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Is fractional reserve lending ridiculous?

By Blurtman   2015 Mar 30, 7:46pm   ↑ like (3)   ↓ dislike   1 link   31,068 views   103 comments   watch (1)   quote     share

You have $2,000 in your checking account, you write a check for $20,000, you re in big trouble.

The Bank of America writes a check that it can only back with 10% of the check's amount, and no problema.

Should criminal organizations be able to create money?

Is fractional reserve lending a negative contributor to economic stability?

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64   Lashkar_i_Trumpi   868/868 = 100% civil   private mesage   2015 Mar 31, 12:05pm  ↑ like   ↓ dislike   quote   share  

tatupu70 says

This I agree with--there is very little that finance produces. Why not have a national bank?

Yup, like the State Bank of (North?) Dakota. Great idea, no reason to pay a premium when you can have your own institution at cost. Oh how the Investment Banks in particular will fight that trend. Socialist Ownership of Banks!!! Obamacommie!!!

65   tr6   46/46 = 100% civil   private mesage   2015 Mar 31, 12:08pm  ↑ like   ↓ dislike   quote   share  

tatupu70 says

With peer to peer, it's much more difficult to mitigate that risk.

Agree. Doing peer to peer is much harder than it seems. I bet right now the risk is way underestimated.

66   tr6   46/46 = 100% civil   private mesage   2015 Mar 31, 12:09pm  ↑ like (1)   ↓ dislike   quote   share  

thunderlips11 says

Yup, like the State Bank of (North?) Dakota

The only issue is put limits and transparency on how much people could borrow. With student loans they took the banks of out it but left the greedy colleges in it. The entire system needs to be transparent.

67   Blurtman   329/329 = 100% civil   private mesage   2015 Mar 31, 12:09pm  ↑ like   ↓ dislike   quote   share  

tatupu70 says

You're not following. Add up the actual money left at the end. It's most definitely NOT $18,000.

Sure, there is a limit to fractional reserve lending. But I did a quick series on my trusty Excel spreadsheet, and I stopped at $1, and around $18,000 is created from the original $2,000. You can also use these formulas if you'd like: http://en.wikipedia.org/wiki/Fractional-reserve_banking

Or:

http://en.wikipedia.org/wiki/Fractional-reserve_banking#/media/File:Fractional-reserve_banking_with_varying_reserve_requirements.gif

68   errc   341/348 = 97% civil   private mesage   2015 Mar 31, 12:15pm  ↑ like   ↓ dislike (1)   quote   share  

I agree too--the only hardship will be quantifying the risk. Banks can make lots of loans thereby spreading out the risk over those many, many transactions. Default %s can be calculated/estimated over the pool and risk (hopefully) understood.

With peer to peer, it's much more difficult to mitigate that risk.

Everything is relative

Peer to peer lending already exists, and allows me to loan out my potential $2000 bank deposit as one hundred different $20 loans, if one feels safer spreading it around more.

Furthermore, we already have a system in place that determines creditworthiness, your FICO score. People with shitty credit scores, are supposedly a greater danger to default, so they pay a premium because the lender is supposedly taking more risk.

Quantifying the risk puts the ism in capitalism. It's the crux of what we're supposedly doing here. There should certainly be a risk of total loss, and quantifying said risk is what allows a capitalist to call themselves a capitalist, and earn their interest by loaning out their capital.

Claiming that the hardship that impedes us from ditching banks, for online lending exchanges, is quantifying risk, blows up in the face of reality. Banks, with all their expertise in quantifying risk, all their layers of insurances and hedges, and their government assistance and backing, still blew up to high hell and only government bailout could save them. Here today, they're running the same scam with the same wordless credit rating agencies that improperly quantified the risks in the first place.

Relatively speaking, replacing their model with something new and better doesn't sound like such a hardship

69   errc   341/348 = 97% civil   private mesage   2015 Mar 31, 12:20pm  ↑ like   ↓ dislike   quote   share  

Agree. Doing peer to peer is much harder than it seems. I bet right now the risk is way underestimated.

Relative to what we just lived through this past decade?

Remember indymac?

