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Maybe banks shouldn't be able to place bets with depositor funds.
by NotACop182 4y ago
Maybe banks shouldn't be able to place bets with depositor funds.
- 323 4y agoThey aren't. The particular "bet" here, treasury bonds, are considered the safest form of US money, they are considered "risk-free".
- IAmGraydon 4y agoSee my other reply to the parent comment. Treasuries are not risk free.
- IAmGraydon 4y agoThey were returning interest to the depositors, so actually the depositors decided to take on the risk. You will never earn interest without risk. If you're told that any form of interest is risk free, it's not true. In the case of treasuries, the risk is not default - it's inflation risk. This is because there is a chance that inflation outpaces the bond yield, meaning you lose money over the life of the bond (as the principal will lose buying power) and the underlying bond will also lose it's value as higher yielding bonds are auctioned by the government.