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Thread: Fractional reserve lending is NOT inherently fraudulent

  1. #1

    Fractional reserve lending is NOT inherently fraudulent

    As we discussed in many previous threads, there's a difference between

    A. Taking $10 in, lending $9, keeping only $1.
    vs.
    B. Taking $10 in, claiming to have $100, and lending out $90.
    vs.
    C. Taking $10, keeping it all.

    A. Is the typical bank operation of fractional reserve
    B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
    C. Simply depositing money and doing nothing with it.

    The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

    http://www.market-ticker.org/archive...-Mish-FRL.html

    WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

    Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?



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  3. #2
    Wrong. It is fraud.

    See below... Enjoy enlightenment.

    Barnett and Block, 2005, 2008; Block, 2008; Block and Caplan, 2008; Block and Garschina, 1996; Block and Humphries, 2008; Block and Posner, 2008; Davidson, 2008; Hoppe, et. al. 1998; Hoppe, 1994; Hulsmann, 2000, 2002a, 2002b, 2003; Rothbard, 1962; de Soto, 1995, 2001

    Barnett, William II and Walter Block. 2005. “In defense of fiduciary media— a comment; or, what’s wrong with “clown” or play money?” Quarterly Journal of Austrian Economics; Vol. 8, No. 2, Summer, pp. 55-69; http://mises.org/journals/qjae/pdf/qjae8_2_4.pdf

    Barnett, William and Walter Block. 2008. “Time deposits, dimensions and fraud,” Journal of Business Ethics; www.WalterBlock.com/publications (this one is more radical, in that is characterizes even some time deposit practices, not merely demand deposit practices, as fraudulent)

    Block, Walter and Bryan Caplan. 2008. “Walter Block versus Bryan Caplan on Fractional Reserve Banking.” Nov 1; http://www.lewrockwell.com/block/block110.html

    Block, Walter and Garschina, Kenneth M. 1996. "Hayek, Business Cycles and Fractional Reserve Banking: Continuing the De-Homoginization Process," Review of Austrian Economics, Vol. 9, No. 1, 1995, pp. 77-94; http://www.mises.org/journals/rae/pdf/rae9_1_3.pdf.

    Block, Walter. 2008. “Is Fractional Reserve Banking Fraudulent?, rejoinder to Eric Posner,” November 6; http://www.lewrockwell.com/block/block111.html

    Block, Walter. 2008. “Posner vs. Block on fractional reserve banking.” November, 29; http://www.lewrockwell.com/block/block114.html

    Block, Walter and John Humphries. 2008. “Humphries vs Block on fractional reserve banking.” November 17; http://alsblog.wordpress.com/2008/11...serve-banking/

    Davidson, Laura. “Fractional Reserve Banking Is Indeed Fraudulent,” November 17;
    http://www.lewrockwell.com/orig9/davidson-l1.html

    Hoppe, Hans-Hermann, with Guido Hulsmann and Walter Block. 1998. "Against Fiduciary Media," Quarterly Journal of Austrian Economics, Vol. 1, No. 1, pp. 19-50, http://www.mises.org/journals/qjae/pdf/qjae1_1_2.pdf;

    Hoppe, Hans-Hermann. 1994. "How is Fiat Money Possible? or, The Devolution of Money and Credit," Review of Austrian Economics, 7(2), pp. 49-74.

    Hulsmann, Jorg Guido. 2000. "Banks Cannot Create Money", The Independent Review: A Journal of Political Economy, vol. 5, no. 1, summer, 101—110; http://www.independent.org/pdf/tir/tir_05_1_hulsman.pdf

    Hulsmann, Jorg Guido. 2002a. “Free Banking and the Free Bankers.” Review of Austrian Economics. Vol. 9, No. 1. pp. 3-53; http://www.mises.org/journals/rae/pdf/rae9_1_1.pdf

    Hulsmann, Jorg Guido. 2002b. “Free Banking Fractional Reserves: Reply to Pascal Salin.” Review of Austrian Economics, Vol. 1, No. 3. http://www.mises.org/journals/qjae/pdf/qjae1_3_8.pdf

    Hulsmann, Jorg Guido. 2003. "Has Fractional-Reserve Banking Really Passed the Market Test?," Independent Review 7/3, Winter, 399-422. http://www.independent.org/publicati...ticle.asp?a=90

