The Greatest Lie in Finance: How Big Banks Cash in Billions from the State — and Why We All Pay…

Finacial Deception

The Greatest Lie in Finance: How Big Banks Cash in Billions from the State — and Why We All Pay the Price

Banks create money from nothing, enjoy billions in hidden subsidies, and never truly fail. Here’s the system they don’t want you to understand.

Learning how banks generate incredible profits at our expense won’t make you happy, but you might still want to know — AI artwork by Gerhard Sulzer

As a well-educated citizen, you will certainly not believe what I say, but banks are not ordinary companies. How dare I make such a blatant claim? Well, banks enjoy privileges that make them untouchable — and we all pay the price for it. While small businesses and individuals have difficulty getting credit, banks can create money out of thin air. But that’s not all: the state guarantees their survival, no matter how recklessly they operate. Losses are socialised, while profits remain private. What sounds like the beginning of a dire economic thriller is in fact the basis of our financial system.

The Hidden Power of Banks: How They Create Money from Nothing

It is one of the best-kept secrets in the financial world: banks are not just companies that generate profits through loans and financial services. They are state-backed companies that operate an exclusive business model that has little to do with the principles of a free market. Unlike normal companies, which need capital for investments, banks have a unique privilege: they create money out of nothing — a mechanism that the general public hardly understands and that banks go to great lengths to keep secret.

The economist Adriel Jost succinctly said in an interview with the NZZ that banks are not ordinary market participants. When individuals or companies need capital, they must first earn it or borrow it from an investor or a bank. Banks, on the other hand, have the privilege of granting loans without first having the necessary funds. They create money by granting loans. This process creates new book money, which only exists as a number in banking systems. This form of money creation gives them an enormous advantage: while citizens or companies have to work to earn money, a bank can create it at the touch of a button — and charge interest for it.

Now, imagine you could do the same. You are sitting in a bar, you have had a few drinks, and it is time to pay. Instead of using cash or a card, you simply write on a napkin: ‘I, Kevin, owe this bar €50.’ And somehow, that piece of paper becomes official currency — not just for that bar, but for any business in town. That is essentially what central and national banks do in particular. But if you or I tried that, we would be laughed at, arrested or banned from the bar for life.

A System No One Understands — Because It Was Designed That Way

The M0 money supply consists of physical cash — the only form of money that exists in tangible form. But let’s not forget that it’s just printed paper, worth about as much as our worn paper napkin from earlier. M1 includes demand deposits, i.e. the money in our checking accounts. A significant discrepancy is already apparent here: most of this money does not exist as physical cash but only as a number in the banks’ computer systems. M2 and M3 go even further and include long-term deposits and financial instruments that have almost no connection to real money. But is M3 money at all? This measure consists mainly of credit money created by debt and securitisation. It has no physical form and exists only as a digital IOU. If everyone were to withdraw their M3 money simultaneously, the system would collapse — because the money is nothing more than a statistical illusion.

And let’s be honest, the whole thing sounds somewhat fictitious. It is ultimately more the exact description of a pyramid scheme, isn’t it? In such a scheme, new players must always be found who dutifully deposit money, but no one should get the idea that they should ever expect to be paid back. If you tried to explain our existing monetary system to a child, they would probably quickly expose you as a fraud. ‘So there is money, but there is no money? Some of the money exists, but most doesn’t exist, and we all just pretend that it does?’ That’s right, little Timmy! Now go to sleep and let the adults continue playing Monopoly in their own dream world.

A common criticism of Bitcoin is that it has no intrinsic value. But does our modern fiat money have any at all? Critics argue that fiat currencies are backed by an economy, while Bitcoin is based solely on trust. However, this comparison does not stand up to scrutiny. In fact, it’s the other way around. The term’ fiat money’ itself is derived from the Latin word ‘fiat’, which means ‘let it be done!’ because it refers to a medium of exchange without intrinsic value. If a currency were indeed backed by an economy, there would have to be a responsible authority that is literally liable for its value. However, this is not the case. Central banks expand the money supply in a rather tricky way and regulate interest rates. Only the current moneyholder bears the loss if the euro or the US dollar loses value. It’s like the popular children’s card game ‘Black Peter’. No central bank guarantees that a certain amount of euros or dollars can be exchanged for a fixed economic output or an asset. The monetary system is thus based on a massive fiction.

The glue that holds the financial economy together is trust. There is no intrinsic value, gold standard, or tangible security backing our money. We now know that what we use as a medium of exchange is nothing more than more or less worthless printed paper — or, even more absurdly, mere numbers in a database. M1 and beyond do not physically exist; they are merely digitally recorded promises. Trust is the only basis on which our financial system rests. But trust is fragile. It can be shaken — by crises, by mismanagement, by inflation. History has shown that any unfunded currency system eventually collapses because there is no objective guarantee to back it. Our current financial system is not a stable foundation but a bet that confidence will remain.

The State as a Shield: Why Banks Never Fail

Another crucial aspect is that banks are protected by the state, both through direct and indirect guarantees. Those with a bank account often believe their money is safe there. In reality, customers entrust their money to the bank, which uses it for investments or loans. Theoretically, a bank could go bankrupt if all customers withdrew their money simultaneously.

In 2022, the Nobel Memorial Prize in Economic Sciences was awarded to US economists Ben Bernanke, Douglas Diamond and Philip Dybvig. In particular, the model developed by Diamond and Dybvig analyses the mechanisms that can lead to a bank run and shows how depositor confidence is crucial to the stability of banks. Due to maturity transformation (short-term deposits vs. long-term loans), the model indicates that banks never have 100% of deposits available for immediate payment. This means that a bank run on even a tiny proportion of deposits can drive a bank into insolvency. In 2007, a withdrawal of around 5% of deposits from the British bank Northern Rock led to the first bank rescue of the financial crisis. In 2023, an outflow of around 38% of the liquid funds of the Swiss bank Credit Suisse forced it into the arms of UBS.

