WHY IS THE INDUSTRY SO PROFITABLE?

This is a question asked by FT columnist Martin Wolf today, and the industry being referred to is banking.

Wolf's answer is, "banking takes high risks."

What is the real reason as to why banking is so profitable? The banks make their profits for themselves out of nothing!

Let's assume that the plain black ink bic biro is our national currency, called the "pen".

A bank has one pen. A customer asks for a loan of 9 pens. You would think the bank can't satisfy the request, but in bizzaro banking world the bank can issue a note with "9 pens" written on it and then claim the customer owes it 9 pens. If the customer repays the "loan" of 9 pens, in real pens or with more pieces of paper with values totalling 9 pens, then the bank can say it has 10 pens + interest, when in fact it has only one real physical pen. The bank can then issue pieces of paper with even greater numbers on them. Eventually the bank can have pieces of paper with values totalling 1 million pens all derived from creating the pens out of nothing and "loaning" them out and the "loans" being repaid, so the owner of the bank is now a millonaire in pens, closes the bank down and lives the life of luxury for the rest of his life, spending the paper notes he issued as hard currency to buy a house, a boat, a ferrari, etc. All he did was issue some pieces of paper with numbers on them.

That is why banking is so profitable. They can simply create money out of nothing, while the rest of us mugs work our arses off just to survive.