Centralizing risk

This is the result of the Fed and the FDIC continually playing double-or-nothing with the banking system:

J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

It shouldn’t be too terribly long before it all collapses. I think it’s inevitable at this point. My guess is that the monetary authorities will attempt to substitute a new currency and financial system that nevertheless leaves the same institutions in control. Given their inept performance over the last 20 years, I find it hard to believe they’ll be successful.

The big question, the only real question, is if the Fed can genuinely create money or not. The problem they face is that while they can print all the paper they want, they can’t get it into the system without someone borrowing it. The fractional-reserve system begins to break down as soon as people stop taking out loans, which appears to be the point we’ve finally reached.