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everybody Simon Dixon here I received a message on Twitter direct message this morning to direct messages that kind of got my attention the first was they had watched my video on the real estate crash and the ten forecasted steps of what comes after this health crisis and exactly what they need to prepare for and also they had watched the video on the Indian financial crisis and how it affects the World Bank and some of the trends that are happening right now and they asked and requested could you just give me a real simple overview of the banking system the financial system how it all interacts what are these things called toxic assets and credit default swaps and what is the buy-side the sell side you know and what is the basics and everything I need to know in order to understand a banking system so I can navigate that this time ahead the second tweet that I got which I thought was a bit of a coincidence and was from somebody that had found a video that I had created approximately eight years ago could the future of banking and finance careers and it was for students that I was asked to give it tour approximately 810 years ago on to university students that were looking to get into banking and give them a real overview what I tend to do is when I give educational content to people that wanted to work in back I always used to sneak in and some of the trends to try and get them ahead of the curve in terms of what actually is really happening so I was more than skeptical about this video that I created 8 to 10 years ago and but I thought that actually check it out and I noticed it had 138 thousand views on it which is one of the most views I've got on a YouTube channel on a YouTube video rather and so I thought I'd actually review it because I was very skeptical so the first thing I noticed is what a difference a decade makes and I definitely need to get back to the gym and I need to get back to where I was and get rid of this double chin compared to how I used to look about 8 to 10 years ago so and that was the but also I actually was very very surprised how relevant some of the content was because while I it was literally given to give a complete basic guide and to some very complex subjects about how banks work how financial institutions how the pension system works how it all fits together how that relates your bank um money is created and various other things it was and I thought this is really useful to many people that just simply want to understand how the financial system works without all of the major jog and just make it simple for people to understand but I also found interesting you know just give me the highlights now or some of the forecasts and things that were covered and so that you can then go in and actually get this overview so that you can just be more knowledgeable when you're discussing and seeing how some of these trends on forward especially when you're watching future videos of mine and I go through some of these top topics you know in my new detail one topic at a time but yeah I thought everyone would need a good overview and so I thought let me just take out the bits that are less relevant to everybody like and the student advice at the time the more motivational and careers advice and actually just get the overview the financial system and give that in this video a few things I went through is the way thought some of the forecasted some of the forecast rather was the how the way money is created is going to lead to the next depression I certainly still will stand by that and check out other videos on my youtube channel Simon Dixon where I've given a complete live commentary and overview of that I also gave a forecast about how Facebook will become the largest financial institution and Bank in the world which I find very interesting given that is launching its digital currency in the Liebherr project it also talked about how structure products like credit default swaps and collateralized debt obligations will create another devil and certainly stand by that how exponentially government's corporations and individuals will go into debt and certainly that's been the trend as a result of the way our financial system structured it was during the Greek crisis and I talked about how European Central Bank would end up buying all the assets around the world and consolidating power and we're certainly seeing that at the central banking level right now as many many central banks are making trillions and trillions of bailout packages available in order to overcome this health crisis and I went a step further talking about the wall bank and how they'll end up acquiring the world and it's interesting that now we've seen the 15 billion dollar stimulus from the World Bank when essentially is not a stimulus is lending and that was covered in my indian financial crisis with you and the effects that they will have which I released more recently the other day some other things is that how I was talking about there would be a big event that leads to a shift in government having massive massive control and something that looks more like communism the capitalism I obviously didn't know would be a global pandemic and but obviously that trend is actually happening because of the way our financial system is structured and the fact that governments are actually using loans in order to bail out the system rather than creating that money direct and I referred to essentially this government and Bank joint venture regulated Ponzi scheme which I totally stand by in terms of fiat money as the world's largest regulator Ponzi scheme we have ever seen and I talked about that in there also made people aware of why 80 percent of my recommendations shouldn't be listened to when it comes to stocks and shares and the reasons for that and I ended on a forecast around how all the technology exists today in order to actually live in a world without banks to give context the timing of this recording I had published my book back to the future protect your future before governments go bars which was the first published book in the world and included the topic of Bitcoin and prior to this I have been to the first Bitcoin conference which was held in Prague that was where I first engaged with the Bitcoin community I gave a presentation there which is one of the early videos on my youtube channel Simon Dixon on YouTube and so I thought I'd I