Conventional banking is a straightforward Ponzi scheme.

Accepting deposits and lending on or investing the relevant money is one of the main elements of commercial banking.

Depositors place money in banks for two reasons. First for safety: most people think (probably rightly) that putting money in a bank is safer than putting it under their mattress. A second reason is to earn interest.

But those two reasons clash: money cannot possibly be totally safe if it is loaned on or invested. As Adam Levitin put in in the opening sentence of the abstract of a paper of his, “Banking is based on two fundamentally irreconcilable functions: safekeeping of deposits and relending of deposits.”

Deposits can be made safer if they are insured by a private insurer. But even private insurers can go bust, so that’s not totally safe.

An ostensibly better alternative is to have the state with its access to limitless amounts of taxpayers’ money do the insurance. But that almost by definition amounts to a subsidy of depositors and banks.

Moreover, what’s the state doing rescuing a bunch of people who have taken an obvious commercial risk which hasn’t paid off? If you start up small business or buy stock exchange quoted shares and it goes wrong, taxpayers don’t come to your rescue, and quite right.

The “obvious commercial risk” is the above mentioned nonsensical offer made by commercial banks, namely “deposit your money with us, and we’ll guarantee you get your money back at the same time as lending your money on, a process which clearly involves risks”.  We might as well rescue people who set up as alchemists: offering to turn base metal into gold and who then find they can’t do it. Why don’t we rescue failed astrologers or tea leaf readers?

Rescuing commercial ventures which fail is a blatant misallocation of resources. Or in the specific case of banking, and in the words of Walter Bagehot,   “…any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank”.

Of course bankster-criminals are very good at easing politicians and governments into the position where the failure of several large banks is a possibility, and hence where VERY SEVERE disruption of the economy is a possibility. That’s a situation where governments, rather than let several large banks fail, take the morally hazardous decision to rescue those banks. Wads of cash in brown envelopes (euphemistically called “contributions to election expense”) help to ease politicians into the position where they have to rescue the assortment of astrologers and tea leaf readers and Ponzi scheme operators sometimes known as “bankers”.

But that doesn’t justify the existence of the present bank system any more than the failure of large numbers of alchemists threatening the economy would justify taxpayer funded rescues of alchemists.

The offer to turn base metal into gold is blatantly fraudulent. Likewise the claim that money which is invested or loaned on is totally safe is also blatantly fraudulent. It’s a Ponzi scheme: nothing more, nothing less.

Commercial banks should not be allowed to get anywhere remotely near the situation where the failure of their Ponzi scheme threatens the economy. Same goes for astrologers, tea leaf readers and crystal ball gazers.

And finally, banksters (and some deluded academic economists) like to claim that commercial banks create liquidity, or they claim that commercial banks create the most liquid asset of all, i.e. money. Well it’s true that commercial banks do perform that role. But the way they do it involves risk.

In contrast, the state can issue whatever amount of money is needed to keep the economy ticking over at the full employment level, and at no risk. At least there’s no risk in the sense that the central bank that issues the money will go bust.

There is of course the risk that too much state issued money is issued, which results in excess inflation. But then governments nowadays see it as their job to control aggregate demand ANYWAY (e.g. via interest rate changes, budget deficits, QE, and so on). The latter activity can always go too far with the result that inflation gets out of hand.