Fractional reserve lending is NOT inherently fraudulent

[Optatron]

As we discussed in many previous threads, there's a difference between

A. Taking $10 in, lending $9, keeping only $1.
vs.
B. Taking $10 in, claiming to have $100, and lending out $90.
vs.
C. Taking $10, keeping it all.

A. Is the typical bank operation of fractional reserve
B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
C. Simply depositing money and doing nothing with it.

The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

http://www.market-ticker.org/archives/1019-Rebuttal-To-Mish-FRL.html

WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?

 

[Conza88]

Wrong. It is fraud.

See below... Enjoy enlightenment.

Barnett and Block, 2005, 2008; Block, 2008; Block and Caplan, 2008; Block and Garschina, 1996; Block and Humphries, 2008; Block and Posner, 2008; Davidson, 2008; Hoppe, et. al. 1998; Hoppe, 1994; Hulsmann, 2000, 2002a, 2002b, 2003; Rothbard, 1962; de Soto, 1995, 2001

Barnett, William II and Walter Block. 2005. “In defense of fiduciary media— a comment; or, what’s wrong with “clown” or play money?” Quarterly Journal of Austrian Economics; Vol. 8, No. 2, Summer, pp. 55-69; http://mises.org/journals/qjae/pdf/qjae8_2_4.pdf

Barnett, William and Walter Block. 2008. “Time deposits, dimensions and fraud,” Journal of Business Ethics; www.WalterBlock.com/publications (this one is more radical, in that is characterizes even some time deposit practices, not merely demand deposit practices, as fraudulent)

Block, Walter and Bryan Caplan. 2008. “Walter Block versus Bryan Caplan on Fractional Reserve Banking.” Nov 1; http://www.lewrockwell.com/block/block110.html

Block, Walter and Garschina, Kenneth M. 1996. "Hayek, Business Cycles and Fractional Reserve Banking: Continuing the De-Homoginization Process," Review of Austrian Economics, Vol. 9, No. 1, 1995, pp. 77-94; http://www.mises.org/journals/rae/pdf/rae9_1_3.pdf.

Block, Walter. 2008. “Is Fractional Reserve Banking Fraudulent?, rejoinder to Eric Posner,” November 6; http://www.lewrockwell.com/block/block111.html

Block, Walter. 2008. “Posner vs. Block on fractional reserve banking.” November, 29; http://www.lewrockwell.com/block/block114.html

Block, Walter and John Humphries. 2008. “Humphries vs Block on fractional reserve banking.” November 17; http://alsblog.wordpress.com/2008/11/17/fractional-reserve-banking/

Davidson, Laura. “Fractional Reserve Banking Is Indeed Fraudulent,” November 17;
http://www.lewrockwell.com/orig9/davidson-l1.html

Hoppe, Hans-Hermann, with Guido Hulsmann and Walter Block. 1998. "Against Fiduciary Media," Quarterly Journal of Austrian Economics, Vol. 1, No. 1, pp. 19-50, http://www.mises.org/journals/qjae/pdf/qjae1_1_2.pdf;

Hoppe, Hans-Hermann. 1994. "How is Fiat Money Possible? or, The Devolution of Money and Credit," Review of Austrian Economics, 7(2), pp. 49-74.

Hulsmann, Jorg Guido. 2000. "Banks Cannot Create Money", The Independent Review: A Journal of Political Economy, vol. 5, no. 1, summer, 101—110; http://www.independent.org/pdf/tir/tir_05_1_hulsman.pdf

Hulsmann, Jorg Guido. 2002a. “Free Banking and the Free Bankers.” Review of Austrian Economics. Vol. 9, No. 1. pp. 3-53; http://www.mises.org/journals/rae/pdf/rae9_1_1.pdf

Hulsmann, Jorg Guido. 2002b. “Free Banking Fractional Reserves: Reply to Pascal Salin.” Review of Austrian Economics, Vol. 1, No. 3. http://www.mises.org/journals/qjae/pdf/qjae1_3_8.pdf

Hulsmann, Jorg Guido. 2003. "Has Fractional-Reserve Banking Really Passed the Market Test?," Independent Review 7/3, Winter, 399-422. http://www.independent.org/publications/tir/article.asp?a=90

Rothbard, Murray N. 1962. "The Case for a 100 Percent Gold Dollar," In Search of a Monetary Constitution, Leland B. Yeager, ed., Cambridge, MA: Harvard University Press, pp. 94-136, and Auburn, AL: Ludwig von Mises Institute, 1991. See also "The Logic of Action One" pp. 364-384; http://mises.org/story/1829

