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Banks Bear Your Interest

12.07.2005 07:20 | DISPATCHES

Ever wonder how banks evolved? For those of you as financially challenged as me, Ellen Brown explains in "Returning the Money to the People," an article on It was excerpted from her forthcoming book, The Wizards of Wall Street and How They Are Bankrupting America.

"The sleight of hand by which banks create money dates to the seventeenth century, when. . . gold and silver coins [which were] hard to transport in bulk and could be stolen [were] deposited with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts [which] were also [given out] when people. . . came to the goldsmiths for loans.

"The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts [the forerunners, of course, of paper money] came back to be redeemed in gold at any one time."

In other words, goldsmiths, or nascent banks, were lending money--not theirs--that had been entrusted to them. Meanwhile, they just kind of hoped the owners didn't show up to claim their gold. Presumably record-keeping was no better than it is today.

On the other hand, in a fit of uncharacteristic financial honesty, somebody labeled the system "fractional reserve," in which "gold held in reserve was a mere fraction" of our money. Presumably the dread "run on the banks" would occur if everyone came looking for their money, most of which has been loaned out, at once. For those of you who didn't know any of this, glad to be of help.


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