thought those are interesting forecasts and so I'm gonna head over to that and use that recording to give everybody what they need to know everything you need to know about how the financial system works how banks interact how it relates your pension and how it relates to your real estate portfolio and everything in between so let's go back to the future and go to the past of one of my very early videos and just before we go into that I'd like to request if you enjoyed this content I'm giving live videos more commentary on my youtube channel Simon Dix and as the financial crisis unfolds and really fact-checking some of the forecasts that I make against what actually happens and updating my views so if you like this content then please do head over to my youtube video channel Simon Dix and subscribe hit the bell symbol and YouTube will give you notifications every time I go live as everything unfolds also I mean really helps if you like this video share this video then YouTube will give me more love and send more people and we could have more people financially educated as this financial crisis unfolds so retweet it do whatever you need to do and we head over to me 10 years ago a slimmer more fit a more energetic version of what I'm going to return to using this lockdown in order to try and get and use this opportunity to to focus more on my health and get back to that so enjoy the video and I'll see you on the other side thank you the universal bank is the bank that we all probably apply to the universal bank does everything and the universal bank will be no more because we've had a new report in the UK called the Vickers report and said that we have to separate the different types of banks the reason being is because there's complete conflicts between the different types of banks and the only way or one of the only ways to get back to some kind of sustainability is to separate the different types of banks now that's something that happened the past in the last Great Depression of 1933 called the glass-steagall Act which was an act in order to separate these two types of banking commercial banking you can't see that if it's the end but that says commercial banking commercial banking essentially if under a universal bank you have different types of banking the commercial bank is a bank for four companies so while you all have a credit and debit card and an overdraft I'm sure you do and your wages come in or your money comes in or your loan comes in and your expenditure goes out so do companies and that's called commercial banking and the reason that banking and finance is a bit tricky to get your grips around is because I spent the past and I'm still to this day spend my time but the last five years trying to figure out what everything is and why everything why everyone calls it something different in the UK a commercial bank tends to refer to a company by the banking dealing with companies in the US they refer to commercial banks as what we call retail banks and retail banks are all the banks at me and you use individual people we put our money in we put our money out that's a retail bank and the second type of bank that sits under the universal bank is investment banking now investment banking is well there's a number of different activities that are included in there but it tends to generally be big big companies big looking to raise finance or big financial institutions looking to achieve some kind of result and an investment bank essentially creates some kind of product to sell to them is why an investment bank is called this this in the city we've got two sides to the city the sell side and the buy side the sell side is that institutions that create products in order to sell to people the boys side are the people that have tons of money and buy those products on behalf of other people or on themselves so if the investment bank sits on the sell side of the the city as it were or banking and finance the third type is what we call an investment institutions so under this Universal Bank a universal bank has a vision called investments and investment institution is the what we call the boy sight so let me just recap you've got a universal bank that does everything so let's give an example you've got Barclays group and Barclays group has several different divisions we got Barclays Wealth Barclays wealth is where they take high net worth money and they buy products in order to turn that money into more money and why do people give their money to Barclays wealth because they know how to buy products that will turn that money into more money apparently didn't quite work out that way but you you met you very often give your money to an investment institution the buy-side but a universal bank has a separate division could an investment banking which sells products now can you see why there might be a conflict of interest sir when you're creating products that you need to sell and also you're managing people's money who buys that products could this person have a conversation with this person over over dinner and see if you can sell and offload some rubbish to them happens all the time all the time and then you also have a commercial banking now here's the thing in commercial banking what you tend to do is you till you do this you deal with simplistic products you take you take people's money and here's what economics has been teaching and this is the lie that I've been preaching for the last five years economics teaches the bank is an intermediate tree between a borrower in a land which is an absolute lie it's not at all a bank is not an intermediary between a borrower and lender and if you make that assumption all of the economic theories that we're running our economy off are completely wrong because a bank is actually a retail commercial bank is actually a creator of money 97% of our money is created by a bank so when you take out a mortgage that's not somebody else's savings is brand-new money created out of thin air ok so the reason that retail banks dominate the world and make a lot of money is because they've got a license to create 97% of our money supply so the reason that governments really care that a bank doesn't go bankrupt is because wiping out 97% of our money supply would be the biggest depression we've ever experienced in the history of the world so if anyone says you should let a bank go bust they're not quite understanding the way that banking works okay so look your