Monday, July 9, 2012

Modern Banking's Fatal Flaw




This is from South Africa's Mail and Guardian Newspaper.  Thanks again to "African Kabuki" for bringing this to my attention!

http://mg.co.za/article/2012-07-06-modern-bankings-fatal-flaw

Modern banking's fatal flaw
Mail and Guardian
06 JUL 2012 12:00 - RUSSEL LAMBERTI

Economic events around the globe over the past five years have revealed one important fact: the modern banking system is fundamentally dysfunctional.

Does this surprise you? It should not. It has been this way since 1844.

In that fateful year, the British Parliament passed the Bank Charter Act, an attempt to bar commercial banks from engaging in fractional reserve lending.

Back then, people would deposit gold (the money of the day) for safekeeping in bank vaults. The banks would issue depositors with a signed contract stipulating that the bank was obliged to hand over, on demand at any time in the future, a specified weight of gold to the bearer of the contract. These contracts became known as “banknotes”. Because banknotes were a legal claim to ownership of real money in bank vaults, the banknotes of the most trusted and respected banks came to circulate as money substitutes and were hardly ever redeemed for actual gold.

These banks soon realised they could create banknotes that looked just like the original banknotes, with the same contractual stipulations (that is, a claim on gold) and lend them out to merchants at interest. Because hardly anyone actually redeemed their gold, no one realised initially that the banks had created more contractual notes (banknotes) than there was actual gold in the vaults. There was now a pile of new banknotes circulating in the economy, mimicking real banknotes backed by gold.

This was fractional reserve lending.

Creating economic havoc

The injection of excessive monetary liquidity into the economy fuelled euphoric speculative bubbles in asset markets. When these unsustainable bubbles inevitably burst, confidence rapidly deteriorated and people rationally rushed to hold real gold instead of paper claims on gold. Of course, as people flooded the banks with contractual claims on gold, it was quickly discovered that most banks did not have enough gold in their vaults to meet all the claims. This caused even more panic and the resultant run on the banks forced many to declare bankruptcy.

The unredeemable banknotes immediately lost all their value. Huge piles of banknotes stopped circulating, causing monetary liquidity to dry up, leading to further declines in previously overinflated assets and a painful deflationary economic depression – a hangover from the preceding euphoric paper-note inflation and asset bubble.

British legislators rightly wanted to avoid these unnecessarily destructive cycles. The banks’ ability to create banknotes out of thin air and lend them out to merchants was the chief cause of the resulting and destructive boom-bust, inflation-deflation cycle. The Bank Charter Act of 1844 correctly declared this type of lending illegal and barred banks from defrauding the public by issuing banknotes posing illegitimately as gold substitutes.

A loophole

However, despite the noble intentions of the Bank Charter Act of 1844, it contained a fatal flaw, a flaw that still torments the financial system in 2012. For although the Act forbade the creation and lending of counterfeit banknotes, it failed to prohibit another form of unbacked lending that in effect allowed the banks to continue doing what they had been doing before.

Banks carried on lending out more than the actual value of gold in their vaults, but now, instead of issuing physical banknotes, they simply loaned “money” by entering values into borrowers’ personal account records on which cheques could be written for payment. The banks had found a loophole.

These new loans, which reflected as mere entries in cheque accounts, falsely posed as gold substitutes in the same way, though more difficult to detect, as banknotes once had. Destabilising paper-banknote inflation had been stopped, but it had merely been replaced by destabilising check-account inflation.

Put simply, banks continued to lend more money than actual gold on deposit, rendering the financial system as unstable as before.

This practice of inflating cheque or deposit account entries out of thin air remains the modus operandi of all commercial banks to this day. In addition, the very purpose of the central bank – and the monopoly currency production privilege it enjoys through legal tender laws – is to absolve commercial banks from the responsibility of holding real gold money in their vaults and to print paper money when commercial banks are threatened with bank runs and solvency crises.

Unfortunate mistake
The Bank Charter Act of 1844, therefore, was almost the greatest legal advance in the history of modern banking, but it failed to deal with the fundamental problem: fractional reserve lending.

The result of this unfortunate legal mistake in the United Kingdom well over 150 years ago is that today’s banking system remains fundamentally dysfunctional. The best we can expect is incessant financial volatility and uncertainty, if indeed we manage to avoid outright financial and fiscal calamity.

