George Graham

Is This the End of Banking as We Know It? Probably Not

With the governments of the world’s industrialized nations now up to their armpits in the international banking system, this could provide an opportunity to end five centuries of institutionalized fraud, which has created a parasitical financial elite at the expense of working men and women. It’s known as the banking system, and it has finally choked on its own greed and corruption. To help it recover, governments are pouring trillions into its bottomless maw. It seems to me that the people who are responsible for producing goods and services to back up those trillions – you and I – should have some say in how the money is distributed. But I doubt that will happen.

To help clarify what’s going on, here’s a brief (and simplified) history of our financial system:

1896 dollar billBanking, as we know it, has its roots in Europe during the Middle Ages. At that time, wealthy merchants stored their gold or silver at the local goldsmith’s, as he was the only person with a vault. The goldsmith would issue a receipt for the deposit, and over time, the merchants would simply exchange receipts instead of withdrawing and depositing the precious metals. Seeing how well people accepted this convenient method of commerce, the goldsmiths began to issue their own receipts (for gold and silver which they did not own but which were deposited in their vaults) and these receipts became the world’s first banknotes. By lending out these receipts and collecting interest on the loans, the goldsmiths could use the money deposited by others to make money for themselves.  When the goldsmiths noticed that at any one time only a small proportion of the precious metals in their vault was being withdrawn, they hit upon the idea of issuing receipts for more value than they had on deposit. Soon, for every unit of gold held by a goldsmith, it became customary to issue receipts for 10 units. (If a goldsmith held, say, 100 pounds of other people’s gold in his vaults, he could issue banknotes to the value of 1,000 pounds.) This practice, known as “fractional reserve lending,” continues to this day and is  the backbone of modern banking. Banks typically loan 10 times their actual financial holdings, meaning 90 per cent of the money they lend does not now, never has, and never will exist.

When the American stock market crashed in 1929 and spooked depositors tried to collect their money from the banks, this scam was exposed and the house of cards known as the financial system came tumbling down. The nation was plunged into a time of misery and poverty known as the Great Depression. But Franklin Roosevelt was elected, and he initiated a massive public works program, which gave the impression of an infusion of new “wealth” in the economy. Confidence in the financial system was restored, and people began to accept the banks’ promissory notes once again.

The current crisis occurred when greedy bankers (and their ilk) issued notes for far more wealth than they had at their disposal – a practice known as over-leveraging (which, surprisingly, is not covered in the criminal code). A blizzard of receipts (now known as securities) was backed by mortgages that would never be paid. This scam could continue as long as the value of the homes on which the mortgages were issued kept going up. After all, mortgage holders could foreclose and get some or all of their money back.  But when the housing bubble burst and home prices tumbled, the securities were worthless.

These are the “toxic loans” you’ve heard about. Yep. The very toxic loans that Uncle Sam is going to buy up with your five hundred billion dollars (or more, if needed).  When announcement of this “bold plan” failed to reassure stock market investors (and the latter-day descendants of the avaricious goldsmiths, who now control the flow of credit), the government decided to get even “bolder” with your money. American taxpayers – along with taxpayers in Britain, Germany, France, Spain, Portugal, the Netherlands and Austria – are buying shares in banks.

Stock markets rebounded because investors are confident that the banks won’t go broke now. After all, they’re owned by you and me – and we (apparently) have an endless supply of capital. When I say “owned,” I don’t mean the way you own your house or your car. You won’t have any control over these banks; you’ll just be on the hook for their debts. And some day, somebody will have to shell out something of value to cover those debts. Our grandchildren perhaps – unless they can pass the buck to their grandchildren.

About the author


I am a Jamaican-born writer who has lived and worked in Canada and the United States. I live in Lakeland, Florida with my wife, Sandra, our three cats and two dogs. I like to play golf and enjoy our garden, even though it's a lot of work. Since retiring from newspaper reporting I've written a few books. I also write a monthly column for