fractional reserve banking :: really a problem?

[Juan]

@scineram

@Juan

Let’s say I lend you a spade. Now, when you are halfway using it I say : please give it back to me. Do you think that’s practical ? You’re forced to either leave your work unfinished or default.

So what? This is typical evasion.

Not at all. It’s an analogy of sorts showing why FRB will always fail since it relies on the absurd notion that assets can be both loaned and available on demand at the same time.

Practicality has not much to do with legality.

So what ? I’m not a legalist - I’m explaining why FRB will fail, from the economic point of view. If two people want to enter an absurd contract, fine. I don’t care.

However notice that the claim that people really know how FRB works is false. Just as false as the claim that there ever was such a thing as sound, ‘free’, fractional reserve banking :

The Myth of Free Banking in ScotlandThe kind of FRB that actually existed and exists, was and is a fraud supported by political power.

[Paul]

@scineram

So what? This is typical evasion. Practicality has not much to do with legality. Besides demanding the spade too early is not very likely so the problem would be small anyway. I lend dvds or books for unspecified terms all the time.

Books and DVDs aren’t a problem - you expect the borrower to have them in his possession the whole time, so they’re available when you want them back; at worst, he hasn’t finished the book yet, which might be a minor annoyance. Borrowing money under such conditions would be pointless - the whole reason for borrowing it in the first place is to spend it: when you ask for it back, he simply doesn’t have access to it.

[Anonymous_Coward]

@Paul

@scineram

So what? This is typical evasion. Practicality has not much to do with legality. Besides demanding the spade too early is not very likely so the problem would be small anyway. I lend dvds or books for unspecified terms all the time.

Books and DVDs aren’t a problem - you expect the borrower to have them in his possession the whole time, so they’re available when you want them back; at worst, he hasn’t finished the book yet, which might be a minor annoyance. Borrowing money under such conditions would be pointless - the whole reason for borrowing it in the first place is to spend it: when you ask for it back, he simply doesn’t have access to it.

Actually, I think they’re on to something here.

The next time someone at the bar asks me to watch their purse while they go to the restroom or outside to smoke I’m just going to assume they are giving me a short term loan of all the contents of the purse and proceed to buy myself a beer.

It isn’t theft since I fully intend to return the money as soon as they ask for it…

Or I guess I can also start borrowing stuff from my friends and pawn it since that would also seem to be fine.

[jason4liberty]

@Maxliberty

So I am not free to do with my money as I please. What is the point of a free society if you can’t bank where you want?

You are free to do what you want with you money - within the law. You can set it on fire. You can eat it. You can loan it - BUT, you can’t have it at the same time you loan it. You can have claim to it, based on the loan contract, at some future time, but you can not have it and loan it at the same time. That is called “having your cake and eating it, too”. It doesn’t work unless you have two cakes.

Also, you can’t spend your money to hire a hit man to kill everyone else who is right. That would violate the law (based on property rights, not just legislation). You can not use your money to buy a printing press and print more money, because that is counterfieting. You can not use your money to buy poisen to destroy someone else’s land.

So there are lots of things you can do with your money. There are lots of things you can’t do with your money. FRB is fraud and you engaging in fraud is illegal, so FRB is not one of your legal choices.

[Maxliberty]

@JonBostwick

Insurance exists for events that can not be planned for.

Wrong, insurance exists for things that you know will happen but you are unsure to whom so the risk is spread over the entire group. Loaning money has quantifiable risks. Some people will default.

@JonBostwick

If my deposit is insured I no longer have any incentive to make good loans.

If your deposit is insured then in a free market the people insuring the deposit will have restrictions on the loans you make to protect their investment. The insurer will have an incentive to make sure you make good loans. Private insurers are not the same as government.

[Maxliberty]

@gussosa

As someone else pointed out, I guess neither you or Max has ever used a bank.

Think outside of your a little box for a minute. Forget what you know about the government system and ask yourself why it’s fraud for people to loan money and have an on demand call? If that doesn’t violate any principle then fractional reserves will be the norm.

[Maxliberty]

@jason4liberty

You can have claim to it, based on the loan contract, at some future time, but you can not have it and loan it at the same time.

This is your confusion. If my money is in the bank I don’t have it, the bank has it. I only have it when I ask for it. This is why it’s called a demand deposit. The bank uses the money when I am not using it and then I use it when I need it. That is not fraud.

[Maxliberty]

@Anonymous Coward

Yes we know your claim that a demand deposit is a loan but how does that explain why they are the only industry who has a specific immunity from bailment law if a demand deposit isn’t a bailment contract?

You are concerned with government mandates and protections. My issue is why in a free-market this is fraud.

