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> Well, it's simple: risks are supposed to be (and are) handled by insurances. So the banks charge a 5.75% “risk premium” and we’re back where we started. And

> Well, it's simple: risks are supposed to be (and are) handled by insurances. So the banks charge a 5.75% “risk premium” and we’re back where we started. And just because some cultures and religions are anti-usuary doesn’t invalidate it’s value. All interest does is price the value of money (ignoring all the shenanigans the central banks get up to). Money today is worth more than money tomorrow so you have to pay a premium to both access it and compensate the owner for the lost utility. Yeah, fractional reserve lending is fraud but it’s legal fraud so what are you going to do?

loup-vaillant 3y ago
> Yeah, fractional reserve lending is fraud but it’s legal fraud so what are you going to do? Isn’t that obvious? We’re living in an increasingly oppressive regime, and fractional reserve banking is but one of its many symptoms. So we’re going to do whatever people do under oppressive regimes. First step though is awareness.
mikea1 3y ago
> fractional reserve lending is fraud I don't understand how it's fraud. Banks could not lend at all if they must retain 100% of deposits. On the lending side, it would hurt everyday people and the economy if banks could not lend. Loans are important for homeowners (mortgages) and for businesses of all sizes (research and development). On the savings side, your community bank provides incredible guarantees with your deposit that are difficult to find elsewhere: deposits are very liquid, principle is virtually guaranteed, and convenience in routing the money wherever you direct it. What would a better system look like?
- loup-vaillant 3y ago
  > What would a better system look like? More democracy. Yes, banks couldn’t lend as much money if they couldn’t create it, and the way we’re making the economy work needs money to be created for those loans. So they definitely fill a need. However they are printing money and decide who can borrow and who cannot, without democratic oversight. We tend to reduce democracy down to restrictive laws & regulations. Whether we want guns or not. Whether we want to allow abortion or not. How heavy the penalties are for murder or theft. How a given industry should be regulated. But resource allocation is arguably even more important. How we allocate our resources determine pretty much everything in our lives. It’s the choice between more roads or new train tracks, which industry should be prioritised, basically what direction our whole economy should take. And that, instead of being subjected to democratic oversight, is currently left to private interests, with a vague hope that it will somehow be okay, because "invisible hand" or something. Damn, I’m just asking for more democracy, and there we are, way outside the Overton window.
  - mikea1 3y ago
    > banks couldn’t lend as much money if they couldn’t create it How could a bank lend _any_ money if it must reserve 100% of deposits as cash? > they are printing money and decide who can borrow and who cannot, without democratic oversight I do not understand how regulations are equivalent to democracy. Either way, banks are heavily regulated in the G7 countries. Such regulation was thought to exacerbate the mortgage crisis of 2008 because regulations created incentives to offer mortgages to people who should not have qualified. Supply and demand of deposits and loans creates a competitive market - banks operate with razor thin margins. I still do not know how you would improve upon the current system.
    - UncleEntity 3y ago
      > How could a bank lend _any_ money if it must reserve 100% of deposits as cash? That’s the thing though, they could lend out and pay interest on “savings” with the understanding that the money might not be immediately available for withdrawal as it’s “in the wild”. And a different class of banking, we’ll call it “checking”, would allow for immediate withdrawal as it’s backed by 100% reserves and doesn’t pay interest because it doesn’t make any money for the bank. Heck, they might even charge for the convenience of warehousing your money and being able to transfer it to any other economic actor you chose through a novel intra-bank clearinghouse. What this doesn’t allow is for banks to lend out 90% of every dollar they take in — even ones available for immediate withdrawal. As we’ve seen from the recent SVB[0] catastrophe if people assume their money is immediately available and it isn’t there’s big problems because everyone rushes to get their money right now instead of maybe getting their money at a later date. Big problem… This is all stuff they figured out centuries ago, the main problem is it cuts into the banks’ profits so it isn’t done this way. [0] as an illustration of the problem, they didn’t seem to get in trouble due to fractional reserve lending but from the liquidity of their assets.
      - mikea1 3y ago
        > That’s the thing though, they could lend out and pay interest on “savings” with the understanding that the money might not be immediately available for withdrawal as it’s “in the wild”. Those are Certificates of Deposit. > they didn’t seem to get in trouble due to fractional reserve lending but from the liquidity of their assets. It was the opposite. SVB had over-invested in long-term US treasuries, which are extremely liquid, but were falling in price due to the rapid increase of interest rates. If not for withdrawals squeezing their reserve, SVB could hold onto those treasuries until maturity and get back 100% of their principle. --- I think the disconnect is that savings accounts are not popularly well understood. People are shocked when they understand that the money they deposited is not sitting in a big vault. You could tweak fractional reserves to be 20% (or 80%) of deposits, but that comes at a cost too. For example, it would create scarcity of money available for lending, which in turn would make loans more expensive (e.g., higher interest rate mortgages could double the cost of home ownership.) The current system prevents the worst of bank runs by covering a good chunk of assets with insurance (FDIC in the US). It's a system that allows banks to fail and protect customer deposits. The collapse of SVB was not a "catastrophe" because the banking system is intended to let banks fail. The alternative is far worse.