It's the sissification of America, nobody wants to be a capitalist anymore

70   HEY YOU   387/387 = 100% civil   private mesage   2015 Mar 31, 12:50pm  ↑ like   ↓ dislike   quote   share  

There's nothing better than illusional money.

71   marcus   436/437 = 99% civil   private mesage   2015 Mar 31, 2:53pm  ↑ like   ↓ dislike (1)   quote   share  

Blurtman says

Is fractional reserve lending ridiculous?

No.

Certainly it's way less risky than trading conservative securities, real estate or commodities with 90% leverage. The risk is that there is some kind of crazy event, where everyone is simultaneously defaulting on their loans. Even then though, most loans are secured with assets,

I do have to acknowledge though, that banking does seem like a pretty awesome business.

72   Bellingham Bill   47/47 = 100% civil   private mesage   2015 Mar 31, 3:21pm  ↑ like (1)   ↓ dislike (1)   quote   share  

marcus says

banking does seem like a pretty awesome business

Why screw around trying to create actual wealth for trade when you can just focus on working and controlling the monetary mechanisms of commerce instead.

Money is power, even in a democracy. Actually especially in a democracy, given how bone-stupid half or more of the electorate really is.

73   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 4:24pm  ↑ like   ↓ dislike (1)   quote   share  

control point says

indigenous says

Because it gives an unfair advantage to investors, and the corollary to wage slaves.

Also the debt is eroded in this manner, since TARP a trillion dollars has been taken away from the 4 trillion in Fed spending during that time just by inflation.

The exact oppposite of the first statement is the truth, and the evidence is the second statement.

Say what, nope once again you is wrong

74   Robert Sproul   17/17 = 100% civil   private mesage   2015 Mar 31, 5:16pm  ↑ like (1)   ↓ dislike   quote   share  

HydroCabron says

When I deposit $2K, it's still my money

When you deposit money in a bank you surrender legal title to it. It becomes an asset of the bank.
What you own now is an IOU from the bank.
But don't worry, FDIC's Deposit Insurance Fund will return to the statutory minimum level required of them (maybe) in 2017.

75   mell   62/62 = 100% civil   private mesage   2015 Mar 31, 6:14pm  ↑ like   ↓ dislike   quote   share  

thunderlips11 says

tatupu70 says

This I agree with--there is very little that finance produces. Why not have a national bank?

Yup, like the State Bank of (North?) Dakota. Great idea, no reason to pay a premium when you can have your own institution at cost. Oh how the Investment Banks in particular will fight that trend. Socialist Ownership of Banks!!! Obamacommie!!!

There's nothing wrong with private banks as long as you let them fail and don't bail them out. They are essentially government (sponsored) entities at this point, that doesn't mean though they are owned by the people. State banks or even smaller community banks are great and aren't mutually exclusive wrt fully private banks.

76   mell   62/62 = 100% civil   private mesage   2015 Mar 31, 6:16pm  ↑ like (1)   ↓ dislike   quote   share  

Oh and fractional reserve lending = printing/creating money (by it's very definition), there's no need to dispute mathematical facts. Math just is.

77   tatupu70     private mesage   2015 Mar 31, 6:22pm  ↑ like   ↓ dislike   quote   share  

mell says

Oh and fractional reserve lending = printing/creating money (by it's very definition), there's no need to dispute mathematical facts. Math just is.

OK boss. Whatever you say.

mell says

There's nothing wrong with private banks as long as you let them fail and don't bail them out. They are essentially government (sponsored) entities at this point, that doesn't mean though they are owned by the people. State banks or even smaller community banks are great and aren't mutually exclusive wrt fully private banks.

Yes, actually there is. The finance industry adds almost nothing of value to society-their profits are skimmed from productive members of society. It has absolutely nothing to do with bailouts.

78   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 6:37pm  ↑ like (1)   ↓ dislike (2)   quote   share  

tatupu70 says

The finance industry adds almost nothing of value to society-their profits are skimmed from productive members of society.

Sure it does, they loans money to small business, home mortgages, et.al, it literally helps to create jobs and the economy.

The only problem is when they get bailed out.

