One of the many financial talking heads suggested this morning that, despite the three days of rally on Wall Street, he remained gloomy. The reason? Because banks, he said, were no longer lending to anyone but those with excellent credit, which has stalled consumer spending. No doubt the irony of what he was suggesting never occurred to him- that it was credit over extension that has brought our banking system to the edge of disaster. What he and others are basically saying is that our entire economy has become dependent upon people borrowing money and spending what they do not have or have not yet earned. It’s really just that simple, and the more you think about it the more disastrous you realize it is. What it really means is that the culture is expecting you, the consumer, to not only live beyond your means, but to subsidize the banking industry. What we are being told is that if we were all to stop borrowing from banks to purchase things and did what our grandparents told us- to save up our paper route money and then buy our new bike- then our economy would collapse. The sad reality is that this is no doubt true for the simple reason that the major banks in our country have done exactly what Bernie Madoff did- they have run a giant Ponzi Scheme. All of our taxpayer “bailout” dollars are doing now is keeping it afloat.

A Ponzi Scheme, by definition, is something that starts out with a reasonable premise that attracts investors which turns out not to be viable. Rather than conceding failure, however, those who run the enterprise keep it afloat by paying existing ones handsome dividends from what they get from the new investors. These satisfied customers then help recruit new ones, and the operators get very aggressive about recruiting new investors and simply keep paying existing dividends with the money new people put it. The scheme goes on until either someone finds out or the pool of new investors dries up. In many cases, as it appears in the Madoff case, the perpetrators convince themselves too and think they only have to get through a short bridge before the idea pans out and everyone gets back on track and then one day they realize they are too far extended to ever get back to viability and they just ride it out to the end. This is exactly what the banks have done.

When you hear the term “toxic asset” all that means is a bad loan. Banks have always made bad loans and have had to foreclose on houses, take creditors to collections, etc, and they simply right off the loss. The reason these are “toxic” however is literally because the bank doesn’t have to money to cover it’s loans. Like the unwitting consumers they prey upon, the banks worked with money they didn’t have, and like Bernie Madoff, the jig is up. The problem for us, however, is not just that there will be some losers, as in the Madoff case, but rather that this practice is so widespread and involves so many institutions, that pulling the plug would mean not just literally having to reinvent how our economy functions and how its institutions function, but who they are. It would be like playing Monopoly and just tilting the board to one side and letting all the pieces slide off and then starting over.

So what this all means in layman’s terms is simply that a bunch of folks in the financial industry figured out how to abuse the unregulated system, how to make money for themselves by writing and selling bad loans, and the only way to save our system if for all of us to go out and buy consumer goods on credit, thus subsidizing the banking industry with our interest payments until they can pave over their mindboggling scam.

In the now immortal words of Jon Stewart, “FUCK YOU!”