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This is not correct. They distribute interest to 'depositors'. See reverse repo market. They're printing citizens' money and giving it to rich people just for b

This is not correct. They distribute interest to 'depositors'. See reverse repo market. They're printing citizens' money and giving it to rich people just for being rich. Also, if banks go bankrupt and then the individuals and businesses which they made loans to go bankrupt (which is actually not that uncommon; see SVB), the Fed cannot get that money back, the average citizen is the loser again... So as you can see, the money is not always paid back. The Fed just prints money, that's a fact. The "it's just loans" narrative is false rhetoric. If there was no such thing as bankruptcy and debts were always passed on to borrowers' children and the government couldn't just keep taking out bigger loans to pay back their old loans and give huge contracts to big corporations ad-infinitum, then we could talk. Anything other than that and we have money printing going on; paid for by regular, honest, hard-working citizens through inflation and taxes.

JumpCrisscross 4y ago
> distribute interest to 'depositors'. See reverse repo market You're thinking of interest on excess reserves (IOER): interest paid to banks (as the Fed's depositors) to encourage them to hold excess reserves and not lend them out. Reverse repos are open-market operations; they're the Fed borrowing money against its collateral, thereby sucking liquidity from the system.
- jongjong 4y ago
  How does that change fundamentals? The banks get free money from the Fed which gives them more money which they can use to pass on the interest payments to their own rich depositors. It also allows wealthy people to borrow more money against their substantial collateral to further prop up the value of their assets. Then when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt, their failure and fat severance packages have been paid for by the people through cost of living increases. Let's not forget that some of these bankrupt startups were basically tossing suitcases of advertising money at big tech prior to their bankruptcies. This is the people's money they were tossing at Big Tech. Then if they avoid jail (common), the founders of these failed startups will go on to get more funding 'a second chance', then a 'third chance', etc.. from the big VCs as a thank you for propping up their corporate stocks with 'borrowed' money which was never repaid.
  - JumpCrisscross 4y ago
    > does that change fundamentals Because with IOER, the Fed creates the market. No Fed, no IOER. In reverse repos, the Fed participates in an existing market. There are plenty of people willing to make overnight loans against Treasuries. That's what a repo is. The Fed is currently participating in that market to raise the cost of borrowing. If it's helping the rich one way, it's hurting them the other. (I'm not arguing the Fed is an egalitarian institution. But it's inaccurate to describe its operations, particularly reverse repos, as "printing citizens' money and giving it to rich people just for being rich.") > when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt This is a non sequitur. (Also, if you borrow money from a bank, they don't go away if the bank goes under.)
    - jongjong 4y ago
      >> There are plenty of people willing to make overnight loans against Treasuries. It misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it. A risk-free (and literally free) return paid for by citizens. It artificially props up the entire system and all of its zombie companies. Not to mention the anti-competitive forces it creates. >> Also, if you borrow money from a bank, they don't go away if the bank goes under They do if you go bankrupt. Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. That's literally what 'subprime mortgages' entail. They literally assume that some percentage of the loans will never be repaid. But in any case, the main issue I have is that the flaws of the system are hidden under layer upon layer of complexity; seemingly designed precisely to avoid scrutiny.
      - OrvalWintermute 4y ago
        > Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. I read into the SVB as fundamentally different from the traditional borrowers bankrupt issue. > But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation. When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported. > At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth....While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. That set off panic among customers, who withdrew their money in large numbers. From [1] Instead, lock in $ at extremely low rates on bonds improperly laddered, then firesales turned theoretical losses into actual losses, which then triggered a loss of faith and a liquidity crisis simultaneous to startup cash withdrawals just for payroll. The bank run on it meant there was no way to make customers whole. [1] https://www.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html https://www.cnn.com/2023/03/13/investing/silicon-valley-bank...
- neilwilson 4y ago
  Reserves can't be lent out to the main economy. Reserves are assets of banks that can only be held by banks. They can't get rid of them in aggregate. Loans are also assets of banks, and are created against supplied collateral along with the corresponding advance. The amount of reserves a bank has is irrelevant to that operation.
  - jongjong 4y ago
    Didn't they lower the reserve requirement to 0 at the start of the pandemic? The private banks borrow money from each other and also (especially the biggest ones) from the Fed and loan it out to people, companies or other banks with extra interest added on top. Reserves don't matter until there is a shortage of liquidity and in that case, there are bailouts. In the meantime, banks will just loan however much money they can to however many borrowers they can find who appear to be able to afford it.
    - neilwilson 4y ago
      Banks lend by creating a financial asset (say a mortgage) and the creating an advance against that. Reassigning that advance to another person is how we pay for things with borrowed money. Once it has been reassigned it called a deposit. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
    - kasey_junk 4y ago
      Reserves are one (largely unimportant) brake on lending. Many western central banks have never had a reserve requirement. The more important limits to lending are regulatory capital controls which measure both the asset to liabilities mix but also the credit and interest rate risk of the asset mix and loan to deposit ratio. The latter is a commonly tracked metric by bank investors and they typically view a ratio of higher than 0.8 with suspicion (down from 0.9 post 2008). The US banking industry ratio is about .63 right now which is up from a pandemic low of .57 but still down from the pre-pandemic ratio of .75. That banks were not lending enough was the reason the fed removed the reserve requirement.