    Rothbard, Murray N. 1962. "The Case for a 100 Percent Gold Dollar," In Search of a Monetary Constitution, Leland B. Yeager, ed., Cambridge, MA: Harvard University Press, pp. 94-136, and Auburn, AL: Ludwig von Mises Institute, 1991. See also "The Logic of Action One" pp. 364-384; http://mises.org/story/1829

    Rothbard, Murray N. What Has Government Done to Our Money?, Auburn, AL: Ludwig von Mises Institute, 1990; http://www.mises.org/rothbard/rothmoney.pdf

    de Soto, Jesús Huerta. 1995. "A Critical Analysis of Central Banks and Fractional-Reserve Free Banking from the Austrian Perspective," Review of Austrian Economics, 8(2), pp. 25-38.

    de Soto, Jesus Huerta. 2001. "A Critical Note on Fractional Reserve Free Banking," The Quarterly Journal of Austrian Economics, Vol. 1, No. 4, Fall, pp. 34-35

    “I will be as harsh as truth, and uncompromising as justice... I am in earnest, I will not equivocate, I will not excuse, I will not retreat a single inch, and I will be heard.” ~ William Lloyd Garrison

    Quote Originally Posted by TGGRV View Post
    Conza, why do you even bother? lol.
    Worthy Threads:

  4. #3
    Quote Originally Posted by Optatron View Post
    As we discussed in many previous threads, there's a difference between

    A. Taking $10 in, lending $9, keeping only $1.
    vs.
    B. Taking $10 in, claiming to have $100, and lending out $90.
    vs.
    C. Taking $10, keeping it all.

    A. Is the typical bank operation of fractional reserve
    B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
    C. Simply depositing money and doing nothing with it.

    The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

    http://www.market-ticker.org/archive...-Mish-FRL.html

    WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

    Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?
    Funny stuff.... Nice job Conza!

  5. #4
    Quote Originally Posted by Objectivist View Post
    Funny stuff.... Nice job Conza!
    +100 - Very nice!

  6. #5
    Quote Originally Posted by Conza88 View Post
    Wrong. It is fraud.

    See below... Enjoy enlightenment.


    I like you you didn't even bother to read his whole post before you posted two dozen links.

    It isn't fraud when all parties are informed about all actions that will be taken before they happen. It's impossible for that to be fraud, or even theft. It's against the very definition. For fraud to occur, there has to be a lie. For theft to occur, there has to be a transfer of valuables against the owner's will. Read the comic in the sticky.

    Lending out 9 dollars out of 10 dollars of deposits is not illegal or immoral. It's the same as lending directly, except society benefits from a pooling of capital.

    READ THE STICKY. Until you do, you don't know Jack about economics.

  7. #6
    Quote Originally Posted by Optatron View Post
    As we discussed in many previous threads, there's a difference between

    A. Taking $10 in, lending $9, keeping only $1.
    vs.
    B. Taking $10 in, claiming to have $100, and lending out $90.
    vs.
    C. Taking $10, keeping it all.

    A. Is the typical bank operation of fractional reserve
    B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
    C. Simply depositing money and doing nothing with it.

    The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

    http://www.market-ticker.org/archive...-Mish-FRL.html

    WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

    Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?
    Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.
    you can buy now using an elevated dollar to get in on things that are poised to go way up when the dollar collapses. If he's right, and I think he is, his profits are going to be ridiculous. I've already showed by referencing some mining stocks that you can make a killing in this market playing Schiff's investment strategy.

    -theoakman, RPF 1/26/09.

    Oh what a difference 10 months makes. Deflationists, where are thou?

  8. #7
    Quote Originally Posted by tmosley View Post
    I like you you didn't even bother to read his whole post before you posted two dozen links.

    It isn't fraud when all parties are informed about all actions that will be taken before they happen. It's impossible for that to be fraud, or even theft. It's against the very definition. For fraud to occur, there has to be a lie. For theft to occur, there has to be a transfer of valuables against the owner's will. Read the comic in the sticky.

    Lending out 9 dollars out of 10 dollars of deposits is not illegal or immoral. It's the same as lending directly, except society benefits from a pooling of capital.

    READ THE STICKY. Until you do, you don't know Jack about economics.
    Yeah, I've got both of those saved in pdf and I am organizing getting them re-printed. Now how about you go read a grown up book like Man, Economy, State.. Human Action and then YOU'LL understand economics... Or you could read What has Govt Done to our Money for starters... anything that actually deals with the issue of FRB is probably a smart choice..

