Tuesday, October 13, 2015
Shadow Banking
It is really amazing that this prompt would come up on the night of the first Democratic Presidential Debate. The candidates spoke extensively about the dangers of out-of-control banking practices which they called "shadow banking", It was almost like they did the blog post for me! The financial crisis of 2007 is a pretty clear example of the monstrous nature of greed. Our nation was forced to pay hundreds of billions of dollars to bail out the largest banks in the country in order to prevent an even worse catastrophe. The candidates have developed a name for the kind of risky betting that took place in the mortgage market, much in the same way past monsters got scary sounding names. Talking about these banks in terms that make them seem monstrous is how our leaders hope to remind us of the dangers of runaway capitalism. To this end, greed in the form of unregulated banking leads time and time again to a huge crash in the entire financial system. When the people in charge of these big banks act in inhuman ways by making predatory loans to people who won't be able to pay them back makes them the monsters behind this shadow banking. The Democratic candidates for President were the only ones I have heard to address this issue so far in this Presidential cycle. I think preventing the monster of capitalism and greed from taking over our banks and hurting our economy again.
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The government bailout helped to prevent a larger economic crisis than what had happened but it raises some questions as to how much government oversight might possibly be needed in the private sector to prevent another such economic crisis from happening. Government intervention although, only happens when the system that was put in place (created by the same people who own the banks) fails and a bailout is needed. It's interesting that the way our government receives its money is through the sale of its own securities to a somewhat privatized institution, the Federal Reserve, which then in turn receives its income from interest on the very securities it has purchased. From what I can understand is that the government receives a certain amount of money when it needs it but then must pay back the money borrowed with interest. If one were to look at the Federal Reserve as a predatory entity it appears to borrow a specific amount of money to the U.S. and expect more than what is given in return with the knowledge that it does not seem possible to pay back. On a small scale, such as individuals with loans and credit cards, this makes sense as one can always earn money through working and other means, but to our own government where the amount of money in circulation is equivalent to the amount of money that is borrowed this seems like a very strange idea. I'm sure there is much more to it than just what I have stated but on the surface it appears to be a very flawed system. This capitalist monster that exists in our society poses a very real threat that has been proven many times throughout history and yet nothing has changed. When the majority of people in power are only serving self-interests it is those without a voice and the power to create change that must suffer. I attempted to find a picture to illustrate a point but for the life of me I cannot find it, but hopefully a short description will help picture it. The picture showed a carriage that was being pulled by the poor workers who helped to make possible both the industrial revolution and capitalism as we know it (proletariats) and up top of the carriage well away from the dirt and grime, and suffering of everyday life sat the moneyed elite (bourgeoisie). I feel the picture demonstrates a good point about how this country was created and continues to run today with everything that is possible being powered by the everyday man while the people in charge of the country either in the government, financial industry, or large business owners, sit up top oblivious to the social issues and problems that the majority of the country must deal with in everyday life.
ReplyDeleteBut who is responsible for these bad banking practices, capitalism, or the people who realized there was no downside to letting the investment bank fail as long as 'I' personally come out ahead. These people were looking after their own self-interest to a psychopathic extreme. Capitalism has allowed wealth to grow across the board and provided incentives for technology to progress. People are the issue not capitalism.
ReplyDelete. . . I cannot do better than compare society as it was then to a prodigious coach which the masses of humanity were harnessed to and dragged toilsomely along a very hilly and sandy road. . . . Despite the difficulty of drawing the coach at all along so hard a road, the top was covered with passengers who never got down, even at the steepest ascents. . . . Well up out of the dust, their occupants could enjoy the scenery at their leisure, or critically discuss the merits of the straining team.
ReplyDeleteEdward Bellamy, Looking Backward, 2000-1887 (Boston: Ticknor and Company, 1888), p. 11.