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There seems to be some confusion as to what a bank is on this board. Every time you deposit say $1 with a bank, they lend out $.90 of it at interest for mortga
by qdog 14y ago
There seems to be some confusion as to what a bank is on this board.
Every time you deposit say $1 with a bank, they lend out $.90 of it at interest for mortgages, payrolls, etc. It's these investments the bank makes that can (and do) wreck money. The government of the US and EU recognize this risk for most people is detrimental and offer insurance on the first 100,000 deposited.
The phrase "seized account" does not appear to be correct, more correct would be "The Cypriot banks lost something like 40% of all deposits and all depositors over the 100,000 insured mark have lost their investment."
Any deposit in a bank is still an investment, even if they don't pay interest, because banks don't just put all your coins and bills in a vault, they just mark you down as a number in their books. The risk you take is that government backing the deposit insurance AND the bank don't do something dumb. Banks are usually much more highly regulated than hedge funds, but a quick look at how often banks fail (the US has something like 800+ banks on the unnoficial FDIC watch list) should sober anyone up.
Hold physical money is the only not to be at risk of losing a deposit, and then you have to provide for security, and you sure aren't going to earn interest.
I'm not really enthusasiastic about bitcoins, but one could argue they solve the problem of trying to keep a bunch of wealth out of the risk of banks, without having to have a huge pile of physical currency/valuables.
- bayesianhorse 14y agoMost of the talk I've heard on Bitcoin is BS. I'm enthusiastic on Bitcoins and their uses, but I don't see it replacing other investments on a large scale soon. I don't even want to see that. From an investment point of you, all deposits are investments, so putting 700k into some undercapitalized bank is almost as stupid at converting it to BTC... Only almost as stupid because these banks have historically had less risk than BTC, surprisingly...
- roel_v 14y ago"Every time you deposit say $1 with a bank, they lend out $.90 of it at interest for mortgages, payrolls, etc." Actually, when you deposit $1, they loan out about $9 (maybe a bit less nowadays, but still a multiple of the $1 being put in). That's what the 'fractional' in 'fractional reserve banking' comes from.
- kbolino 14y agoThat doesn't make any sense. You've mixed up macroeconomics and microeconomics. A single bank cannot lend more than it has in deposits. However, in an economy with many lenders and borrowers, a deposit (or really any kind of expenditure) can be reinvested fractionally many times, enlarging the money supply by more than its nominal value. Also, the multiplier "rule" of taking the reciprocal of the reserve rate is more of a rough estimate, since individual borrowers may not spend all of the money they have borrowed.
- roel_v 14y agoYou're right, I did mix them up.