How Do Banks Make Their Money?

You would be very surprised to discover that the bank made its money literally at the moment your account was opened. In fact, the bank did something known as originate the money in your credit account. Yes, the money came from nowhere, not another account or another bank; it was originated or created because of the bank’s license to create money. The other word for it is counterfeit. A Federal Reserve Note is not a U.S. Dollar. It doesn’t stop there.

Let’s assume what I just explained is not true or that it can never be proven. The credit account opened for your use was assigned or transferred into a group of similar accounts, other customers with a similar credit score, and it was “securitized”. Securitize is the process prescribed by the Securities and Exchange Commission that allows companies to create a security and offer it to the public for purchase as an investment. In this example of credit card accounts, this investment is known as “asset backed securities”. Your credit account, or your labor, is taken as the asset of the bank. It is their asset and your liability. You can call your broker today and purchase some, just like stocks and bonds.

So while the credit account or receivable has a significant value to the bank, even if you never pay a dime into it, even if you use all the credit money and never make a payment, its value doesn’t change, or I should say it changes but is not diminished. You see, either the creditor’s continued profit is sustained because you are paying, and because investors are buying a share of it, or because the bank can convert the account into a judgment lien and retain the value of the account just the same. To a bank, a judgment lien is cash. But this is not the end of how the bank makes more money from the account.

Because it did not receive your payments, and obtained a judgment lien, the uncollected balance is claimed as a deduction against its taxable income. For investors, this is known as cash flow. In other words, the banks are able to create several sources of cash flow from a credit account that is not receiving payments. Let me ask you one more question and just let you think about it for as long as you want. Since the credit account is an asset, whether because you pay every month, or investors buy a share in it, or it becomes a judgment lien or is claimed as a deduction against taxable income, is it also insured?

My point is that the banks make their money from day one, don’t be concerned about them. If you borrowed from your mom, pay her back by all means and she really did lend you her own money. If you borrowed from the bank, pay it back if you want, or if you are able, or only if it suits your needs or personal beliefs.

Remember that the longer you can use someone else’s money, the greater it will benefit you. If you had borrowed $20 in 2004, that might have been enough to fill your gas tank. Two years later, it could fill only half your tank. How many of you can relate to this? The price of gas did not really increase, in fact the value of the gas did not increase, but the value of the currency declined substantially, so it takes more units of currency to buy the same quantity as time continues.

What does this say about the money you put into your savings account? Every year it’s worth less and less, even though the same quantity is there. So where does this “money” go? The question is, “Where does the value of this money go?” If you worked 40 hours for $400 and put that in your savings account ten years ago, each year that amount would have depreciated in value by the rate of inflation, and I’m not talking about the published rate. The real rate of inflation is about three times what they publish. Its spending power in ten years would be about $250. Who or what took the value of your $150, of your 15 hours of labor? Somebody was and is stealing from you and you never saw it and you can’t do anything about it. The cause is inflation and the perpetrator is the banking system, yes; the very same credit providers that sent you that first credit card in the mail.