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This isn't about fractional reserve banking. If the bank could only lend out 100% as much as it had, it would still be making free money here by borrowing from

by bobbyi 17y ago

This isn't about fractional reserve banking. If the bank could only lend out 100% as much as it had, it would still be making free money here by borrowing from the government and lending the money back to the government at a higher rate.

dpatru 17y ago
The key to the money-making scheme is access to very cheap money from the federal reserve (what you're labeling as government) and lending it to the government (what you're calling the government.) The fed and the government are not the same thing. If they were, the government would not have to borrow money from the banks. It would just get it directly from itself. So I think this is about fractional reserve banking because this is what enables the borrowing/creation of money at below market rates. If a bank had to buy its money on the open market like everybody else, it would have to pay more than what the government pays for money because it's a greater risk. Without a fractional reserve/fiat money/central bank system, a bank would not be able to borrow money at essentially 0% in a credit shortage.
- ars 17y ago
  Sorry, but you have no idea what you are talking about. That is not fractional reserve banking. Maybe go and actually read what it is before posting about it?
  - mattmaroon 17y ago
    Reading and thinking are hard. Understanding the complexities of our global financial system is even harder. Repeating economic "wisdom" you gleaned from a YouTube video of an obscure doctor-turned-Congressman that made the front page of Digg, then assuming everyone who doesn't agree with you is either uninformed or evil, is easy.
    - deleted 17y ago
      [deleted]
  - xster 17y ago
    Would you care to elaborate more about why fractional reserve banking isn't the primary satire of the article? Because the more I read, the more I frown at your lack of distinction between the bond selling government and the money printing fed
    - vitaminj 17y ago
      Fractional reserve banking refers to banks holding only a fraction of their deposits in the form of liquid reserves, and lending out the rest. The scheme in the article is about borrowing $9b from the Fed with $1b equity at a low rate, and then selling it to the government for a higher rate. So it's straight up interest-rate arbitrage. In fact there's not even a claim in the article that the $1b in equity are deposits, so this bank is most likely not even a commercial bank. For all intents and purposes, this appears to be an investment bank, and it's very unlikely that it'd even have an account with the Fed to borrow that kind of money.
- bobbyi 17y ago
  If money flows from one part of the government to another, there is no reason why it wouldn't flow through private banks. The government isn't one monolithic agent with a single (overdrawn) checking account. Whether you count the Fed as being within "the government" is a complex issue but ultimately it is just semantics and doesn't change the nature of the situation. They are in a grey area with some private and some public characteristics, like the post office.
  - DougWebb 17y ago
    Shady maybe, but not grey. The Federal Reserve Bank is a privately owned and operated corporation. It is not in any way a part of the US government; it is given special rights by our government to manage our banking system as a monopoly. The Fed Chairman is appointed by the CEOs of the regional Fed banks, and the CEOs are appointed by the shareholders of those banks. There are no elected representatives running the Fed, nor any political appointees selected by the Executive branch. There /is/ a lot of oversight, and the Fed chairman is required to spend a lot of time dealing with the president and congress. However, all Fed meetings, particularly policy-setting meetings, are private and hidden from the public and US government. No government agency is allowed to do that; even the most top-secret black projects of the CIA and DoD are ultimately overseen by someone in Congress, at least to some extent. (Congress could stop funding these projects, as a final control. They can't do that to the Fed.) The government agency you're thinking of is the Treasury. It is the Treasury's job to produce and manage US currency, as directed by Congress. Congress had done a lousy job of setting economic policy, so back in 1913 Congress decided to outsource the job to a private corporation: the Fed. The Treasury still makes all of our coins, but the paper money and 'accounting' money were given to the Fed. This wouldn't necessarily be bad, except the Fed effectively charges the government a fee for every dollar put into circulation; $1 of circulating currency is added to the economy, but $1.05 in debt is added at the same time. That doesn't balance, so the currency has to be inflated to make it balance; the value of $1.05 has to be reduced to the value of $1 in order for the originally created $1 to be sufficient to pay it back. Except that $1 is now worth only $0.95 if used for any other purpose. This is a very, very rough and inaccurate description of the situation, but the basic premise is correct: the Fed is a private company that makes a profit by lending money into the US economy at a rate that can't be paid for using the money that's been lent into the economy. This allows the Fed and its shareholders to slowly draw all of the wealth out of the US economy, leading to the highly concentrated wealth in the hands of very few very rich people we have today.