79   Blurtman   329/329 = 100% civil   private mesage   2015 Mar 31, 6:38pm  ↑ like (1)   ↓ dislike   quote   share  

marcus says

Even then though, most loans are secured with assets,

Yes, certainly. (wink, wink). Of the very highest quality. (wink, wink). Rated by Moody's. (wink, wink). It's all about trust, isn't it? (wink, wink).

80   mell   62/62 = 100% civil   private mesage   2015 Mar 31, 6:41pm  ↑ like (5)   ↓ dislike   quote   share  

tatupu70 says

mell says

There's nothing wrong with private banks as long as you let them fail and don't bail them out. They are essentially government (sponsored) entities at this point, that doesn't mean though they are owned by the people. State banks or even smaller community banks are great and aren't mutually exclusive wrt fully private banks.

Yes, actually there is. The finance industry adds almost nothing of value to society-their profits are skimmed from productive members of society. It has absolutely nothing to do with bailouts.

It has everything to do with bailouts because without them the banks actually would have to be productive and make money to stay in business and be productive members of society instead of being parasitical and not care who they loan to. If 2008 would have played out according to the rule of law, the "parasites" would have been replaced by smarter players with more integrity and quite a few of them would be sitting in jail.

81   tatupu70     private mesage   2015 Mar 31, 6:49pm  ↑ like   ↓ dislike   quote   share  

indigenous says

Sure it does, they loans money to small business, home mortgages, et.al, it literally helps to create jobs and the economy.

The only problem is when they get bailed out.

What percentage of time/assets do you think a bank spends giving loans to small businesses?? I'm fairly certain that we could find a way to finance them without banks.

82   tatupu70     private mesage   2015 Mar 31, 6:55pm  ↑ like   ↓ dislike   quote   share  

mell says

It has everything to do with bailouts because without them the banks actually would have to be productive and make money to stay in business and be productive members of society instead of being parasitical and not care who they loan to. If 2008 would have played out according to the rule of law, the "parasites" would have been replaced by smarter players with more integrity and quite a few of them would be sitting in jail.

That is so idiotic I don't even know where to begin. First off, as I've explained a million times, the bailouts were not moral hazard. You're telling me the bank owners decided to make risky loans that they knew wouldn't be paid back because they'd only lose 95% of their money rather than 100%, and be allowed to take LOANS to stay in business? That's your theory?? And did Lehman and IndyMac not get the message?

Second--it has nothing to do with the fact that the finance industry in general adds almost no value to society. With or without bailouts. At their best, they're middlemen in a society that no longer needs them. At worst, they are fraudsters that scheme to rob the working man at every opportunity.

83   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 7:05pm  ↑ like   ↓ dislike   quote   share  

tatupu70 says

What percentage of time/assets do you think a bank spends giving loans to small businesses?? I'm fairly certain that we could find a way to finance them without banks.

Depends, if it is a small local bank, I would say most of their time as that is their stock in trade.

One of the big 5 are different as they make money off of excess reserve funds, buy backs, and even got their bad paper bought at market price, and the investment banks made money off of derivatives and were bailed out when AIG got caught with their pants down.

Two different animals. Not to mention that the big banks are more about cronyism through their M&A activities than the local banks.

84   mell   62/62 = 100% civil   private mesage   2015 Mar 31, 7:09pm  ↑ like (3)   ↓ dislike   quote   share  

tatupu70 says

That is so idiotic I don't even know where to begin. First off, as I've explained a million times, the bailouts were not moral hazard. You're telling me the bank owners decided to make risky loans that they knew wouldn't be paid back because they'd only lose 95% of their money rather than 100%, and be allowed to take LOANS to stay in business? That's your theory?? And did Lehman and IndyMac not get the message?

Yes, they decided to make risky loans and not care because they are not compensated for the duration of those loans but rewarded right away. That is a flaw in their business model though and guarantees them not surviving the next financial crisis, so it's a non-issue if it weren't for the bail-outs. Some of them went farther though and peddled loans they knew weren't just risky but actually shit and that is clear cut fraud, yet nobody went to jail. Bailouts + no jail time whatsoever = continued moral hazard. Once the Fed and the government would give up the fraudulent support for the TBTF banks and the housing sector. you would suddenly see bankers being rewarded in trenches for performing loans being paid back on time and you'd see real estate agents being paid in trenches for performing mortgages or by the hour instead of ahead of time. It's a standard reward practice in most non-crony sectors to wait a certain amount of time to gauge the stability of the financial transaction before rewarding any facilitators.