    What is hilarious, is quite literally you are out of your depth... just as optatron is. Literally no idea.. and since he isn't intellectually honest - I'm not going to waste my time with him.

    So:

    Quote Originally Posted by theoakman View Post
    Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.
    Quite sad isn't it.. lmao
    “I will be as harsh as truth, and uncompromising as justice... I am in earnest, I will not equivocate, I will not excuse, I will not retreat a single inch, and I will be heard.” ~ William Lloyd Garrison

    Quote Originally Posted by TGGRV View Post
    Conza, why do you even bother? lol.
    Worthy Threads:

  9. #8
    Quote Originally Posted by theoakman View Post
    Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.
    Exactly, this is like a time deposit, or CD. Not a problem and not fractional reserve lending.



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  11. #9
    Its the monopoly on money that its fraudulent.

    But for peolple that its not into monetary policies its easy to start explaining the problems of fractional reserve under a monopolistic monetary policty, than explainign everything alltogether.

  12. #10
    Quote Originally Posted by tmosley View Post
    I like you you didn't even bother to read his whole post before you posted two dozen links.

    It isn't fraud when all parties are informed about all actions that will be taken before they happen. It's impossible for that to be fraud, or even theft. It's against the very definition. For fraud to occur, there has to be a lie. For theft to occur, there has to be a transfer of valuables against the owner's will. Read the comic in the sticky.

    Lending out 9 dollars out of 10 dollars of deposits is not illegal or immoral. It's the same as lending directly, except society benefits from a pooling of capital.

    READ THE STICKY. Until you do, you don't know Jack about economics.
    thanks!

  13. #11
    Quote Originally Posted by theoakman View Post
    Rofl, wtf? If the depositor is told he cannot cash it at any time, then it's not fractional reserve banking.
    Maybe I misunderstood then.

    I think fractional reserve just means

    1. Bank takes in $10
    2. Bank lends out some of it

    I can see you'd think it's fraud once
    3. Bank continues business AS IF they have $10
    4. Bank tells anybody they have $10 or more

    I agree, if the banks reports to anybody after the fact part of $10 is lent out, it would be fraudulent.

    However, is it fraudulent if the bank admits they are insolvent, or lending money they either don't immediately have, or may need to sell assets to obtain.

    There's a difference between
    a. saying I have immediate $100 to lend you
    vs.
    b. saying here's an IOU for $100 that bank B will accept, I can back it up with my house if you ever need it.
    vs.
    c. I don't have money, but here's a piece of paper that bank B won't question, and you can take it and use it as $100 as long as bank B and I are good friends.
    (In this case, Bank A & B know what each other have, or are willing to back each other up to pool assets if money is ever needed)
    The borrow just knows he has a GOOD REASON to believe the money can be obtained if necessary, borrow agrees he borrowed money based on TRUST and REPUTATION of the bank.

    How are a, b, c, fraudulent?

  14. #12
    Quote Originally Posted by Stary Hickory View Post
    Exactly, this is like a time deposit, or CD. Not a problem and not fractional reserve lending.
    so a time deposit or CD, in your view, can theoretically

    take in $10
    lend out $10

    as long as everybody agrees once $10 leaves the bank, the bank no longer claims it has money?

    This isn't called FRB, or fraud, or zero reserve, simply keeping promises when needed?

  15. #13
    [QUOTE=Optatron;2213551]Maybe I misunderstood then.

    I think fractional reserve just means

    1. Bank takes in $100 and tells customer A he can access his $100 at anytime
    2. Bank bank lends $90 to customer B, keeping $10 as reserve
    3. Bank has given two customers claims on the very same dollars (at least $90 in this case).

    That is fractional reserve banking, and it is fraudulent because the banks lies to both A and B in that they both have equal claim to the same FRN's.

    Now, if the bank told customer A (and all other customers) that his deposit would be lent out with only 10% being held in reserve and that there may be a possibility that if everyone cashed out their accounts at the same time (heck, even if 10% of their customers did), hey may not get his money, and customer A still deposited his funds, then no fraud would be committed. Customer A would be a dumbass.

    Quote Originally Posted by Optatron View Post
    so a time deposit or CD, in your view, can theoretically

    take in $10
    lend out $10

    as long as everybody agrees once $10 leaves the bank, the bank no longer claims it has money?