by bobbyi 17y ago

dpatru 17y ago

The key to the money-making scheme is access to very cheap money from the federal reserve (what you're labeling as government) and lending it to the government (what you're calling the government.) The fed and the government are not the same thing. If they were, the government would not have to borrow money from the banks. It would just get it directly from itself. So I think this is about fractional reserve banking because this is what enables the borrowing/creation of money at below market rates. If a bank had to buy its money on the open market like everybody else, it would have to pay more than what the government pays for money because it's a greater risk. Without a fractional reserve/fiat money/central bank system, a bank would not be able to borrow money at essentially 0% in a credit shortage.

ars 17y ago
Sorry, but you have no idea what you are talking about. That is not fractional reserve banking. Maybe go and actually read what it is before posting about it?
- mattmaroon 17y ago
  Reading and thinking are hard. Understanding the complexities of our global financial system is even harder. Repeating economic "wisdom" you gleaned from a YouTube video of an obscure doctor-turned-Congressman that made the front page of Digg, then assuming everyone who doesn't agree with you is either uninformed or evil, is easy.
  - deleted 17y ago
    [deleted]
- xster 17y ago
  Would you care to elaborate more about why fractional reserve banking isn't the primary satire of the article? Because the more I read, the more I frown at your lack of distinction between the bond selling government and the money printing fed
  - vitaminj 17y ago
    Fractional reserve banking refers to banks holding only a fraction of their deposits in the form of liquid reserves, and lending out the rest. The scheme in the article is about borrowing $9b from the Fed with $1b equity at a low rate, and then selling it to the government for a higher rate. So it's straight up interest-rate arbitrage. In fact there's not even a claim in the article that the $1b in equity are deposits, so this bank is most likely not even a commercial bank. For all intents and purposes, this appears to be an investment bank, and it's very unlikely that it'd even have an account with the Fed to borrow that kind of money.
bobbyi 17y ago
If money flows from one part of the government to another, there is no reason why it wouldn't flow through private banks. The government isn't one monolithic agent with a single (overdrawn) checking account. Whether you count the Fed as being within "the government" is a complex issue but ultimately it is just semantics and doesn't change the nature of the situation. They are in a grey area with some private and some public characteristics, like the post office.
- DougWebb 17y ago
  Shady maybe, but not grey. The Federal Reserve Bank is a privately owned and operated corporation. It is not in any way a part of the US government; it is given special rights by our government to manage our banking system as a monopoly. The Fed Chairman is appointed by the CEOs of the regional Fed banks, and the CEOs are appointed by the shareholders of those banks. There are no elected representatives running the Fed, nor any political appointees selected by the Executive branch. There /is/ a lot of oversight, and the Fed chairman is required to spend a lot of time dealing with the president and congress. However, all Fed meetings, particularly policy-setting meetings, are private and hidden from the public and US government. No government agency is allowed to do that; even the most top-secret black projects of the CIA and DoD are ultimately overseen by someone in Congress, at least to some extent. (Congress could stop funding these projects, as a final control. They can't do that to the Fed.) The government agency you're thinking of is the Treasury. It is the Treasury's job to produce and manage US currency, as directed by Congress. Congress had done a lousy job of setting economic policy, so back in 1913 Congress decided to outsource the job to a private corporation: the Fed. The Treasury still makes all of our coins, but the paper money and 'accounting' money were given to the Fed. This wouldn't necessarily be bad, except the Fed effectively charges the government a fee for every dollar put into circulation; $1 of circulating currency is added to the economy, but $1.05 in debt is added at the same time. That doesn't balance, so the currency has to be inflated to make it balance; the value of $1.05 has to be reduced to the value of $1 in order for the originally created $1 to be sufficient to pay it back. Except that $1 is now worth only $0.95 if used for any other purpose. This is a very, very rough and inaccurate description of the situation, but the basic premise is correct: the Fed is a private company that makes a profit by lending money into the US economy at a rate that can't be paid for using the money that's been lent into the economy. This allows the Fed and its shareholders to slowly draw all of the wealth out of the US economy, leading to the highly concentrated wealth in the hands of very few very rich people we have today.