bank however they take people's money essentially and they're allowed to leverage that up leverage means make more out of having a little bit and very often they can invest that in investment banking products which means that the reason we had this separation recently is because they found that people were taking depositors money speculating on it investment banks were creating commodity products futures products you know all these these these crazy products and taking risk with people's money and all of a sudden but why because the government has guaranteed their sector they've said if anything goes wrong with this will guarantee it so we have this massive conflict of interests and in cycle of boom and bust consequently because of this crazy system that we operate in today equal banking so what happens in investment banking well they you could split an investment bank into two further the first is the primary market so if you look down what we're doing is essentially anything underneath this is Investment Banking this is all Universal banking this is investment institutions this is commercial banking in an investment bank you have the primary market so what that means is exactly what Facebook is doing right now Facebook is looking to raise five billion pound in order to acquire a ton of companies and in my forecast to become a bank I think Facebook's going to become one of the largest financial institutions in the world with their database of 800 million users and they're moving into financial products with Facebook Credits and Google is also moving into financial products with their Google Wallet and that's going to be a continual shift because banks are completely out of favor and we all love Google and Facebook so they're going to take the front end while banks take the back end because and the customers don't want to deal with them anymore because they've got such a bad rep that's my forecast of where we're going so what I think you're going to see is some of the biggest brands that you know are going to become financial institutions some of the ones that you love trust and you know because financial institution is the the you know one of the richest industries out there and the primary market is where people raise money in the first place so what does an investment bank have they have access to money why because they have relationships with tons of okay so if you need to raise money then you can turn your company into a product that they call a stock and that stock can then float on them float on a market and you can sell that to someone else so Mark Zuckerberg wants to exit some and the the VCS are invested in Facebook when it exits some of their cash or they also want to gain access to new cash so they go to a bank and Goldman Sachs will many get the deal but Morgan Stanley got it instead and they they then raised the five billion because the investment bankers go out and picture world saying you should buy this product and they structure it and they create it okay that's the primary market now what happens the people that deal with the primary market they are often called corporate financier so corporate financier that's what I used to do what I used to do is I used to take a venture capital trust and a venture capital is a group of they invest in early stage businesses and they pool people as money and invest in earlier stage businesses and a ventu e capitalists typically is looking for five years to sell their investment at ten times what they bought it for the the only way for them to do that is to sell it to someone so they build relationships with investment banks and and corporate finances continually knock on their doors in order to say why don't you take the company public and taking a Cobb leave public as a way of accessing everybody a massive pool of money which is ordinary people that want to invest in shares and also high net worth or want to invest in shares so you have a corporate finance division that advises people because that's an extremely complex process and they advise people of how to actually do that there's a number of different ways that you could do that there's I mean main essentially it's not completely true but essentially there's only two real ways of raising money either you borrow it through the debt market or you offer shares through what we call the equity capital markets okay am I going too fast anyone got this is this making sense anyone got lost anyone with any questions and what I've gone through that call are assume we're all on the on the right pace now why do they what what else does an investment bank provides now why do you think Morgan Stanley got the deal over goldman sachs anyone got any ideas why did facebook use morgan stanley instead of goldman sachs anyone got a guess lower fees I doubt it's lower fees because they don't care about the fees they'll just pass someone to the investor future what's wrong yeah sure yeah if I'm interpreting you quickly and correct me if I'm wrong what I think they're saying is that they have a secondary market and what a secondary market means is that they will have a very active market where people can buy and sell shares so if you invested and you need that cash you can easily sell it and that's called a stock market and this is where a load of traders get together and they put buyers and sellers together continually they have relationships with all the buyers and all the sellers they put them together but the secondary market for an investment bank if you and me want to call an investment bank and sell our shares they're going to say go away they're going to say go to someone like TD Waterhouse who I started as a stock broker for and the reason that the difference is is that the secondary market for investment banks they deal in you know shares in the millions if you want to deal with shares in the tens of thousands or thousands then you have to go to a stock broker okay so in order to speak to an investment bank and a trader on what we call the secondary market which is the second-hand market essentially so that you can sell your shares or you can sell your products I'm using the shares example because it's easier to understand but there's other products as well on the secondary market you you have to actually qualify and do some exams in order to speak to a trader so I worked as what's called a market maker for an investment bank my job was just to speak to stock brokers and the stock