    This isn't called FRB, or fraud, or zero reserve, simply keeping promises when needed?
    More or less, this is correct, except the bank says that the money it just lent out will be paid in full, and with interest at some future, agreed upon time.

    the bank says you give me $100 that you promise not to lay claim to for a set period of time, and we will lend that $100 to make money off interest of the loan we create with that deposit, and in return, we will pay you a small fee for letting me use your money, plus refund the deposit, at the end of the tem.

    CD's are not demand deposits. You're leasing your claim on the money to the bank. They're probably the most honest practice a bank engages in because there is a specified contract, time limits, penalties, etc.

  16. #14
    Quote Originally Posted by ghengis86 View Post


    That is fractional reserve banking, and it is fraudulent because the banks lies to both A and B in that they both have equal claim to the same FRN's.
    Yeah, if they didn't lie about it, it wouldn't be fraudulent

    Now, if the bank told customer A (and all other customers) that his deposit would be lent out with only 10% being held in reserve and that there may be a possibility that if everyone cashed out their accounts at the same time (heck, even if 10% of their customers did), hey may not get his money, and customer A still deposited his funds, then no fraud would be committed. Customer A would be a dumbass.
    exactly! thanks! stupid decisions are not fraud, they're just stupid.


    More or less, this is correct, except the bank says that the money it just lent out will be paid in full, and with interest at some future, agreed upon time.
    And if you don't see the money, it's your fault for trusting them.


    the bank says you give me $100 that you promise not to lay claim to for a set period of time, and we will lend that $100 to make money off interest of the loan we create with that deposit, and in return, we will pay you a small fee for letting me use your money, plus refund the deposit, at the end of the tem.

    CD's are not demand deposits. You're leasing your claim on the money to the bank. They're probably the most honest practice a bank engages in because there is a specified contract, time limits, penalties, etc.
    Ok, so if make all banks' terms explicitly CD, or something to the effect of honestly telling everybody how money is juggled, there wouldn't be a problem?

  17. #15
    It is fraud in the sense that most people have no idea this is going on. If everyone knew that this is going on then it would not be called fraud.

    That still does not address the fact that all these people are being screwed.

  18. #16
    Quote Originally Posted by Optatron View Post
    Yeah, if they didn't lie about it, it wouldn't be fraudulent

    exactly! thanks! stupid decisions are not fraud, they're just stupid.

    And if you don't see the money, it's your fault for trusting them.


    Ok, so if make all banks' terms explicitly CD, or something to the effect of honestly telling everybody how money is juggled, there wouldn't be a problem?
    you know, as I read through it, I'm not sure if it's fraud or not even if you tell someone you're fractionally reserving their deposits. it still would be impossible to let two people have a claim upon the same FRN's, so it may not be fraudulent, just physically impossible. would that be considered fraud?

    say i ask to borrow your car. i'll promise to keep the gas tank full and I'll let you keep a key so you can use it whenever you want. i then let someone else use your car, but he has to pay for the gas and the oil, brakes and tires. does it matter if I told you that I was going to lend the car out to someone when you come with your key to pick up the car to drive somewhere? not really, since no matter what I told you, you are unable to use the car, since I let someone else drive it anc can't get it back at the same moment you need your car.

    I'm sort of undecided if that's criminal fraud; you're informed and you consent, but there's still no possibility of the contract/agreement being executed at any and all times.

    not a criminal problem. maybe ethical, but then again, it would be up to the customer to decide.



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  20. #17
    Quote Originally Posted by silverhandorder View Post
    It is fraud in the sense that most people have no idea this is going on.
    So by your logic, a store can't sell you an item for $1 because you have no idea it's actually only worth 1 cent no matter what the cost adds up to?


    If everyone knew that this is going on then it would not be called fraud.
    If they asked, and were not told, or told a lie, that'd be fraud.

    If the bank demanded nobody ask, that'd be a sign, but none of these outright happened. If you ask a bank how much cash they have, they either don't know, or will tell you they can't tell you, or tell you they don't have what you think they have.

    That still does not address the fact that all these people are being screwed.
    being screwed comes in many different forms, not all are bad and wrong.

    are peopel being screwed if they have to pay $10-15 extra by eating at a restaurant? NO, because they AGREED TO IT.

