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Banks are regulated through the nose (in most places at most times) to make sure they don’t mess it up. The money creation is a carefully choreographed juggling

Banks are regulated through the nose (in most places at most times) to make sure they don’t mess it up. The money creation is a carefully choreographed juggling act where balls can’t fall on the ground. The extra money created is effectively money someone doesn’t need right now (deposit) that can be temporarily used, and returned eventually, by someone else. When it works, it works very well, but when it doesn’t, banks go bankrupt and someone generally loses money (deposits are insured but then the insurance scheme loses). It’s not a bad thing overall, our capitalist world would be impossible without it, but this money creation craziness is a necessary component.

andrepd 5y ago
> Banks are regulated through the nose (in most places at most times) to make sure they don’t mess it up. Eehhhhhhh........ Sounds like that isn't working out so well is it? x) With the only difference of course that if _I_ fail my obligations I don't get a taxpayer-funded bailout financed by cuts to people's salaries and pensions, instead my house gets reposessed and I go live with my kids to a homeless shelter. But anyways. So give me similar rules: asset/liability ratios, cash flow minimums, the works!, to determine how much I can create by this mechanism. > The extra money created is effectively money someone doesn’t need right now (deposit) that can be temporarily used, and returned eventually, by someone else. That's not true in fractional reserve banking, and we're actually well last that, we're into no-reserve banking now.
- rich_sasha 5y ago
  Yeah, we’ll, the credit crunch was an enormous fuck up. I kind of blame the regulators for letting the wolves self-regulate sheep herding, though of course it was ultimately a team effort. But that was all a textbook example of regulating banks the wrong way. > That's not true in fractional reserve banking, and we're actually well last that, we're into no-reserve banking now. How so? In Europe at least, banks lend from their own loans (a mix of deposits, bonds and commercial papers), plus need capital at a fraction of assets (ie loans made).
- majormajor 5y ago
  Why do you think you COULDN'T start a bank? (And if starting a bank was a magic money-printing machine, no bank could ever need bailing out! They could bail themselves out! By definition!) And can you go into more of why you don't think that applies to fractional or no-reserve banking? If I'm required to hold all my deposits in cash, I'd have to fund my loans through a different mechanism. Isn't lower reserve requirements precisely the means through which "money someone doesn't need right now" can be "temporarily used, and returned eventually, by someone else"?
- vkou 5y ago
  > Eehhhhhhh........ Sounds like that isn't working out so well is it? x) Over the past 88 years, not a single penny of FDIC-insured money has ever been lost in a bank collapse... And when a bank collapses, non-FDIC-insured money also finds a way to not evaporate. The biggest bank bust in history - Washington Mutual, with $300 billion under management collapsed in 2008. Not a penny of its depositor funds, insured or not, were lost. Meanwhile, in the three years prior to the establishment of the FDIC, over 9000 banks collapsed, collectively losing $140 billion dollars of depositor money. One of the most important jobs of the federal government is maintaining confidence in the banking sector, because without it, we'd all be living in a Mad Max hellscape, trading bottlecaps for ammunition.

andrepd 5y ago

> Banks are regulated through the nose (in most places at most times) to make sure they don’t mess it up. Eehhhhhhh........ Sounds like that isn't working out so well is it? x) With the only difference of course that if _I_ fail my obligations I don't get a taxpayer-funded bailout financed by cuts to people's salaries and pensions, instead my house gets reposessed and I go live with my kids to a homeless shelter. But anyways. So give me similar rules: asset/liability ratios, cash flow minimums, the works!, to determine how much I can create by this mechanism. > The extra money created is effectively money someone doesn’t need right now (deposit) that can be temporarily used, and returned eventually, by someone else. That's not true in fractional reserve banking, and we're actually well last that, we're into no-reserve banking now.

rich_sasha 5y ago
Yeah, we’ll, the credit crunch was an enormous fuck up. I kind of blame the regulators for letting the wolves self-regulate sheep herding, though of course it was ultimately a team effort. But that was all a textbook example of regulating banks the wrong way. > That's not true in fractional reserve banking, and we're actually well last that, we're into no-reserve banking now. How so? In Europe at least, banks lend from their own loans (a mix of deposits, bonds and commercial papers), plus need capital at a fraction of assets (ie loans made).
majormajor 5y ago
Why do you think you COULDN'T start a bank? (And if starting a bank was a magic money-printing machine, no bank could ever need bailing out! They could bail themselves out! By definition!) And can you go into more of why you don't think that applies to fractional or no-reserve banking? If I'm required to hold all my deposits in cash, I'd have to fund my loans through a different mechanism. Isn't lower reserve requirements precisely the means through which "money someone doesn't need right now" can be "temporarily used, and returned eventually, by someone else"?
vkou 5y ago
> Eehhhhhhh........ Sounds like that isn't working out so well is it? x) Over the past 88 years, not a single penny of FDIC-insured money has ever been lost in a bank collapse... And when a bank collapses, non-FDIC-insured money also finds a way to not evaporate. The biggest bank bust in history - Washington Mutual, with $300 billion under management collapsed in 2008. Not a penny of its depositor funds, insured or not, were lost. Meanwhile, in the three years prior to the establishment of the FDIC, over 9000 banks collapsed, collectively losing $140 billion dollars of depositor money. One of the most important jobs of the federal government is maintaining confidence in the banking sector, because without it, we'd all be living in a Mad Max hellscape, trading bottlecaps for ammunition.