I always thought that the government created money by printing it. Turns out, it doesn't really work that way. The money printed by the federal government is just a small fraction of all the money in our economy. The majority of our money is created when banks make loans. The money didn't exist until the bank created it by loaning it. Here's a simple explanation of how banks create money, from Yes! magazine.
Banks make a profit by collecting fees and interest on the loans they make. Apparently, they didn't think they were making enough profit, so they cranked up their lending machines and began making risky loans to rake in more profits. When everything collapsed, the largest banks received massive bailouts from the American taxpayers, and used the funds to pay bonuses to their executives, the people who had caused the economic collapse. The PBS show, Frontline, has a couple of good documentaries about this, called Breaking the Bank and Inside the Meltdown.
Banks make a profit by collecting fees and interest on the loans they make. Apparently, they didn't think they were making enough profit, so they cranked up their lending machines and began making risky loans to rake in more profits. When everything collapsed, the largest banks received massive bailouts from the American taxpayers, and used the funds to pay bonuses to their executives, the people who had caused the economic collapse. The PBS show, Frontline, has a couple of good documentaries about this, called Breaking the Bank and Inside the Meltdown.
Some consumer advocates have fought for increased regulation of the banks, but these attempts have failed, due to resistance from their allies in Congress. Does that mean we have to sit back and let the banks play Russian roulette with our economy? No, we can take individual action by moving our money out of the big banks into smaller community-based banks and non-profit credit unions. Here's more info about the Move Your Money project.