  21. #18
    Quote Originally Posted by silverhandorder View Post
    It is fraud in the sense that most people have no idea this is going on. If everyone knew that this is going on then it would not be called fraud.
    That still does not address the fact that all these people are being screwed.
    is it fraud if there's no possibility of the agreement being executed at any and all times, even if the customer is informed? I don't know.

  22. #19
    Loaning out money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist...... which allows............................ see above......

    Nope..... nothing fraudulent here.


    I have this theory about people who suck.

    You see......... I believe that most people suck, in fact the vast majority of people suck. When two groups of people both suck, and they start fighting, what is the outcome? A compromise that sucks even worse. Later this compromise will have detractors, who will then compromise with something else that sucks, this stupid fracas continues until everything in the entire world sucks. Such is the nature of people who suck. Making the rest of us swim in the cesspool they create.

    I believe fractional reserve lending is a wonderful working example of the above theory.

  23. #20
    Quote Originally Posted by ghengis86 View Post
    you know, as I read through it, I'm not sure if it's fraud or not even if you tell someone you're fractionally reserving their deposits. it still would be impossible to let two people have a claim upon the same FRN's, so it may not be fraudulent, just physically impossible. would that be considered fraud?
    If you promised both people they can cash out at all times, and can't deliver, it's a broken promise, or fraud.

    If you promised both people there's a HIGH CHANCE they can both cash out anytime, they know it's not 100% possible.

    If you promise A he can cash out time slot A, and B he can cash out time slot B, there's neither conflict nor risk, and no fraud.

    say i ask to borrow your car. i'll promise to keep the gas tank full and I'll let you keep a key so you can use it whenever you want. i then let someone else use your car, but he has to pay for the gas and the oil, brakes and tires. does it matter if I told you that I was going to lend the car out to someone when you come with your key to pick up the car to drive somewhere?
    It matters if I didn't agree to something and the performance of the car may be affected if it was driven by somebody I don't trust.

    not really, since no matter what I told you, you are unable to use the car, since I let someone else drive it anc can't get it back at the same moment you need your car.
    Yes, but whether YOU drive or, some SOMEBODY ELSE drives it, there may be different safety concerns, aside from that, you are right, as long as the car is not on me, THAT is the same.

    If you let somebody drive it without my permission after promising me you won't do it, THAT'S A LIE, AND FRAUD, it may not hurt anybody, but it's fraud.

    In contrast, if you agreed you WOULD borrow it, and I agreed you can let others drive it, later you actually never did either, nobody was frauded, you just didn't excercise your benefit of the agreement.

    I'm sort of undecided if that's criminal fraud; you're informed and you consent, but there's still no possibility of the contract/agreement being executed at any and all times.

    not a criminal problem. maybe ethical, but then again, it would be up to the customer to decide.
    Well, that's a good question.

    And I should know that I have no way of enforcing it at all times, and know that that's a risk I must be willing to take AND hold you accountable for if something wrong happens.

    And yes, no matter how stupid, immoral, if it's not a lie, customers should know what they're getting.

  24. #21
    Quote Originally Posted by ghengis86 View Post
    is it fraud if there's no possibility of the agreement being executed at any and all times, even if the customer is informed? I don't know.
    I think the better wording would be "is it an acceptable agreement if it's not enforceable and we all know it"

  25. #22
    Quote Originally Posted by Optatron View Post
    So by your logic, a store can't sell you an item for $1 because you have no idea it's actually only worth 1 cent no matter what the cost adds up to?
    That is different. I am being sold a product in your example. I can decide if I want to buy it or not.


    I have no problem with a bank going out and doing this on their own. I would not do business with them. If they have a run on the bank and can not pay back people their deposits that is when they can be accused of fraud.

    If they asked, and were not told, or told a lie, that'd be fraud.

    If the bank demanded nobody ask, that'd be a sign, but none of these outright happened. If you ask a bank how much cash they have, they either don't know, or will tell you they can't tell you, or tell you they don't have what you think they have.
    That bank would not stay in business. However I would not have a problem with that business plan lol...



    being screwed comes in many different forms, not all are bad and wrong.

    are peopel being screwed if they have to pay $10-15 extra by eating at a restaurant? NO, because they AGREED TO IT.
    Again you are bringing irrelevant examples. I sure as $#@! do not agree to them inflating the money supply through fractional reserve banking. Inflation is bad. Some people may agree to inflation but they have no right to do it to me.