85   Blurtman   329/329 = 100% civil   private mesage   2015 Mar 31, 7:26pm  ↑ like (5)   ↓ dislike   quote   share  

Goldman Sachs, under the reign of Hank Paulson, built homes that were guaranteed to catch fire and burn down. They sold these homes as being the safest on earth, making tons of money. And knowing that the homes would ultimately burn down, they took out insurance on the homes which they no longer owned at that point, and made even more money when the homes did burn down. And when the insurer went bust, Treasury Secretary Hank had the taxpayers bail out the insurer. And former Treasury Secretary Robert Rubin was informed of the massive fraud that Citi was conducting by Richard Bowen, chief underwriter at Citi, and Rubin did nothing. The whole system is riddled with criminals who are above the law, and who run the government, which is why we must kill the bankers.

86   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 7:31pm  ↑ like   ↓ dislike   quote   share  

Blurtman says

they took out insurance on the homes which they no longer owned at that point, and made even more money when the homes did burn down.

Link?

That is highly criminal.

87   Blurtman   329/329 = 100% civil   private mesage   2015 Mar 31, 7:35pm  ↑ like   ↓ dislike   quote   share  

88   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 7:52pm  ↑ like   ↓ dislike   quote   share  

Blurtman says

See AIG bailouts and Godman Sachs CDS.

Nothing that article about houses burning down?

AIG was not insuring the houses, it had CDSs which are a form of insurance on options, not houses.

89   Blurtman   329/329 = 100% civil   private mesage   2015 Mar 31, 7:54pm  ↑ like   ↓ dislike   quote   share  

indigenous says

Nothing that article about houses burning down?

AIG was not insuring the houses, it had CDSs which are a form of insurance on options, not houses.

Yes, or course. So you find the house business model to be criminal.

Why not the creation of securities known to be toxic and destined to fail?

90   errc   341/348 = 97% civil   private mesage   2015 Mar 31, 7:56pm  ↑ like (2)   ↓ dislike   quote   share  

Indigenous said

Nothing that article about houses burning down?

AIG was not insuring the houses, it had CDSs which are a form of insurance on options, not houses.

It was an analogy you simple Simon mother fucker

91   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 7:59pm  ↑ like (1)   ↓ dislike   quote   share  

Blurtman says

Why not the creation of securities known to be toxic and destined to fail?

Certainly, I would hang Paulson and Geithner at the same time.

92   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 8:01pm  ↑ like   ↓ dislike   quote   share  

errc says

ndigenous said

Nothing that article about houses burning down?

AIG was not insuring the houses, it had CDSs which are a form of insurance on options, not houses.

It was an analogy you simple Simon mother fucker

Yes I said that already, oh I missed the analogy, especially with you and the other mutts, gawd knows what you will conflate with what

93   errc   341/348 = 97% civil   private mesage   2015 Mar 31, 8:13pm  ↑ like (1)   ↓ dislike   quote   share  

You said what already?

Are you so effin stupid that you didn't realize that I was quoting you?

Did you think you were talking to yourself to tell yourself that you said that already?

I mean, the guy made the most obvious of analogies, in an attempt to dumb it down to a level that even a retarded twat like yourself might understand, and you asked for a link?

What the bloody hell is wrong with you?

94   Ironman   1673/1732 = 96% civil   private mesage   2015 Mar 31, 8:16pm  ↑ like (1)   ↓ dislike (4)   quote   share  

errc says

Are you so effin stupid that you didn't realize that I was quoting you?

Why don't you learn to use the "Quote" function like a big boy... It would go a long way in helping us decipher your stoner posts.

95   errc   341/348 = 97% civil   private mesage   2015 Mar 31, 8:37pm  ↑ like (2)   ↓ dislike (1)   quote   share  

Why don't you learn to use the "Quote" function like a big boy... It would go a long way in helping us decipher your stoner posts.

You mean to tell me that there's more than one of you working together, and you still couldn't figure it out?

