How to Lose $3.2 Million with $100k (Right?)


Now, I’m a naïve at this whole economics, finance, debt, etc. thing. I’m still learning. But let’s see if I have this right.

Imagine this:

You deposit $100,000 in your bank account. Bankers take your $100,000, bet it in the stock market, invest it in U.S. Treasury bonds (which are considered one of the safest investments), offer it as a loan with interest to someone or company or – believe it or not – keep the money on-hand as operating or liquid capital.

They do far more than that with our money, obviously.

All of us have a general understanding of the above as being how the banking system (usually) works – though we know it doesn’t work like that exactly or completely. That’s about as close as most of us come before dismissing it. To continue to pursue an understanding of the financial system would require research or fishing one’s memory for that long ago economics class.

And, ultimately, we know they do far stranger things with our money than we can imagine, much less understand.

Let’s get back to your $100,000, though.

What if the bankers took it and, instead of doing any of the above, took out loans against it? That is, they take out bigger loans using your $100,000 as collateral (and, if you will, proof of income).

But let’s say the bankers decide to be conservative and only take out $105,000 per loan against your $100,000. They use that to invest elsewhere. Makes sense, right?

What if they then took out 32 loans of $105,000 using your $100,000 as collateral for each? If that’s how it works, it sounds illogical doesn’t it? But it’s no different than the way people with good credit ratings get piled under debt. Bankers just get it at a lower rate of interest from one another.

That would make the share based on your deposit $3.2 million.

What if I told you that’s exactly what they did? It is.

The portion based on thin air (or, at most, the expectation of future income) would be much less, of course, but that’s not our concern here.

When you look for a cause of the Recession, remember that the banking professionals supposedly “safeguarding” your money used it instead to take on massive debt to then bet that money in an investment of some sort.

Of course, the financiers could have invested in far safer securities that still would have brought a return – that’s without mentioning the significant amount they make from fees, penalties, interest on loans and more.

Those exclusively and almost exclusively driven to make money and gain the power that comes with it (vice versa tends to work, too, though they are often one and the same) will always care less about your financial security – or their obligations to you – than satisfying their own greed, avarice and sadism.

Your mattress truly does care more.

That’s the way I understand it anyway.


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