Wednesday, June 26, 2013

Some hard numbers on the Western banking system
‘If one of you stands up right now and heads for the exit, the rest of the audience probably won’t pay much attention. If ten of you do it, one or two people may notice and follow. But if 400 of you suddenly head for the exit, the rest of the audience would probably follow quickly.’

It’s a great metaphor for how our financial system works. The entire system is based on confidence. And as long as most people maintain this confidence, everything is fine.

But as soon as a critical mass of people loses confidence in the system, then it starts a chain reaction. More people start heading for the exit. Which triggers even more people heading for the exit.

This is the model right now across the system. And it’s especially pervasive in the banking system.

Modern banking is based on this ridiculous notion that banks don’t actually have to hang on to their customers’ funds.

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