Quote from: twiifm on March 27, 2014, 04:37:45 AM

Quote from: jbreher on March 27, 2014, 03:51:17 AM

Quote from: twiifm on March 27, 2014, 03:34:09 AM

Quote from: jbreher on March 27, 2014, 03:14:47 AM

Quote from: twiifm on March 26, 2014, 09:37:38 PM

You think it's so easy to be a bank? Try lending money some time. Its pretty risky if the borrower doesn't pay you back.

You realize, of course, that under partial reserve banking, the vast majority of the money that banks lend does not even exist until the the very act of making the loan zaps it into existence, right? How hard can it be to stay in business collecting interest on making loans of made up money?

I know how banking works. Don't try to school me about banking.

I didn't challenge your knowledge of banking.

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You should learn though. [...blah blah federal reserve...]

Irrelevant to the topic at hand -- your claim was not about the central bank, it was about _a_ bank.

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Lending money is risky. If the loan defaults you are left w illiquid collateral.

Sure its risky. If lendee defaults in the first year, a bank might not break even on the 10% of the loan that was actually the bank's money. Boo fucking Hoo.

Of course, if lendee defaults later, bank is made whole on its _actual_ investment. Plus it gets to repossess what ever collateral secured the loan. May not be liquid, but the bank nets out positive. If the loan goes to term, the bank gets the 90% of the principal that was made up on the spot, plus all the interest - and all that money reflects the theft of wealth -- in the form of stolen purchasing power --- from each and every person who held dollars at the instant that 90% of the loan principal was zapped into existence.

The industry employs a funny definition of 'risk'.

Banks don't create money,

Well, that's a rather unconventional view, but I'm willing to explore the possibility. Let's run it up the flagpole, and see if it sticks.

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Central Banks do.

Again, this is not the question that is on the table.

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Theres nothing wrong w creating money through balance sheet expansion.

This is a highly debatable assertion. Your balance sheet expansion results the the transfer of wealth from .. pretty much everybody ... to the entity that is expanding their balance sheet. Today, society is OK with that. I'll go with Ford's '...one man in a million...' postulate - as a thinking people that consider the question may come to the conclusion that this mechanism is nothing but legalized plunder.

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Its the most efficient way to inject liquidity into the economy.

I wouldn't know about 'most efficient'. It certainly is a marvelously efficient means of concentrating all the assets of the world, over time, under the ownership of the banking industry.

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That money isn't free either, it is debt.

In a real sense, I think this money is indeed free. What did the bank pay for it? Sure, they entered a liability on their balance sheet. Waaah. What actual _wealth_ did it cost them? Zero. Zip. Nada. Zilch. Nottadamnthing.

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However debt is necessary for economies

Really? You cannot imagine any economy whatsoever that is free of debt? I'd make a comment about limited imagination...

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Risk is simply how much money you stand to lose. In business everybody takes risk and they expect payoff in proportion to the amount of risk they take.

Yet, when 90% of the money is money that did not exist before the loan was created, that 90% should not be considered at risk. Yes, I realize the partial reserve thing is disputed by you. We'll get to that downthread.

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Banks are not special in this regard.

I disagree wholeheartedly. First, they collect interest on money that they zap into existence. That is certainly special treatment under the law. Further, their losses, insolvencies, and failures are from time to time covered from the public coffers. That is special treatment as well.

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The issue is not they take risks. The issue is when risk blows up in their face they can become insolvent. Insolvency of one bank can trigger domino effect as we witnessed in 2008

What I witnessed from that event was that the majority of those responsible for this mess have since been vastly rewarded with additional stratospheric salaries. And the 'breaking up the too big to fail' has resulted in additional consolidation.

Let us not forget that, were it not for shady derivatives (themselves a money multiplier well in excess of what retail banking is allowed to engage in) there never could have been such an implosion.

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Listen, you don't need to be rude. You think you know everything when clearly you don't.

I wasn't aware that I was being rude. Certainly seems that you are, though.

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I suggest you read about banking and economics before trying to teach other people. Im trying to help you be more educated but believe whatever you want

I'm not trying to 'teach' you anything. I'm trying to get you to see how the situation looks on this side of the coin. You know, us 99%? You see (at least I think you do) the magic of credit driven expansion of the money supply, while I see the theft of the populace by the banking class. These are really two sides of the same coin, and happen in exactly matched magnitude.

I can see that such expands the economy. I don't think its worth the price. Greenspan's irrational exuberance, the austrian's misallocation of means of production, the boom and bust, the whole lot of it.

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Here's an article written by Steve Keen, a well respected economist. Its about myth of fractional reserve. If you want enlighten yourself then read it. Might be above your grade though. Its not easy to understand unless you've done a course in banking. Thats why I linked you that simpler and broader investopedia article.

http://www.businessspectator.com.au/article/2012/10/22/commodities/myth-money-multiplier

I first note that he recognizes that the 'Money Multiplier Model' is widely believed. IOW, he is about to argue against economic orthodoxy, agreed?

But I stall early. Perhaps I need that coffee of which he speaks, but bedtime nears. Or perhaps, as you say, it is 'above my grade' (who is the one being rude?). I know - maybe you can help me decipher this quote:

"... the Cash purchase first of all involves money being taken out of the Buyers Deposit account (shown as +Card because, from the banks point of view, the Buyers Deposit is a liability of the banks..."

(confusing apparent discrepancy bolded)

Oh well, I'll reread it in the morning when I'm fresh.