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You don't need to take any loans at all - the bank with $1B in deposits could just "loan" a subsidiary $9B to buy US treasuries with via the magic of fractional
by stevedekorte 17y ago
You don't need to take any loans at all - the bank with $1B in deposits could just "loan" a subsidiary $9B to buy US treasuries with via the magic of fractional reserve banking. Then it's earning 4-5%.
The real problems I see with the plan is that 1) that rate is on 30 year treasuries - so you don't get income immediately and 2) inflation may exceed the return on those treasuries.
Why not just use $3B of the $9B the fed let's you effectively print to buy 300% overpriced assets (say, mortgage bonds) from shadow companies you and your buddies own and lend the rest to whomever eg: loans for overpriced homes.
So you spent $1B on the bank, $1B on the assets and sold the assets you sold for $3B. You end up with $1B in profit (100% ROI) and who cares about what happens to the rest?
- Eliezer 17y agoThat's not how fractional reserve banking works.
- noelchurchill 17y agoI believe, if you have $1B, then you can loan out $900M, keeping 10% of the original balance in reserves.
- va_coder 17y agoYes but that 900M is deposited into another bank, who then loans out 90% and eventually the system loans out 9B. And the system is dominated by a few banks.
- fan 17y agoYes but $9b of "credit" is created this way. The US government emphatically does not sell bonds for credit, only cash, which you still only have $1b of...
- coliveira 17y ago> 2) inflation may exceed the return on those treasuries. This is not an issue, because you are getting 4% on borrowed money, which means you are really getting 40% on your money. It doesn't matter how thin the margin is, as long as you can leverage the loan with borrowed money. This is essentially what every bank does.
- stevedekorte 17y agoThat's a good point and a much simpler way to make good returns.