How Does a Bank Collapse in 48 Hours?

An article in the New York Times last night by reporters Jonathan Swan and Maggie Haberman is an excellent example of one of the common ways “hard news” reporters can put their thumbs on the scale and push a preferred agenda.

On Monday Florida governor, and likely presidential candidate, Ron DeSantis said on Fox News that “becoming further entangled in a territorial dispute between Ukraine and Russia” is not a vital interest of the United States.

The people who work at and manage the New York Times clearly disagree with this opinion. That’s clear to anyone who has consumed their war coverage and seen the way they frame the conflict.

However, the paper wants its reporting to continue to appear nonpolitical as can be seen in this disclaimer halfway down the article.

So how do they dissuade readers of DeSantis’s point without appearing to rebuke it? They launder their opinions through experts and notable people with the same view.

In this article, they focus on some of DeSantis’s fellow Republicans who happen to agree with the New York Times on this particular issue.

The article presents reactions from seven Republicans who strongly denounce the DeSantis statement. They rake the Florida governor’s name through the mud with their comments. They call him weak and say that he’s so wrong it’s a risk to national security.

The article also quotes a Wall Street Journal columnist who criticizes GOP noninterventionists for wanting to “surrender” to Putin.

The article has one single quote from someone who agrees with DeSantis, but only because he wants the U.S. to focus more on combating China. Pure noninterventionism is given no voice, only a dissenting interventionist.

In paragraph 23, Haberman and Swan do admit one important detail that the readers who made it that far would be forgiven for getting completely backward. The opinions of those highlighted in this piece are unpopular with the GOP base compared to the skepticism of U.S. intervention in Eastern Europe voiced by Donald Trump and Ron DeSantis.

Readers will come away from this article thinking that DeSantis said something on TV that most people, including leaders and prominent members of his own party, think was stupid.

That is the exact kind of point you’d expect from the paper’s Editorial Board. But here it’s presented by reporters writing in the “hard news” section of the supposed paper of record.

There's nothing like a bank failure to get people thinking about the banking system. And though it appears the Fed has bought the nation's banks some time, the pair of bank runs on Friday and Sunday again exposed the fragility of the nation's banks.

But fragility isn't the only problem. As Rothbard hammered home decades ago, our banking system relies on a deceptive scheme, authorized and supported by the government, called fractional reserve banking.

To quickly review how fractional reserve banking works, say you deposit some of your dollars into your bank account. If the bank's reserve ratio is 5%, it then loans 95% of those dollars to other people who spend them on goods and services. The sellers of those goods and services then deposit the dollars in their own bank accounts. 

Again, 95% of the dollars get loaned out and deposited in yet more bank accounts. However, all of these dollars still appear in every one of these accounts. Eventually, we'll arrive at a situation where most of the dollars you see in your bank account also show up in the accounts of many other people, appearing to them as their own dollars. 

This gives the illusion that there is more money in the economy. But all that's really happened is that the bank has created new claims on the same amount of dollars. Specifically, a property claim on money stored has been transformed into a sort of callable loan that simultaneously appears available to a number of other bank customers.

Advocates of free banking argue that, on the free market, some bank customers would choose to invest in these types of collectivized callable loans. I agree. But these would certainly trade at a discount compared to cash because of the underlying risk of default.

But in today's banking system, these collectivized callable loans trade at par with cash. That indicates that enough bank customers are ignorant about the nature of their bank accounts. And banks benefit tremendously from this ignorance. They get to loan money into existence without account holders behaving any differently.

The banking deception relies mainly on concealment with a touch of duplicity. Watch banking commercials or read webpages about opening a checking account. You'll find common selling points like ease of access, security, connection to the digital financial system, a large ATM network, and the ability to send money to friends and family. All of these are also features of 100% reserve warehouse-style banking. The fractional reserve process is largely concealed from the customer, while the language used can mislead about the nature of bank accounts.

For instance, when a bank says, "your money is secure," they mean that there are measures in place to ensure only you can access your account and alert you when there is a suspicious login. What they do not mean, but what a lot of people surely understand them to mean, is that your money will not suddenly disappear from your account as it has at these banks that failed.

But that is exactly what can happen with these collectivized callable loans. It's why the funds in bank accounts are not the perfect money substitute that most people are misled into thinking they are.

Fractional reserve banking presents multiple people with what they believe to be a property claim over the same dollar. Beyond being risky and unstable, modern banks systemically rely on ignorance, deception, and government privilege. Until that changes, we remain teetering on the edge of the next crisis. 

The war in Ukraine has become a bloody grind — and there's no end in sight.

As some Western allies express doubt that Ukraine can completely expel Russian forces, Britain, France and Germany have entertained the idea of a defense pact with Ukraine. Their hope is that the prospect of closer ties to NATO will encourage Ukraine to negotiate a peace deal with Russia. While searching for a path to negotiations is a worthwhile endeavor, recent history suggests that the proposal of a post-war defense pact could push Putin even further away from potential peace talks.

Although many in the West don’t want to admit it, it was Ukraine’s growing relationship with the West — threatening to pull the country further from Russia’s sphere of influence — that kindled the conflict in the first place. In other words, Putin’s invasion of Ukraine was not completely “unprovoked” as the media often suggests.

Eastern Europe has been increasingly tumultuous ever since the Bucharest summit in 2008 when NATO declared that Ukraine and Georgia “will become members” of the alliance. Russia’s Deputy Foreign Minister Alexander Grushko asserted that this was a “huge strategic mistake,” and President Putin called it “a direct threat” to Russian security.

