In today's banking environment with Basel II in place, why are banks failing even more spectacularly?

Question

In today's banking environment with Basel II in place, why are banks failing even more spectacularly?

Answer 1

The federal reserve system of banking (central banking). It allows loans - to governments, corporations and individuals - to be made over and above what a banks actual holdings are in gold or other material assets. This is effectively creating money from nothing (though it is therefore not real money). A quantitiy of "legal tender" is printed to correspond with the total amount of this created "money".

Adding more purchasing power (paper money) to the economy relative to the amount of real material wealth in it dilutes the value of the currency. Reducing the value of currency is what causes prices to rise. This is inflation. This is a little oversimplified, but it is basically what is happenning. Now the results are catching up with us.

The income tax is primarily used to mop up some of this excess purchasing power (though of course it serves other purposes - such as raising more revenue) so as to offset inflatin, but it cannot keep up in the long term.