17 ms·

1) I hate paypal. 2) I would respectfully argue that your point about banks being safe due to regulation is quite false. On the contrary I would say that it is

by Judson 16y ago

1) I hate paypal. 2) I would respectfully argue that your point about banks being safe due to regulation is quite false. On the contrary I would say that it is (over-)regulation that causes banks to lose sight of their reason for existence (hint: its not selling mortgages to fanny and freedie), protection of capital (a service they used to charge for - Remember monthly checking fees?). Banks used to be in the business of protecting capital before the FDIC insured deposits for them at an insanely low price (relative to the risk the banks can take), thus killing the "Capital Preservation" specialized bank and entered free checking / free saving / free homes. Low reserve ratios and a never evolving asset classification (Mortgage backed securities were satisfying the reserve ratio for banks? Only government regulators could think up that one) allowed banks to play with everyone's money. Was it because of greed? Kinda. Exacerbated by having customers deposits insured? Now we're getting somewhere. Your point is not necessarily wrong, since most regulation is just a standardization of norms and practices common in the industry. But regulation can be bad (as almost anything in excess can be). The real reason Paypal sucks is my next point. 3) The real reasoning for their horror stories lies in the fact that they are simply an intermediary (of sorts, I believe that Paypal, the intermediary, is separate from Paypal, the bank). Person X pays Paypal and Paypal pays person Y. There are many ways this system could break down, but the most expensive for paypal are: - Person Y (the getting-paid) has their account hacked and starts scamming people on eBay, listing a lot of auctions and getting paid, never shipping stuff, and running with the money. eBay has made it harder to do this though, since you have to provide proof of shipping to get the funds released. - Person X (The payer) - has their account hacked (or their just a terrible person) and they charge up $1,000 in online shopping. Person Y ships the merchandise and Person X files a chargeback against Paypal. Paypal must then freeze that amount, sometimes taking it out of your bank account, to make sure they have the cash in case they lose the chargeback claim (which is really easy to do). In the end, I'm not really sure where they system breaks down. Paypal is over-zealous about trying to prevent fraud, but, unfortunately, they are at the mercy of the Credit Card processors. Its kind of amazing that they were able to create a market where they are bullied on all sides, by essentially bullying their customers.

_delirium 16y ago
Banks used to be in the business of protecting capital before the FDIC insured deposits for them at an insanely low price (relative to the risk the banks can take) They were never very good at that business, though. The main problem is that even a very conservative bank can't survive a large-scale bank run, and bank runs happened about every 15-20 years for an extended period of time: in the U.S., the Panic of 1819, Panic of 1837, Panic of 1857, Panic of 1873, Panic of 1893, Panic of 1907, and finally the panics of the late 1920s.
- Judson 16y ago
  And now we're getting into the some good stuff. While there were events named "panics", before Quantitative Easing was even a buzzword, they oddly resemble their central banking modern day equivalents, primarily because they were/are caused by the same reason - Government meddling in/with the money supply. I won't go through them all, but they faced the same problems we face today, and the same actors are the cause: In the panic of 1873, lots of railroads had been financing up to the hilt with debt because you couldn't lose money building railroads (or houses, right?) and they lobbied the government for easy money policies (non-convertable notes, issuing more currency) so that the value of the greenback would drop, making their outstanding debt worth less in real terms. Then the supreme court ruled in Hepburn v. Griswold in 1870 that "Legal Tender" (non-convertable US notes) was unconstitutional as per article 1 by a 5-3 vote. That shook up the market for the greenback, which was already trading at a heavy discount to gold dollars. But, don't worry, sure to create fear in the markets, President Grant appointed two new Republican judges (one open spot, and another spot created by a Majority member retiring post-vote), who quickly overturned that decision in Knox v. Lee by a 5-4 vote in May 1871. Add on top of this divide between wanting Gold backed dollars vs US non-backed "greenbacks", the money supply doubled as new banks opened and loaned out too much. According to Murray Rothbard: "The panic of 1873 was, not to initiate a great depression, but to cause bankrupt- cies in overinflated banks and in railroads riding on the tide of vast government subsidy and bank speculation."
  - _delirium 16y ago
    I can see that argument for some of them, but some of them seem clearly unrelated to government meddling with the money supply. For example, the Panic of 1907 was caused by a failed stock-market-cornering scheme, which caused a cascade of failures when it collapsed (the cascade exacerbated by loss of public confidence leading to mass deposit withdrawals). The trigger seems less important than the fundamental problem of bank runs, though, which is as old as banking: some trigger will eventually come by, and then you're hosed. The only way besides deposit-insurance I can think of to avoid it is full-reserve banking, where a bank literally holds its depositors' money in the vaults. But such banking has never been commercially very successful, because it has to charge fees and pays no interest to depositors, and when there hasn't been a crisis in some years, depositors' memories grow short, only to be awaked again in panic when it seems another crisis might loom. One possibility could be to mandate that normal retail banking be full-reserve, by prohibiting banks that take retail deposits from lending that money out. That'd be fairly draconian regulation, though, even more strict than the old Glass-Steagall regulation of what retail banks could do with their deposits. (It seems Rothbard wants to get rid of fractional-reserve banking without the government banning it, but I'm skeptical it would actually go away the way he thinks it would.)

