Wednesday, 7 October 2020

The confidence trick which has enabled banks to fool everyone.


Banks perform two quite different functions: first, the storage and transfer and money, and second, granting loans. The first is absolutely essential for the smooth running of any economy. In contrast, there is no particular merit in granting loans, i.e. having one person or entity in debt to another, (though there is of course nothing inherently WRONG with borrowing, lending and debt). Put another way, there is no obvious reason why taxpayers should rescue lenders who have made silly loans any more than taxpayers should have to rescue restaurateurs who make a hash of running restaurants.

However, banks have fooled everyone, politicians in particular, with an absolutely brilliant confidence trick, which is to persuade them that money storage and transfer on the one hand, and the granting of loans absolutely have to  be performed by the same organisation: known as a “bank”. That means that when a bank makes a series of silly loans, banks can force politicians to come to their rescue with billions of dollars of taxpayers’ money.  


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