When normal people lose money on an investment, they can’t withdraw their assets from the market and assign them any value they choose. The only way those assets are valued is by comparing them with current market transactions — the last value at which it was traded. But for banks the rules are different, for many years they have been maintaining what is referred to as “level 3″ assets that have completely made up valuations.
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I don’t know what to make of this ridiculous article from the Guardian. Are we really supposed to believe the Saudi government will make a decision of such magnitude just to stick-it to Bin Laden? Are they making their policy decisions simply by opposing the recordings of an invisible man from a mythical cave far far away?
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Financial institutions are supposed to help connect people who need capital with those who have excess capital for the purpose of generating economic activity. Banks don’t create wealth, they don’t produce anything of value to the world. They are middlemen, and when they take too large a piece of the pie the system fails because those who actually work and produce are not being properly compensated for their labor. Our bubble is not in real estate, it’s in banking.
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