brokers had all done their exams so that it could just speak to me because we speak a different language so a typical conversation would be like they'd ring up and they'd say hi I'm three or four thirty two or four thirty six and six offered in 30 for half a bar makes sense to anyone didn't make sense to me when I first started it took me a year to figure out what the hell they were talking about why because I work for a mid cap and a mid cap don't train they expect you to just be able to do it and figure it out yourself if you work for Goldman Sachs they're gonna put you through a six months training program where you figure out what the hell I just said okay so that's the downside and the upside of whether you work for a large company or a small company a smaller company rather the medium-size company they don't have the resources to train you as much because they need you to make a profit and by the way that's the key the key to being able to secure a career in banking and finance is the following it's not your degree they use that as a filter it's not your degree it's can you add more value to the company than they then you're gonna cost them in wages that's it that's what you need to do to secure a career you need to prove that you can add more value to the company than you cost them in wages because I was your in expense and expenses don't get jobs in the current market okay ruthless brutal but that's how it is so yeah that's the that's the secondary market so there's some crossovers here between commercial banking and Investment Banking and the first is called structured products structure products you may have heard about they've they've they've recently been renamed as toxic assets essentially what they've done is the commercial bank has gone out to the world and said can you mortgage brokers please find me as many people don't want to buy houses as possible don't really care where they come from I don't care whether they can afford it just find them please and so mortgage brokers go out and find as many people that are looking to borrow money because they can sell them to a commercial bank the commercial bank will then find all these mortgages give them to an investment bank they'll structure a product and then they'll take that product and they'll sell it to the investment institutions and people that have money where do they get their money that tends to be our pension money so we're all interrelated in this in this bottom I guess this circle and these structured products are essentially grouping together and then what you can do is you can you can then allow people to buy those products without having all the money so what do you do when you take out a mortgage essentially you want to buy a house right you want to buy a house but you don't have the money so you need to borrow the money and if you borrow the money what all you're doing is it taking out a mortgage or mortgages essentially someone saying you can get access to 250 grand if you give me 25 grand okay and then in exchange for that you're gonna have to pay us interest okay so that's what they do with all these products they then take that of debt so what's a mortgage a mortgage is debt and so then they take that debt and they structure it into a product where people can buy it with that and then what they do is they dice it further and they take each one of those and they allow people to buy it with debt and then you go and get another company to pay some insurance just in case someone defaults on that debt and then the someone takes out the debt of the insurance on the debt can anyone see why we're in a messed up situation right now yeah so that's essentially that all came from the structured products which was the merging of commercial banking and Investment Banking okay it was the you know taking these different services and putting them together into one way of essentially finding a way to sell more products you also have corporate banking so the difference between commercial and corporate banking is just what depends whether you're in the States or the UK in the UK we call corporate banking in the commercial banking in the States commercial banking is retail banking but they also refer to it as retail and corporate banking so corporate banking essentially everything that you have with the bank except for you've got markup megabucks and you're a limited company or a different type of company okay so can you see if someone has banking services where millions is coming in and out that one day they might want to access some more money or they might want to borrow some money yeah can you see that yeah so what they will do is they'll go to the investment bank and that's why you get this overlap between the people that create products and the people that actually deposit money and deal with the depositing and lending okay what is actually happening in reality is they're taking your money and they're leveraging it a million times over and creating new money and creating our entire money supply and hence the reason why banks are so dominant in the world but if you believe what you're a cut you're economist tells you at university they're just an intermediate weaned Boyer's and lenders retail banking we know what that is it's simply it's meant to be in the textbook deposits and lending the reality is it's the money creation sector so there it's where all of our money and our nation is actually created and people tell you that the government of printing money that's a lie the government print only 3% of the money in our in our you know in our nation all of 97% of money is created by a bank privately so when you take out a more beer just brand new money what else they do so it used to be called merchant banking now the reason it was called merchant banking and what happened is when the glass-steagall Act of 1933 that separated these commercial banks and investment banks that was implemented by President Roosevelt after the lost after the last Depression of the 1930s in order to get the economy back to some kind of sustainability what in fact they did do is they created some governmental organizations called Fannie Mae and Freddie Mac which were essentially leveraging the government's balance sheet in order to stimulate the property market and create the illusion of growth that we've been running over the decades so really the government were just essentially taking on all the debt and that's why the debt has