Do People Understand Banking?

[Traktion]

I thought you may like this article. It gives quite a convenient link for your "go and ask people on the street" assertion!

[Injin]

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

The question is nonsense - and loaded.

There is no money in their accounts. it's great language though, it realyl does conjure up images of there beign a drawer that stuff is scooped out of.

instead of, you know, just a fantasy.

[Alan B'Stard MP]

There is no money in their accounts. it's great language though, it realyl does conjure up images of there beign a drawer that stuff is scooped out of.

instead of, you know, just a fantasy.

I call it money. So do many many people. They all would have failed the question even though they do have legal title. The question is nonsense.

[Alan B'Stard MP]

I thought you may like this article. It gives quite a convenient link for your "go and ask people on the street" assertion!

It's also a sell out to take a "survey" from a VI without the necessary pinches of salt.

[Injin]

I call it money. So do many many people.

Well yes iut wouldn't be fraud otherwise, woudl it?

They all would have failed the question even though they do have legal title. The question is nonsense.

As is your post.

[winkie]

If the banks lend out savers money and don't get it back...how and why would they pay depositors savings back?

[Injin]

It's also a sell out to take a "survey" from a VI without the necessary pinches of salt.

Can you link to one from the banking industry?

[scottbeard]

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

Peopel thought northern rock had lost the cash.

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.

I think it is more the case that they thought Northern Rock was going to run out of money, and they wanted theirs out before it ran dry.

I have known people take transfer values from pension schemes for the same reason. They don't understand exactly what is wrong, they just know the place where their money is held is in trouble, and they want out.

[JonoP]

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?

Hmmm. Seem to recall you were making statements about being able to ‘write a few letters and get it all written off’ a few years back. From memory, another poster offered you the chance to put your theory in to practice and you baulked at the challenge. What has changed since then? :-)

[Sour Mash]

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.

Because people thought that NR was about to fold taking their money with it and wanted to try to get their cash out before the final bust. Which was an entirely sensible move - anyone waiting and trusting the system could have been in for an indeterminate wait to get whatever the FSCS would have entitled them to (at the time it only covered up to something like £35k and then only 90% above the first few grand).

You don't own any cash money that you've loaned to a bank. All you have is a note of credit from the bank against the cash you loaned them, which in normal times is good enough to be used as money. The problem comes when the banking system is threatening to collapse. If the bank goes bust you hope that the FSCS pays out and/or stand in line with the other creditors if it doesn't or your balance was greater than the FSCS guarantee.

If you get wind that there is so much as a chance of a bank holding your credit going bust, the only logical thing to do is to get your credit paid out as cash (or failing that, transferred to a solvent bank) ASAP.

[Guest sillybear2]

“If you want something badly enough, and believing the truth will take it away from you, you will see the truth as error. and remain enslaved to your wants.” -J Piper

[Traktion]

If the banks lend out savers money and don't get it back...how and why would they pay depositors savings back?

It doesn't need to be a 1:1 relationship, between lender and borrower, it can be n:n. Therefore, as long as n-x loans are repaid and the sum of x is less than the interest charged on n, then there will be a positive return given back to the lender.

That said, if there is a loss, it would be born to the lender (ie. the individuals, not the banks). As no gains come without risk, this is the way it should be.

[Injin]

Hmmm. Seem to recall you were making statements about being able to ‘write a few letters and get it all written off’ a few years back. From memory, another poster offered you the chance to put your theory in to practice and you baulked at the challenge. What has changed since then? :-)

Your memory is faulty, they put it into practice. Twas the KKYY man or whatever he was called.

[winkie]

It doesn't need to be a 1:1 relationship, between lender and borrower, it can be n:n. Therefore, as long as n-x loans are repaid and the sum of x is less than the interest charged on n, then there will be a positive return given back to the lender.

That said, if there is a loss, it would be born to the lender (ie. the individuals, not the banks). As no gains come without risk, this is the way it should be.

