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The Spaniard

Do People Understand Banking?

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What does it matter?

We have FSCS, enacted precisely to prevent bank runs. And they have a money printer.

Such schemes may well create stupid lending by giving banks bailouts for these liabilities, thats why investment and retail banking need to be split, as Libdems and UKIP say, and as Tory and Liebour lobby against.

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From TFA:

"My take is that people are confused. 74% think they own their money, when of course they do not, the bank does. "

This is debatable, and the distinction is an academic one of little practical interest to the overwhelming majority of the populace. I'd also like clarified what he means by "own their money". It's a a tautology to say you "own your money".

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From TFA:

"My take is that people are confused. 74% think they own their money, when of course they do not, the bank does. "

This is debatable, and the distinction is an academic one of little practical interest to the overwhelming majority of the populace. I'd also like clarified what he means by "own their money". It's a a tautology to say you "own your money".

And would they feel the same way if they realised that they could write a few letters and get their credit card bill, mortgage and any "loans" cancelled?

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From TFA:

"My take is that people are confused. 74% think they own their money, when of course they do not, the bank does. "

This is debatable, and the distinction is an academic one of little practical interest to the overwhelming majority of the populace. I'd also like clarified what he means by "own their money". It's a a tautology to say you "own your money".

physical notes belong to the bearer. they therefore can be stolen.

bank balances are debts the bank owes the depositor.

which is why no-one can steal from your bank account or impersonate you to your loss....

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link

Almost three quarters of the public believe that they still own the money they

deposit in the bank, however, under British law the customer has no specific

claim of ownership of these assets, as they become the property of the bank

and are treated as loans from the depositor. The famous legal case of Carr vs

Carr (1811) established that putting money in a bank was not an act of

bailment, but rather was a generalized debt (from bank to customer). This

seemingly innocuous change opened the doors for fractional reserve banking.

Suddenly, the bank was not responsible for the specific asset the customer

entrusted them with, only the generalized debt. This allowed them to take a

portion of the deposit and loan it or invest it. Consequently, banks became

responsible only to repay the customer the amount of the deposit, while the

depositor had no specific claim of ownership of the assets deposited. Only 8%

of the public understood this point, whilst 16% believe that both the account

holder and the bank share ownership of the same resources

Edited by lowrentyieldmakessense(honest!)

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Injin often expresses the view that most people think of 'money' primarily in terms of physical cash, while others disagree.

Here's a recent survey to add some data to the debate:

http://www.cobdencentre.org/2010/06/public-attitudes-to-banking/

I may be missing something, but one of the problems with the summary is that it doesn't seem to make it clear whether people are expressing a preference for how things should be or a belief in how things are.

IMHO there are only three real distinctions when it comes to understanding or not understanding banks:

  • You think banks keep all money deposited for safe-keeping. You have no idea where banks get the money to loan out. You are very ignorant and probably stupid

  • You think banks keep a portion of the money deposited and loan out the rest. So, a deposit of £100 might generate a loan of £80. That's it. You are not thick, but you haven't explored the full consequences of this simple act.

  • FFS - if a bank has a deposit of X and loans out Y and keeps Z, then when Y is deposited back with them, they can make an additional loan. Simply put, a deposit of £100 with a 10% reserve can theoretically generate £900 of loans. If you know much more than this, then you probably work for a bank...

Needless to say, and IMHO, people ought to know the last thing, but most probably only know the second, and a few only know the first (I hope - if 1 and 2 are reversed, then god help us).

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From TFA:

"My take is that people are confused. 74% think they own their money, when of course they do not, the bank does. "

This is debatable, and the distinction is an academic one of little practical interest to the overwhelming majority of the populace. I'd also like clarified what he means by "own their money". It's a a tautology to say you "own your money".

It's not debatable at all - 'cash in the bank' is nothing more than a bank debt to you. The bank would be utterly unable to pony up enough physical cash on demand should all their depositors want their money out at the same time for the simple fact that their total assets (excluding loans that it has made) are going to be much less than the money held on deposit.

When people in general talk about money, they mean cash. Tangible bits of paper with the Queen's head on, that they can exchange for goods and services. They trust that a bank balance actually means 'cash' held for them in the banking system and don't understand the notion of bank credit and leverage.

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From TFA:

"My take is that people are confused. 74% think they own their money, when of course they do not, the bank does. "

This is debatable, and the distinction is an academic one of little practical interest to the overwhelming majority of the populace.

Exactly - on that basis alone, this study looks a bit silly.

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I may be missing something, but one of the problems with the summary is that it doesn't seem to make it clear whether people are expressing a preference for how things should be or a belief in how things are.

