Fractional Reserve Banking : Criminal?

Discussion in 'Markets & Economies' started by hawkeye, Feb 28, 2013.

  1. hawkeye

    hawkeye New Member Silver Stacker

    Joined:
    Nov 10, 2010
    Messages:
    3,098
    Likes Received:
    3
    Trophy Points:
    0
    Location:
    Perth, Australia
    Can you show a simple bank balance sheet and show what happens to it when a mortgage is taken out and we can go from there?
     
  2. Old Codger

    Old Codger Active Member Silver Stacker

    Joined:
    May 13, 2011
    Messages:
    4,836
    Likes Received:
    5
    Trophy Points:
    38
    "The Debt Truck"

    Some here will remember the debt truck going around OZ with an horrendous figure of debt owed by "Australia".

    It is NOT owed by Australia at all, it is owed by our banks and many large companies such as mining companies and Qantas etc. It is a charge against the company and its assets, and ultimately its shareholders. If the borrowing company goes broke, the lender (probably) loses his money in the liquidation. The first loser is the shareholders.



    OC
     
  3. Old Codger

    Old Codger Active Member Silver Stacker

    Joined:
    May 13, 2011
    Messages:
    4,836
    Likes Received:
    5
    Trophy Points:
    38
    No, such info is NOT in a balance sheet!

    The figures i have given above show what happens, money comes in (as deposits) and is lent out (as mortgages etc) , one CANNOT exceed the other.


    OC


    OC
     
  4. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    23,698
    Likes Received:
    6,031
    Trophy Points:
    113
    Location:
    昆士蘭
    Sorry to interrupt you two guys, keep going it's good, but doesn't Westpac's Capital Adequacy Ratio of 11.7% indicate that it is operating under a minute reserve and that in reality, the bank is leveraged just under 9 times more than it's capacity to meet it's obligations to deposit holders and shareholders?

    Just as an aside, the minimum requirement in Australia is 8%, but in Georgia for example, most banks are about 25 - 30%.
     
  5. Old Codger

    Old Codger Active Member Silver Stacker

    Joined:
    May 13, 2011
    Messages:
    4,836
    Likes Received:
    5
    Trophy Points:
    38
    11.7% is very high historically, it was usually about 8 to 9%, in Australia that is.

    (Is that Georgia the country, or Georgia the state?)

    ...and yes it is NOT enough to cover a 'run', NOTHING IS except a 100% pile of cash in the tellers drawer, and that is impossible.Remember what i said about borrowing short and lending long.



    OC
     
  6. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    23,698
    Likes Received:
    6,031
    Trophy Points:
    113
    Location:
    昆士蘭
    Yes it is high, I think it should be 3 times that though. :/

    Georgia the Country.
     
  7. hawkeye

    hawkeye New Member Silver Stacker

    Joined:
    Nov 10, 2010
    Messages:
    3,098
    Likes Received:
    3
    Trophy Points:
    0
    Location:
    Perth, Australia
    Well let's take the most simple example of a bank with only 2 customers.

    Balance Sheet (intially)

    Assets
    Cash 100

    Liabilities
    100 Deposit to first guy

    Next guy comes in to take out a loan of $90


    Balance Sheet now

    Assets
    Cash - 100
    Loan - 90

    Liabilities
    100 Deposit to first guy
    90 Deposit to Second guy


    What is wrong with this?
     
  8. fishball

    fishball New Member Silver Stacker

    Joined:
    Apr 11, 2011
    Messages:
    6,573
    Likes Received:
    0
    Trophy Points:
    0
    Location:
    Shin Sekai Yori
    Loans issued by the bank is considered an asset on the books hawkeye.

    ie. Your assets would be 190 but the liability would still be 100.

    CAR has to do with bank liquidity and how they manage it. It doesn't really mean they're leveraged it just means they may or may not be liquid.

    It'd be like fully owning a $400k property and only keeping $100k in cash. Your CAR would be 20% (100/[100+400]) but you aren't leveraged at all.
     
  9. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    23,698
    Likes Received:
    6,031
    Trophy Points:
    113
    Location:
    昆士蘭
    But they have to balance fish
     
  10. Old Codger

    Old Codger Active Member Silver Stacker

    Joined:
    May 13, 2011
    Messages:
    4,836
    Likes Received:
    5
    Trophy Points:
    38
    The difference is red and black ink!