The nub of the problem stems from the symbiosis between politics and banking. Politicians seek access to easy channels of finance; bankers seek favourable regulatory regimes and protections to continue the lucrative yet inherently unstable practice of fractional lending. The central bank, a unique quasi-private/quasi-public institution contrived by politicians and bankers, is the bridge between the two, legislatively authorised to print paper money out of thin air in order to bail out irresponsible banks and governments.

However, as our current global financial crisis demonstrates, central-bank oversight of the fractional banking system does not prevent crises it guarantees them. The central bank’s role as liquidity provider of last resort encourages commercial banks to engage in even riskier fractional lending, inevitably leading to greater illusory euphoria and subsequent solvency crises.

The two greatest economic crises in American history – the Great Depression of the 1930s and the current Great Recession starting in 2008 – have occurred since the creation of the United States Federal Reserve Bank in 1913. The crises that occurred before 1913 were usually the result of legal privileges granted by government to one or more fractional-reserve banks that led to unsustainable lending booms and busts. Moreover, economic crises and painful recessions have occurred in every decade since 1913 and have been particularly severe since 1971 when the US government severed all official links between the US dollar and gold.

No accident
The current financial crisis is no accident. It is the predictable and logical result of fractional reserve banking and the political-legal privileges that make this system possible.

Only a return to legally sound banking principles, the kind the 1844 Bank Charter Act was after, can remedy this unfortunate situation. This requires the abolition of legal tender laws, a return to sound commodity money, monetary deposits to be respected as safekeeping contracts and for banks to loan only those funds previously loaned to them by yield-seeking investors prepared to forgo fully the use of their funds for the term of the loan.

Russell Lamberti is head strategist at ETM Analytics, in charge of global and South African macroeconomic, financial market and policy strategy within the ETM group.

Chase & LPS Change Locks on Man’s Home – Man Didn’t Have Mortgage With Chase

This was posted  at The 2012 Scenario.

Mexican Drug Cartel Laundered Money
Through Bank of America FBI Alleges

http://www.huffingtonpost.com/2012/07/09/los-zetas-laundered-money-bank-america_n_1658943.html?utm_hp_ref=tw
The Huffington Post  |  By Alexander Eichler 
Posted: 07/09/2012 11:03 am Updated: 07/09/2012 2:51 pm

Jose Trevino Morales, leads racehorse Mr Politoafter his victory at the 2010
All American Futurity race. Morales is accused of helping launder money from
the Los Zetas drug cartel through accounts at Bank of America.
Drug money has a way of sprawling. And some of it may have reached Bank of America.

A federal probe into Los Zetas, a Mexican drug cartel, claims that the group has been laundering money through accounts at BofA, according to a recent report in The Wall Street Journal.

An FBI affidavit filed in Texas last month says that the Mexican drug cartel has been reportedly funneling cash through a Texas-based racehorse business with BofA accounts. The U.S. government has described Los Zetas in the past as "the most technologically advanced, sophisticated and dangerous cartel operating in Mexico." Tremor Enterprises LLC, the horse business, was for its part allegedly run by Jose Trevino Morales, a U.S. citizen with two brothers in Los Zetas.

In the past, Mexican drug syndicates have allegedly used BofA accounts to buy planes to transport cocaine, according to Bloomberg. Between 2004 and 2007, the bank was also the alleged destination for almost $10 million in illicit funds from an influential political family in Equatorial Guinea.

BofA has admitted such errors in the past. In 2006, officials acknowledged they'd failed to catch South American clients laundering $3 billion through one of its Manhattan branches, according to The New York Times.

Just to be clear, BofA hasn't been accused of any wrongdoing, and according to sources cited by the WSJ, the bank is cooperating with the FBI investigation.

Still, if Los Zetas has indeed been shifting a million dollars a month through accounts held at BofA, as the federal probe claims, it suggests the bank might still have some kinks to work out in its defenses against money laundering.

The World Peace Invitation
and Release of Technology


http://www.keshefoundation.org/en/media-a-papers/keshe-news/316-the-world-peace-invitation-and-release-of-technology

The text below is the copy of the official invitation to the leaders of your governments through their embassies in Belgium.

These emails will start leaving the Foundation and will be forwarded to every ambassador in Belgium in the next two weeks.

We will publish the name of the country and the email address used so that you can follow the progress of your government’s response.