Rothbard, Murray N. What Has Government Done to Our Money?, Auburn, AL: Ludwig von Mises Institute, 1990; http://www.mises.org/rothbard/rothmoney.pdf

de Soto, Jesús Huerta. 1995. "A Critical Analysis of Central Banks and Fractional-Reserve Free Banking from the Austrian Perspective," Review of Austrian Economics, 8(2), pp. 25-38.

de Soto, Jesus Huerta. 2001. "A Critical Note on Fractional Reserve Free Banking," The Quarterly Journal of Austrian Economics, Vol. 1, No. 4, Fall, pp. 34-35

 

[Objectivist]

As we discussed in many previous threads, there's a difference between

A. Taking $10 in, lending $9, keeping only $1.
vs.
B. Taking $10 in, claiming to have $100, and lending out $90.
vs.
C. Taking $10, keeping it all.

A. Is the typical bank operation of fractional reserve
B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
C. Simply depositing money and doing nothing with it.

The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

http://www.market-ticker.org/archives/1019-Rebuttal-To-Mish-FRL.html

WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?

Funny stuff.... Nice job Conza!

 

[FindLiberty]

Funny stuff.... Nice job Conza!

+100 - Very nice!

 

[tmosley]

Wrong. It is fraud.

See below... Enjoy enlightenment.

I like you you didn't even bother to read his whole post before you posted two dozen links.

It isn't fraud when all parties are informed about all actions that will be taken before they happen. It's impossible for that to be fraud, or even theft. It's against the very definition. For fraud to occur, there has to be a lie. For theft to occur, there has to be a transfer of valuables against the owner's will. Read the comic in the sticky.

Lending out 9 dollars out of 10 dollars of deposits is not illegal or immoral. It's the same as lending directly, except society benefits from a pooling of capital.

READ THE STICKY. Until you do, you don't know Jack about economics.

 

[theoakman]

As we discussed in many previous threads, there's a difference between

A. Taking $10 in, lending $9, keeping only $1.
vs.
B. Taking $10 in, claiming to have $100, and lending out $90.
vs.
C. Taking $10, keeping it all.

A. Is the typical bank operation of fractional reserve
B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
C. Simply depositing money and doing nothing with it.

The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

http://www.market-ticker.org/archives/1019-Rebuttal-To-Mish-FRL.html

WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?

Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.

 

[Conza88]

I like you you didn't even bother to read his whole post before you posted two dozen links.

It isn't fraud when all parties are informed about all actions that will be taken before they happen. It's impossible for that to be fraud, or even theft. It's against the very definition. For fraud to occur, there has to be a lie. For theft to occur, there has to be a transfer of valuables against the owner's will. Read the comic in the sticky.

Lending out 9 dollars out of 10 dollars of deposits is not illegal or immoral. It's the same as lending directly, except society benefits from a pooling of capital.

READ THE STICKY. Until you do, you don't know Jack about economics.

Yeah, I've got both of those saved in pdf and I am organizing getting them re-printed. Now how about you go read a grown up book like Man, Economy, State.. Human Action and then YOU'LL understand economics... Or you could read What has Govt Done to our Money for starters... anything that actually deals with the issue of FRB is probably a smart choice..

What is hilarious, is quite literally you are out of your depth... just as optatron is. Literally no idea.. and since he isn't intellectually honest - I'm not going to waste my time with him.

So:

Money, Bank Credit, and Economic Cycles by Huerta de Soto​

Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.

Quite sad isn't it.. lmao

 

[Stary Hickory]

Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.

Exactly, this is like a time deposit, or CD. Not a problem and not fractional reserve lending.

 

[hugolp]

Its the monopoly on money that its fraudulent.

But for peolple that its not into monetary policies its easy to start explaining the problems of fractional reserve under a monopolistic monetary policty, than explainign everything alltogether.

 

[Optatron]

I like you you didn't even bother to read his whole post before you posted two dozen links.

It isn't fraud when all parties are informed about all actions that will be taken before they happen. It's impossible for that to be fraud, or even theft. It's against the very definition. For fraud to occur, there has to be a lie. For theft to occur, there has to be a transfer of valuables against the owner's will. Read the comic in the sticky.

Lending out 9 dollars out of 10 dollars of deposits is not illegal or immoral. It's the same as lending directly, except society benefits from a pooling of capital.

READ THE STICKY. Until you do, you don't know Jack about economics.

thanks!

 

[Optatron]

Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.

Maybe I misunderstood then.