exponentially increased ever since and we are in this environment right now where we're all maxed out on our credit cards companies are all maxed out on their credit cards and the government has certainly maxed out on their credit cards why because we rely on banks for the creation of money that's essentially it in order to have more money we need to have more debt if we want less debt then we have to have less money so we have a choice we have a take on more debt or we have a depression that's the double-edged sword and asko's economics has been preaching wrong theories that's the rules that we live by today it's why the collective force the central bankers government's politicians can't solve the crisis because they're just thinking which one do we want more debt or a depression there's only two options in the current system a merchant banks so what happened in the Universal Bank this this whole glass-steagall Act was repealed correct me if I'm wrong I think it was 1997 I think that's before that basically the in the UK we had a ton of Thatcherite reforms which essentially took out deregulated the banking system and because investment banks what do they do they know how to turn products and create tons of money ascent by leveraging the balance sheet of a commercial bank so they take a commercial bank they create products which allow them to gain access that money is created out of thin air and they can leverage it in order to turn that money into billions and then they take that money and they buy as many companies in the world that's why banks don't ever sit now okay so they bought a ton of merchant banks merchant banks what they used to be they don't exist anymore there's some of them around like Rothschild some booty what they do is they essentially corporate finance advisory companies they just advise you on how to raise finance but they don't actually raise the finance for you an investment bank gives you the corporate finance advice for free and they make their money of a commission if you raise all your funds okay they'll charge millions on top of the investment if you raise all your fund so what happened is the investment banks when with the deregulation they bought all the merchant banks and the beauty companies exited the entrepreneurs have starred in them are made a ton of money and the investment banks made the money through the commercial banks were leveraging their balance you still with me and we're talking a different language or we together yeah sure let's take some questions well yeah there's essentially we have in the current crisis like this is what I wrote in my book banks of the future we have five outcomes that we can have right now there's only five possibilities we all have a complete collapse of the banking system which which would be a disaster because 97% of our money supply would shrink into nothing and the only way that would happen is if the government let it happen so the only way that that would happen is if the government go bankrupt and the way government will go bankrupt is we all have a credit rating downgrade so I forecasted I wrote I put the video on YouTube could the Great Depression of 2013 a few a while ago which was forecasting all the credit rating downgrades when the credit ratings get downgrade what they're saying is investors investment institutions they have to offer them a higher interest rate in order to get them to put money into lending to the government once that goes down to four how many of you fancy investing in Greece right now there what some people might you know a huge risk maybe a hedge fund might find that quite attractive but most people would think I don't want to touch it you know most people and why why would you want it why would anyone want to touch Greece right now well what are they doing that's their what's right they're bankrupt yes sure but let me let me it may be a good investment if you're looking at with tradition but let me let me put some common sense glasses on right now yeah Greece have debt problems does anyone know anyone maybe not yourself maybe someone sat there but does anyone know anyone that's got debt problems and one only one I know a few people that got serious debt problems if you advise them to take on more debt to pay their debt do you think that would be a good solution there would be a good bit of advice well that's essentially what we do is never been the solute that more debt has never been the solution to a debt problem never ever and that's what we're doing we're just chocking more debt at that yes so what they would need to do and what I propose is that we'd need to then take away the license to create money from banks and we need to take it back to a centralized power because at the moment I believe and this is just my belief and our school of thought that the reason we're in a mess is because we allow banks to create money so essentially that would be my solution so I'd step out of that and then I'd reform the way money is created and forget about the Keynesian economists and the Austrian economists and all the The Economist's yeah yeah I well here's that's the third result you have a governmental bus so what would happen if a government goes bust well either the ECB was a central bank will bail them out or they're left to independence in which they have to completely reform their banking system in order to take that there and and rebuild their country so that that is the the third result is that you you have consolidation of power essentially what I'm forecasting is a European Central Bank which essentially is a big Germany they're going to buy up all the countries and all the assets essentially and you're going to have this consolidation of power where the European Central Bank and then what happens when the European Central Bank goes insolvent like we're already seeing experiences right now the World Bank will come along then you have a global World Order essentially so it's consolidation of power into larger financial institutions that's why if you look at institutions like the IMF the IMF essentially is we say that people contribute money to it and then they bail out countries which are in trouble but if you look at it all the IMF is doing is there they're basically finding a new market for their debt and they're finding new market for their debt in developing countries and refinancing our economy and finding new markets for that through imports and exports which is why third