Quote from: megges on March 12, 2014, 08:36:42 AM

An example that i remember from school was:
"If you go to a bank to get a loan of 500 000 to buy an house, the bank did not to have these 500 000. Its enough that the bank got the house as leverege, so the bank can create the money for the leverge as called "bank money"."

Wow. You're so wrong.

If you go to a bank to get a loan of 500 000 to buy a house, the bank needs to give 500 000 of REAL MONEY to whomever you are buying the house from. I'll try to simplify this. The bank gets this from deposits at the bank. Say 10 people come in and deposit 100 000 each. The bank has 1 000 000. The bank gives the seller of the house 500 000, in exchange for the buyer to pay the bank back over 30 years. The bank owns 500 000 in cash and a 500 000 asset. So, if all 10 people who deposited 100 000 come back for their money, they can't get it - the bank only has half that - 50 000 for each person. This is where people say a bank doesn't hold all the money people deposit, so if there is a run on the bank, they can't pay out immediately.

The banks determine how much cash they need on hand so that normal deposits / withdrawals can take place. This might be as low as 1% - they only need $10 000 on hand. So they use the other $490 000 to invest in stocks/bonds, etc. When the bank is TOO risky with it's investments, it loses the capital (part of the $990 000 it invested / lent out), then it CAN'T pay back depositors immediately (and if they ask for all their money back, the bank becomes insolvent).

But the bank doesn't just create 'bank money' out of thin air. The government creates money out of thin air (by selling bonds) but not banks. The bank might say '$1 000 000 in deposits' but actually only have $10 000 in their cash ledger. But adding up all the other assets / investments, the bank should have MORE than $1 000 000, which is where they generate their profits.

Banks which 'cheat' have their CEOs and upper management steal/take/embezzel money from the original $1 000 000, similar to what Mt. Gox might have done.