[Markos101]

I'll also point out two other interesting points:

(i) My own local business banker was not aware of fractional reserve banking. It was omitted from her corporate training programme.

and most importantly

(ii) The old adage of winning in capitalism is OPM-OPT, that is use 'Other People's Money' and 'Other People's Time' to make yourself rich. Banking is the perfect instrument of pure capitalism - that is, it uses other people's money (your savings) to make money using other people's time (other people work and create the value to pay back the 'money').

Banking is therefore, in my argument, not only a scam, but a supreme instrument of capitalist exploitation. They neither produce anything, or create any wealth and yet produce tremendous profits.

Mark

[CrudeAwakening]

$this->bbcode_second_pass_quote('nero', 'A')lot of people seem to think that a bank can lend more money than they have in deposits or capital. If you are one of those people this post is for you:

No they can't. A commercial bank has to get the money it lends out from somewhere. In the US the law is that the bank has to hold on to 10% of their chequing account deposits.

So it works this way:

Bob deposits $1000 in bank A.
bank A lends $900 to Dick.
Dick deposits $900 in bank B.
bank B lend $810 to Harry.
Harry deposits $810 in bank C.
bank C lends out (0.9 *810)....

In the end, the total deposits in all banks is $10,000.
But no single bank ever lent more than they had in deposits.

[Markos101]

Let's also put this in better financial perspective. The following are assets:

(i) Bank Loans
(ii) Shareholdings in corporate entities
(iii) Skills

Out of all three, (i) is the only asset that may be created out of nothing. It requires both (ii) and (iii) to be an asset for the bank. Bank loans make money out of OPT and OPM. Owners concentrate on (ii) and make money out of OPT. Workers concentrate on (iii) and don't make money out of either OPT or OPM.

Therefore (iii) is the hardest asset to use for income, and yet is the one most focussed on in our western education systems.

Mark

[MacG]

This hangup on "10% reserves" is really old. The truth is that in the US it is only applied to checking accounts, and there is a plethora of other accounts around without any reserve requirement at all. The same for the rest of the world. One of my favourite writers, Richard Daughty (yes, he is a bit outrageous) dug up some figures indicating that the reserve level was closer to 0.3% than 10% in the US banking system today.

The "10%" can be deduced from a subset of the old Basel agreement, but Basel covered many more bases. Now there is Basel II which deal in immense detail with "risk assesment" and throw the old fixed numbers out the window in favour of some immensely complex stuff.

Forget the "10%". It is not part of reality today.

[MacG]

- screwup doublepost

[I_Like_Plants]

Falser, true'r words were never spoken!

[Free]

$this->bbcode_second_pass_quote('aahala', 'T')o those of you who don't think banks should charge interest:

Have any of you had a savings account and returned the interest
to the bank?

[nero]

$this->bbcode_second_pass_quote('crudeawakening', 'A')h, yes, but this is legerdemain. When bank A lends $900 to Dick, it doesn't debit Bob's account by $900. The point being that, once Dick deposits in bank B, $900 of new money has been created (total chequing deposits have increased by $900). I guess you can argue over whether the point of money creation is when Bank A loaned to Dick, or when Dick deposited with Bank B, but the net result is the same.

[MrBean]

$this->bbcode_second_pass_quote('aahala', 'T')o those of you who don't think banks should charge interest:

Have any of you had a savings account and returned the interest
to the bank?

[I_Like_Plants]

Buddhists I've hung out with do lend each other money, standard interest if they charge it being 10%. Compare and contrast the US system where money can be lent for as much as 30% and even higher, soak the goyim.

[jaws]

$this->bbcode_second_pass_quote('Markos101', '(')ii) The old adage of winning in capitalism is OPM-OPT, that is use 'Other People's Money' and 'Other People's Time' to make yourself rich. Banking is the perfect instrument of pure capitalism - that is, it uses other people's money (your savings) to make money using other people's time (other people work and create the value to pay back the 'money').

Banking is therefore, in my argument, not only a scam, but a supreme instrument of capitalist exploitation. They neither produce anything, or create any wealth and yet produce tremendous profits.

