Banker/Wall Street Governance

Riverwind · February 6, 2007

Riverwind:Explain how banks can lend money without EITHER coming up with the real cash OR paying interest on the money when it is deposited into someone else's bank account.
Of course they pay interest on the amount but to transfer money you use cheque.

Excellent. So you now agree that creating money via a loan costs the bank money because they either have to give out their cash reserves or they have to pay interest on that money when it is deposited into another account.

You must also now agree that you were wrong when you said that banks make $100,000 profit when then loan $100,000 since the $100,000 in loan assets is always matched by a liability when that money is redeposited into the bank.

This is why banks only make a profit on the difference between what they get in loan interest and what they pay on the deposits.

PolyNewbie · February 6, 2007

Riverwind:You must also now agree that you were wrong when you said that banks make $100,000 profit when then loan $100,000 since the $100,000 in loan assets is always matched by a liability when that money is redeposited into the bank.

Who would borrow money to deposit it into a bank ?

White Doors · February 6, 2007

Riverwind:You must also now agree that you were wrong when you said that banks make $100,000 profit when then loan $100,000 since the $100,000 in loan assets is always matched by a liability when that money is redeposited into the bank.

Who would borrow money to deposit it into a bank ?

THICK

Riverwind · February 6, 2007

Who would borrow money to deposit it into a bank ?

No one. But if I borrow $1000 and give it to you then you will deposit it into a bank and collect interest. Even if you gave the money to the CAP they would likely put it into a high interest account that collects interest until the next election.

Once a bank loans money it will start to change hands. Eventually most of that money will end up in a bank account that a bank must pay interest on. IOW: every dollar loaned ends up being converted to cash or ends up as liability on the banks books. That is why a $100,000 loan will always be matched by $100,000 liability.

PolyNewbie · February 6, 2007

Riverwind:No one. But if I borrow $1000 and give it to you then you will deposit it into a bank

I just said that I would spend it.

Even if you gave the money to the CAP they would likely put it into a high interest account that collects interest until the next election.

I don't think so. I think they are pretty strapped for cash. They don't get donations from the big banks like the other parties do. I think they would spend theirs right away too.

Riverwind · February 7, 2007

I think they would spend theirs right away too.

Fine - they would spend it. But before they could spend it they would have to deposit it into a bank. If they used a different bank that the one that gave me the loan then the CAP bank would immediately demand cash to cover the cheque from my bank. I realize that the cash required to clear my check might be balanced by a cheque transferring money in the other direction. However, that does not change the fact that my bank had to give up some of their cash reserves to make that loan to me (i.e. if the bank refused to loan me the money they would have got the cash from the other bank instead).

Loans always end up being balanced by liabilities for a bank. That is a fact that all of your so called experts on money conveniently ignore.

PolyNewbie · February 7, 2007

Riverwind:Loans always end up being balanced by liabilities for a bank. That is a fact that all of your so called experts on money conveniently ignore.

No I agree with that. Who do you think creates all this money ? Where does it come from ? Does a stork deliver it ?

Riverwind · February 7, 2007

Who do you think creates all this money ? Where does it come from ? Does a stork deliver it ?

I have already told you many times. Banks loan money. That money is spent and redeposited into banks which allows them to loan the same money again. Loaning the same money multiple times expands the money supply. Howvere, a bank cannot loan money unless has cash available to cover the liability created when the loan is deposited into bank account before it can be spent by the borrower. When the borrower spends the money the bank uses that cash to cover transfers to other banks. If the bank is lucky the borrower will give the money to someone that deposits it into the same bank. In that case, it keeps the cash reserves but has to pay interest on the same money again (the downside side of loaning the same money multiple times).

IOW: The asset created by a loan is always cancelled out by a liability caused by a deposit or a loss of cash reserves.

PolyNewbie · February 7, 2007

Riverwind:I have already told you many times. Banks loan money.

Where does that money come from ? Explain how a dollar comes into existence. I say its because a banker creates it from thin air, you say its something else, what ?

geoffrey · February 7, 2007

Who would borrow money to deposit it into a bank ?

I borrow money to invest at times, why not?

PolyNewbie · February 7, 2007

geofffrey:I borrow money to invest at times, why not?

So you consider a savings account an investment and it wise to borrow money to put into a savings account ?

