In his book, "How To Make Money in the Financial Markets," Lou Gehrig discusses "infinite banking," and explains how banks use a form of infinite banking to manipulate the price of certain assets, thereby affecting the price/value of other securities. This form of infinite banking is sometimes used to "lock" a particular investment so that investors cannot easily pull their money out. This is known as a "self-interest cure" for financial problems. Although banks are financial gurus that understand all about the markets, they still tend to use a "human condition" to effect changes in the financial markets.
For instance, banks will often borrow a large amount of cash in order to make money on future purchases, thus influencing the purchase prices of future goods. They then use the difference from the original loan as an incentive to consumers to purchase now, and the banking crisis that occurs, as a result, is the product of banks using this form of banking to increase their profits. In order to control and manipulate the value of currencies around the world, banks rely on "paper money," which is really just a promise to pay the lender if the loan is not repaid. But this promise does not hold up, as people usually default on these loans, forcing banks to sell the paper currency. With millions of dollars being lost every day in non-repayment, the crisis has reached a crisis point.
However, this type of financial abuse is far from an exception. In fact, many banks engage in the practice of creating and guaranteeing billions of dollars in financial products whose only purpose is to increase the bank's profits at the expense of the rest of us. The big banks make money by borrowing money from the federal government or banks overseas, creating financial instruments in which they then require payments in order to settle the debt. These financial instruments are then used by other institutions, such as credit card companies, to make purchases with our hard-earned money.
While all banks engage in these practices, there are a few that excel, using their resources to make money for themselves through the financial markets. One example of this is the New York Stock Exchange, which plays a major role in the economy of the entire country. Another is Wall Street, where banks make money by making investments in other companies. Other banks engage in foreign trade, providing jobs to millions of people in the country as well as facilitating trade between countries. And, still, others use their vast network of banks and leverage their position to other financial markets, such as the London market, which is one of the largest financial markets in the world.
These banks influence the value of stocks and currencies not only by issuing them but also by buying and selling them. As you can imagine, this value-at-risk (VaR) ratio is very important to investors. The higher the risk, the higher the potential reward, making stock trades with banks (whether actual or virtual) a great way to invest. In fact, it is much safer than most investment strategies, as even though there is a considerable risk, the potential for large returns is also substantially higher. For example, a single bank could have the ability to make hundreds of millions of dollars on each trade and completely wipe out some other less risky investments, such as bonds or cash. Click here to know why infinite banking gains popularity in the financial world.
In the last decade, however, the economy has significantly soured and the unemployment rate has risen, causing banks to tighten their belts financially. Not only do they have to cut costs by not investing as heavily in the stock market, but they also need to invest in other areas, such as alternative energy. To keep the lights on in the financial markets, these banks need to make money, so they are turning to financial engineering firms that work with them to find new ways to make money. As these financial engineers earn their fee, these banks are able to slowly increase their balance sheets and increase their profit margin.
Check out this post for more details related to this article: https://en.wikipedia.org/wiki/History_of_banking.