To prevent this, the state steps in with guarantees, rescue mechanisms, and emergency central bank loans. These implicit subsidies allow banks to take risks that would be unthinkable for ordinary companies. In the end, society bears the losses, while the profits remain in private hands.

A Global Phenomenon: Billions in Subsidies for Banks

These hidden privileges have recently come to light in Switzerland. According to some estimates, the Swiss banking sector receives around 30 billion Swiss francs in implicit subsidies each year. This is more than the entire Swiss agricultural sector receives in government support. And this system is by no means unique to Switzerland. Across the European Union, these hidden subsidies amount to as much as 200 billion euros annually. The figure in Germany is at least €25–50 billion, while in the United States, implicit bank benefits are estimated at $20–70 billion annually. These figures illustrate that banks do not operate in a free market but in a tailor-made system that makes them untouchable.

The Credit Suisse Collapse: A Case Study in Banking Reality

The Credit Suisse bailout in 2023 laid bare just how deeply flawed the global banking system is. The Swiss financial giant didn’t crumble because of a lack of customers or bad business decisions — it collapsed because of a loss of trust. Customers panicked and withdrew their funds, triggering a liquidity crisis. Within days, UBS took over Credit Suisse in a government-backed rescue deal, and just like that, one of the biggest names in banking was wiped off the map.

This isn’t an isolated case. The Commerzbank bailout during the financial crisis showed a similar pattern in Germany. And in the United States, billions of dollars were injected into failing banks during the subprime mortgage crisis, propping up institutions that had gambled recklessly. The pattern is always the same: when banks profit, they go to shareholders and executives. When banks lose money, society picks up the tab.

BlackRock: The Invisible Puppet Master of the Financial System

If there is one company that truly embodies the expression ‘too big to fail’, it is BlackRock. The world’s largest asset manager has tentacles in everything — banks, companies, governments, climate policy, real estate — probably even in your grandmother’s pension fund. It has embedded itself deeply in the European banking sector and holds significant stakes in Deutsche Bank, BNP Paribas and numerous other financial giants. If the financial system were the mafia, BlackRock wouldn’t be one of the shady crooks — it would be the godfather.

But here comes the real kicker: BlackRock is also knee-deep in Cryptocurrency. While banks and regulators struggle to understand Bitcoin, BlackRock is launching Bitcoin ETFs, investing in blockchain infrastructure, and ensuring that it makes money whether the traditional financial system thrives or collapses. The same company that keeps traditional banks afloat is ensuring that Cryptocurrency doesn’t get too wild.

Banks don’t know how to deal with cryptocurrencies — BlackRock does. That’s because cryptocurrencies aren’t based on debt, inflation, or control. They are a digital asset that is verifiable on the blockchain and out of reach of traditional banking structures. Banks can’t print them, and they can’t manipulate their supply. They are the exact opposite of everything they are.

Crypto as a Game-Changer — The Nightmare of Central Banks

If traditional banks create debt-based money, Crypto is their worst nightmare. Bitcoin is a limited-supply asset recorded on a decentralised blockchain, the polar opposite of fiat money. Fiat is an inflation-plagued promise of debt, the supply of which can be manipulated at will and is generously printed by centralised governments. On the other hand, Crypto is out of reach for central banks.

Banks and central banks are desperately trying to react. But how do you regulate something that was designed to evade regulation? Not at all. That’s the problem. The Federal Reserve, the European Central Bank, and other financial institutions are overwhelmed by cryptocurrencies. It’s like giving an old-school librarian an iPad and asking them to ‘fix the internet.’ They don’t even know where to start.

BlackRock, on the other hand, can make money with cryptocurrencies because BlackRock makes money with everything. Trump could do it with his eponymous meme-coin. But banks? No chance. Cryptocurrencies were explicitly designed to keep them out.

Conclusion: The Financial System Is a House of Cards — But What Happens When an Alternative Emerges?

For centuries, banks have held a monopoly on money. They create it, distribute it, inflate it, and lend it — all under the protection of governments and central banks. This is not a flaw in the system — it is the system! The public is unaware of this, distracted by the complexity of financial jargon, while banks print money at will with impunity and pass the consequences on to everyone else.

Banks have nothing to fear today. There is no real alternative. Every currency, every financial transaction, and every paycheck flows through their networks. But what if that changes?

For anything to change, a few things must first change because Bitcoin doesn’t pose a threat right now. Its market cap is too small, its adoption too niche, and institutional money can’t flow into Bitcoin on a large scale without distorting the market. But what happens when Bitcoin hits $1 million per coin? If it becomes a multi-trillion-dollar asset competing with gold, it is suddenly no longer a curiosity but a competitor.

Bitcoin would be big enough to no longer be ignored at that scale. It would be too stable to be dismissed and too valuable to be manipulated in the same way that central banks manipulate fiat currencies. It would exist outside the banking system, immune to inflation and free from government control. That is when the traditional financial system loses its influence — not because of regulation or government intervention but because people and institutions naturally switch to the better option.

This is what central banks fear most. Not regulation. Not financial crises. But irrelevance.

Right now, banks still have all the power. But history has shown that no monopoly lasts forever. The real question is: when the cracks in the system finally become too big to ignore, where will your money be?

---

The Greatest Lie in Finance: How Big Banks Cash in Billions from the State — and Why We All Pay… was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.