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Dear Mr. Armstrong,
Your identification and differentiation of relationship vs transactional banking in understanding the corruption of the banking system is spot on imo.
Did not the evolution of this change depend on the increasing government involvement, e.g., the recent RE bubble where banks made inflated/fraudulent loans and collected fees only to sell the mortgages to the GSEs and offload the risk on them, or the student loan bubble, now managed by the Feds. Are not the rating agencies complicit, rating MBS and CDS as AAA which them blow up. It seems to me all these groups of players are intertwined and mutually dependent on each other and none wants to reform b/c they all benefit.
For instance, Big Banks promise to buy gov debt and gov promises to bail our bankers. The repeal/stay of the “Volcker Rule” passed over Christmas is a just so obvious indication that the politicians are owned by the big banks. What’s one to do? I voted for Ron Paul in 2008 and wrote in his name in 2012, but suppose the timing was not ripe for a 3rd party.
Thank you for all you do and sharing your fantastic insights with us common folk.

ANSWER: Correct. But this has been a process of evolution. Fractional banking has existed since ancient times. That is not the problem. Even if you sell your home and retain the mortgage, it shows up on your assets, while the home owner claims all appreciation. You cannot get to a zero sum game without a Dark Age with respect to money supply

The evolution of this stage of corrupt banking has many layers. The bulk of your local regional banks are not the problem. They will sell your mortgage and that feeds the corruption elsewhere, but they are not the source of the corruption. The rating agencies were bought and paid for and in on the entire scam.

The real estate bubble was also driven by socialist-politicians. The Clintons were a direct cause as well for they thought the poor should become home owners. Politicians encouraged the banks to lend recklessly. This is a complex mess of too many self-interest not having a clue that there is a business cycle. Some curiously seemed to time things with our model. Goldman Sacks sold the very day of the ECM in 2007. Great timing.