Demand deposits don’t exist. They are deposits with 1 second waiting period. [;)]
If the bank lies to you about what it is doing then yes but if you know the risks involved then you should be allowed to take them.
Knowing has nothing to do with it.
If the banks intention is to loan out the money then it is a loan contract. If it is the depositors intention to retain full availability of the deposit on demand then it is a deposit contract. These two intentions are mutually exclusive.
Just because such contracts exist today does not mean they aren’t legal abominations. It doesn’t even matter that people agree to such contracts. Because the terms in the contract are incompatible they are all null and void.
With regards to knowing the risks, you are missing the whole point of demand deposit contracts: their legal function for the depositor is to nullify risk. Risks naturally belong with loan contracts.
The deposits are fully available. When was the last time you couldn’t get your money out?
Can I use my account in Bank of Max for immediate payment purposes? I.e., can I write a cheque against it, or ask your bank the transfer $100 to someone else’s account, etc.?
Why would anyone borrow money with a 5 minute repayment time? They wouldn’t even get out the door. What would be the point? Most people don’t borrow just to see their account balance increase for a few seconds.
ha, exactly the point i was trying to make (subtly!) contrasting the difference between demand deposit accounts and timed accounts (with arbitrarily small times) as scineram was conflating the two.
it would be better for his bank to operate morally and legally sound practices and find it self going out of business due to only offering product that consumer doesnt want, than raking in huge profits for a few years defrauding his customers.
What is fraud, if anyone knowingly does it?
Once you accept that the emergency agreement makes the arrangement valid inyour mind then all the arguements about the fraud of FRB go out the window because I can have all the functionality of FRB with a simple emergency waiting period. It doesn’t matter what the emergency is, its the idea we are discussing.
The time limit issue is relevant because if there is a one second waiting period then it again negates the FRB as fraud arguement because now all deposits are timed deposits. So the distinction between timed deposits and demand deposits is not relevant.
The point is, that the time difference is just arbitrary. See, you are happy to draw a distinction between timed deposits and demand depsoits when you think the time difference is relevant. So for you a minimum one week delay might seem reasonable and for others maybe 90 days and for others that are constantly using money in elaborate financial networks then maybe just a few minutes would be reasonable. The time distinction you are making is arbitrary and that is why the arguement falters.
well of course thats exactly whats unnaceptable. i know that i actually have a demand deposit account. i know that there is no emergency clause in its terms and conditions.
ok lets try again from first principles.
analyse good practice and bad practice in the straightfoward case of a depositor saving 10,000$ in a time deposit account for 1 year. with a bank.
in good practice , the bank makes arrangements to loan out the 10,000$ so that during the year, the 10,000$ is used by entrepeneurs to grow their business or consumers to buy now and pay later. the bank arranges its affairs so that the 10,000$ (plus interest) is collected from the borrowers in good time, so that it is available to be returned to the depositor on the anniversary of the initial deposit.
bad practice, would be , the bank making arrangement to loan out the 10,000$ over two years, the bank is arranging its affairs so as to miss the deadline , for the funds to be returned to the depositor on the anniversary of the initial deposit; here the bank have acted fraudulenty.
now, in a demand deposit, when the money must be available at any time, it would be fraudulent to make arrangement for the deposited funds to be loaned out for any length of time**,** because this would constitute breaching the contract that states the money must be available at any time.
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Here in a nutshell is the whole failure of the anti-FRB arguement. So we agree if we make a 60 day emergency agreement that I can have all the functionality of FRB. In fact since the delay is simply arbitrary it could be one day or six hours or whatever time frame you felt comfortable with. So your arguement is that as long as there is at least some emergency delay you can have all the FRB functionality that you want.
We have already established that any delay now makes this practice acceptable. So I am not saying that the money is available instantly, I am saying there is a 10 second delay. So there is no fraud. I have 10 seconds to make your money available. Your whole arguement has just crashed and burned. Also, in your example about the 1 year loan, what happens if the person doesn’t repay the loan to the bank, in your mind is the bank committing fraud now because they dont have your money at the end of one year?
so you advocate REFORMING FRB, so that its not fraudulent by being how it is;and you would do this by designing emergency clauses. which merely cause other problems, not least MORAL HAZARD.
so lets imagine with you that you dont offer vanilla demand deposit accounts. you offer a demand deposit with a 10second notice or less.
now lets analyse what this means for how you can conduct your affairs:
you must not design your lending agreements so that your borrowers, whilst maintaining their contract with you, could yet leave you short of all the funds when a withdrawal is demanded.
they do not commit the fraud of conspiring to cheat the depositor of his funds, yet they do breach their contract (and this is by definition a form of fraud). yet not only does the depositor have a claim against the bank, in your scenario the bank have a claim against the borrower
i am not advocating anything. I have demonstrated that with very simple mechanisms your arguements that the practical application of FRB is by definition fraud is incorrect.
And who do you propose will determine what is the appropriate design of lending agreements? Here is a novel idea, why don’t we let the market decide so that the customers of the bank and the bank can agree on this through their own vountary action.
In the example I have provided, where is the fraud? Is there risk sure, but that is an integral part of lending money, that is why they charge interest based on risk. Breach of a contract is not by defintion fraud. I don’t think anyone would agree that if you loaned money to a bank and the bank loaned the money to someone else that in the end didn’t pay then the bank was guilty of fraud. If that were the case then every business decision using borrowed money that didn’t work out would be fraud. Fraud requires intent.
You’re confusing possession with ownership.
I am not confusing anything. You do not own money in the account. The bank owes you money as a debtor.
Yeah, you do. Deposits are a bailment. You own the money insofar as quantity.
no you haven’t. you’ve simply ignored my arguments to the contrary.
here you are just being ridiculous. of course the market should decide how things are done, within the remit of being compatible with the non-aggression axiom and the private property ethic. sadly frb is not compatible with this, so it is not on the list of possible market solutions, just so much as blatant theft is not a legitimate enterprise for any market actor.
And where exactly is it set in stone that it is a bailment?
Perhaps you should read Chapter 7 of The Mystery of Banking.
im not sure which example you are referring to, on the other hand it hardly matters.
you say breach of contract only becomes fraud when one can prove intent. (intent is hard to prove in the absolute, because of the difficulty of reading peoples minds).
consider a simple case. i have a dollar and am willing to buy an apple from you. you tell me you are happy to sell me an apple. i give you a dollar. you give me a paper bag with something in it. when i get home i open the bag and there is potato. (hint: no apple)
clearly a breach of contract has occured.
further one might say that we can label this fraud, if we have intent to sell potatoes ‘as apples’. but not otherwise.
yet, would you not say that the selling-of-potatoes-‘as-apples’ is fraudulent?, and is this not what was done? the case for calling the selling of potatoes ‘as apples’ fraudulent is greatly strengthened by, for example; uncovering the principle that you the shopkeeper , to cut corners and save on wages, have fired your stock checkers, and are happy as a rule to just reach round the back for whatever lucky bag might be there, be it potatoe or apple inside. am i mistaken to say such a random rule shop owner is a fraudster, or not?