Causes of financial collapse still exist

It's important to distinguish between triggers and causes. We are in a lull between storms. In fact, the world is in much worse shape now than it was in 2008 when a trigger event began the last storm. The primary cause was the pervasive corruption that the good times had allowed to grow unchecked. Let me describe one form this takes.

Most people are aware of fractional reserve lending, which allows banks to effectively magnify the amount of money in circulation by a factor of 10. This is supposed to be done under strict supervision, but it wasn't, and this was part of our current mess.

Few people are aware of fractional reserve trading, which is much larger and typically illegal and unprosecuted. It takes various forms such as naked shorting and paper trading of physical resources. It boils down to people buying and selling things that don't exist. In many cases over 100 times what exists.

For example, the recent U.S. Commodity Futures Trading Commission hearing heard testimony that the precious metals market is not a physical market. Many owners of unallocated precious metals accounts and precious metals funds are actually classified as “unsecured creditors.” Prosecuting these guys might be the next trigger, but letting them continue leaves them in control after we collapse.

William Smith

Iowa City