Building the Great Pyramid: The Global Financial
Crisis Explained
When the financial crisis erupted at the end
of September 2008, there was an unusual sense of incredible panic
among banking executives and government officials. These two establishment
groups are known for their conservative, understated approach
and, above all, their stiff upper lip. Yet at the time they appeared
to the public running about like headless chickens. It was chaos.
A state of complete chaos. Within a few weeks, however, decisions
were made and everything seemed to returned to normal and back
under control. The British Prime Minister Gordon Brown even famously
remarked that the government "saved the world."
But what really caused such an incredible panic
in the establishment well known for its resilience? Maybe there
are root causes that were not examined publicly and the government
actions are nothing more than a temporary reprieve and a cover-up?
Throwing good money after bad money, maybe?
MONEY MAKING
MACHINE
In order to answer these questions we have to
examine the basic principles on which the banking system operates
and the mechanisms that caused the current crisis. Students at
the A-level are taught about "multiple deposit creation,"
It is the most rudimentary money creation mechanism for banks,
which if administered properly serves the economy and public at-large
very well. In the deposit creation process a bank accepts deposits
and lends them out. But almost every lending returns soon to the
bank as a deposit and is lent again. In essence, when people borrow
money they do not keep it at home as cash, but spend it, so this
money finds its way back to a bank quite quickly. It is not necessarily
the same bank, but as the number of banks is limited (indeed very
small) and there is
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