JumpCrisscross 4y ago

> distribute interest to 'depositors'. See reverse repo market You're thinking of interest on excess reserves (IOER): interest paid to banks (as the Fed's depositors) to encourage them to hold excess reserves and not lend them out. Reverse repos are open-market operations; they're the Fed borrowing money against its collateral, thereby sucking liquidity from the system.

jongjong 4y ago
How does that change fundamentals? The banks get free money from the Fed which gives them more money which they can use to pass on the interest payments to their own rich depositors. It also allows wealthy people to borrow more money against their substantial collateral to further prop up the value of their assets. Then when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt, their failure and fat severance packages have been paid for by the people through cost of living increases. Let's not forget that some of these bankrupt startups were basically tossing suitcases of advertising money at big tech prior to their bankruptcies. This is the people's money they were tossing at Big Tech. Then if they avoid jail (common), the founders of these failed startups will go on to get more funding 'a second chance', then a 'third chance', etc.. from the big VCs as a thank you for propping up their corporate stocks with 'borrowed' money which was never repaid.
- JumpCrisscross 4y ago
  > does that change fundamentals Because with IOER, the Fed creates the market. No Fed, no IOER. In reverse repos, the Fed participates in an existing market. There are plenty of people willing to make overnight loans against Treasuries. That's what a repo is. The Fed is currently participating in that market to raise the cost of borrowing. If it's helping the rich one way, it's hurting them the other. (I'm not arguing the Fed is an egalitarian institution. But it's inaccurate to describe its operations, particularly reverse repos, as "printing citizens' money and giving it to rich people just for being rich.") > when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt This is a non sequitur. (Also, if you borrow money from a bank, they don't go away if the bank goes under.)
  - jongjong 4y ago
    >> There are plenty of people willing to make overnight loans against Treasuries. It misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it. A risk-free (and literally free) return paid for by citizens. It artificially props up the entire system and all of its zombie companies. Not to mention the anti-competitive forces it creates. >> Also, if you borrow money from a bank, they don't go away if the bank goes under They do if you go bankrupt. Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. That's literally what 'subprime mortgages' entail. They literally assume that some percentage of the loans will never be repaid. But in any case, the main issue I have is that the flaws of the system are hidden under layer upon layer of complexity; seemingly designed precisely to avoid scrutiny.
    - OrvalWintermute 4y ago
      > Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. I read into the SVB as fundamentally different from the traditional borrowers bankrupt issue. > But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation. When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported. > At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth....While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. That set off panic among customers, who withdrew their money in large numbers. From [1] Instead, lock in $ at extremely low rates on bonds improperly laddered, then firesales turned theoretical losses into actual losses, which then triggered a loss of faith and a liquidity crisis simultaneous to startup cash withdrawals just for payroll. The bank run on it meant there was no way to make customers whole. [1] https://www.cnn.com/2023/03/13/investing/silicon-valley-bank-collapse-explained/index.html https://www.cnn.com/2023/03/13/investing/silicon-valley-bank...
neilwilson 4y ago
Reserves can't be lent out to the main economy. Reserves are assets of banks that can only be held by banks. They can't get rid of them in aggregate. Loans are also assets of banks, and are created against supplied collateral along with the corresponding advance. The amount of reserves a bank has is irrelevant to that operation.
- jongjong 4y ago
  Didn't they lower the reserve requirement to 0 at the start of the pandemic? The private banks borrow money from each other and also (especially the biggest ones) from the Fed and loan it out to people, companies or other banks with extra interest added on top. Reserves don't matter until there is a shortage of liquidity and in that case, there are bailouts. In the meantime, banks will just loan however much money they can to however many borrowers they can find who appear to be able to afford it.
  - neilwilson 4y ago
    Banks lend by creating a financial asset (say a mortgage) and the creating an advance against that. Reassigning that advance to another person is how we pay for things with borrowed money. Once it has been reassigned it called a deposit. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - kasey_junk 4y ago
    Reserves are one (largely unimportant) brake on lending. Many western central banks have never had a reserve requirement. The more important limits to lending are regulatory capital controls which measure both the asset to liabilities mix but also the credit and interest rate risk of the asset mix and loan to deposit ratio. The latter is a commonly tracked metric by bank investors and they typically view a ratio of higher than 0.8 with suspicion (down from 0.9 post 2008). The US banking industry ratio is about .63 right now which is up from a pandemic low of .57 but still down from the pre-pandemic ratio of .75. That banks were not lending enough was the reason the fed removed the reserve requirement.