  26. #23
    Quote Originally Posted by aravoth View Post
    Loaning out money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist....... which allows more banks to loan money that does not exist, then they charge interest on that same money that does not exist...... which allows............................ see above......

    Nope..... nothing fraudulent here.
    Nothing is fraudulent if all parties are informed 100% of the mechanism.

    However, there IS an argument that because banks don't own the money supply, nor gotten consent of ALL PEOPLE WHO USE FRN MONEY, they cannot (be allowed to) affect their supply.


    the below ignored until the above answered.
    I have this theory about people who suck.

    You see......... I believe that most people suck, in fact the vast majority of people suck. When two groups of people both suck, and they start fighting, what is the outcome? A compromise that sucks even worse. Later this compromise will have detractors, who will then compromise with something else that sucks, this stupid fracas continues until everything in the entire world sucks. Such is the nature of people who suck. Making the rest of us swim in the cesspool they create.

    I believe fractional reserve lending is a wonderful working example of the above theory.

  27. #24
    Quote Originally Posted by silverhandorder View Post
    That is different. I am being sold a product in your example. I can decide if I want to buy it or not.
    yes, and banks sell you a $#@!ty deal, you can decide whether you want it.

    I have no problem with a bank going out and doing this on their own. I would not do business with them. If they have a run on the bank and can not pay back people their deposits that is when they can be accused of fraud.
    No, it's not a fraud if they never promised they can deliver in the first place.

    That bank would not stay in business. However I would not have a problem with that business plan lol...
    thanks/



    Again you are bringing irrelevant examples. I sure as $#@! do not agree to them inflating the money supply through fractional reserve banking. Inflation is bad. Some people may agree to inflation but they have no right to do it to me.
    fair enough, so the only problem you have with inflation is not 100% of the people agreed to it.



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  29. #25
    Quote Originally Posted by Optatron View Post
    Nothing is fraudulent if all parties are informed 100% of the mechanism.
    I believe you just proved my point. The overwhelming majority in this country don't have a clue what Fractional Reserve lending is.

    But a better point still, is that even if 49% of the population knew what Fractional Reserve Lending was, the other 51% could force them into it. The 49% doesn't agree, knows it's fraud, and can't do $#@! about it. The 49% doesn't even have to take out loans to be in debt under this system. Once one person gets a personal loan, everyone begins to pay for it through currency devaluation. There is nothing smart, nothing moral, and nothing enlightening about this ridiculously stupid and dominating system.

  30. #26
    Quote Originally Posted by Optatron View Post
    As we discussed in many previous threads, there's a difference between

    A. Taking $10 in, lending $9, keeping only $1.
    vs.
    B. Taking $10 in, claiming to have $100, and lending out $90.
    vs.
    C. Taking $10, keeping it all.

    A. Is the typical bank operation of fractional reserve
    B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
    C. Simply depositing money and doing nothing with it.

    The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

    http://www.market-ticker.org/archive...-Mish-FRL.html

    WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

    Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?
    Fractional reserve banking is scenario B, not scenario A. You have the "fractional" part mixed up. It doesn't mean they lend out a fraction of what they have. It means they have a fraction of what they lend out.

    Hope that clears it up for everyone.

    It's fraud because the bank is claiming to have wealth it doesn't really have. The Federal Reserve cuts a check for $100,000 and hands it to bank A. The check is backed by nothing. No one can take that check back to the Fed and get anything for it. Bank A then cuts checks to borrowers for $1,000,000 total. Those borrowers then use the money to buy a house or whatever. They pay sellers with the checks. The sellers take the checks to banks B, C, and D, and deposit them.

    In lieu of a banking cartel, this would present a problem. Banks B, C, and D would come to bank A with the checks and expect to get something for them. Bank A doesn't have anything to give them, so this would lead to bank A collapsing. But with the Federal Reserve system, all the banks are colluding with each other. So they don't demand anything from each other for the checks.

    This all sounds great, but there's a problem. Just like everything else, the value of the dollar is determined by its rarity. The more dollars there are, the less each one is worth. Our entire pricing structure is based on this. When the Federal Reserve creates money out of thin air, they're devaluing the dollar.

    The first people who get their hands on the money can go out and spend it in a market whose pricing structure is based on the rarity of the dollar where it was prior to the money creation. As more dollars get injected into the market, it gets easier for people to get dollars, and people start to "feel richer". As this happens, prices across the entire economy are gradually adjusted upward to relect the new rarity of the dollar. This pricing adjustment lags behind the money creation.