Months after this declaration, a war broke out between Russia and Georgia. In 2014, the U.S. aided a coup that resulted in the ousting of Ukraine’s pro-Russian president Viktor Yanukovych, arousing Russia’s invasion and annexation of Crimea.

After the U.S. and Ukraine co-hosted military exercises with over a dozen nations in 2021, the Kremlin reiterated that NATO expansion into Ukraine is a hard red line. Despite this, weeks later the U.S. and Ukraine signed the U.S.-Ukraine Charter on Strategic Partnership, which doubled down on the 2008 Bucharest Declaration and even explicitly said Crimea is a territory of Ukraine despite being under Russian control.

In January of 2022, an agitated Russia, having amassed troops on Ukraine’s border, demanded a number of written guarantees from the U.S., including that Ukraine would never become a member of NATO. The U.S. refused. Russia invaded Ukraine less than a month later.

The West’s refusal to heed any warnings that courting Ukraine could create serious conflict played a major role in triggering this war. To be clear, this doesn't excuse Putin’s illegal invasion and the devastation that has ensued. But the media’s portrayal of the West’s supposed innocence perpetuates a false narrative.

Foreign policy expert John Mearsheimer, a professor at the University of Chicago, has written about the events leading to the war at length and argues that the West is “principally responsible for the crisis” in Ukraine. Even back in 1998, George Kennan, best known for formulating the U.S. “containment” policy during the Cold War, warned that NATO expansion was the “beginning of a new cold war” and “a tragic mistake” that would provoke adversarial reactions from Russia.

William J. Burns, the current CIA director and once U.S. ambassador to Russia, wrote to Secretary of State Condoleezza Rice in 2008 that "Ukrainian entry into NATO is the brightest of all red lines for the Russian elite (not just Russian President Vladimir Putin). In more than two-and-a-half years of conversations with key Russian players… I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests."

Admitting the West’s role in the lead-up to this war is necessary as Western governments seek to foster negotiations. Any approach to negotiations that fails to understand the causes of the war is likely to encourage extended Russian aggression.

This war was not solely instigated by a fanatic. Rather Russia viewed Ukraine’s gradual incorporation into the West and the prospect of further NATO expansion as a direct threat to its security.

So, while an agreement for a post-war defense pact between NATO allies and Ukraine might encourage Ukraine to negotiate, it would likely discourage Russia from engaging in conversation. Without an honest analysis of the causes of this war, the West risks pushing Putin further from negotiations and prolonging this brutal conflict.

For those who have followed the background noise of US activities in the Middle East over the past year, since it was last seriously in the news following the disastrous execution by the Biden administration of the long overdue withdrawal from Afghanistan, they will recall a vague haze of reported drone strikes, arms sales, and Israeli assassinations; more recently, they will recall resistance to attempts to end the U.S. military roles in Syria and Yemen, the death of the Iran nuclear deal, and the blocking of earthquake relief. 

China, by contrast, with no military presence in the Middle East at all, just quietly concluded talks between the Iranian and Saudi leadership that resulted in the normalizing of their diplomatic relations. 

Quite the contrast.

And despite complaints by the hawks and Israel-firsters in the Democratic and Republican parties, this deal is good for multiple reasons. First, it will help end the wars in Yemen and Syria where Iran and Saudi Arabia have been among the chief backers of opposite sides of the two proxy conflicts. Together, they’ve gone on over twenty years and killed well over a million people.

Two: it signals that China, who buys most of the oil from the Gulf monarchies these days, is going to start more actively investing political capital in the region. The only party that can be trusted by all sides concerned, as Beijing is ideally situated to mediate invariably arising disputes. There are real costs involved, and it would be good to see someone other than the American taxpayer start footing these bills.

Naturally, Washington acts like anything that happens anywhere without its imprimatur constitutes a threat to national security – much like Ted Cruz recently embarrassed himself by claiming the same about the mere temporary docking of two small Iranian warships in Brazil.

Worth noting as an aside, their permission to dock came despite months of reported pressure by Washington to deny them port and after Lula had already been to Washington to meet with Biden.

Apart from knowing that somewhere at the State Department someone is being paid a six-figure salary to harass Brazilian officials for literal months about a pair of small Iranian vessels taking port in their ostensibly independent and sovereign country, everywhere everyone seems to be taking every opportunity to try to send Washington the message that they have no interest in yet another round of so-called “great power” competition.

A minor, potential downside to the deal being done between Riyadh and Tehran is that it may complicate efforts to normalize Saudi-Israeli relations. But here it should be noted that any potential deal to get that done already looks terrible from the point of view of the average American: Riyadh’s demands include formal American security guarantees, more weapons, and a nuclear program.

Realistically, given the power of the Israel lobby, Washington’s failed policy of wasting American lives and treasure in pursuit of Israeli policy priorities in the Middle East hardly looks likely to be seriously disturbed by China’s mediation of Riyadh and Tehran’s most recent spat. 

If it is going to be disturbed by anything, it will be by the new Israeli government. But that is another story.

In short, China facilitating these talks between Iran and Saudi Arabia was a good thing to see. It will help bring peace and save lives.

Or, as State Department shill Jonathan Panikoff, writing for the Atlantic Council put it:

“It should be a warning to U.S. policymakers: Leave the Middle East and abandon ties with frustrating, even barbarous, but long-standing allies, and you’ll simply be leaving a vacuum for China to fill.”

Fill with what? Peace? To replace four decades of Washington’s war? 

The horror.