The world peace invitation and release of technology

Following the meeting of the Keshe Foundation with the world ambassadors invited to Brussels on 21 April 2012, now our invitation goes to the nations of the world through their ambassadors and their leaders to attend a gathering on 6 September 2012 at the Keshe Foundation Center in Ninove, Belgium (or in any other place the nations may choose).
As your Excellencies have been aware, we invited representatives of every country to the first presentation of our technology on 21 April 2012. The ambassadors of some nations attended this meeting and others chose to ignore the call, due to pressure from other nations, and decided not to attend or withdrew at the last moment.
With this second invitation we directly and unequivocally invite the leaders of your nation to appoint qualified individuals who can take part in the upcoming meeting at the Foundation on 6 September on behalf of their governments.
The reasons for this invitation and the meeting are as follows:
On 21 September 2012 the Keshe Foundation will release the first phase of its space technology and the gravitational and magnetic (Magravs) systems it has developed, to all scientists around the world simultaneously, for production and duplication.
From that point on, international borders will cease to have any real significance. This is because, once the first flight system has been built and put into operation for the public, the time of travel for example from Tehran to New York will be about 10 minutes maximum.
The new airborne systems will enable every individual to make the same length of journey in the same time and at hardly any cost from any point on this planet. The craft will not be detectable with present radar technology.
The energy crisis will be resolved at a stroke, and once the technology is put into practice the powers that control energy supplies and through them the present financial structures will find their hands empty.
The world water shortage will be addressed and resolved by presenting this technology to the public soon after the release of our energy and space technology.
How we have done this?
For the past six years we have used the international patent system to make sure that every nation and major scientists around the world have a copy of our patents in their possession. (Please check the European patent and international servers downloads for number of downloads.)
Thus we have prevented any possible blocking of this technology by any individual or group and now most nations are in possession of our patents for energy generation, medical systems and space travel.
In this way the methods used in the past to prevent international development have been circumvented and now all nations have the same opportunity to work together to see that this technology is developed safely.
The principal point is that our technology is intended to be freely available to every government for the benefit of all its citizens. Through the systems we have developed every nation can have access to as much energy, water and food as they need, as well as to new methods of health care and of transport, all at very little cost.
According to its charter the Keshe Foundation and all its technologies are owned by the peoples of the world. The patents are the assets of every individual on this planet and cannot be claimed by any one person or organization or nation. This means that all income generated by the technology belongs to the nation that makes use of it.
We will release the list of countries invited to the meeting on 6 September 2012 and the full e-mail addresses of those who receive invitations, so it will be up to you as a government to make it known who from your nation will be attending this meeting.
By the time this email arrives at your embassies a copy will be posted on the Foundation forum and website so your citizens will be aware of the offer that has been made to you. Then it will be for you to make your response known to them, as well as to the Foundation, and we will gather the names of the delegates appointed and let your officials know where and how to meet.
Following this meeting, the presentation on 21 September 2012 will be the first step in the Keshe Foundation’s teaching program to share its knowledge and put it into the hands of the people worldwide. Once these new technologies and their benefits are known to the general public, the leaders of every nation will need to decide how they are going to implement them for the betterment of everyone.
At that point there will be two choices: either we all work together to change the life of everybody on earth for the better through the correct patterns of conduct, or the advanced nations of the world will see in the near future a flood of immigrants in tens of thousands flocking to the major cities.
We are prepared to present the technology to your representatives in any setting so that they can understand its implications and the changes it will bring about.
From now on, we can make sure that no child or adult will die of thirst or hunger and that no nation will be attacked by another, because the potential military applications of the new technology are so horrendously destructive that we will have no choice but to accept that fighting over the resources of the planet is a thing of the past.
There has been nothing wrong with protecting national assets, but now as the leaders of small regions of the Earth it is your responsibility to see that its resources are available to be shared, and that with the help of our technology everyone’s basic needs for energy, water, food and health care are met.
The Keshe Foundation takes no account of color, nationality, religion or political affiliation, thus our call is going out to every government to appoint a team of scientists to come and see our technologies at first hand. Then they can decide whether or not to make use of them. If you ignore this invitation your nation will soon have no choice but to follow the lead of the nations who have decided to develop them.
We call on your nation to start the process of world cooperation as soon as possible because once these systems are in operation, the frontiers that separate one country from another will have no meaning.
We have set the scene for a change of course for humanity and in the coming months we will see it through. In the near future people will come to realize that we are here to serve each other and not to be served, as all resources will be available to everyone at the same time and in the same measure.
M T Keshe 
The founder and caretaker director of Stichting the Keshe Foundation

Queen Elizabeth's Balmoral Pyramid

Thanks to Chris for sending this link!

This blog is supported by ads and donations. If you enjoy this blog please consider supporting it with a contribution via PayPal.