loup-vaillant 3y ago

> Yeah, fractional reserve lending is fraud but it’s legal fraud so what are you going to do? Isn’t that obvious? We’re living in an increasingly oppressive regime, and fractional reserve banking is but one of its many symptoms. So we’re going to do whatever people do under oppressive regimes. First step though is awareness.

mikea1 3y ago

> fractional reserve lending is fraud I don't understand how it's fraud. Banks could not lend at all if they must retain 100% of deposits. On the lending side, it would hurt everyday people and the economy if banks could not lend. Loans are important for homeowners (mortgages) and for businesses of all sizes (research and development). On the savings side, your community bank provides incredible guarantees with your deposit that are difficult to find elsewhere: deposits are very liquid, principle is virtually guaranteed, and convenience in routing the money wherever you direct it. What would a better system look like?

loup-vaillant 3y ago
> What would a better system look like? More democracy. Yes, banks couldn’t lend as much money if they couldn’t create it, and the way we’re making the economy work needs money to be created for those loans. So they definitely fill a need. However they are printing money and decide who can borrow and who cannot, without democratic oversight. We tend to reduce democracy down to restrictive laws & regulations. Whether we want guns or not. Whether we want to allow abortion or not. How heavy the penalties are for murder or theft. How a given industry should be regulated. But resource allocation is arguably even more important. How we allocate our resources determine pretty much everything in our lives. It’s the choice between more roads or new train tracks, which industry should be prioritised, basically what direction our whole economy should take. And that, instead of being subjected to democratic oversight, is currently left to private interests, with a vague hope that it will somehow be okay, because "invisible hand" or something. Damn, I’m just asking for more democracy, and there we are, way outside the Overton window.
- mikea1 3y ago
  > banks couldn’t lend as much money if they couldn’t create it How could a bank lend _any_ money if it must reserve 100% of deposits as cash? > they are printing money and decide who can borrow and who cannot, without democratic oversight I do not understand how regulations are equivalent to democracy. Either way, banks are heavily regulated in the G7 countries. Such regulation was thought to exacerbate the mortgage crisis of 2008 because regulations created incentives to offer mortgages to people who should not have qualified. Supply and demand of deposits and loans creates a competitive market - banks operate with razor thin margins. I still do not know how you would improve upon the current system.
  - UncleEntity 3y ago
    > How could a bank lend _any_ money if it must reserve 100% of deposits as cash? That’s the thing though, they could lend out and pay interest on “savings” with the understanding that the money might not be immediately available for withdrawal as it’s “in the wild”. And a different class of banking, we’ll call it “checking”, would allow for immediate withdrawal as it’s backed by 100% reserves and doesn’t pay interest because it doesn’t make any money for the bank. Heck, they might even charge for the convenience of warehousing your money and being able to transfer it to any other economic actor you chose through a novel intra-bank clearinghouse. What this doesn’t allow is for banks to lend out 90% of every dollar they take in — even ones available for immediate withdrawal. As we’ve seen from the recent SVB[0] catastrophe if people assume their money is immediately available and it isn’t there’s big problems because everyone rushes to get their money right now instead of maybe getting their money at a later date. Big problem… This is all stuff they figured out centuries ago, the main problem is it cuts into the banks’ profits so it isn’t done this way. [0] as an illustration of the problem, they didn’t seem to get in trouble due to fractional reserve lending but from the liquidity of their assets.
    - mikea1 3y ago
      > That’s the thing though, they could lend out and pay interest on “savings” with the understanding that the money might not be immediately available for withdrawal as it’s “in the wild”. Those are Certificates of Deposit. > they didn’t seem to get in trouble due to fractional reserve lending but from the liquidity of their assets. It was the opposite. SVB had over-invested in long-term US treasuries, which are extremely liquid, but were falling in price due to the rapid increase of interest rates. If not for withdrawals squeezing their reserve, SVB could hold onto those treasuries until maturity and get back 100% of their principle. --- I think the disconnect is that savings accounts are not popularly well understood. People are shocked when they understand that the money they deposited is not sitting in a big vault. You could tweak fractional reserves to be 20% (or 80%) of deposits, but that comes at a cost too. For example, it would create scarcity of money available for lending, which in turn would make loans more expensive (e.g., higher interest rate mortgages could double the cost of home ownership.) The current system prevents the worst of bank runs by covering a good chunk of assets with insurance (FDIC in the US). It's a system that allows banks to fail and protect customer deposits. The collapse of SVB was not a "catastrophe" because the banking system is intended to let banks fail. The alternative is far worse.