Learning how banks generate incredible profits at our expense won\u2019t make you happy, but you might still want to know\u200a\u2014\u200aAI artwork by Gerhard\u00a0Sulzer<\/p>\n
As a well-educated citizen, you will certainly not believe what I say, but banks are not ordinary companies. How dare I make such a blatant claim? Well, banks enjoy privileges that make them untouchable\u200a\u2014\u200aand we all pay the price for it. While small businesses and individuals have difficulty getting credit, banks can create money out of thin air. But that\u2019s not all: the state guarantees their survival, no matter how recklessly they operate. Losses are socialised, while profits remain private. What sounds like the beginning of a dire economic thriller is in fact the basis of our financial system.<\/strong><\/p>\n It is one of the best-kept secrets in the financial world: banks are not just companies that generate profits through loans and financial services. They are state-backed companies that operate an exclusive business model that has little to do with the principles of a free market. Unlike normal companies, which need capital for investments, banks have a unique privilege: they create money out of nothing\u200a\u2014\u200aa mechanism that the general public hardly understands and that banks go to great lengths to keep\u00a0secret.<\/p>\n The economist Adriel Jost succinctly said in an interview with the NZZ<\/a> that banks are not ordinary market participants. When individuals or companies need capital, they must first earn it or borrow it from an investor or a bank. Banks, on the other hand, have the privilege of granting loans without first having the necessary funds. They create money by granting loans. This process creates new book money, which only exists as a number in banking systems. This form of money creation gives them an enormous advantage: while citizens or companies have to work to earn money, a bank can create it at the touch of a button\u200a\u2014\u200aand charge interest for\u00a0it.<\/p>\n Now, imagine you could do the same. You are sitting in a bar, you have had a few drinks, and it is time to pay. Instead of using cash or a card, you simply write on a napkin: \u2018I, Kevin, owe this bar \u20ac50.\u2019 And somehow, that piece of paper becomes official currency\u200a\u2014\u200anot just for that bar, but for any business in town. That is essentially what central and national banks do in particular. But if you or I tried that, we would be laughed at, arrested or banned from the bar for\u00a0life.<\/p>\n The M0 money supply consists of physical cash\u200a\u2014\u200athe only form of money that exists in tangible form. But let\u2019s not forget that it\u2019s just printed paper, worth about as much as our worn paper napkin from earlier. M1 includes demand deposits, i.e. the money in our checking accounts. A significant discrepancy is already apparent here: most of this money does not exist as physical cash but only as a number in the banks\u2019 computer systems. M2 and M3 go even further and include long-term deposits and financial instruments that have almost no connection to real money. But is M3 money at all? This measure consists mainly of credit money created by debt and securitisation. It has no physical form and exists only as a digital IOU. If everyone were to withdraw their M3 money simultaneously, the system would collapse\u200a\u2014\u200abecause the money is nothing more than a statistical illusion.<\/p>\n And let\u2019s be honest, the whole thing sounds somewhat fictitious. It is ultimately more the exact description of a pyramid scheme, isn\u2019t it? In such a scheme, new players must always be found who dutifully deposit money, but no one should get the idea that they should ever expect to be paid back. If you tried to explain our existing monetary system to a child, they would probably quickly expose you as a fraud. \u2018So there is money, but there is no money? Some of the money exists, but most doesn\u2019t exist, and we all just pretend that it does?\u2019 That\u2019s right, little Timmy! Now go to sleep and let the adults continue playing Monopoly in their own dream\u00a0world.<\/p>\n A common criticism of Bitcoin is that it has no intrinsic value. But does our modern fiat money have any at all? Critics argue that fiat currencies are backed by an economy, while Bitcoin is based solely on trust. However, this comparison does not stand up to scrutiny. In fact, it\u2019s the other way around. The term\u2019 fiat money\u2019 itself is derived from the Latin word \u2018fiat\u2019, which means \u2018let it be done!\u2019 because it refers to a medium of exchange without intrinsic value. If a currency were indeed backed by an economy, there would have to be a responsible authority that is literally liable for its value. However, this is not the case. Central banks expand the money supply in a rather tricky way and regulate interest rates. Only the current moneyholder bears the loss if the euro or the US dollar loses value. It\u2019s like the popular children\u2019s card game \u2018Black Peter\u2019. No central bank guarantees that a certain amount of euros or dollars can be exchanged for a fixed economic output or an asset. The monetary system is thus based on a massive\u00a0fiction.