Excising The Derivative Tumor

The following contains a good explanation of fractional reserve banking, regulatory powers of the private Federal Reserve, regulatory powers of the private Bank for International Settlements, and a good analysis of the credit derivative problems.

There is also an example of an alternative method of credit creation that has had long-term success in North Dakota.

The real credit problem lies with the financial institutions with significant derivative exposure, and most of this liability is carried by only a handful of Wall Street giants. In early 2008, outstanding derivatives on the books of U.S. banks exceeded $180 trillion. However, $90 trillion of this was carried on the books of JPMorgan Chase alone, while Citibank and Bank of America each had $38 trillion on their books. Needless to say, these are also the banks that are first in line for the Treasury’s bailout money under the Troubled Asset Relief Program. Rather than excising the relatively contained derivative tumor, the Treasury and the Fed are feeding it with trillions in taxpayer money; and this money is being used, not to unfreeze credit by making loans, but to buy up smaller banks. That means the derivative cancer, rather than being excised, is liable to spread.

We the people and our representatives in Congress have allowed Wall Street to call the shots because we think we are dependent on their credit system, but we aren’t. There are other ways to get credit -- ways that are fair, efficient, transparent, and don’t encourage greed. Public credit could be generated by a system of public banks. Precedent for this solution is to be found in the state-owned Bank of North Dakota, which has been generating credit for North Dakota since 1919, keeping the state fiscally sound when other states are floundering. (See Ellen Brown, “Sustainable Government: Banking for a ‘New’ New Deal,” webofdebt.com/articles, December 8, 2008.)