Mark

[Markos101]

$this->bbcode_second_pass_quote('jaws', '')$this->bbcode_second_pass_quote('Markos101', '(')ii) The old adage of winning in capitalism is OPM-OPT, that is use 'Other People's Money' and 'Other People's Time' to make yourself rich. Banking is the perfect instrument of pure capitalism - that is, it uses other people's money (your savings) to make money using other people's time (other people work and create the value to pay back the 'money').

Banking is therefore, in my argument, not only a scam, but a supreme instrument of capitalist exploitation. They neither produce anything, or create any wealth and yet produce tremendous profits.

Mark

[jaws]

$this->bbcode_second_pass_quote('Markos101', 'N')ope, loans are not given at 'market-competative rates'. They are kept artificially low by the central bank in order to encourage borrowing rather than using private capital for investment. In this way, the banks can further retain power over the money supply. At least, that is the way some researchers see it.

[nero]

Wow, Way to throw down the gauntlet Jaws!

I agree of course, but my Mom had a saying:

"A man convinced against his will is of the same opinion still."

[newellm]

1. You guys are completely wrong with your reserve requirement math.

If a bank has reserves of $1000(checking deposit) and a reserve requirement of 10%, then the bank is allowed to loan not $900 dollars, but $10,000.

Why.

Because the amount of deposits required is the reserve requirement multiplied by the liabilities. 10,000 * 0.1 = 1,000

2. Reserve requirements are not 10%. According to federalreserve.gov,
the reserve requirements are dependant on the individual institution's "Net transaction accounts". If they are under 7 million, the reserve requirement is 0. If they are between 7 and 47.6 million, then the reserve requirement is 3%, any higher than that is 10%. Time deposits have no reserve requirement.

3. Reserves are a joke. Why? Because a reserve is simply a deposit of money that was created out of thin air at another institution. Fannie Mae and Freddie Mac for example create the money for mortgages, then package the debt as mortgage backed securities. When another institution buys those securities, they are now considered an asset, and further loans can be made against them.

4. The Fed has no reserve requirement. Each and every time they loan money it is created out of thin air, and private investors earn the interest(indirectly through the member banks shareholders). These private investors are getting hundreds of billions of dollars for doing nothing. It is unconstitutional, immoral, and down right disgusting.

I could go on and on, but i'm hungry.

Matt

P.S.
The bank with that deposit of $1000 has loaned out $10000 at 10% interest(historically not a high interest rate). The bank is now profitting $1000 per year from that $1000 dollar deposit, for doing virtually no work(except for employing some pencil pushing monkeys). The guy who deposited the $1000 dollars gets maybe $50, or 50/1000 = 5% of the banks profits.

[nero]

newllm,

By your logic there should be an infinite amount of money in circulation. Everytime someone takes out a loan they put that money into a bank somewhere else, thus increasing the deposits in that bank.

Bob deposits $1000 in bank A
bank A loans Harry $10,000
Harry deposits $10,000 in bankB
bank B loans Dick $100,000
Dick deposits $100,000 in bank C
bank C loans out $1,000,000 to Tom...

It quickly blows up to infinityand money would be essentially valueless.

[Markos101]

$this->bbcode_second_pass_quote('jaws', '')$this->bbcode_second_pass_quote('Markos101', 'N')ope, loans are not given at 'market-competative rates'. They are kept artificially low by the central bank in order to encourage borrowing rather than using private capital for investment. In this way, the banks can further retain power over the money supply. At least, that is the way some researchers see it.

[nero]

$this->bbcode_second_pass_quote('Mark', 'Y')es but the 'market rate' is simply relative to the central bank rate, it is not determined completely by the demand and supply of new money.

[Markos101]

Yes, but they can also control the amunt of money in supply too. They can do this via a number of mechanisms - go to http://www.propagandamatrix.com and check out the documentary of I think it was called the 'Lyndon Institute' or something similar.

Mark

[jaws]

$this->bbcode_second_pass_quote('Markos101', '
')Yes but the 'market rate' is simply relative to the central bank rate, it is not determined completely by the demand and supply of new money.

Mark