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If you count the loan as an asset, surely you have to count it as a liability for the borrower. And the bank has to actually give the money, so they're down tha
by ahtihn 2y ago
If you count the loan as an asset, surely you have to count it as a liability for the borrower. And the bank has to actually give the money, so they're down that money.
In the end both are net zero.
- makeitdouble 2y agoThe transaction is balanced in isolation, but the initial part (actually giving the money) is allowed to be negative for the bank as long as they're within their leverage ratio. So yes, as a whole the bank gives money from thin air.
- Johanx64 2y agoIt's not net zero because you collect all the interest on money you didn't have to begin with and created out of thin air via an accounting trick. Now obviously the liability will get zeroed out in the end, but in the meantime you get to keep all that accumulated sweet interest for ... uh... "managing risk"... it's a very beautiful thing! So you have in fact created money out thin air, it's in the interest payments! You pay interest for basically "nothing!" (cough, cough, "managing risk"). And that interest does not get zeroed out! It's "pure" profit from an accounting trick.