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Well, there could be some counterarguments. > Allows you to get a mortgage Wonder if that was always so? Didn't people manage somehow to have a house without

• branchless 11y ago
  Most states provide a state backed deposit guarantee. It's not guaranteed by the banks. Plus regarding "funding" education etc they do no such thing, this is funded by the state. The post you reply to is littered with incorrect statements. Well done for calling some out.
• superuser2 11y ago
  You seem to be confusing finance with retail banking. >Didn't people manage somehow to have a house without something which name suggests it will be paid for the whole life? Well, for a while people were indentured farmers, then you got people renting tenements and apartments in cities, with some land-grant family farms/homsteads being passed down through inheritance. Mass suburban home ownership is mostly a post-WWII phenomenon, and mostly funded through credit. Though for a time, most people got their mortgages from community credit unions (or similar), those were still financial institutions, just in decentralized cooperative form. Big banks ended up being able to provide better rates through sheer scale. >A casino, right? On average you lose, but for a price you buy a hedge against unforeseen? My mother had a brain hemorrhage last week, we paid about $1000 for $500k+ of medical care. The insurance industry works only because insurance companies can invest their giant pool of money and see large enough gains to both cover all their costs and make it worth their while. Insurance premiums aren't sitting around as cash. Your point? >that's those same deposits Nope, it's the interest on those deposits, the core service of the financial services industry. Retirement is entirely predicated on compound interest. > Same thing. Banks don't "fund" - they "serve". Money aren't theirs, but theirs', banks', depositors. It's hard to imagine how you could possibly be more wrong. We're not talking about business checking accounts here, we're talking about banks investing in businesses. Banks absolutely do fund businesses, and own (shares in) those businesses in return. An investment bank owns a business and, in turn, its checking accounts in retail banks. I don't think you understand banks' roles in philanthropy and education - successful nonprofit institutions like universities draw their operating budgets from interest on their endowments. Were it not possible to park $x billion in account and draw $y million a year in interest for literally forever, many such institutions could not exist.
  • avmich 11y ago
    I thank you - and all other who replied - deeply, but I'm not sure I understand you - or agree with you. I do assume there are two kinds of banks. One is "retail", or financial services, as I understand it. Gets its money as fees. Another is investment - this one takes risks and reaps rewards, but it's a different kind of organization - somewhat similar to a group of people, who pooled their money and work on a kind of gambling, often reaping rewards, but also taking risks. Talking about this second group, it's entirely different - for many people who are not members of that group of investors (risk-takers) it's outside of what they deal with. So I'm mostly talking about first group. For example, my point regarding insurance is that I'm dealing with professionals having different amount of information than I do, and benefiting from that. Theoretically market should bring insurance premiums to some average profit margin. Also theoretically I should be able to earn on average more than I spend on average on insurance, so examples with big expenses are supposed to be exceptions, and on average I'd have more money paying for cases myself. In that sense, insurance premiums are spent (supposed to be, mostly) on cases where insurance events happen. Next, "those same deposits" - I think the word "principal" is meaningful :) as there won't be interest without principal. So I still think we talk about deposits - together with added relatively modern service of investing, getting some averaged interest and paying some fees to the service which does the investing. Yes, that's the core service. Of retail banks... may be we actually agreeing here? Next, of course banks invest, that's how they pay that interest. The principal money still aren't theirs - so banks don't "fund" - as in "fund with their own money" - since retail banks by definition don't deal with their own money; instead banks pass those money as credits - or, yes, even to buy shares. The fact that, say, universities takes their budgets from interest shows that service works - but it's not the banks, who "pay" - don't assign the source to them - it's principal, combined with the service (for which banks don't pay, but receive fees), which generates interest. Bank is a sort of an engine which you feed with fuel to get desired outcome (bad analogy, I know), but I think fuel here is more principal (sic), more fundamental than the service.
• britknight 11y ago
  > I thought my taxes pay for that :) . Do you mean "finances" as "machinery which helps moving money"? I think there are several definitions there. You are correct in that the money used to build highways etc. does start as your tax dollars. However, I would imagine that it is then held (and allowed to appreciate) in the form of a reasonably liquid portfolio of cash, bonds, and equities. I suppose you could technically reduce finance to "moving money around", but that is such a gross simplification that it would be like saying programmers just type for a living. > Nah, that's those same deposits. I largely pay myself for retirement, by saving the whole life. If your entire retirement savings are in simple savings accounts (i.e. in a bank instead of a brokerage account), I am afraid you are losing out on quite a substantial return that could allow you to either retire earlier or enjoy a higher annual income during retirement (or both). > > Funds the college fund that paid for your school > Again, it's either another example of "moving money", or an oddity - as people managed to get educated even without banks. The statement that college funds, loan programs, and scholarship endowments (all powered by "finance") pay for the education of practically every student in the country is true, unless you save for college in a piggy bank. > you ought to share risks and benefits If you want to share the risks and benefits, there's an easy way to do that: get a brokerage account. If you have deposited your money, the basic assumption is that you are willing to accept a lower rate of return in exchange for a (practically) risk-free place to store your money. depends on how much you want to rely on the FDIC
  • ZenoArrow 11y ago
    > "You are correct in that the money used to build highways etc. does start as your tax dollars." Taxes are not the only way that governments get money. Sales of government bonds are likely to generate a large portion of capital behind infrastructure projects.
• saryant 11y ago
  > > Pays for your highways/stadiums/schools and other public works > I thought my taxes pay for that :) . Do you mean "finances" as "machinery which helps moving money"? I think there are several definitions there. If your local municipality can go to Big Investment Bank Inc to arrange a bond issue, they can time-shift their tax receipts in order to build that new school/library/highway overpass now rather than 10 years from now.