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Debt makes banks vulnerable

December 7, 2017

According to the IMF and the World Bank debt makes banks vulnerable to collapse. That kind of diatribe is extremely hypocritical since those organizations lend money to central banks thereby increasing their vulnerability.

Similarly, chartered banks lend money to consumers and make similar warnings about over borrowing, as if magically the consumer is some salivating debt-maniac. When in fact it is precisely their own incorrigible lending protocols that create debt problems.

Greed is not self-regulatory and nowhere is greed more obvious than in the global banking system where executives share no responsibility for over-lending and little for obviously questionable practices. Recent media exposes have revealed scripted sales tactics, used by Canadian Banks, that are irresponsible and coercive. Still the victim, in this case the consumer is held out to blame.

The fact is that consumers trust bankers, prior to the 1970’s bankers were more trustworthy, in fact the entire banking system was based on trust for hundreds of years. We might trace banking history back to the Knights Templar who would receive deposits of large amounts of gold or silver and issue a note to the depositor, after travelling hundreds or even thousands of miles carrying the note it could be redeemed for the same value. Deregulation (the removal of responsibility) changed all of that, turning bankers into salespeople.

The only product bankers sell is debt, and there are lots of fees for the privilege of being in debt. In fact so much that when banks do get into trouble – which is even obvious to them as noted in the BBC article – it is the borrowers (consumers) who are required, by government legislation, to bail them out. We lose house values, we lose on investment values including returns on investment as seen over the last decade with many pensioners losing interest on their investments.

Banks won’t regulate themselves while massive salaries and bonuses are available to the bank bosses for creating more debt. Similarly, government won’t regulate bankers so long as they contribute huge amounts of money to political campaigns and political parties. So, you, my friend, are left to fend for yourself. Somehow, in a faltering economy with ever increasing taxes, creative bank fees and a cost of living that has been far surpassing income growth you need to stop borrowing.

While many economic problems are obvious, solutions are much more difficult to find and implement. Will there be another bank crash? It seems highly likely as banks and bankers are bracing for the seemingly inevitable and government regulations are addressing the symptoms – making consumers more responsible for bailouts.