I think fractional reserve just means

1. Bank takes in $10
2. Bank lends out some of it

I can see you'd think it's fraud once
3. Bank continues business AS IF they have $10
4. Bank tells anybody they have $10 or more

I agree, if the banks reports to anybody after the fact part of $10 is lent out, it would be fraudulent.

However, is it fraudulent if the bank admits they are insolvent, or lending money they either don't immediately have, or may need to sell assets to obtain.

There's a difference between
a. saying I have immediate $100 to lend you
vs.
b. saying here's an IOU for $100 that bank B will accept, I can back it up with my house if you ever need it.
vs.
c. I don't have money, but here's a piece of paper that bank B won't question, and you can take it and use it as $100 as long as bank B and I are good friends.
(In this case, Bank A & B know what each other have, or are willing to back each other up to pool assets if money is ever needed)
The borrow just knows he has a GOOD REASON to believe the money can be obtained if necessary, borrow agrees he borrowed money based on TRUST and REPUTATION of the bank.

How are a, b, c, fraudulent?

 

[Optatron]

Exactly, this is like a time deposit, or CD. Not a problem and not fractional reserve lending.

so a time deposit or CD, in your view, can theoretically

take in $10
lend out $10

as long as everybody agrees once $10 leaves the bank, the bank no longer claims it has money?

This isn't called FRB, or fraud, or zero reserve, simply keeping promises when needed?

 

[ghengis86]

Maybe I misunderstood then.

I think fractional reserve just means

1. Bank takes in $100 and tells customer A he can access his $100 at anytime
2. Bank bank lends $90 to customer B, keeping $10 as reserve
3. Bank has given two customers claims on the very same dollars (at least $90 in this case).

That is fractional reserve banking, and it is fraudulent because the banks lies to both A and B in that they both have equal claim to the same FRN's.

Now, if the bank told customer A (and all other customers) that his deposit would be lent out with only 10% being held in reserve and that there may be a possibility that if everyone cashed out their accounts at the same time (heck, even if 10% of their customers did), hey may not get his money, and customer A still deposited his funds, then no fraud would be committed. Customer A would be a dumbass.

so a time deposit or CD, in your view, can theoretically

take in $10
lend out $10

as long as everybody agrees once $10 leaves the bank, the bank no longer claims it has money?

This isn't called FRB, or fraud, or zero reserve, simply keeping promises when needed?

More or less, this is correct, except the bank says that the money it just lent out will be paid in full, and with interest at some future, agreed upon time.

the bank says you give me $100 that you promise not to lay claim to for a set period of time, and we will lend that $100 to make money off interest of the loan we create with that deposit, and in return, we will pay you a small fee for letting me use your money, plus refund the deposit, at the end of the tem.

CD's are not demand deposits. You're leasing your claim on the money to the bank. They're probably the most honest practice a bank engages in because there is a specified contract, time limits, penalties, etc.

 

[Optatron]

That is fractional reserve banking, and it is fraudulent because the banks lies to both A and B in that they both have equal claim to the same FRN's.

Yeah, if they didn't lie about it, it wouldn't be fraudulent

Now, if the bank told customer A (and all other customers) that his deposit would be lent out with only 10% being held in reserve and that there may be a possibility that if everyone cashed out their accounts at the same time (heck, even if 10% of their customers did), hey may not get his money, and customer A still deposited his funds, then no fraud would be committed. Customer A would be a dumbass.

exactly! thanks! stupid decisions are not fraud, they're just stupid.

More or less, this is correct, except the bank says that the money it just lent out will be paid in full, and with interest at some future, agreed upon time.

And if you don't see the money, it's your fault for trusting them.

the bank says you give me $100 that you promise not to lay claim to for a set period of time, and we will lend that $100 to make money off interest of the loan we create with that deposit, and in return, we will pay you a small fee for letting me use your money, plus refund the deposit, at the end of the tem.

CD's are not demand deposits. You're leasing your claim on the money to the bank. They're probably the most honest practice a bank engages in because there is a specified contract, time limits, penalties, etc.

Ok, so if make all banks' terms explicitly CD, or something to the effect of honestly telling everybody how money is juggled, there wouldn't be a problem?

 

[silverhandorder]

It is fraud in the sense that most people have no idea this is going on. If everyone knew that this is going on then it would not be called fraud.

That still does not address the fact that all these people are being screwed.

 

[ghengis86]

Yeah, if they didn't lie about it, it wouldn't be fraudulent

exactly! thanks! stupid decisions are not fraud, they're just stupid.

And if you don't see the money, it's your fault for trusting them.


