4 ms·

It is the essence of banking, and that's the problem. The greatest trick the devil ever pulled... Loans for cars, or anything else, are fine, as long as the b

It is the essence of banking, and that's the problem. The greatest trick the devil ever pulled... Loans for cars, or anything else, are fine, as long as the bank has deposits covering the loan on hand for longer than the duration of the loan. I put my money in the bank for 5 years, they loan the money to you to buy your car for 4 years. Credit cards are not counted against deposits and, therefore, stand outside this analysis, although I'm not sure I would allow banks involved in taking deposits to issue them, because the capital structure tends to become muddled. If you think about it, you can have nearly as much loan-expansion as the current fractionally reserved system (maybe even more since there is no need for a reserve ratio), but there is no double counting of monetary units at a given point in time and, therefore, no possibility for a bank run. I will admit that this is my own economic theory and that I am used to the crazy looks from people.

zeveb 11y ago
> Loans for cars, or anything else, are fine, as long as the bank has deposits covering the loan on hand for longer than the duration of the loan. I put my money in the bank for 5 years, they loan the money to you to buy your car for 4 years. Think about that: you deposit your money in the bank; the bank lends it to me; I pay the car dealer — which means that money is no longer in your bank! What is in the bank is an IOU from me for that money, and of course that IOU itself has some value and could itself be sold/lent to someone else for some other purchase. There's no fraud, no double-counting, but it all makes perfect sense.
- carsongross 11y ago
  Are we arguing? The money is no longer in the bank, but I can't demand it for five years, which is great, because the bank will get the loan paid back, with interest, in four. And yes, I would expect a secondary market to develop for deposit receipts as people misjudge their time/money needs. What am I to think about? Duration mismatch is the problem, eliminate it and you eliminate bank runs and, more importantly, lying. The fraud is when the bank, through slight of hand, tells more than one person they can have a given monetary unit at a given point in time. That's the double counting. But perhaps I'm misunderstanding you.
  - snowwrestler 11y ago
    Bank runs are a solved problem. We solved them with deposit insurance, not by locking people's deposits up for years.
    - carsongross 11y ago
      Yes, I'm sure working for a bank pays well.

zeveb 11y ago

> Loans for cars, or anything else, are fine, as long as the bank has deposits covering the loan on hand for longer than the duration of the loan. I put my money in the bank for 5 years, they loan the money to you to buy your car for 4 years. Think about that: you deposit your money in the bank; the bank lends it to me; I pay the car dealer — which means that money is no longer in your bank! What is in the bank is an IOU from me for that money, and of course that IOU itself has some value and could itself be sold/lent to someone else for some other purchase. There's no fraud, no double-counting, but it all makes perfect sense.

carsongross 11y ago
Are we arguing? The money is no longer in the bank, but I can't demand it for five years, which is great, because the bank will get the loan paid back, with interest, in four. And yes, I would expect a secondary market to develop for deposit receipts as people misjudge their time/money needs. What am I to think about? Duration mismatch is the problem, eliminate it and you eliminate bank runs and, more importantly, lying. The fraud is when the bank, through slight of hand, tells more than one person they can have a given monetary unit at a given point in time. That's the double counting. But perhaps I'm misunderstanding you.
- snowwrestler 11y ago
  Bank runs are a solved problem. We solved them with deposit insurance, not by locking people's deposits up for years.
  - carsongross 11y ago
    Yes, I'm sure working for a bank pays well.