This is false, empirically.
This is an example of a deposit contract. II/A says you are debtor and creditor. This is a loan contract.
if it says its a loan contract then its not a deposit contact. bad contract trying to be two incompatible things at once.
No, it isn’t. And I’ll read the links in a bit.
I agree that the demand guarantee is not possible while having a fraction of the total amount supplied via deposit. So banks that are operating under this now have provided a false guarantee. That in and of itself does not make them insolvent. So if a bank were operating now with a demand guarantee and switched to a non-guarantee how woud the operations actually change? The answer is they wouldn’t. That is the point.
You have clarified a legal impossibility in that a bank can not guarantee demand deposits to all its customers without all the money being available all the time. So what? Having now corrected that legal language in the contract please explain how the bank will conduct operations differently than before? You see the bank still has to have ample reserves to meet all the requests just like before.
You and your cult anti-frb crowd have charged at me howling like lunatics and with a deft flick of the blade of reason I have sent you all over the cliff.
It is always tough when reality slaps you and your pet theory upside the head.
Why would you assume this? This bank has taken away the on demand guarantee, so the people who want their money on demand will immediately want to transfer it to a bank that guarantees it. We don’t know how many people that will be, so you have no idea if they’ll have ample reserves to meet requirements or not.
This doesn’t make much sense either.
haha,
well i suppose you think the following is a perfectly legitimate contract
A contracts with B, that whenever A pays B price P between now and next tuesday B is obligated to both : deliver an apple to A, and also, not deliver anything to A.
Do you think the example contract is not a legitimate contract? Please explain why not.
Well as you have pointed out the demand (in the cases where it still exists) was an impossibility before so removing it has not changed anything for the depositor.
Well since they were banking there before without problems I doubt everyone will change. As I pointed out some banks don’t guarantee deposits now and people still bank there. In fact I would bet that most of the anti-frb crowd here banks at these FRB banks that are “inherently insolvent and fraudulent” even with all of their posturing here on this site. I think you are overvaluing a ten word change in a contract most people don’t even read.
Since the bank isn’t guaranteeing approval of the requests the reserves are a courtesy not a requirement so ample is a managment decision not a legal requirement.
of course its not legitimate, didnt you notice B was contracted to perfrom a logical contradiction. if he provides an apple, he fails to avoid being the deliverer of anything, and if he avoids delivering anything he does not deliver an apple.
was that not clear the first time?
never wrestle with a pig…
I never claimed everyone would change. It wouldn’t take many (assuming a 10% reserve requirement) to want to move their money before that bank became insolvent though.
Right now most of the people who don’t care are counting on the FDIC to cover them in the event their bank goes under. Take that assurance away from depositors and there will be even fewer who don’t care.
Ample, in the sense you used it, I understood as they’d have enough reserves to meet withdrawal requests (because that is why they’d be able to operate exactly as now). If you mean it in some sort of crazy subjective way that is impossible to measure objectively, sure, maybe they’d have ample reserves by that standard. It is also a completely worthless statement to make if you intend to remove all meaning from it.
I was speaking of th actual contract from Bank of America, which is the largest bank in the US. Why is that contract a logical contradiction? Your imaginary contract does not bare any relation to that.
The bank is not insolvent because it runs out of reserves to pay requests. The bank would have for example 60 days per the contract to liquidate its loan positions to meet requests. If the bank then liquidated all of its loans and paid back the requests then that is not insolvency. Also, if not everyone changes then the bank is still in business although with less customers and it simply has to adjust its loan portfolio. Again, that is not insolvent.
This whole line of thought assumes that there are not different risk preferences in the market place. It is far more likely that the banks in a free society will reflect the varying risk preferences of the market rather than a monolithic banking system as you are suggesting. If people make risk trade-offs now I do not see why that would stop in the absence of government.
Any bank that operated with fractional reserves makes assesments on how much they would need in reserves to meet withdrawal requests. What you are suggesting is a dramatic increase that may be more than current reserves in which case the bank has a time frame to liquidate its loan positions to pay the requests. So your example doesn’t change anything. The bank is not insolvent because it is not required to meet the requests on demand only within the time frame given.
Semantics. The point you were making was that it would operate no differently than today, when in reality it most likely would. The first time you told someone they would get their money in 60 days from an account that when they deposited it was on demand, you’d cause a run on the bank.
This may very well be true. You could make a contract saying that you have 60 days to pay if you desire and then pay them early if you have the money. I just don’t see why you think this amounts to fractional reserve banking. On the face it may not seem like a big difference, but in your scenario you don’t have two people who both have claim to the same dollar at the same time.
But what is the trade off? I can’t see any economic benefits to either depositing my money in your bank versus another time deposit account, and I don’t see any economic benefit for running your bank versus another time deposit account. While it’s true people accept different types of risk, it is based on the possible rewards.
But the only reason the bank isn’t insolvent is because they changed the contract on their unwitting customers. When they deposited the money it was a demand deposit afterall.
It doesn’t. FRB is the result of banks treating deposit contracts as if they were loan contracts. Now, the contract he is talking about simply isn’t economically viable, but it isn’t FRB. I’d also argue that if he is promising them payment within 60 days it is fraud, simply because unless he has in cash enough money to cover all of his liabilities he cannot ensure that he will pay everybody back.
either two people have between them a contract which is a loan contract, or they have a loan which is a demand deposit agreement,
or they have two contracts, one for a loan and for a deposit account.
but they cant have a contract for a loan which is a demand deposit account.
they cant have a contract for a demand deposit account thats a loan.
its hard enough to parse the sentances, this is because it makes no logical sense. it is contradictary.
i suppose that it really is a lending agreement, and the fraud is the ‘pretence’ that what the customer is getting is a ‘demand deposit account’. when they arent getting that. if its a loan contract, the only logically possible deposit agreements are Timed Deposit agreements, and Perhaps Deposit agreements. not Demand Deposit agreements
We have already cleared up the matter that it is not a demand deposit. What the real question is having been relieved of this demand burden why would the functionality of banks be any different in a free society. Take Bank of America, it’s contract states that in fact that the realtionship is a loan so they have no obligation to return funds on demand. How would Bank of America operate differently in a free society? See your arguement is not about what is actually happening it’s just a fiction.
That would mean promising to pay anyone back would be a fraud unless you had an equal amount of funds set aside to cover the timed deposit in which you case you would not need the timed deposit. If you loan someone money you have default risk, default is not fraud.
…I wonder what the fed is ?..What does ‘bailout’ mean ? What’s the price of banking shares…? It’s interesting. A shinning example of “free-market-capitalism” such as citibank, for instance, has gone from $50 to $2…and if it weren’t for the state the price would probably be…zero. Max, have you lately bothered to check the price of financial stocks ? Any comments ?