Banking, Stagnant Wages, and Law

Banking, Stagnant Wages, and Law

by Gordon Jeremiah Berry

In 2008, the United States was in a great recession and most blamed greedy bankers for getting into that recession. Believing that deregulation of the banking industry was the cause, and the result was the stock market peak amount of total losses was at 38.5%. However, from 1987 to 2007, four major laws were passed that regulated banks into further litigation.

Image Credit: Wiki Commons
Image Credit: Wiki Commons

In 1987, the Competitive Equality Banking Act was passed. In 1989, the Financial Institutions Reform, Recovery and Enforcement Act. In 1991, the Federal Deposit Insurance Corporation Improvement Act, and Sarbanes-Oxley in 2002, which increased bank regulations and reporting requirements. Also, they have (TARP), Troubled Asset Relief Program and (FDIC) Federal Deposit Insurance Corporation.

While a lot of talk was taking place during what was called “the great recession”, not much was done to prevent such conditions from occurring again. Take for example, the law passed in 1987—the Competitive Equality Banking Act. This allows asset-backed commercial paper program known as the (ABCP), which means this program issues a commercial paper that received a credit rating from an (NRSRO) Nationally Recognized Statistical Ratings Organization. This is then backed by assents or other exposers held in a bankruptcy-remote special purpose entities.

In addition, there is a provision for a (Conditional Guarantee). This means a contingent obligation of the United States Government or its agencies, the validity of which to the beneficiary is dependent upon some affirmative action, servicing requirements – on the part of the beneficiary of the guarantee or a third party.

In much simpler terms, banks began lending to fewer and fewer people based on credit scores, income ratio, and liabilities. Then from 1999 to 2002, subprime borrowing known as the Federal National Mortgage Association (otherwise known as Fannie Mae) began making home loans more assessable to those with lower credit and savings than lenders typically require. In the years 1999 and 2000 alone Fannie Mae loaded out more than $3 trillion worth of mortgage credit.

Compounded by this was stagnant wages that continued during and just after this time period and continue to still remain stagnant today.

Globalization and a smaller world doesn’t translate into higher wages. Corporations began to seek cheaper and cheaper labor in additional to the competition of jobs a strained assessment of the cost of money by means of bank bailouts, as well as other problems such as identity theft, and a fractional reserve banking system.

The problems thus far have been expressed best by Godfrey Bloom, an (MEP) Member of European Parliament, he addressed parliament by telling them “that you do not understand the concept of banking. All the banks are broke! And why are they broke? They’re broke because we have a system called fractional reserve banking. Which means banks can lead money that they don’t actually have. It’s a criminal scandal and it’s been going on for too long.

To add to that problem, you have a moral hazard from the political sphere. Most of the problem starts in politics, and central banks which are part of the same system. We have counterfeiting, sometimes called “quantitative easing” but counterfeiting by any other name—the artificial printing of money, which if any ordinary person did, they’d go to prison for a very long time. And yet governments and central banks do it all the time. Central banks repress interest rates so we don’t have the real cost of money. And yet we blame retail banks for manipulating LIBOR (London Inter Bank Offered Rate). It’s central banks that manipulate interest rates.”

In the book Human Action, the Scholars Edition, by Ludwig von Mises, it brings out: “It is true economics is a theoretical science and as such abstains from any judgement of value. It is not its task to tell people what ends they should aim at, ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.”

In conclusion, if some attempts are not made to reasonably address these basic concerns, stagnant wages, governments running up debt, and inflation will not be able to be keep under control. The results will then be that governments will somehow need to raise taxes and find creative ways to increase tax revenue, and eventually, possibly real money will not even be worth the paper it is printed on.

About the Author

Gordon Jeremiah Berry, is an avid reader and intense researcher. Mr. Berry looks for the deeper meaning behind all things. His favorite saying is “Love must always win out!”

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