Fractional Reserve Banking is not Evil!

[jclay2]

Let me repeat, the problem is not with banks but the Fed. Fractional Reserve banking is a form of investment fot those who deposit their money in the bank. It is not guarenteed and that is why they pay you interest for it. If you guys don't want to deal with banks go dig yourself a hole and put your money in it. When you deposit money in a bank, you basically say use my money to loan out to others since I won't be needing all of the money that is in my account. The reward you get for it though is interest. And if there is a run on the bank, most prepared people shouldn't even be worried. The main reason a bank run wouldn't effect me would be that all of my savings would be in stocks, bonds, and mutual funds. Also, the main use of banks for the average depositor is convenience. That is why any sain person won't have more than a couple thousand in any one bank. Again, it is the fed that controls the money supply and thus controls inflation. Go b**ch at the FED not the banks.

Oh just so you know, I inherited bank stock from my grandpa and I feel no shame that I own a part of "the evil banks."

 

[Acala]

Not exactly

What you say is true with respect to cds and other deposits that pay interest and cannot be withdrawn at will. That money is supposed to be, and expected to be, loaned out.

But when a bank makes loans out of demand deposits - like checking accounts - it is expanding the money supply. When people deposit their money in a checking account, they treat that money just like it was cash in their pocket. When the bank turns around and loans it to someone else, THEY treat that money like cash in THEIR pocket. Voila! The money supply has been expanded.

 

[Banana]

Eh.

If it was an explicit policy at a bank that a withdrawal may not be always available, then I'd see no problem with that. But that's not what they will tell you. They'd like to tell you that they can give you just as much as cash as what you have in the account, even though they're crossing their fingers behind the back.

Federal Reserve went and obfuscated the whole thing in that if a bank ran short of cash, they could just ask Fed for more, so that's why we haven't had a run, but still...

 

[scooter]

Almost anyone with any kind of sense whatsoever knows that banks take deposit money and create loans from it. Them being able to use your money this way is why most banks are able to provide checking accounts for free.

There are plenty of interest-bearing account options if you don't like the way your checking account is handled. And if you really don't like banks, go ahead and stash the cash somewhere else.

 

[Pianist4Freedom]

The important thing to keep in mind I think is that when one takes out a loan, you have to earn that money somehow and pay it back. The only money the bank actually makes is the interest. This process ensures that you get your money fairly relative to the whole economy. It isn't inherently immoral that the banks loan out money "they don't have" because it gets backed by your earning power indirectly, or backed at least partially by the collateral you put down. So I don't see it as evil at all. I do, however, see that the fed makes it too easy for the government and its favorite corporations to get the new money before it depreciates, however..that is what is wrong with the system. There needs to be more competition in banking--the fed is essentially a private cartel of banks. Every private bank is a member of the system. Funny thing is the fed was sold to the public as actually busting up a trust of banks, which is pretty much the precise opposite of the truth..

 

[madengr]

Someone posted a "Creation and Destruction of Money" presentation on Youtube that was very informative.

If I deposit $100 in a bank they pay me 5% interest. They loan out my money at 6% and pocket the 1% difference. I make $5, they make $1. Seems reasonable.

However due to fractional reserves they may loan out ~$1000 at 6%, so they pocket $60, meanwhile I still get $5. This seems very crooked since they are making 6% interest on $900 created out of thin air. If somehow the loan defaults and I need my $100 back, it is insured by FDIC with no risk to the bank.

If I were a loan shark I would have to loan out real money (as real as FRN get) since I just can't create it out of thin air.

So yes, fractional reserve banking does seem crooked. I should be in the banking business. Is my reasoning flawed? Is doesn't seem like they can get that whole $60? Where does it go, to the FED?

 

[jclay2]

Did you guys consider that before the Federal reserve came into play, there was FRACTIONAL RESERVE BANKING! Did you know that for hundreds, if not thousands of years we have had fractional reserve banking. It's not evil. Like I said earlier, hate on the fed and not the banks.

 

[Banana]

Did you guys consider that before the Federal reserve came into play, there was FRACTIONAL RESERVE BANKING! Did you know that for hundreds, if not thousands of years we have had fractional reserve banking. It's not evil. Like I said earlier, hate on the fed and not the banks.

And there were runs in past, remember?

What Feds did was to end those runs by obfuscation.

Just because they did something for several years doesn't necessarily make it any more right.

 

[Dr.3D]

True, it was some guy who immorally decided he could lend out money he didn't have who started all of this fractional reserve nonsense. How many people can write checks on money they don't have and get away with it? What makes a bank better than the rest of the population? The original job of a bank was to keep precious metals safe and charge a fee for doing so. Then they got the bright idea they could loan the money they didn't own, out to people and charge them usury to make even more money. After a while, they decided they could even make up money not in the vault and loan that out to people to make even more money. It is all about greed and fraud.

A bank should not be able to do anything the rest of us can not do.