by Judson 16y ago

_delirium 16y ago

Banks used to be in the business of protecting capital before the FDIC insured deposits for them at an insanely low price (relative to the risk the banks can take) They were never very good at that business, though. The main problem is that even a very conservative bank can't survive a large-scale bank run, and bank runs happened about every 15-20 years for an extended period of time: in the U.S., the Panic of 1819, Panic of 1837, Panic of 1857, Panic of 1873, Panic of 1893, Panic of 1907, and finally the panics of the late 1920s.

Judson 16y ago
And now we're getting into the some good stuff. While there were events named "panics", before Quantitative Easing was even a buzzword, they oddly resemble their central banking modern day equivalents, primarily because they were/are caused by the same reason - Government meddling in/with the money supply. I won't go through them all, but they faced the same problems we face today, and the same actors are the cause: In the panic of 1873, lots of railroads had been financing up to the hilt with debt because you couldn't lose money building railroads (or houses, right?) and they lobbied the government for easy money policies (non-convertable notes, issuing more currency) so that the value of the greenback would drop, making their outstanding debt worth less in real terms. Then the supreme court ruled in Hepburn v. Griswold in 1870 that "Legal Tender" (non-convertable US notes) was unconstitutional as per article 1 by a 5-3 vote. That shook up the market for the greenback, which was already trading at a heavy discount to gold dollars. But, don't worry, sure to create fear in the markets, President Grant appointed two new Republican judges (one open spot, and another spot created by a Majority member retiring post-vote), who quickly overturned that decision in Knox v. Lee by a 5-4 vote in May 1871. Add on top of this divide between wanting Gold backed dollars vs US non-backed "greenbacks", the money supply doubled as new banks opened and loaned out too much. According to Murray Rothbard: "The panic of 1873 was, not to initiate a great depression, but to cause bankrupt- cies in overinflated banks and in railroads riding on the tide of vast government subsidy and bank speculation."
- _delirium 16y ago
  I can see that argument for some of them, but some of them seem clearly unrelated to government meddling with the money supply. For example, the Panic of 1907 was caused by a failed stock-market-cornering scheme, which caused a cascade of failures when it collapsed (the cascade exacerbated by loss of public confidence leading to mass deposit withdrawals). The trigger seems less important than the fundamental problem of bank runs, though, which is as old as banking: some trigger will eventually come by, and then you're hosed. The only way besides deposit-insurance I can think of to avoid it is full-reserve banking, where a bank literally holds its depositors' money in the vaults. But such banking has never been commercially very successful, because it has to charge fees and pays no interest to depositors, and when there hasn't been a crisis in some years, depositors' memories grow short, only to be awaked again in panic when it seems another crisis might loom. One possibility could be to mandate that normal retail banking be full-reserve, by prohibiting banks that take retail deposits from lending that money out. That'd be fairly draconian regulation, though, even more strict than the old Glass-Steagall regulation of what retail banks could do with their deposits. (It seems Rothbard wants to get rid of fractional-reserve banking without the government banning it, but I'm skeptical it would actually go away the way he thinks it would.)