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Not always. Finance is a pretty big industry and its hard to make a sweeping generalization like this. For example, let's look at your checking account. A bank
by temuze 12y ago
Not always. Finance is a pretty big industry and its hard to make a sweeping generalization like this.
For example, let's look at your checking account. A banker's not a middleman here - they're providing a service that allows you to keep you money safe for free while they invest it and assume the risk. Seems like a good service to me.
- crdoconnor 12y ago>For example, let's look at your checking account. A banker's not a middleman here Yes, he is. He takes your money and lends it out to others, whom he charges for the privilege. That's how fractional reserve banking works. Of course, these days since interest rates are zero, that's not really a profitable line of business. It's mostly used to upsell the more profitable products like mortgages or credit cards.
- esja 12y agoThe banker actually creates brand new money to give to whoever is approved for a loan - he/she doesn't use your money for that purpose.
- deleted 12y ago[deleted]
- refurb 12y agoNot sure why you're getting downvoted. A fractional-reserves system does create more money than what is deposited.[1] [1]http://en.wikipedia.org/wiki/Fractional-reserve_banking#Example_of_deposit_multiplication http://en.wikipedia.org/wiki/Fractional-reserve_banking#Exam...
- spott 12y agoYes, but the service that he provides is a secure place to store your money. You pay for it by giving the bank money that it can use as "collateral" (in the fractional reserve banking sense) for the loans it gives out, instead of paying with fees.
- beachstartup 12y agouh, well, you just perfectly described a middleman, and since not everyone qualifies to have a bank account, a gatekeeper.
- esja 12y agoThe bank doesn't invest your money. You lend it to them and receive very little interest in return. They separately create brand new money to provide loans to other people, mainly for purchase of existing assets. At no point is your money given to anyone else. Update: Having been down-voted below zero... I would encourage everyone to visit the Fed, BoE, ECB, BIS etc. websites and discover how money is created. We would not be in our current economic state if this was better understood. http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf http://www.bankofengland.co.uk/publications/Documents/quarte...
- jeffreyrogers 12y ago> The bank doesn't invest your money. Yes they do. That's why runs on banks are a problem. Only the central bank (at least in the US) creates money. And you can't invest your money in the central bank.
- esja 12y agoThat's no longer correct: all banks create money. When a US bank approves you for a loan, it simply credits your account with new money. This money does not come from other accounts, i.e. this "investment" in you is made entirely with new money, created by the bank. When you repay the loan, the money disappears from the system. There are limits to how much money can be created in this way, but those aren't relevant here. http://www.positivemoney.org/how-money-works/how-banks-create-money/ http://www.positivemoney.org/how-money-works/how-banks-creat...
- bubbleRefuge 12y agoYou are correct. Fractional reserve banking is a myth . Banks do not lend out deposits. Deposits come from loans. Reserve requirements do exist but they do no limit bank lending. Lending is only limited by demand for loans and capital requirements. Here is a pretty good site which explains how the banking system actually operates in detail. http://wfhummel.cnchost.com/ http://wfhummel.cnchost.com/ Its a disgrace you are being downvoted.