Ok, so if make all banks' terms explicitly CD, or something to the effect of honestly telling everybody how money is juggled, there wouldn't be a problem?

you know, as I read through it, I'm not sure if it's fraud or not even if you tell someone you're fractionally reserving their deposits. it still would be impossible to let two people have a claim upon the same FRN's, so it may not be fraudulent, just physically impossible. would that be considered fraud?

say i ask to borrow your car. i'll promise to keep the gas tank full and I'll let you keep a key so you can use it whenever you want. i then let someone else use your car, but he has to pay for the gas and the oil, brakes and tires. does it matter if I told you that I was going to lend the car out to someone when you come with your key to pick up the car to drive somewhere? not really, since no matter what I told you, you are unable to use the car, since I let someone else drive it anc can't get it back at the same moment you need your car.

I'm sort of undecided if that's criminal fraud; you're informed and you consent, but there's still no possibility of the contract/agreement being executed at any and all times.

not a criminal problem. maybe ethical, but then again, it would be up to the customer to decide.

 

[Optatron]

It is fraud in the sense that most people have no idea this is going on.

So by your logic, a store can't sell you an item for $1 because you have no idea it's actually only worth 1 cent no matter what the cost adds up to?

If everyone knew that this is going on then it would not be called fraud.

If they asked, and were not told, or told a lie, that'd be fraud.

If the bank demanded nobody ask, that'd be a sign, but none of these outright happened. If you ask a bank how much cash they have, they either don't know, or will tell you they can't tell you, or tell you they don't have what you think they have.

That still does not address the fact that all these people are being screwed.

being screwed comes in many different forms, not all are bad and wrong.

are peopel being screwed if they have to pay $10-15 extra by eating at a restaurant? NO, because they AGREED TO IT.

 

[ghengis86]

It is fraud in the sense that most people have no idea this is going on. If everyone knew that this is going on then it would not be called fraud.
That still does not address the fact that all these people are being screwed.

is it fraud if there's no possibility of the agreement being executed at any and all times, even if the customer is informed? I don't know.

 

[aravoth]

Loaning out money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist...... which allows............................ see above......

Nope..... nothing fraudulent here.


I have this theory about people who suck.

You see......... I believe that most people suck, in fact the vast majority of people suck. When two groups of people both suck, and they start fighting, what is the outcome? A compromise that sucks even worse. Later this compromise will have detractors, who will then compromise with something else that sucks, this stupid fracas continues until everything in the entire world sucks. Such is the nature of people who suck. Making the rest of us swim in the cesspool they create.

I believe fractional reserve lending is a wonderful working example of the above theory.

 

[Optatron]

you know, as I read through it, I'm not sure if it's fraud or not even if you tell someone you're fractionally reserving their deposits. it still would be impossible to let two people have a claim upon the same FRN's, so it may not be fraudulent, just physically impossible. would that be considered fraud?

If you promised both people they can cash out at all times, and can't deliver, it's a broken promise, or fraud.

If you promised both people there's a HIGH CHANCE they can both cash out anytime, they know it's not 100% possible.

If you promise A he can cash out time slot A, and B he can cash out time slot B, there's neither conflict nor risk, and no fraud.

say i ask to borrow your car. i'll promise to keep the gas tank full and I'll let you keep a key so you can use it whenever you want. i then let someone else use your car, but he has to pay for the gas and the oil, brakes and tires. does it matter if I told you that I was going to lend the car out to someone when you come with your key to pick up the car to drive somewhere?

It matters if I didn't agree to something and the performance of the car may be affected if it was driven by somebody I don't trust.

not really, since no matter what I told you, you are unable to use the car, since I let someone else drive it anc can't get it back at the same moment you need your car.

Yes, but whether YOU drive or, some SOMEBODY ELSE drives it, there may be different safety concerns, aside from that, you are right, as long as the car is not on me, THAT is the same.

If you let somebody drive it without my permission after promising me you won't do it, THAT'S A LIE, AND FRAUD, it may not hurt anybody, but it's fraud.

In contrast, if you agreed you WOULD borrow it, and I agreed you can let others drive it, later you actually never did either, nobody was frauded, you just didn't excercise your benefit of the agreement.

I'm sort of undecided if that's criminal fraud; you're informed and you consent, but there's still no possibility of the contract/agreement being executed at any and all times.

not a criminal problem. maybe ethical, but then again, it would be up to the customer to decide.

Well, that's a good question.

And I should know that I have no way of enforcing it at all times, and know that that's a risk I must be willing to take AND hold you accountable for if something wrong happens.

And yes, no matter how stupid, immoral, if it's not a lie, customers should know what they're getting.