“Belt up!” said God in a voice of thunder. “Stop niggling about your home-made house rules. What I want to know is important – What happened to all that money?
“What money?” asked the Devil.
“There’s this joker in France who says he has “lost” something like forty billion pounds of other people’s money! Well then, where is it? You can’t lose the entire wealth of a nation, even a small one. It must be somewhere. So who has got it? And what the blazes are they going to do with it? Buy themselves a new three-piece suite?”
“Hey! Cool it!” said the Devil. “That’s High Finance. Not in your area-of-interest.”
“Everything that exists is in my area-of-interest.” said God, a shade petulantly.
“I daresay,” said the Devil, “but high finance doesn’t exist. High finance isn’t real. It is a vast, on-going confidence trick.”
“Expound!” commanded God. “Explain it all to me, that I may know.”
“Not a chance,” replied the Devil. “There’s too much of it. I’ll try to give you a fairly typical example. Only Listen!”
“Right then,” began the Devil, “Basically it is all about money, which also doesn’t exist, or rather, is, in itself, worthless.”
“You can’t eat money,” explained the Devil. “You can’t mend the roof with it. Money is just a token by which the giver undertakes, when requested, to hand over to the receiver material of a certain agreed value . . . OK?”
“So money is like a sort of I.O.U. The only difference is that the receiver can keep the tokens and stack them up, rather than reconverting them into goods, which he may not want at that particular moment. But he does this on the assumption that the tokens will continue to have their true value in terms of goods.”
“That sounds reasonable enough. At least it’s preferable to plain barter. One can have enough onions.”
“One can indeed!” agreed the devil. “And so, as the money-tokens are assumed to have a value, people either put them in a box under the bed, or get together with others who have some money and set up a bank, which is there to keep the money safe. This bank’s job is to lend the money carefully to people who need it for their projects. And in return the bank gets back more money than it lent. That allows it to add interest-money to the original depositors’ heap, while keeping the depositoors money safe so that they can have it back whenever they want it.”
“So what’s wrong with that?” asked God.
“Nothing, really. In fact it is the basis of the growth of what they call civilization.” explained the Devil, “But it only works if the projects that the bank lend money to are going to be able to pay it back, and also so long as the bank doesn’t lend out more money than it is holding for its depositors, taking a chance on the outstanding loans being repaid before anybody notices that they have lent out more than they are holding in the kitty.”
“They can’t do that!” exclaimed God.
“Oh yes they can!” laughed the Devil. “The bank just borrows some more to cover it. You see, so long as they can keep the people whose money they look after convinced that it is safe with them, the banks can do exactly what they like with it.”
“Sounds a bit rough to me.” muttered God
“It would be all right if the depositors had some say in what the banks were doing with their money, but they were long ago persuaded to sell out to shareholders, who now own the bank and appoint people to run it as a business, paying them fees and large salaries to use the depositors’ money to make more money, not for the depositors but for the share-holders. Of course the banks have to pay a formal interest to the depositors on the money they are said to hold in trust for them but then they can use the rest of the money to gamble on, or perhaps they would say “invest in”, projects that could make them even more money. And, as a large part of their profit comes from the standard fees, commissions and charges which the bank levies for the use of its services, it’s often in their interest to keep investing and re-investing the money they hold so that they can cream a bit off the top each time. They call that, rather aptly don’t you think, ‘churning’.
“I think I would call it theft.” said God.
“Not quite,” suggested the Devil, “because the depositors’ money hasn’t been stolen, it has just been quietly borrowed. So long as the bank can find the money to pay them the interest, the depositors will believe it is still there.”
“But suppose the depositors lose confidence and decide they want to take their money back?”
“Well, yes. That can be a bit of a problem. The money may not be there. That’s why I said the whole thing is based on a giant confidence trick. If the bank still has the original money that was deposited with it intact, it can give it back honestly and with no trouble.
“But, if the bank has already spent all the money on making loans that it can’t get back (and has pocketed the fees), it will really be in schnuck! Then it will either have to borrow like mad from other banks and these other banks will charge them a high rate of interest because the chance of their getting it back is very slim. Or, failing that, the bank will have to go cap-in-hand to the Treasury (that is the taxpayer) and ask to be baled out, if necessary by printing more pieces of promissory paper-money.”
“But they wouldn’t be worth anything!” cried God.
“Correct.” agreed the Devil. “But for the sake of the whole industry of money-making money, somebody, perhaps a consortium of other banks, might see that it would be wise to bale it out. They would do this because if any one bank couldn’t pay back its depositors, it would have to close its doors. Then every depositor in the country who had put their savings in a bank would queue up in the streets demanding it back. The whole banking system would then implode like a pricked balloon.”
“But what went wrong?” asked the Deity nervously.
“Oh greed, just greed and theft. The banks’ shareholders saw that they could make more money by plain money-lending than by banking. So they helped themselves to the money they were holding in trust for the depositors and lent it to anybody who wanted some. They didn’t ask what the loan was for or whether it could be paid back. All they wanted was the interest and the fees. That was the theft bit, though they wouldn’t call it that.
“You see, a bank has a duty to its depositors to lend wisely on their behalf, making sure that the loan is safe and will be paid back – thus taking care of the money they are supposed to be looking after. But that wasn’t profitable enough for the banks’ shareholders, so they started what’s called the ‘credit-boom’ in which the banks aggressively sell loans to anybody and everybody, even if they haven’t a cat in hell’s chance of keeping up the repayments. As I said, all the banks want is the commission – their charge for doing the business, which makes their shareholders rich. They are eagerly offering credit to anybody who fancies to improve their affluent life-style with extra luxuries. It’s been absolutely marvellous. Like every day has been a birthday!”
“But how will people pay it back?” asked God.
“They won’t. They can’t. They couldn’t. People just have to borrow more to cover the interest payments, thus stacking up even more debt.” explained the Devil. “Do you know: the current ‘credit debt’, the amount of money that has now been lent out and spent on fancy goods, runs into trillions of pounds? Many times more than the deposited capital that is supposed to underpin it! The outstanding debt is now more than the gross value of the entire country. There is simply no way it could ever be repaid. It’s magnificent!”
“But it’s mad, completely mad.”
“Yes, but you gave them greed. They just worked out a way of using it”.
“But what happens tomorrow?” asked the Deity anxiously.
“There is no tomorrow.” said the Devil. ”I thought you knew that.”
God thought. “I did wonder.” He said. “But there certainly won’t be any tomorrow if great lumps of hard-earned money are being pinched and squirreled away by rich people who just want to become richer! Forty billion pounds could blast a canal through the Atlas Mountains and turn the Sahara Desert into a land flowing with milk and honey.”
“Good idea,” said the Devil. ”But you’d have a job raising the capital. Not enough profit in milk and honey.”