@Anonymous Coward

It is up to you to prove that a demand deposit is a loan

Again, think outside the government box. Why in a free society is it fraud to do what I have proposed? Why would a bank not be able to tell its customers they can have their money on demand. The bank could easily have a call document in all the loans it makes or have insurance on demand deposits or timed deposits for that matter. What you do not understand is the time value of money, whether it is one second or one year the concept is the same.

So in a private bank there is no difference between timed deposits and demand deposits. Both deposits have a period of time when the lender will need the money.

[Juan]

Why in a free society is it fraud to do what I have proposed? Why would a bank not be able to tell its customers they can have their money on demand.

Because it is a## lie ?

[scineram]

If I would go the to bank tomorrow to take out my money I would be paid. What lie?

[Juan]

Did you read Rothbard’s paper yet ?

[scineram]

Yes. Relevancy to legitimacy?

[Pyramid]

Not if there is a massive run on the bank which is why many of the banks recently have failed and the government has bailed some of them out.

[Maxliberty]

@Pyramid

Not if there is a massive run on the bank which is why many of the banks recently have failed and the government has bailed some of them out.

If you deposit your money in a CD and when the time to collect comes if the bank doesn’t have your money this is the same effect as a run on the bank. Are you under the impression that banks won’t make bad loans in a free-market? Is it inconceivable that your specific time deposit could face the same fate as your demand deposit? Time deposits operate on a fractional reserve basis as well. The bank doesn’t always collect everything due on the exact day and sometimes people default so they don’t collect at all.

Giving your money to a bank involves a certain amount of risk. Are you really saying that banking is supposed to be risk free?

[Anonymous_Coward]

@Maxliberty

This is your confusion. If my money is in the bank I don’t have it, the bank has it. I only have it when I ask for it. This is why it’s called a demand deposit. The bank uses the money when I am not using it and then I use it when I need it. That is not fraud.

You still haven’t answered the question is that how you are going to structure your internet bank?

Do you really thing anyone will sign up for a 10% gold backed account…hold on, 100% gold backed account that is a loan for you to use the gold as you see fit until they ask for it, and have any confidence in this system?

I think you should start pimping up the 100% reserve/bailment contract if you want any investors other than your mom…

Or is your plan any different than a traditional FRB bank?

[Pyramid]

@Maxliberty

If you deposit your money in a CD and when the time to collect comes if the bank doesn’t have your money this is the same effect as a run on the bank. Are you under the impression that banks won’t make bad loans in a free-market? Is it inconceivable that your specific time deposit could face the same fate as your demand deposit? Time deposits operate on a fractional reserve basis as well. The bank doesn’t always collect everything due on the exact day and sometimes people default so they don’t collect at all.

Giving your money to a bank involves a certain amount of risk. Are you really saying that banking is supposed to be risk free?

I did not mention anything about CDs but what does it matter if your money is in a CD, savings or checking account if there is a run on the bank? It doesn’t. I would say that banking is supposed to be risk free but in a fractional reserve system it isn’t.

Banks that make bad loans should suffer the consequences and not be bailed out. These kind of actions only prolong a recession putting more and more people out of work. I find it amazing that in a democratic society so few are talking about the privatization of profit and the socialization of risk. This bailout was a robbery of the taxpayers dollars, pure and simple.

[Maxliberty]

@Anonymous Coward

You still haven’t answered the question is that how you are going to structure your internet bank?

I didn’t realize anyone had asked that question.

It is not a bank. It is 100% gold-backed internet currency system. The money in the system is always with 100% gold backed reserve.

Banking involves loaning money. I think that answers your question.

[Maxliberty]

@Pyramid

I would say that banking is supposed to be risk free but in a fractional reserve system it isn’t.

Loaning money is not risk free. That is what banks do, they loan money.

@Pyramid

Banks that make bad loans should suffer the consequences and not be bailed out.

Nearly everyone here is opposed to the bailout and the government in general.

@Pyramid

This bailout was a robbery of the taxpayers dollars, pure and simple.

Forget the bailout, the acquisition of “taxpayer dollars” was the first robbery.

[Juan]

@scineram

Yes. Relevancy to legitimacy?

What do you mean by legitimacy ? Are you a legalist ? The thing is, the claim made by FR bankers is a lie. Just like your attempt to prove that FRB works by citing scottish banking as an example was a lie.

[Anonymous_Coward]

@Maxliberty

It is not a bank. It is 100% gold-backed internet currency system. The money in the system is always with 100% gold backed reserve.

So, in other words…it’s a bank.

You have failed the ‘if it walks like a duck…’ test.

@Maxliberty

Banking involves loaning money. I think that answers your question.

How is the conception of a 100% reserve bank any different than your plan and how is it not moral for you to use the depositors’ money as long as you practice ‘good money management’?

And why does banking only involve loaning money? They don’t loan all the money or else they wouldn’t require a reserve.