    The bank CANNOT lend what it does not have in the kitty. Westpac has obviously not lent more than deposits, simple as that.

    It takes in $100, puts $90 in reserves, and can lend out ONLY $90.

    Book entries do not CREATE money!


    OC
     
  11. hawkeye

    hawkeye New Member Silver Stacker

    Joined:
    Nov 10, 2010
    Messages:
    3,098
    Likes Received:
    3
    Trophy Points:
    0
    Location:
    Perth, Australia
    No, because instead of giving the guy 90 in cash, the bank has said you have an account with 90 in it.

    Basically, instead of the guy taking 90 cash and then redepositing it, the bank has just merged those 2 steps into 1. Which is exactly what happens when you take out a loan. Does the bank just give you cash straight out?
     
  12. fishball

    fishball New Member Silver Stacker

    Joined:
    Apr 11, 2011
    Messages:
    6,573
    Likes Received:
    0
    Trophy Points:
    0
    Location:
    Shin Sekai Yori
    Last time I checked if I take a loan for $X I can take it in the form of cash.

    Besides, why the hell would I take a loan out to put back into the bank???? Sure way to lose money isn't it.
     
  13. hawkeye

    hawkeye New Member Silver Stacker

    Joined:
    Nov 10, 2010
    Messages:
    3,098
    Likes Received:
    3
    Trophy Points:
    0
    Location:
    Perth, Australia
    I never claimed they did. They create credit.

    But you acknowledge that in this world 2 things are true.

    1. Money is ill-defined.
    2. Credit and cash are interchangeable in the economy. ie. in the above example where the is only $100 cash. The two people have a total of $190 that they can spend.

    And do loans not create deposits or is my balance sheet incorrect? And if so, can you correct it?
     
  14. Old Codger

    Old Codger Active Member Silver Stacker

    Joined:
    May 13, 2011
    Messages:
    4,836
    Likes Received:
    5
    Trophy Points:
    38
    "No, because instead of giving the guy 90 in cash, the bank has said you have an account with 90 in it."



    NO, it has an account with a DEBIT balance of $90

    RED INK!
     
  15. hawkeye

    hawkeye New Member Silver Stacker

    Joined:
    Nov 10, 2010
    Messages:
    3,098
    Likes Received:
    3
    Trophy Points:
    0
    Location:
    Perth, Australia
    Does the bank give you physical cash straight away or does it put it in your account?
     
  16. hawkeye

    hawkeye New Member Silver Stacker

    Joined:
    Nov 10, 2010
    Messages:
    3,098
    Likes Received:
    3
    Trophy Points:
    0
    Location:
    Perth, Australia
    OK, now I'm confused. How is that different from what I've been saying?
     
  17. capt.sparrow

    capt.sparrow New Member

    Joined:
    Jun 3, 2011
    Messages:
    379
    Likes Received:
    0
    Trophy Points:
    0
    Location:
    U ASS
    where do you think the bank gets the money from which it lends out? from deposits?

    that's a laugh
     
  18. fishball

    fishball New Member Silver Stacker

    Joined:
    Apr 11, 2011
    Messages:
    6,573
    Likes Received:
    0
    Trophy Points:
    0
    Location:
    Shin Sekai Yori
    Feel free to educate yourself:

    http://www.rba.gov.au/publications/bulletin/2012/mar/5.html

    That's just an extra step. Once you take the cash out you would no longer be on their books as a liability as they owe you nothing (the 90 deposit) but you owe them something (the 90 loan).
     
  19. capt.sparrow

    capt.sparrow New Member

    Joined:
    Jun 3, 2011
    Messages:
    379
    Likes Received:
    0
    Trophy Points:
    0
    Location:
    U ASS
    they do balance - it's just that the 90K they created from thin air isn't accounted for there
     
  20. capt.sparrow

    capt.sparrow New Member

    Joined:
    Jun 3, 2011
    Messages:
    379
    Likes Received:
    0
    Trophy Points:
    0
    Location:
    U ASS
    what utter poppycock!

    you may have worked at a bank, but you obviously have no idea of how money is created by banks.
    you reason like 99% of the sheeple who have no idea about the fraudulent nature of our banking system.
     

Share This Page