No, all savers money should be 100% safe the low rates of interest do not cover the risk of loss...the high rates of debit interest charged by lenders covers most of their risk, they also can pick and choose who they lend to ......savers are losing not only the value of their money and also their capital is at risk...there is no promise that the state could or would bail out the savers again...savers money is in the hands of the unprotected.

[Traktion]

No, all savers money should be 100% safe the low rates of interest do not cover the risk of loss...the high rates of debit interest charged by lenders covers most of their risk, they also can pick and choose who they lend to ......savers are losing not only the value of their money and also their capital is at risk...there is no promise that the state could or would bail out the savers again...savers money is in the hands of the unprotected.

I thought I was answering your hypothetical question about if banks actually loaned money out. If not, I think we have our wires crossed.

In response to your reply about the current situation, then I agree it's not good.

[Guest happy?]

I can't help thinking that the level of debate in this thread is woefully inadequate - so here's video which explains the issue:

http://www.youtube.com/watch?v=sr5_O0AK1tA

[the_duke_of_hazzard]

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.

I think you've missed my point.

In a sense we don't "own" anything at all. If you want to pervert language for your own ends you can say you don't own the money in your bank account. But what's the difference, since you have a right to get at it if you want.

In the sense of the ordinary language definition of the term (which would be the sense in which people would have understood it) you do own the money in your account.

If you asked people who had more than 50,000 quid in their account, their answers would have been quite different for quiet obvious reasons.

[tomandlu]

I can't help thinking that the level of debate in this thread is woefully inadequate - so here's video which explains the issue:

[winkie]

I thought I was answering your hypothetical question about if banks actually loaned money out. If not, I think we have our wires crossed.

In response to your reply about the current situation, then I agree it's not good.

So would you not think it was right that savers should be given full open transparency about individual banks, their liquidity and solubility...how safe they are, they then could make an informed choice as to where to place their savings.

Edited June 15, 2010 by winkie

[Authoritarian]

If people don't want their money lent out, then...erm, don't lend it to the banks.

The "problem" isn't really that difficult to rectify.

[winkie]

If people don't want their money lent out, then...erm, don't lend it to the banks.

The "problem" isn't really that difficult to rectify.

Musical chairs......That is why people have been putting their money into property....if everyone pulled their money out (doubt if they could) there would not be the money to lend out for mortgages and to businesses....tell me I am wrong.

[Traktion]

So would you not think it was right that savers should be given full open transparency about individual banks, their liquidity and solubility...how safe they are, they then could make an informed choice as to where to place their savings.

That would all be a step in the right direction, but if the government is back stopping the risk, then it's all skewed. The bigger the bank, the more potential systemic risk, the bigger the chance of a bailout. Therefore, the small banks have trouble competing with the big ones, essentially creating an government backed monopoly.

[Injin]

If people don't want their money lent out, then...erm, don't lend it to the banks.

The "problem" isn't really that difficult to rectify.

They don't lend it to banks.

The give it to them for safekeeping.

[Traktion]

If people don't want their money lent out, then...erm, don't lend it to the banks.

The "problem" isn't really that difficult to rectify.

And if everyone rushed to pull "their" money out, would there be enough to go around?

Even if, say, 15% of people rushed to get their money out, do you think there would be enough to go around?

It's rhetorical, of course - either there wouldn't be and many savers would lose out (first come, first serve, while the rest cross fingers) or the government steps in to bail them out (either by printing or borrowing more themselves - moral hazard).

If it really was as simple as you say, then it wouldn't be a problem, but you're being deliberately obtuse. I'm not sure why, but there we go.

[Authoritarian]

Musical chairs......That is why people have been putting their money into property....if everyone pulled their money out (doubt if they could) there would not be the money to lend out for mortgages and to businesses....tell me I am wrong.

Well of course, if everyone rushes to withdraw their savings the banking system would collapse, so there would be nobody to loan businesses and individuals the credit they need.

But even if people withdrew from the banking system it wouldn't stop the remaining participants from carrying on as normal, it would be as if they weren't even there.