So what does all this mean?
Compared to what it once was, the stock market is way down. Experts say it will soon be dropping again. Banks aren't lending the way they used to, even though our government has given them billions of dollars of our money to help them start lending again. And my life, your life, the entire economic fate of our country, and the world for the next decade, depends on whether or not the United States can fix its banking system.
What follows next is a simple explanation of everything you need to know to understand the U.S. Banking system and how it might, or might not be fixed. This summary explanation is based on a program I recently heard on public radio, the printed transcript of which is available online.
If you want to understand this banking crisis, you need to understand one simple thing first. And for some reason this is something that the mainstream media and schools K-12 across the country ignore -- and that is the nature of a bank balance sheet. If you are fairly familiar with banks and bank balance sheets, skip ahead. Otherwise, read this introduction first.
Let's begin by imagining the simplest bank in the world. Call it Bobby's Bank.
Bobby is 11 years old and in his new bank he has invested 10 dollars of his own money that he's using to start his bank. He goes to his friend Alex and says, "Hey, Alex, do you want to open a savings deposit with my bank? I'll give you 3 percent interest each year."
Alex says that sounds great, and actually has 90 dollars right at hand to invest.
Banker Bobby then says to himself, "So now I have 100 dollars in my bank, 10 of which is mine, 90 I got from Alex. All right, so now I need to make some profit. And that requires at least one other person.
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