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I think you messed that up a bit. You give the bank $1. The bank then goes ahead and loans $0.90 to Bob, who then uses it to invest in a business or a home. Th

I think you messed that up a bit. You give the bank $1. The bank then goes ahead and loans $0.90 to Bob, who then uses it to invest in a business or a home. That $1 still exists, just most of its backed by the debt that Bob has to the bank. I don’t believe bob would take that $0.9 that the bank loaned him and put it back into the same bank.

arcticbull 7y ago
It’s so frustrating that the crypto folks are basically the antivaxxers of finance. They refuse to understand how it works and yet are sure they’ve got a better plan because the status quo is a scam. At least unlike antivaxxers it’s only their own welfare at risk.
- jameskegel 7y ago
  Your shrill comment is emblematic of the problem it laments.
- onefuncman 7y ago
  Actually, their electricity usage makes this everyone's problem, just like antivaxxers.
- b_tterc_p 7y ago
  This is what I was thinking but I didn’t have a way to phrase it. Many people are convinced that fractional reserve banking is terrible without understanding the basics of how it work, writing it off as too complicated for people to comprehend and therefore bad... but their solution is a system which is orders of magnitude more complicated and, in all likelihood, will still result in fractional reserve banking entities popping up. Tether isn’t a fractional reserve bank. It’s far worse. It’s just taking your money and showing that that they “only” spent some of it. But people in this thread are comparing it __favorably__ to traditional banks.
  - gridlockd 7y ago
    I never said that Crypto was any good or that fractional reserve was bad. It obviously works for the banks (until it doesn't), it seems to work for Tether as well. I'm just pointing out the parallels, which are far more striking than the differences. People here point out that fractional reserves is backed by loans and securities of (supposedly) equal value, or that it's all regulated and insured, but it wasn't always like that, it's not a strict requirement for the system to work.
    - b_tterc_p 7y ago
      > but it wasn't always like that, Insurance and regulation is good for you as a consumer, and yeah that is new. But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks. Tether is not a bank. You have no guarantee of being allowed to exchange tether for dollars. It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything
      - gridlockd 7y ago
        > But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks. Greater or equal face value, not actual value. Tether is basically making the same claim. > Tether is not a bank. I never said that Tether was a bank. > You have no guarantee of being allowed to exchange tether for dollars. To be pedantic, no such guarantee exists for bank deposits either. > It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything. Tether obviously does work, it's probably the most stable cryptocurrency out there, despite being run by sketchy people. You can exchange it for other cryptocurrencies and you can exchange cryptocurrencies for ordinary currencies. Absent proper access to ordinary banking, Tether has been a tool for exchanges to perform settlements in the hundreds of millions of dollars. The view that Tether "does nothing" is just uninformed.
        arcticbull 7y ago
        The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC. Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government. A Tether is worth whatever you can get the next guy to buy your bags for representing no obligations on anyone.
- deleted 7y ago
  [deleted]
b_tterc_p 7y ago
I’m not sure why this one is getting downvoted. It’s not wrong. Technically bob would probably spend it somewhere and the recipient of bob’s spending would put it in the bank. But the outcome is pretty much the same. I just threw out some bits that didn’t affect the state much. But for illustrative purposes it’s probably best to assume that the 90 cents is eventually put into the same bank, so people can follow why the bank is allowed to do this.
- village-idiot 7y ago
  Well, typically the interest from Bob's loan would be deposited, making the bank's balance go up to a maybe $1.03 or $1.04.
  - b_tterc_p 7y ago
    If we’re getting really technical, the interest belongs to the bank as profit. The bank decides to give you a cut of it, which you put in the bank anyway.

arcticbull 7y ago

It’s so frustrating that the crypto folks are basically the antivaxxers of finance. They refuse to understand how it works and yet are sure they’ve got a better plan because the status quo is a scam. At least unlike antivaxxers it’s only their own welfare at risk.

jameskegel 7y ago
Your shrill comment is emblematic of the problem it laments.
onefuncman 7y ago
Actually, their electricity usage makes this everyone's problem, just like antivaxxers.
b_tterc_p 7y ago
This is what I was thinking but I didn’t have a way to phrase it. Many people are convinced that fractional reserve banking is terrible without understanding the basics of how it work, writing it off as too complicated for people to comprehend and therefore bad... but their solution is a system which is orders of magnitude more complicated and, in all likelihood, will still result in fractional reserve banking entities popping up. Tether isn’t a fractional reserve bank. It’s far worse. It’s just taking your money and showing that that they “only” spent some of it. But people in this thread are comparing it __favorably__ to traditional banks.
- gridlockd 7y ago
  I never said that Crypto was any good or that fractional reserve was bad. It obviously works for the banks (until it doesn't), it seems to work for Tether as well. I'm just pointing out the parallels, which are far more striking than the differences. People here point out that fractional reserves is backed by loans and securities of (supposedly) equal value, or that it's all regulated and insured, but it wasn't always like that, it's not a strict requirement for the system to work.
  - b_tterc_p 7y ago
    > but it wasn't always like that, Insurance and regulation is good for you as a consumer, and yeah that is new. But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks. Tether is not a bank. You have no guarantee of being allowed to exchange tether for dollars. It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything
    - gridlockd 7y ago
      > But assets have always been backed by loans of (greater than or) equal value. That’s the point of banks. Greater or equal face value, not actual value. Tether is basically making the same claim. > Tether is not a bank. I never said that Tether was a bank. > You have no guarantee of being allowed to exchange tether for dollars. To be pedantic, no such guarantee exists for bank deposits either. > It’s just... a weird service that doesn’t make sense. Tether doesn’t “work” because tether doesn’t do anything. Tether obviously does work, it's probably the most stable cryptocurrency out there, despite being run by sketchy people. You can exchange it for other cryptocurrencies and you can exchange cryptocurrencies for ordinary currencies. Absent proper access to ordinary banking, Tether has been a tool for exchanges to perform settlements in the hundreds of millions of dollars. The view that Tether "does nothing" is just uninformed.
      - arcticbull 7y ago
        The guarantee you can withdraw funds from a bank account does exist, it’s the FDIC. Tethers terms of service specifically state you’re buying funbucks / chuck-e-cheese tokens and they have no redemption value. A unit of value in your bank account represents a claim you have against the assets held in the bank backed by the weight of the US government. A Tether is worth whatever you can get the next guy to buy your bags for representing no obligations on anyone.
deleted 7y ago
[deleted]

b_tterc_p 7y ago

I’m not sure why this one is getting downvoted. It’s not wrong. Technically bob would probably spend it somewhere and the recipient of bob’s spending would put it in the bank. But the outcome is pretty much the same. I just threw out some bits that didn’t affect the state much. But for illustrative purposes it’s probably best to assume that the 90 cents is eventually put into the same bank, so people can follow why the bank is allowed to do this.

village-idiot 7y ago
Well, typically the interest from Bob's loan would be deposited, making the bank's balance go up to a maybe $1.03 or $1.04.
- b_tterc_p 7y ago
  If we’re getting really technical, the interest belongs to the bank as profit. The bank decides to give you a cut of it, which you put in the bank anyway.