaos but no doubt extraordinary suffering, all minimized by an array of three-ring circuses in which one distraction after another is employed to keep people from thinking too hard about what is taking place.  If we are cynical, we could add all the “issues” that we face from climate change to war.  For those who exploit, war is profitable so the banksters have typically done well, often funding not just all sides of issues but all the corporations that produce the materials used in war, i.e., all the corporations run by the insiders with influence.

However, what most who buy into the schism game fail to appreciate is that the same elite have held power for centuries and they are usually equipped with much more than influence.  They have a Plan B and probably a C and a D.  Worse, they fund most of the non-profit organizations that fill our minds with rubbish.

So, what should we really expect?  One point is that while some fear that the Internet would be shut down, this is very unlikely to happen.  At this stage, we get our news, shop, and pay our bills online.  The web is a source of entertainment, information, misinformation, and profit.  What is also clear is that just as fiat currencies are not exactly real except to the extent that they can be used in transactions, digital money is also not real except that it is a major means of creating buying power and riches. We are all of us complicit in this “delusional” scheme to the extent that we spend so much as a single cent to acquire something we do not ourselves produce.

So, the banks are corrupt.  We know this, but have we also figured out that they are unnecessary? 

My first job after graduation was with the U.S. Trust Company at 45 Wall Street.  It was the largest bank, in terms of assets, in the country; but it had, at that time, no branches. It hardly advertised and discouraged accounts under five million dollars.  I was on a three-month training program in which I spent 15 minutes in the vault and much more elsewhere until eventually coming to understand exactly what each of the one thousand employees did for his or her pay check.  By the end of that first summer, I realized that banking is about taking a commission for moving funds from one pocket to another.  In this game, there is always one loser and one winner.  The economy itself is a net loser because 1000 people with a need to eat were reducing the overall value of whatever assets were used to determine the value of a portfolio. These facts tend to be obscured by inflation which is a way of increasing apparent values without actually adding anything of value.

My own value was predicated on the flimsy idea that investing in my training would result in future rewards for the company, but the truth is that a trust company is just a bank that manages investments for their clients.  At the time, I felt the U.S. Trust Company was dignified and ethical, but Wall Street as a whole was faced with the inescapable fact that one person’s loss is another’s gain.  Brokers make money on every transaction regardless of whether their advice is sound.  The Trust Company’s fees were based on the value of the portfolios, and this tended to promote more integrity than was found in brokerage firms.  However, having a lot of assets as well as buy or sell policies meant that the potential benefits for the earliest transactions exceeded those that occurred later so any policy impacted the market.  This is irrational and should not actually be tolerated by anyone who cares about fairness or value.

Here we are half a century later.  The banks were deregulated, and it has been a free-for-all.  Computers were just rolling out when I graduated and now are ubiquitous.  PayPal is an enormous financial institution that started with funky e-mails promising to pay $5 for each referral of new customers.  It was a can of worms at first, but look now! Digital currencies were tested on smartphones in the Amazon Jungle and in slums in Kenya.  They worked. 

Bitcoin employed a new technology that is being seriously considered as a replacement for fiat currencies.  The difference between it and credit cards is that there is no bank creating funds and supposedly almost no way to rob someone.

Now, here is a thumbnail sketch of what Ellen Brown published.

The Deputy Governor of the Bank of England addressed the London School of Economics and explained that central banks can phase in a digital currency that gradually takes over the power of creating currency and makes banking obsolete.

Ultimately, of course, it is logical that the central banks become governmental institutions rather than private corporations with a long leash. In my opinion, this would change “details” but not eliminate the power at the top.  In short, while a government that prints its own money would in theory never run out of money, there is always a question of what guarantees the value of a currency.  If governments did not have deficits and debts on which they pay interest, we would perhaps not appear to be spiraling out of control. The reality is that wealth should be determined by the ability to create what is needed.  This means that there are resources and productivity so the value does not have to be determined at gunpoint but rather in reference to meaningful activity.

For instance, farm land has value but the value declines if the productivity declines. It should, of course, also decline if the nutrient value of what is produced declines. In former times, variations in productivity were usually blamed on weather, but now we have despicable seeds and a new unholy alliance between Monsanto and Bayer. In short, there is still a lot of power at the top and that power is seriously mishandled.

In a logical system, there ought to rewards for proper trusteeship of land and resources, but in a system run by pirates, this cannot be assured. 

What Ellen Brown addresses is that while shifting the balances from corporate banks to national banks would eliminate the need for bail-ins, depositor insurance, and clearing houses, the lending functions of banks would not be transferred to central banks.  The question then arises is whether or not banks currently lend against savings or against promises.  The answer is clear because a loan is actually an IOU that is mysteriously converted into currency.  The bank generates a document against which hypothetical funds can be moved.  In a digital world, a borrower could create his or her own promissory note without any need for bank middlemen.  If the system were free of glitches, the loans could not be bundled and resold several times over leading to the toxic loan packages that have caused so much turmoil in recent years.

Is there a will to reform?  In my opinion, lobbyists have their work cut out for them because there would be no reason for banks to give up their present roles unless they were facing sentences for their mismanagement.  This happened in Iceland, but in most countries, we still issue get out of jail free cards to banksters.

Using the blockchain system, an asset can only be counted once, in real time, so issues such as clear titles and who owns what would be easily resolved, well, probably eliminated.  Will it happen?

A speech by a high profile individual at a high profile institution is not the same as a blog comment on a web site. At minimum, it is a test of the waters because those who teach economics would take the speech as a message of what is probably coming down the tubes.

Governments fear revolutions.  The elite usually, but not always, survive.  Empires conquer.  Revolutions appear to restore independence to those who were conquered.  The conquerors reassert their footholds by lending and enslaving their former colonies in debt.  Debtors default.  Property is seized.  Another rebellion occurs and so on it goes until power is no longer misused.

Is something about to happen?  Most pundits are suggesting we are on the brink of at least some kind of point of no return.  Angela Merkel, the German Chancellor, has gone on record urging Germans to stockpile food and water for three weeks.  She started with a shorter length of time and then extended it.  The Czech Republic followed suit almost immediately as have the Scandinavian countries. 

Should we be worried?  Yes, probably, we should have a contingency plan, but the strongest commitment anyone could make is to refuse to take up arms to settle issues.  Those with power want to hold onto their power and if threatened with the loss of it will do what they usually do.  We could insist on changes that are consistent with sustainable existence.  That would be new and ultimately practical.

For the first time in history, there is a way to move information quickly.  This is a power that can be used effectively.  It’s time.