<\/p>\n The glue that holds the financial economy together is trust. There is no intrinsic value, gold standard, or tangible security backing our money. We now know that what we use as a medium of exchange is nothing more than more or less worthless printed paper\u200a\u2014\u200aor, even more absurdly, mere numbers in a database. M1 and beyond do not physically exist; they are merely digitally recorded promises. Trust is the only basis on which our financial system rests. But trust is fragile. It can be shaken\u200a\u2014\u200aby crises, by mismanagement, by inflation. History has shown that any unfunded currency system eventually collapses because there is no objective guarantee to back it. Our current financial system is not a stable foundation but a bet that confidence will\u00a0remain.<\/p>\n Another crucial aspect is that banks are protected by the state, both through direct and indirect guarantees. Those with a bank account often believe their money is safe there. In reality, customers entrust their money to the bank, which uses it for investments or loans. Theoretically, a bank could go bankrupt if all customers withdrew their money simultaneously.<\/p>\n In 2022, the Nobel Memorial Prize in Economic Sciences was awarded to US economists Ben Bernanke, Douglas Diamond and Philip Dybvig<\/a>. In particular, the model developed by Diamond and Dybvig analyses the mechanisms that can lead to a bank run and shows how depositor confidence is crucial to the stability of banks. Due to maturity transformation (short-term deposits vs. long-term loans), the model indicates that banks never have 100% of deposits available for immediate payment. This means that a bank run on even a tiny proportion of deposits can drive a bank into insolvency. In 2007, a withdrawal of around 5% of deposits from the British bank Northern Rock led to the first bank rescue of the financial crisis. In 2023, an outflow of around 38% of the liquid funds of the Swiss bank Credit Suisse forced it into the arms of\u00a0UBS.<\/p>\n To prevent this, the state steps in with guarantees, rescue mechanisms, and emergency central bank loans. These implicit subsidies allow banks to take risks that would be unthinkable for ordinary companies. In the end, society bears the losses, while the profits remain in private\u00a0hands.<\/p>\n These hidden privileges have recently come to light in Switzerland. According to some estimates, the Swiss banking sector receives around 30 billion Swiss francs in implicit subsidies each year. This is more than the entire Swiss agricultural sector receives in government support. And this system is by no means unique to Switzerland. Across the European Union, these hidden subsidies amount to as much as 200 billion euros annually. The figure in Germany is at least \u20ac25\u201350 billion, while in the United States, implicit bank benefits are estimated at $20\u201370 billion annually. These figures illustrate that banks do not operate in a free market but in a tailor-made system that makes them untouchable.<\/p>\n The Credit Suisse bailout in 2023 laid bare just how deeply flawed the global banking system is. The Swiss financial giant didn\u2019t crumble because of a lack of customers or bad business decisions\u200a\u2014\u200ait collapsed because of a loss of trust. Customers panicked and withdrew their funds, triggering a liquidity crisis. Within days, UBS took over Credit Suisse in a government-backed rescue deal, and just like that, one of the biggest names in banking was wiped off the\u00a0map.<\/p>\n This isn\u2019t an isolated case. The Commerzbank bailout during the financial crisis showed a similar pattern in Germany. And in the United States, billions of dollars were injected into failing banks during the subprime mortgage crisis, propping up institutions that had gambled recklessly. The pattern is always the same: when banks profit, they go to shareholders and executives. When banks lose money, society picks up the\u00a0tab.<\/p>\n If there is one company that truly embodies the expression \u2018too big to fail\u2019, it is BlackRock. The world\u2019s largest asset manager has tentacles in everything\u200a\u2014\u200abanks, companies, governments, climate policy, real estate\u200a\u2014\u200aprobably even in your grandmother\u2019s pension fund. It has embedded itself deeply in the European banking sector and holds significant stakes in Deutsche Bank, BNP Paribas and numerous other financial giants. If the financial system were the mafia, BlackRock wouldn\u2019t be one of the shady crooks\u200a\u2014\u200ait would be the godfather.<\/p>\n But here comes the real kicker: BlackRock is also knee-deep in Cryptocurrency. While banks and regulators struggle to understand Bitcoin, BlackRock is launching Bitcoin ETFs, investing in blockchain infrastructure, and ensuring that it makes money whether the traditional financial system thrives or collapses. The same company that keeps traditional banks afloat is ensuring that Cryptocurrency doesn\u2019t get too\u00a0wild.