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Simple Fractional Reserve/loan Default Question


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Could you explain what difference that makes, what does it prove or disprove?

The banks book your promissory note as an asset - you fund your own loans.

There is nothing owing because the moment the money is withdrawn,the accounting shows a balanced book. if you made repayments, then the banks owes them to you.

You gave the bank an asset worth the amount they told you was a loan from them. While the paperwork you receive gives the impression that you were loaned the banks money, in actual fact you gave the bank an asset worth the amount given to you, and so you owe nothing.

The accounting will confirm this, so they will never show it to you.

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if you worked in a bank you would have never seen a debit and a credit. the only people who use drs and crs work in group accounting. and i think you worked in a local branch?

no, I worked in head office. often with accounting, have done some work in branches from time to time also.

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I didnt say that,

What I do say is that taking 10, lending 9, deposit 9 lending 8 and so on creates no money, just bank credit. The money remains at 10.

Yes but it also creates an equal amount of deposits. the bank gets the interest rate difference in its favour. But each bank needs to attract deposits to earn this difference. To earn the bank has to work with the depositors money or it is only paying out. That is the deal we make and we know even if we dont know that fractional reserve banking does not exist or so we are told. It still means a deposit comes in and a loan goes out. Debt is money is just wrong. Banks work on this difference and need to keep lending or investing to justify having deposits.

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You gave the bank an asset worth the amount they told you was a loan from them. While the paperwork you receive gives the impression that you were loaned the banks money, in actual fact you gave the bank an asset worth the amount given to you, and so you owe nothing.

So they have no problem if you default then, and banks can't go bankrupt from lending money?

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i see. it was like a work rotation thing was it? accounting one week, swaps desk the next week. did you leave before they let you have a go on the main Board?

no, I worked in IT, you often meet with people from all areas of the bank. new products etc involve people from all areas of the business.

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it mustve been a private trade for the car then? even so, why didnt they want a cheque? no tax to declare on the sale after all. dont mean to pry but cant help being curious

you haven't been around very much if you haven't known people trade cars for cash.

Edited by davidhpc
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I'm confused, how can they lose money if when they loan you you owe them nothing?

By legal tender do you mean physical cash?

Yes.

Banks don't use much legal tender, they extend bank credit and show people accounting slips, numbers on a screen and so on instead.

It's possible for a bank to go bankrupt because they run out of legal tender, if people stop accepting the bank credit they issue. Most banks have massive disparities between legal tender held and loans/deposits etc if they can possibly help it, they will try to get you to accept bank credit instead of money. (internet banking, sir? How about phone banking? I'm sorry sir, we don't give out withdrawl slips any longer, do you have any ID?...)

However, they are aware that this only works because people generally mistake bank credit for legal tender and will provide legal tender on a 1 to 1 basis if asked to do so. It's possible, therefore, for a hefty loan to wipe them out, if withdrawn as cash.

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it mustve been a private trade for the car then? even so, why didnt they want a cheque? no tax to declare on the sale after all. dont mean to pry but cant help being curious

I find it almost unbelievable that you would accept a cheque for a car purchase!

Even if i got a bank cheque i would not accept it as cash unless i knew the person quite well.

It is more curious to me what planet you live on that you would trust a person who wants your car with a cheque.

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I find it almost unbelievable that you would accept a cheque for a car purchase!

Even if i got a bank cheque i would not accept it as cash unless i knew the person quite well.

It is more curious to me what planet you live on that you would trust a person who wants your car with a cheque.

Any chance of that apology and retraction yet?

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Yes but it also creates an equal amount of deposits. the bank gets the interest rate difference in its favour. But each bank needs to attract deposits to earn this difference. To earn the bank has to work with the depositors money or it is only paying out. That is the deal we make and we know even if we dont know that fractional reserve banking does not exist or so we are told. It still means a deposit comes in and a loan goes out. Debt is money is just wrong. Banks work on this difference and need to keep lending or investing to justify having deposits.

At the start of business the books balance for both bank A and bank B.

Joe takes out a loan of £100 from A and deposits it in B.

At this point A’s assets have increased by £100 and B’s liabilities have increased by £100.

Neither individual bank’s books balance, though their combined books, the whole banking system in this simple model, do balance.

At close of business A borrows £100 from B (at LIBOR).

Each separate bank’s books now balance again, ready for the next day.

A charges Joe more than LIBOR for his loan.

B gives Joe less than LIBOR for his deposit.

Each bank makes a profit.

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I find it almost unbelievable that you would accept a cheque for a car purchase!

Even if i got a bank cheque i would not accept it as cash unless i knew the person quite well.

It is more curious to me what planet you live on that you would trust a person who wants your car with a cheque.

er. ive only sold 1 car privately and it was a cheque. then again i did know them. but i appreicate my naiivety on this one!

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