IMHO there are only three real distinctions when it comes to understanding or not understanding banks:

  • You think banks keep all money deposited for safe-keeping. You have no idea where banks get the money to loan out. You are very ignorant and probably stupid
  • You think banks keep a portion of the money deposited and loan out the rest. So, a deposit of £100 might generate a loan of £80. That's it. You are not thick, but you haven't explored the full consequences of this simple act.
  • FFS - if a bank has a deposit of X and loans out Y and keeps Z, then when Y is deposited back with them, they can make an additional loan. Simply put, a deposit of £100 with a 10% reserve can theoretically generate £900 of loans. If you know much more than this, then you probably work for a bank...

Needless to say, and IMHO, people ought to know the last thing, but most probably only know the second, and a few only know the first (I hope - if 1 and 2 are reversed, then god help us).

we dont operate FRB in the UK...banks can lend based on CAPITAL ratios. so they can lend ALL the deposits in some cases.

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When people in general talk about money, they mean cash. Tangible bits of paper with the Queen's head on, that they can exchange for goods and services. They trust that a bank balance actually means 'cash' held for them in the banking system and don't understand the notion of bank credit and leverage.

then explain the run on northern rock by sheeple of all ages.

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It's not debatable at all - 'cash in the bank' is nothing more than a bank debt to you. The bank would be utterly unable to pony up enough physical cash on demand should all their depositors want their money out at the same time for the simple fact that their total assets (excluding loans that it has made) are going to be much less than the money held on deposit.

When people in general talk about money, they mean cash. Tangible bits of paper with the Queen's head on, that they can exchange for goods and services. They trust that a bank balance actually means 'cash' held for them in the banking system and don't understand the notion of bank credit and leverage.

How do you know this? If true, why was there a bank run at Northern Rock? As far as I'm concerned, I 'own' the money I've deposited in my bank.

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Peopel thought northern rock had lost the cash.

What? Down the back of a sofa? How could NR have lost the cash in the minds of these people? It makes no sense.

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How do you know this? If true, why was there a bank run at Northern Rock? As far as I'm concerned, I 'own' the money I've deposited in my bank.

the main reason small savers think they own their money is because of FSCS.

people with a modicum of IQ know that their money gets lent out but don't care because it is insured.

After all the business with NR, icesave etc the british people are quite well aware of how banks operate, but the vast majority trust the government to bail their savings out if their banks goes tits up.

The blind spot of british savers is not with how banks work, but how FSCS is funded and what the limits of its capabilities are.

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What? Down the back of a sofa? How could NR have lost the cash in the minds of these people? It makes no sense.

It doesn't have to make sense, it's a belief.

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we dont operate FRB in the UK...banks can lend based on CAPITAL ratios. so they can lend ALL the deposits in some cases.

Does it make much difference? It's all just (negative) equity in the end...

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the main reason small savers think they own their money is because of FSCS.

people with a modicum of IQ know that their money gets lent out but don't care because it is insured.

After all the business with NR, icesave etc the british people are quite well aware of how banks operate, but the vast majority trust the government to bail their savings out if their banks goes tits up.

The blind spot of british savers is not with how banks work, but how FSCS is funded and what the limits of its capabilities are.

The blind spot of savers everywhere is that the word saving means something totally different to the banking system as it does to them.

Saving = IOU in banking terms

Saving = stored wealth, unused and unowed sat waiting to be collected by it's owner for everyone else.

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The Cobden Centre !

Like asking Ajay Ahuja about real estate.

Well they asked the general public...

do let us know the results of your own survey.

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What? Down the back of a sofa? How could NR have lost the cash in the minds of these people? It makes no sense.

oh this goes way back, money isnt what people think it is, money is some elses future debt.

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Well they asked the general public...

do let us know the results of your own survey.

74% of people think that they are the legal owner of

the money in their current account, as opposed to the

bank

They do hold legal title of the money in their account.

The question is nonsense - and loaded.

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This was from a good question though.

4) 33% of the population oppose the fact that banks

lend out some of the money in their current account

as loans

Like the way they spin in though ;)

61% of course are quite happy.

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What does it matter?

We have FSCS, enacted precisely to prevent bank runs. And they have a money printer.

Such schemes may well create stupid lending by giving banks bailouts for these liabilities, thats why investment and retail banking need to be split, as Libdems and UKIP say, and as Tory and Liebour lobby against.

Steve Baker, the founder of the charity linked above, is a Tory MP. It's a great site btw and I've already found many articles very interesting. It's good to see the debate taking a more serious and determined turn for the better.

It's interesting that government deposit guarantees only arrived in 1979, which shows how quickly it has resulted in moral hazard and failure. There were also a number of narrow banks (post office was one) which was essentially full reserve too (or at least only holding UK government bonds) before this period. Inflation from bailing out the FRB banks in the 70s, combined with deposit insurance on FRB, seemed to seal the fate of these banks though. Look where that has lead us... <_<

Splitting the banks up doesn't go far enough, IMO - it isn't just what investment banks do which is risky... FRB are inherently unstable. We need something more akin to LPB, which has other benefits too.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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