world countries are 60% deeper in debt but then before the IMF started and they've repaid their loans six times over so when we say we need to give money we're never giving money we're lending money at interest that's all we're doing so we're finding new markets for central banks that's what we do essentially so yeah what did I say there was five outcomes so either the banking system goes bust either the government system goes bust we have consolidation of power the other option is that we just make some rules in the way banks actually create money or essentially the next phase is to have a hundred percent tax and we live in a communist society where we just and that's what we're heading towards we're just increasing our tax to pay the government's death which they owe to the banks and the banks created out of thin air and they're benefiting from the interest and the CEO stepping out with all the bonus that's what we're having right now essentially need some changes in this sector so investment institutions here's what they do well investment institutions you can separate them into wealth management stroke private banking this gentleman what was your name sorry Patrick okay I didn't say that right it wants to get into wealth management essentially what he's going to be doing is his job is to find his job is to find as many high net-worth as as possible that's his job that's it just find rich people you'll be great at the job the only way you're going to find rich people is by knowing lots of rich people I'll give you some ideas about how you can do that sure yeah okay sorry let's take some questions yeah crazy money not well in on that let me just say that because eight percent of a commercially banks created money goes to wealth which is brand-new companies the productive economy to business to create new value ninety one percent goes to property creating a property bubble to commodity speculation and creating products which add no value to the world so there's no value there's no wealth creation no no okay okay I'll answer this question quickly and if you don't get it then let's have a private conversation and take it off off line but essentially when you when you go to a bank in order to borrow money the bank the person sat behind the computer doesn't have a clue that they're creating money they just think that they're actually but here's what actually happens if you look at the balance sheet of a bank when you borrow money they simultaneously create an asset and a liability which means that when you in sorry affirm how many of you are financed you have you done like balance sheets and stuff like that you know they've all bought a balance yeah so what a bank does is a completely different to to every other type of institution they create an asset and a liability at the same time so their asset is the fact that they've created 250 thousand pounds that you need to repay them plus interest their liability is that you they take that money and they deposit it into your account that's the liability it's not an asset yeah it's the liability because if anything goes wrong maybe if you try and draw that money you need they need to give it to you so what they've essentially done is the money supply if you look at the grand economy if you take out a mortgage for 250 grand the money supply has increased by 250 grand because they've created a new asset and a new viability and it's new money essentially so that's what they're doing that's why the the way the their business model is find as many now on the contrary if you default on that the money disappears that's called a write-off that's what we had because money was just disappearing from the economy every time someone defaulted on their death so it's not that the bank goes bust it's that the whole economy goes bust because there's less money in the entire economy does that make sense they do that based upon whether they believe that you can repay and whether they can find people who are willing to pay tomorrow there's another way of doing it who cares what their credit rating is if you just chuck the product over to here and get pensions to put the money up yeah get all these wealthy people to put the money up and then so all you've done is you've essentially found the people that willing to borrow and then sold it to them and you don't really care what the risk is and that's essentially what happened yes so there's there's there's other ways so I think we're going a bit too technical there's two types of money supply there's money created by the Bank of England which is completely debt-free so okay I'll go into it and then I'm gonna move on because it might get too complicated but the way that the way that anyone going to cash coins in cash that's created by the Bank of England the way that that's created is the Bank of England has an institution called the Royal Mint who creates coins and they have the Bank of England which actually prints money there's only three percent of money that's money what happens is it costs 3p to print a ten pound note and they sell it to a bank for 10 pounds so a bank only buys it for one reason because they need to have money in their cash point and so all they need to do is provide enough cash for to meet the people that want to deposit take money out of a cash point they then bought they buy it for 10 pounds the government that the Bank of England makes nine pound 97 from creating a temple no that's not their money though they gift it to the Treasury the Treasury is essentially the bank for the government so when we all pay tax that goes to the Treasury yeah the money created by the Bank of England is added to tax revenue and a sense spent for the benefit of the public through a democratic process now that is 3% of the money supply and that is how that's how that's the only money that bank the Bank of England actually creates now they came up with a new way of doing it which was creating new products new debt based products called quantitative easing which was essentially creating new money which they have the right to do but doing it through debt which needs to be repaid plus interest and just refinancing the mass essentially yeah yeah okay so let's get back to where we want to go I'm happy to have conversations if any of you want to connect with me on any of the social networks I'm extremely contactable get me on LinkedIn Facebook Twitter anything you know I'm happy to chat about these issues you