    The people who got the new money first got to take advantage of a pricing structure that did not accurately reflect the true value of the dollar. The people who sold them stuff got ripped off. That's the fraud.
    Last edited by Feenix566; 07-16-2009 at 01:22 PM.

  31. #27
    Quote Originally Posted by Feenix566 View Post
    Fractional reserve banking is scenario B, not scenario A. You have the "fractional" part mixed up. It doesn't mean they lend out a fraction of what they have. It means they have a fraction of what they lend out.

    Hope that clears it up for everyone.
    O RLY??

    Why do we need the Fed if every bank can literally multiply money any time?

    Why do we have bank runs and bank failures if multiplied money can always be made?

  32. #28
    Quote Originally Posted by aravoth View Post
    I believe you just proved my point. The overwhelming majority in this country don't have a clue what Fractional Reserve lending is.
    That's their fault for not asking, not the banks fault for not telling them, nor is it fraud.

    But a better point still, is that even if 49% of the population knew what Fractional Reserve Lending was, the other 51% could force them into it. The 49% doesn't agree, knows it's fraud, and can't do $#@! about it.
    Yes they can, by not participating in it.

    The 49% doesn't even have to take out loans to be in debt under this system. Once one person gets a personal loan, everyone begins to pay for it through currency devaluation. There is nothing smart, nothing moral, and nothing enlightening about this ridiculously stupid and dominating system.
    if it's so guaranteed currency will devalue, the 49% can invest in what they believe benefits and counteracts devaluation/inflation.

  33. #29
    Quote Originally Posted by Optatron View Post
    O RLY??

    Why do we need the Fed if every bank can literally multiply money any time?

    Why do we have bank runs and bank failures if multiplied money can always be made?
    The Fed is the only entity that can legally print actual money. The Fed places restrictions on the bank as to how fractional they can be. Currently, the rule is that the banks must keep 10% of their outstanding debt in reserve. Once they've hit that limit, they can't extend their debt any further by printing checks.

  34. #30
    Quote Originally Posted by Conza88 View Post
    Yeah, I've got both of those saved in pdf and I am organizing getting them re-printed. Now how about you go read a grown up book like Man, Economy, State.. Human Action and then YOU'LL understand economics... Or you could read What has Govt Done to our Money for starters... anything that actually deals with the issue of FRB is probably a smart choice..

    What is hilarious, is quite literally you are out of your depth... just as optatron is. Literally no idea.. and since he isn't intellectually honest - I'm not going to waste my time with him.

    So:



    Quite sad isn't it.. lmao
    If you like it so much, then why don't you understand anything about what it says? The Goodbank clan did fractional reserve lending in the way the OP stated, but you still decried it as fraud, despite the fact that it is against the very definition of fraud. It's so hilarious that you have done so much work, yet you still have no idea what you are talking about.

    Ben Bernanke did a lot of work studying the Great Depression, yet he still managed to not understand a damn thing about it.

    I suggested the comic because it is easy reading, clearly explained, etc. Read it again. Then read it a third time. Read it until you understand what is going on at that bank.

    Fractional reserve banking is only a problem when it creates money. In the case that the OP stated, it loans out nine dollars for every ten dollars it receives in deposits. So long as the customers are told that their money is being lent out in that way, and they are informed that they will have full access to their money most, but not all the time (ie during bank runs...which are incredibly rare when banks are unregulated). The loans must be repaid at some point, so the money comes back. Any loans that aren't repaid are covered by the interest on those that are repaid. It's a simple concept. You should save your derision for the mirror.

    Edit: Haha, I think there was some confusion here, started by the terms used in the OP, as Feenix pointed out. I suppose I was thinking of the case where a gold standard was in effect, and the bank kept the full amount of gold in its vault, while lending out gold notes, which appears to inflate the money supply, but doesn't, since the money is all backed by gold, and any unsupportable issuance of notes is not a problem beyond the loss of deposits, as the supply of gold doesn't change.

    That said, full consent fractional reserve banking STILL isn't fraud. The only fraud comes into play when the printing press is used. Otherwise, any bad debt or excess notes are simply washed away as null and void when the bank goes under, keeping the money supply stable.
    Last edited by tmosley; 07-16-2009 at 01:38 PM.

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