Thieves Watcheth with the Dogs

"Nobel laureate Joseph Stiglitz, a former chief economist at the World Bank, said that if a country had applied for World Bank aid during his tenure, with a financial regulatory system similar to the Federal Reserve's—in which regional Feds are partly governed by the very banks they're supposed to police—it would have raised alarms."
—Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System 'Corrupt'

Stiglitz, author of Freefall: America, Free Markets, and the Sinking of the World Economy, has it right. You can't be a watchdog over yourself. This is a huge conflict of interest. The Federal Reserve recommended massive bail outs to the banks whose officers sit on its board of directors. I have no doubt this is just the tip of the iceberg. The real story is likely far more complicated and far deeper.
Our financial system is seriously flawed. It should be no surprise to anyone. After all, we are talking about an institution with the power to create money out of thin air. No man can be given such god-like power and be free of greed and corruption. The system is faulty by design.
Here's a simplified illustration of how the Fed works. Until you understand the nature of the problem, you can't truly appreciate its magnitude.

Let's start from zero: No money in circulation.
The Federal Reserve enters a few strokes on the keyboard and creates $1,000 digital money. It then loans that $1,000 to Bank of America at an interest rate of, say, 2%. Do you see a problem here? There is now $1,000 in circulation and $1,020.00 of total debt. That is $20 which can never be repaid.
The interest rate set by the Fed is used to control the amount of money it lends banks. When rates are low, banks borrow and lend more money, increasing the amount in circulation. When rates are higher, the amount of money available to the economy is reduced.
Next, Bank of America loans $1,000 to Joe, a small business owner, at 5% interest. Joe then puts the money into a deposit account at the same bank. Now, BoA uses that deposit to fund additional loans, which also get deposited and loaned at interest, ad infinitum.
So you see, so far, 100% of the banks money doesn't really exist. They have created an empire without any investment on their part. But—wait—it gets worse.
The bank loans Joe this contrived currency to purchase a home—a tangible asset. But the Federal Reserve's attempt to artificially manage the economy has caused a recession. Joe's customer's begin defaulting on their debt to him and his business goes under. He's now unable to pay his mortgage. The bank could go easy of Joe, after all, he's been paying on time every month for 10 years. But do they?
No, they don't. You see, unlike Joe, who's unable to benefit from repossessing the carpeting he installed, the banks now have a real asset. The bank did virtually nothing to obtain it. They created the fake money and shuffled a few papers. Joe, on the other hand, worked hard for 10 years for that house. His wife spent time grooming the lawn while Joe make repairs and improvements. He even built a tree fort for his son in the back yard. The bank has now ripped his heart and soul from him.
So, you see, it's the Fed's fault you can't pay your mortgage, along with the poor lending decisions by the bank. But it is Joe consumer who takes all the risk. The bank took Joe's house. Then—it gets worse—the government bailed them out and put it on Joe's tab!
Are you angry yet? Change can happen only at the grass roots.
Watch Zeitgeist ADDENDUM to learn more