Drea · February 7, 2007

Riverwind,

The money one holds in their hand is an IOU.

It is a promisory note.

The promise is that a bank will give you money (gold) in exchange for this note. As Paper is easier and lighter to carry than gold, paper became the standard.

Now, today there is not enough gold on earth to cover all the IOU promisory notes so it becomes virtual money. The gold to back it up does not exist.

Not only that but there is a finite amount of "money" on the earth.

For simplicity sake lets say there are 20 "dollars" (promisory notes) on the planet in total ($20 worth of gold is stored somewhere to back up the 20 promisory notes). Each of those 20 is worth 1 dollar.

If 20 more dollars are created (printed, minted) and there are now 40 dollars on the earth, each of those 40 is now worth 50 cents.

Every time more promisory notes or coins are created the purchasing power of each decreases.

This is in the simplest terms and I only took college economics so this is all I know about the subject.

Read Poly's links.

The banking/monetary system is responsible for many things, good and bad. Did you know that the first banks were started by the Knights Templar? To protect the Christian pilgrims. The pilgrims would be robbed if they carried gold so the Templars gave them a signed "note" saying that when they got to their destination, another Templar would give them the gold in exchange for that note.

Voila! Paper money and banking!

geoffrey · February 7, 2007

geofffrey:I borrow money to invest at times, why not?

So you consider a savings account an investment and it wise to borrow money to put into a savings account ?

No. But it can be wise to buy various investments from a bank on borrowed cash.

Riverwind · February 7, 2007

The money one holds in their hand is an IOU. It is a promisory note.

Most countries abandoned the gold standard in the 70s. What we have now is a fiat currency which has nothing backing it. It has value only because people believe it has value.

Here is an example that shows what really happens when banks create virtual money:

Alice deposits $1200 into Bank 1

Bank 1 Reserves: $1200

Bank 1 Deposits: $1200

Money Supply: $1200

Bob borrows $900 from Bank 1

Bank 1 Reserves: $1200

Bank 1 Deposits: $2100

Bank 1 Loans: $900

Money Supply: $2100

Bob must put the loan into a chequing account at Bank 1 before spending the money.

Money was created when Bank 1 loaned the money but Bank 1 must pay interest to Bob on the amount in the chequing account.

Chuck cashes a $900 cheque written by Bob

Bank 1 Reserves: $300

Bank 1 Deposits: $1200

Bank 1 Loans: $900

Bank 2 Reserves: $900

Bank 2 Deposits: $900

Money Supply: $2100

Chuck deposits the check into Bank 2. Bank 2 demands cash from Bank 1 before allowing the check to clear.

Diana borrows $675 from Bank 2

Bank 1 Reserves: $300

Bank 1 Deposits: $1200

Bank 1 Loans: $900

Bank 2 Reserves: $900

Bank 2 Deposits: $1575

Bank 2 Loans: $675

Money Supply: $2775

Diana must put the loan into a chequing account at Bank 2 before spending the money.

Money was created when Bank 2 loaned the money but Bank 2 must pay interest to Diana on the amount in the chequing account.

Ernie cashes a $675 cheque from Diana

Bank 1 Reserves: $975

Bank 1 Deposits: $1875

Bank 1 Loans: $900

Bank 2 Reserves: $225

Bank 2 Deposits: $900

Bank 2 Loans: $675

Money Supply: $2775

Ernie deposits the check into Bank 1. Bank 1 demands cash from Bank 2 before allowing the check to clear.

A few notes:

The money supply consists of $1200 in real currency and $1575 in virtual money.

The Banks are paying interest on $2775 in deposits.

The Banks are collecting interest on $1575 in loans.

A bank could try to loan more than it has in cash but any bank that did that would be in trouble when the money is spent and it ends up in other banks. They would likely be forced to borrow the cash to make up the difference and that would be very expensive.

Bottom line: when banks create money by loans they create a liability that offsets the loan asset. Banks only make a profit if they can collect more in interest on loans than they have to pay on the deposits that are created with the money from those loans.

geoffrey · February 7, 2007

Bottom line: when banks create money by loans they create a liability that offsets the loan asset. Banks only make a profit if they can collect more in interest on loans than they have to pay on the deposits that are created with the money from those loans.

And that margin is much narrow than one would like to believe. Banks might make a couple billion in profit in a year, but that's a small percentage of how much is being borrowed from them.