 

[Green Mountain Boy]

Did you guys consider that before the Federal reserve came into play, there was FRACTIONAL RESERVE BANKING! Did you know that for hundreds, if not thousands of years we have had fractional reserve banking. It's not evil. Like I said earlier, hate on the fed and not the banks.

Do you understand the history of banking and what effects the collapse of the Venice merchant banking system had on the global economy in the 13th century?

Fractional reserve lending is an effect of the compounding interest equation, and attaching interest to the medium of exchange is evil.

The FED is essentially owned by the member banks which are commercial banks.

If there was no FED we would still have the booms/busts that occur with the expansion and contraction of credit. All the Fed has done is made it easier for the banks to get a strangle hold on our economy and to keep their profit making scheme for as long as possible before an eventual collapse.

 

[fx57]

Fractional reserve banking is fine as long as the banks assume the risk and go bankrupt when the inevitable run on the bank happens.

The problem is when government starts bailing out the banks with taxpayer money, which is what central banks do.

It is the concept of a government backed central bank that is the problem.

 

[Acala]

Fraud

To my way of thinking, if a bank invites your deposit in a checking account and assures you that you can write checks on that account for the full amount of that account and withdraw all the money from that account at any time without notice, but then the bank proceeds to loan out most of the money you deposit so that, in fact, as a mathematical certainty, the bank could not do as it promised if a significant percentage of it customers happened to draw out their money at the same time, then the bank is committing a fraud. It has made a contractual promise to its customers will full knowledge that it is going to intentionally engage in a business practice that puts it in the position of not being able to honor its obligations.

 

[AceNZ]

OK, so let's break this down. You say that fractional reserve banking isn't evil and that the Fed is the problem.

So exactly which aspects of the Fed do you think are evil?

-- FOMC actions (creating and destroying bank reserves)
-- Fed funds lending
-- Discount window
-- Check clearing
-- Managing the sale of treasury securities
-- Managing bank reserve accounts
-- Managing the Treasury's bank account
-- Creating a uniform set of rules that banks operate by

 

[Misesean]

Fractional reserve banking is fine as long as the banks assume the risk and go bankrupt when the inevitable run on the bank happens.

Fractional reserve banking is embezzlement. Except for banks, people to go prison for that!

 

[hypnagogue]

There is a lot of confusion around here about what fractional reserve banking does. Let me spell it out in a single sentence. Fractional reserve banking is a system wherein a bank may print money greater than what they have in reserve and loan that money at interest. It would be the same if I were to look into my bank account and see that I have $1000, and then to decide to print $50,000 and then loan that money to people at interest, all while getting to keep my $1000.

You see, it's a license to print money. It's having your cake and eating it too. If I, a private citizen can not print money, then neither should a private bank.

But it's more than simply unjust, it's dangerous. What happens if that money isn't paid back? Well, you've just swollen the the money supply 50x, and you've resultingly devalued all the currency. This is what has happened with the Sub Prime Mortgage crisis. The banks got even greedier (how can this be, we must wonder) and decided to print even more money for people who couldn't reasonably be expected to pay it back. If that money isn't taken back out of circulation, all our collective shit hits the fan.

 

[scooter]

There is a lot of confusion around here about what fractional reserve banking does. Let me spell it out in a single sentence. Fractional reserve banking is a system wherein a bank may print money greater than what they have in reserve and loan that money at interest. It would be the same if I were to look into my bank account and see that I have $1000, and then to decide to print $50,000 and then loan that money to people at interest, all while getting to keep my $1000.

You see, it's a license to print money. It's having your cake and eating it too. If I, a private citizen can not print money, then neither should a private bank.

But it's more than simply unjust, it's dangerous. What happens if that money isn't paid back? Well, you've just swollen the the money supply 50x, and you've resultingly devalued all the currency. This is what has happened with the Sub Prime Mortgage crisis. The banks got even greedier (how can this be, we must wonder) and decided to print even more money for people who couldn't reasonably be expected to pay it back. If that money isn't taken back out of circulation, all our collective shit hits the fan.

This is why I hate all of those banking conspiracy movies. People believe that this is how it works.

 

[hypnagogue]

I got my information here.

http://en.wikipedia.org/wiki/Fractional_reserve_banking

EDIT: Hmm. Things seem slightly different now that it's not 5 am. It's not like it's a simple topic! It was somewhat more of a license to print money when the banks actually held the gold.

 

[jclay2]

If you guys think that banks are so evil, then I want you to put your money where your mouth is and stop using banks entirely, since it is obviously such a scam. My guess is every one of you guys posting uses a bank.

 

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Did you guys consider that before the Federal reserve came into play, there was FRACTIONAL RESERVE BANKING! Did you know that for hundreds, if not thousands of years we have had fractional reserve banking. It's not evil. Like I said earlier, hate on the fed and not the banks.

So the scam that steals value from currency has been going on a long time. That doesn't make it okay. It doesn't matter if it's the Fed or the commercial banks, fractional reserve banking is theft.