<\/p>\n Banks don\u2019t know how to deal with cryptocurrencies\u200a\u2014\u200aBlackRock does. That\u2019s because cryptocurrencies aren\u2019t based on debt, inflation, or control. They are a digital asset that is verifiable on the blockchain and out of reach of traditional banking structures. Banks can\u2019t print them, and they can\u2019t manipulate their supply. They are the exact opposite of everything they\u00a0are.<\/p>\n If traditional banks create debt-based money, Crypto is their worst nightmare. Bitcoin is a limited-supply asset recorded on a decentralised blockchain, the polar opposite of fiat money. Fiat is an inflation-plagued promise of debt, the supply of which can be manipulated at will and is generously printed by centralised governments. On the other hand, Crypto is out of reach for central\u00a0banks.<\/p>\n Banks and central banks are desperately trying to react. But how do you regulate something that was designed to evade regulation? Not at all. That\u2019s the problem. The Federal Reserve, the European Central Bank, and other financial institutions are overwhelmed by cryptocurrencies. It\u2019s like giving an old-school librarian an iPad and asking them to \u2018fix the internet.\u2019 They don\u2019t even know where to\u00a0start.<\/p>\n BlackRock, on the other hand, can make money with cryptocurrencies because BlackRock makes money with everything. Trump could do it with his eponymous meme-coin. But banks? No chance. Cryptocurrencies were explicitly designed to keep them\u00a0out.<\/p>\n For centuries, banks have held a monopoly on money. They create it, distribute it, inflate it, and lend it\u200a\u2014\u200aall under the protection of governments and central banks. This is not a flaw in the system\u200a\u2014\u200ait is the system! The public is unaware of this, distracted by the complexity of financial jargon, while banks print money at will with impunity and pass the consequences on to everyone\u00a0else.<\/p>\n Banks have nothing to fear today. There is no real alternative. Every currency, every financial transaction, and every paycheck flows through their networks. But what if that\u00a0changes?<\/p>\n For anything to change, a few things must first change because Bitcoin doesn\u2019t pose a threat right now. Its market cap is too small, its adoption too niche, and institutional money can\u2019t flow into Bitcoin on a large scale without distorting the market. But what happens when Bitcoin hits $1 million per coin? If it becomes a multi-trillion-dollar asset competing with gold, it is suddenly no longer a curiosity but a competitor.<\/p>\n Bitcoin would be big enough to no longer be ignored at that scale. It would be too stable to be dismissed and too valuable to be manipulated in the same way that central banks manipulate fiat currencies. It would exist outside the banking system, immune to inflation and free from government control. That is when the traditional financial system loses its influence\u200a\u2014\u200anot because of regulation or government intervention but because people and institutions naturally switch to the better\u00a0option.<\/p>\n This is what central banks fear most. Not regulation. Not financial crises. But irrelevance.<\/p>\n Right now, banks still have all the power. But history has shown that no monopoly lasts forever. The real question is: when the cracks in the system finally become too big to ignore, where will your money\u00a0be?<\/p>\n The Greatest Lie in Finance: How Big Banks Cash in Billions from the State\u200a\u2014\u200aand Why We All Pay\u2026<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":" Finacial Deception The Greatest Lie in Finance: How Big Banks Cash in Billions from the State\u200a\u2014\u200aand Why We All Pay the\u00a0Price Banks create money from nothing, enjoy billions in hidden subsidies, and never truly fail. Here\u2019s the system they don\u2019t want you to understand. Learning how banks generate incredible profits at our expense won\u2019t make […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-120551","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/120551"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=120551"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/120551\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=120551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=120551"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=120551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The Hidden Power of Banks: How They Create Money from\u00a0Nothing<\/h3>\n
A System No One Understands\u200a\u2014\u200aBecause It Was Designed That\u00a0Way<\/h3>\n
The State as a Shield: Why Banks Never\u00a0Fail<\/h3>\n
A Global Phenomenon: Billions in Subsidies for\u00a0Banks<\/h3>\n
The Credit Suisse Collapse: A Case Study in Banking\u00a0Reality<\/h3>\n
BlackRock: The Invisible Puppet Master of the Financial System<\/h3>\n
Crypto as a Game-Changer\u200a\u2014\u200aThe Nightmare of Central\u00a0Banks<\/h3>\n
Conclusion: The Financial System Is a House of Cards\u200a\u2014\u200aBut What Happens When an Alternative Emerges?<\/h3>\n