can't see this right now but what that says is there's another type of investment institution which is what we call it asset management investment manager fund management portfolio management essentially they're taking insurance money so when you when you when you take out an insurance product essentially what you're doing is they're they're taking on the risk and they're saying you pay this amount each month and if this goes wrong it's subject to our terms and conditions then we'll pay you the money and the terms and conditions are never in our favor but the subjects that will pay it and so what they do is they take all that money and that drives a lot of the investment in new business and you know commodities or whatever the banks decides money's good so essentially cause banks create all the entire money supply they're dictating policy it's not government deciding where money goes this banks deciding where money goes by issuing loans and if you're creditworthy then you can get access to that money now that doesn't matter if you're tearing out the world's resources or creating weapons of mass destruction just as long as you're able to repay it really so that's why we've got ruled by banks essentially at the moment and the other source of big money is us all contributing to our pension some people don't even know that they're doing that they just pay their pension they think it's just sat in this thing and it will come back to one in a few years but essentially it's driving a lot of the wealth for the investment institution to buy the products that the investment banks create and then the investment banks create them by leveraging ordinary people's money and corporate money okay and you also have these things called hedge fund so I talked about the structured products where people cut bundle up mortgages and all sorts of stuff there's something else an investment bank does which is there's another division I'll pull these out they create these products called derivatives essentially a good example of the derivatives that we can all understand is like a mortgage it allows you to bike get access to a house without having all the money okay but if the property market crashes you end up in a situation where you may not be able to sell the house and if you can't service the mortgage then the bank will take it back off you so it's not really your asset it's just giving you access to it and essentially that's what derivatives see they're like mortgages for stocks and shares and they allow you to get access to invest in the markets without having all the money now the thing of if you invest without having all the money is if you make money you make money a lot quicker so imagine if you only had ten grand for a property and you bought a hundred grand property you didn't have a hundred grand and you invested ten grand the mortgage and in the price of that property went up a hunt to a hundred and ten grand so the price of the property went out ten percent you with me it was a hundred grand and it was one hundred and ten the price of the property were not ten percent now if you had a hundred and ten grand and you bought that house outright you would have made ten percent return on your money if you sold the house it makes sense okay now if you bought it on a mortgage you had ten grand and then you sold it for a hundred and ten gave the bank back their hundred minus the interest in commissions and you made you made a hundred percent return on your money equally if it goes down you lose 100 percent and if it goes down further which is many people's situation right now you're in a negative equity where you you either default on the loan now what happens when you default on the loan money disappears from the economy the bank has a write down and that's what the subprime mortgage which triggered all this essentially off because people but why and why did they actually take out the mortgage in the first place because the government wanted more growth in the economy and how do you grow an economy when money is debt there's only one way of creating more growth take on more debt so there's been this Ponzi scheme joint venture partnership between the government and the banks for years essentially and that's what Fannie Mae and Freddie Mac were institutions designed to you know stimulate property and we've all tried you know we've created the illusion of wealth essentially when all we don't know is speculation that's what we've done so derivatives now what hedge funds do is they take money and they are unregulated investment institutions regulated investment institutions aren't allowed to take much risk with their money because the FSA doesn't let them in the case of the UK unregulated financial institutions the reason at our unregulated is because they're only allowed to take money from high net-worth that are fully aware and the FSA says you're happy to take the risk essentially in order to get into a hedge fund typically it used to be you'd have to have a million of a minimum of a million pound investment but what's happened now is a load of boutiques to come out of the financial crisis and you can invest for a hundred grand and then sometimes less so the you know the the gray area of is they sophisticated on they sophisticated but what hedge funds do is they they take a million pounds of people's money leverage it up to a billion and then invest it essentially so you can make a lot or you can lose a lot okay in fact it's not necessarily the case because hedge funds also adopt strategies where whether the market goes up or down you don't necessarily lose money so they can be less risky than a traditional pension in fact many hedge funds are producing much better returns than a traditional pension right now so it's not necessarily that they take more risk but there is inherent risk in the products that they're actually taking on you get this little cross over here between investment institutions and investment banks let me tell you why so hedge funds they're one of the most lucrative and profitable financial institutions out there because essentially they can make millions if not billions from only a few staff because most of their capital is the fund manager this brain or a computer system which trades for them that's most of their capital in order to actually run that computer system it just takes a couple of grads and six fund managers or so so essentially an investment bank has to employ it