PolyNewbie · February 7, 2007

Riverwind:Bottom line: when banks create money by loans they create a liability that offsets the loan asset. Banks only make a profit if they can collect more in interest on loans than they have to pay on the deposits that are created with the money from those loans.

Your post describes how banks should prtobably operate but not how they actually do operate. That statement comes right out of your a$$ and has no basis in reality.

Again, read something about banking so that your posts can reflect the fact that you know something. You do not understad how fractional reserve banking works or even what fractional reserve banking actually is.

The initial $1200.00 deposit lets the bank create 9( $1200.00) in additional deposits for loan when the reserve ratio is ten to one. Banks make huge profits and thats why bank buildings are always the biggest or nearly biggest in every major city. Thats how Rockefeller owns both the democratic and Republican Parties.

White Doors · February 7, 2007

Is it physically painful to be so dense? Seriously?

Riverwind · February 7, 2007

The initial $1200.00 deposit lets the bank create 9( $1200.00) in additional deposits for loan when the reserve ratio is ten to one.

The process I described above could repeat many times. Each time the money supply would increase, however, each time the amount of money they can lend goes down. Eventually, banks reach a theoretical maximum with is equal to 1 divided by the reserve requirement times the initial cash deposit. In my example I used a 25% reserve requirement so the theoretical maximum amount of virtual money that can be created by banks is $4800.

IOW: you are grossly oversimplifying the process. Banks will rarely make a loan unless they have the cash to cover that loan because the virtual money created in a loan is spent and will likely end up in another bank. When that happens the other banks always immediately demand real cash to cover the virtual money that was deposited into accounts that they have to pay interest on. Even if the banks are lucky and that virtual money is redeposited into their bank they still have to pay interest on that money.

Bottom line: creating a loan always creates a liability for banks. This liability may be caused by the new deposits that show up in accounts that they pay interest on or this liability may be created by cheques that allow other banks to demand real cash.

If you are so convinced that it is wrong then try to explain how it could work any way other than what I described.

Drea · February 7, 2007

Is it physically painful to be so dense? Seriously?

No kidding eh?!

Some people just can't wrap their brains around this... I kinda feel sorry for you folks in a way.

White Doors · February 7, 2007

You do that Drea. You all rememeber this in 20 years when you finally come out of your collective stupor. (those that there is still hope for)

Then remind yourself how a radical partisan ideaology can literaly bend your mind.

Then remember Jim Jones and count yourself lucky that you were merely pissing on the graves of others instead of being in one yourself.

Drea · February 7, 2007

I dunno whitedoors... what exactly Jim Jones etal have to do with banking... ?

whatever floats yer boat I suppose. :blink:

PolyNewbie · February 7, 2007

Riverwind:If you are so convinced that it is wrong then try to explain how it could work any way other than what I described.

The explanation came right out of your a$$. If you come here and clean my toilet I will re read the post.

JerrySeinfeld · February 7, 2007

Riverwind:If you are so convinced that it is wrong then try to explain how it could work any way other than what I described.

The explanation came right out of your a$$. If you come here and clean my toilet I will re read the post.

Polynewbie you are one wierd mofo.

Money is convenience. People used to barter goods. If I was a tailor and you were a blacksmith, the only way that I could get any blacksmithing done was to offer you my services as a tailor in trade.

Money eliminates that inconvenience and provides a liquid, universally accepted and tradable symbol of value.

What exactly is the point of this post anyway?

Riverwind · February 7, 2007

Riverwind:If you are so convinced that it is wrong then try to explain how it could work any way other than what I described.
The explanation came right out of your a$$. If you come here and clean my toilet I will re read the post.

Spoken like a true mindless fanatic. Unlike the nonsense you spout about 9/11 I can actually understand why someone would misunderstand the mechanics of banking. However, normal people don't close their eyes and stomp their feet like a 3 year old when presented with information that contradicts their preconceived notions.

The mechanisms I described can be found in any economics text book.

geoffrey · February 7, 2007

The mechanisms I described can be found in any economics text book.

Those books are controlled by UNESCO though!!! Don't you remember? The secret organization run by the Builderbergs to control your thoughts on the topic!!!

Don't ready any academically published info!!! Just internet stuff and wack job books!! They are the only untouched material in society!!!