The post began with "indigenous said", followed by a bunch of stupid words he had just posted. You can't be this stupid, can you?

96   indigenous   248/248 = 100% civil   private mesage   2015 Mar 31, 9:25pm  ↑ like (1)   ↓ dislike (1)   quote   share  

errc says

The post began with "indigenous said", followed by a bunch of stupid words he had just posted. You can't be this stupid, can you?

so at what point do you do the usual fuck you I'm irate type deal, like all pot heads?

97   tatupu70     private mesage   2015 Apr 1, 5:25am  ↑ like (1)   ↓ dislike   quote   share  

mell says

Yes, they decided to make risky loans and not care because they are not compensated for the duration of those loans but rewarded right away

Yes, of course. That is obvious.

mell says

That is a flaw in their business model though and guarantees them not surviving the next financial crisis, so it's a non-issue if it weren't for the bail-outs.

Uh, it's still an issue. They drove the economy into the worst recession/depression since the 1930s and you don't think that's a problem?? Your theory is that because they only lost 99% of their money rather than 100% that they'll be anxious to do it again?

mell says

Bailouts + no jail time whatsoever = continued moral hazard.

Who gets up and says I'd like to lose 99% of my money. Let's do that shit again?

98   Bellingham Bill   47/47 = 100% civil   private mesage   2015 Apr 1, 8:51am  ↑ like (2)   ↓ dislike   quote   share  

tatupu70 says

Your theory is that because they only lost 99% of their money rather than 100% that they'll be anxious to do it again?

We've got control fraud here, though. Shareholders and bond investors lost money but the corporate insiders making all the criminal decisions skated away with their salary, bonuses, and industry connections intact. Plus so many of them made 'fuck you' money in that they never have to work again anyway.

Nobody really understands the depth of systemic criminality that went on. We got a few perp walks, but no zealous prosecution out of Holder and his predecessor.

But cleaning up an entire industry is not something that just the President can do, since the private sector loves protecting its own, no matter how corrupt.

This really is a nation of children in so many ways.

99   tatupu70     private mesage   2015 Apr 1, 3:57pm  ↑ like   ↓ dislike   quote   share  

Bellingham Bill says

We've got control fraud here, though. Shareholders and bond investors lost money but the corporate insiders making all the criminal decisions skated away with their salary, bonuses, and industry connections intact. Plus so many of them made 'fuck you' money in that they never have to work again anyway.

Nobody really understands the depth of systemic criminality that went on. We got a few perp walks, but no zealous prosecution out of Holder and his predecessor.

I agree 100%. Where are the shareholders in all this? How did they not want the responsible parties head on a platter?? I'm all for criminal actions, if possible, but even if no case can be made, I don't understand how the folks responsible for losing millions (billions?) of shareholder dollars aren't held accountable.

To me that is a big lesson from this whole debacle. BODs are a sham.

100   mell   62/62 = 100% civil   private mesage   2015 Apr 1, 8:50pm  ↑ like (2)   ↓ dislike   quote   share  

tatupu70 says

Your theory is that because they only lost 99% of their money rather than 100% that they'll be anxious to do it again?

You bet. Why risk million dollar bonuses or even your job by going against the grain and be the voice of reason?

tatupu70 says

I agree 100%. Where are the shareholders in all this?

They are all happy because the got bailed out too. Then you have the additional bottom investors driving this higher on continued Fed support. They take a Fed led taxpayer bailout anytime over BK proceedings.

101   HEY YOU   387/387 = 100% civil   private mesage   2015 Apr 1, 11:45pm  ↑ like (1)   ↓ dislike   quote   share  

I've had anough of missplling. It's "fictional" reserve lending.

102   tatupu70     private mesage   2015 Apr 2, 4:29am  ↑ like   ↓ dislike   quote   share  

mell says

You bet. Why risk million dollar bonuses or even your job by going against the grain and be the voice of reason?

Because the reward structure won't value this type of behavior?

mell says

They are all happy because the got bailed out too

Can you show me these people that enjoy losing money?

103   indigenous   248/248 = 100% civil   private mesage   2015 Apr 2, 8:16am  ↑ like   ↓ dislike   quote   share  

Here ya go:

You didn't say their own money...

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