so JPMorgan employs two hundred and fifty thousand people in order to run that operation but hedge fund can do that you know run it for six and the margin that they can make on the business is a lot harder I'm higher sorry so what what investment banks realized is that tons of investment bankers were quitting their jobs and starting up their own little boutique hedge funds and they were thinking well how can we capitalize on this because we're losing tons of our staff to these boutique hedge funds and round about you know in throughout the 2000s we had thousands of hedge funds being created because they realized you know I want to work that many hours as I have to work in an investment bank and so what they did is the investment bank said I tell you what cuz you're a hedge fund why don't you just focus on trading strategies and what we'll do is we'll get you access to the capital we'll get you with HR Stoff we'll find you all the back sourced operations everything that we've invested millions billions in in the bank and you can borrow it and just pay us a fixed fee each month so what Prime broking is is it's an outsourced back-office and you know it's an outsourced service for hedge funds to gain access to a lot of the resources so if anyone wants to work in Prime Bo King your job is Sarno fund managers that's it okay so that you can sell the monthly service for leveraging basically the assets that the investment bank has and so that they can run as a small operation and finally we've got the last two things broking and research so what is a research analyst and now there's two different things if you're a research analyst for this company then your job is to report buy and sell recommendations now if you look at the research analyst industry it is 80% biased towards buy recommendations as in only 20% of research analyst recommendations say you should sell this stock 80% bias do you think that the 80% of all the stocks right now should be bought so why do research analysts have an 80% bias towards buy where do they work what's this called the sell side what the sell side do sell so if you can put in a newspaper buy buy buy what happens to yourselves and if you can put a credibility piece on them and say they're a cfa they're very credible but if you say sell on that you're not allowed to say it you'll have to say week buy or something like that you know or yeah yeah so the research analysts that work for the sell side assent chillie their job is to work with the investment bankers in order to sell more stocks okay and they have to go around to all the investment corporate finance meetings and meet the CEOs and making some analysis that allows make some very attractive graphs so that they can then sell those products to the investors okay the brokers what they do is they they they take all money yeah so small money essentially we're just dropping it no matter how rich you are we're drop in the pool you know compared to this kind of money so if you've got a grand or ten grand and you want to invest in stocks you have to go through a broker a broker will then have the relationship with the investment bank and it pulls together all the small retail money so my business angel benedict's his gentlemen computer hargreaves he owns a wealth management company but he also has a retail brokerage so he takes care of high net worth people and accountants lawyers and anyone that wants to invest in the the financial markets so and also a lot of the investment banks what they did during the Thatcherite reforms and the the the breakdown of glass-steagall act as they bought tons of the brokers so all of the sm ll and medium-sized companies consolidated into the universal banks where you have these mega banks that do everything they create money they leverage money five great products to sell and they also have the companies that buy it and they put them all together in this massive conflict of interest called banking okay custody not worth going through essentially you'll see you'll see companies like the like Bank of New York Mellon they basically provide the back office for investment banks that don't have a lot of the resources in this category I put companies like credit rating agencies like Fitch as well they provide services where they rate products that allows investment banks to sell more products and then when they go wrong they downgrade them rather than rating and badly in the first place because they earn a commission from the investment bank how about painted a rosy picture of banking and finance okay well these are all the things these are all the challenges but here's the thing banking of Finance we cannot without it without it our economy would be you know in this crate well we'd be in a diocese actually that's not the truth in this an interesting debate because now we have all the technology in the world to live without banks but the only reason we got banks is because we need to create money because 97% of what he's created you know we've got systems where you can put together borrowers and lenders without a bank we've got systems where people can exchange ideas without a bank we've got systems which you know remember before banks before money we used our barter and bought is where you'd exchange a goat for a sheep and you have to find someone that can work pretty well with Facebook now con it everybody so I hope you enjoyed that just a quick message at the end I'm really trying to build up my subscriber base on Simon Dickson my YouTube channel now so if you enjoyed this please do head over to simon didson on youtube and subscribe to the YouTube channel if you hit the bell symbol it will give you notifications and my goal is really to build up all of the knowledge and give live commentary live as this financial crisis unfolded so that you can make better decisions and be more educated in terms of what comes next and be more prepared so if you enjoyed this video please do head over there and subscribe and I'll keep giving you content on as the financial crisis unfolds and what comes next and Bitcoin and everything else that you need to know in order to stay up-to-date with the financial system please do like share retweet and help me get this in the YouTube algorithm so that I can have more people that actually get this message and get the type of education I think people are going to need to get through the upcoming financial 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