Good point different things. Have we ever had fiat without fractional banking sorry for mixing them up.

Both or either I still cant see how its fraud or unethical. Ponzi seems to miss the point a bit, many things rely on future earnings that doesn't means there is some risk.


This is an example of very bad regulation in practice (certainly in Europe and I'd bet in the USA as well). Its a good idea of course, insurance against loss to prevent bank runs is a great idea of course but like insurance against flooding the cost needs to be commensurate with the risks.

Its effectively taking money from well run banks and giving it to badly run banks, worse it encourages banks to be run badly by making riskier practice an advantage with no downside.

It would be good regulation if banks had to pay for their insurance in some way commensurate with how risky a proposition they were to insure (and the insurance fund was properly managed )

Bank of Amsterdam tried it for a little bit.

It had always been legal. All fractional reserve means is "bank must keep at least x% in cash. Presumably, if the market had depositors willing to pay for such a service, it would exist.



From what I understand, the FDIC does charge based on risk. I am fairly sure that prior to the FDIC, bank runs were not discriminate between safe and unsafe banks.

Fanboys are allowed from what I understand.

Like you said, always helps to have another person in the trailer park.

http://www.youtube.com/watch?v=ZN6mp2NjMhs

1:32

Lol. Even the Bible says that is wrong. Mathew 25.

If you are somehow tricked into thinking your deposits are not being lent out, then it would be a violation of property rights. I'm the first to admit that Joe Q Public is financially illiterate, but anyone who is not an idiot realizes that banks take in deposits and lend money.

Again, you are legally permitted to charter a full-reserve bank. To limit the rights of others to charter (and deposit at) fractional-reserve banks would be a violation of property rights, personal freedom and economic liberty.

"Banks must keep x% in reserve" is a limitation on banks, not the individual. We only enforce a maximum amount of leverage. We do not enforce a minimum amount of leverage. Again, you are legally permitted to charter a full-reserve bank. Disallowing me to deposit my funds in a partial reserve bank would be limiting my freedom.

You can even charter a gold-depository if you wish, and allow for withdrawal in cash or gold for those who like that sort of thing. You could even charter a whiskey depository if you wish. Eliminating fractional reserve banking would necessarily and explicitly disallowing my freedom to act as I wish.

As far as taxes go, there would be no loss between when you cash in your non-fiat assets for cash and pay Caesar his share. This should be fairly obvious from a practical mathematical point of view.

Would have responded to the rest, but it didn't make enough sense.

I'd bet they they dont. They may claim to, the claim may even sound reasonable but one thing I'd bet the house on is they dont actually charge anything like commensurately to the risk* (or even do a a decent job of getting close).

If you somehow believed the charge was commensurate with the risk then you're either saying the crash was just rare bad luck or that they knew how perilous the situation of some banks was and were charging mega insurance premiums - hmmm

The problem is the denate is always predicated on the regulation being done well and that is just plain wrong. The debate about regulation needs to be about what can be done well, not lets do it because its a good idea if done well - especially when its so dangerous when done badly.

There is some countercyclicality in this sort of thing. Its done better after disasters and done badly during the good time - exactly what we dont want!

This type of area is where the real blame for the crash lies otherwise we might as well blame the rain when we have floods.

This profoundly misses the point. The problem with hiding the risk is it encourages bad banking practice at the expense of good banking practice. The market will exploit the advantage to death (as they should some might point out)

I think I already mentioned that a key problem is that we dropped decent regulations because it hadn't rained in a while and carrying umbrellas became unpopular.

Yes you did and we agree but it cant be ignored. Because the regulation debate is always predicated on good ideas when done well, we have a major problem.

Good regulation needs to avoid the feature of making things very dangerous if not done extremely well because we know at times it wont be done, and worse we know the times it wont be done well are when its matters most.

We basically have regulation that is only done well when we dont really need it and makes things far worse when we do need it.

Actually the problem is even worse than normal lending like in the Tim/Brad/Harry example I give, as banks in before the crisis and until now (for many reasons) have a far far worse/debt asset situation.

That was just to prove the unethical nature of risking someones money while assuring them it is 100% safe...

And you are tricked into believing your funds are present/secure! It's not just 1x "lending" the money! It's leveraging it over time and time again until even a tiny shift in speculative assets crashes the entire bank... or if even a relatively small portion of deposits were demanded the FDC couldn't deal with it! Surely you must understand this is deception at its worst...

Both banks and government 100% assure citizens of the safety of their funds. Find a statement on BOA's site that says "your money under the FDIC limit can be at any time for any reason unavailable"... The claim of total security along with FDIC guarantee is made by every bank in America... and you really don't see how this is wrong?

We are all glad you are a discerning consumer, I actually like that you can see past the web of lies yourself, but most people trust the government, and the bank itself when they both say repeatedly that every last dime is there and is insured even in a nightmare scenario... both are undeniably false.

And as I said above, the only reason this works (after people finally started to get wise in the 30s) is that almost every bank in America guarantees (along with fraudulent FDIC) that accounts are insured up to 250k.

This is a lie, and this falsification of $ security is where the violation of property rights occurs. The money isn't there. I've never claimed anything else.

You can guarantee that after the great depression, after centuries of bank runs, panics and crashes, the market would have heavily selected against the system of fractional reserve. But alas, big government came to the rescue, lied through its teeth about account securing trillions of dollars in deposits, and perpetuated yet another unsustainable system.

As for the last point, I'm pretty sure what I said makes perfect sense and I challenge you to refute any of it. I feel the same way about your beliefs but on some level I am enjoying this exchange and even if it's frustrating I think it's good to have. You will be more likely to kick a libertarians ass in a fruity coffeeshop debate etc. Arguing w/ the other side is good for everyone involved.

I think I've nailed down this particular point of disagreement.

So sure, A fractional "bank" can be available as an alternative speculative vehicle, but only if people aren't lied to by gvt and the banks themselves about the security of their funds. That's the whole problem as I see it.

None of the current safety nets are real in the event of an actual problem, yet almost the entire population is told by banks and government that they are. People are assured, time and time again, that their money is 100% covered no matter what by the inherent security of the fractional reserve banking system (a lie), and by the government (also a lie).

Most of the currency in banks is simply debt-based, and ultimately without any security whatsoever in the event things go wrong... I feel that dishonesty is what makes it a violation of property.

This sounds reasonable but for insured deposits (implicit or explicit) in a fiat currency under the same jurisdiction they aren't being lied to by fractional banking. The money is always available.

Fiat adds risk but it has benefits as well. The problem lies in the operation of the fiat system but its not clear that no fractional banking is the best approach.

I hope I've got 'fiat' right this time

Yes, but FDIC does not have funds available to cover even a fraction of deposits held nationally. Since the insurance guaranteeing the entire system is 100% incapable of covering deposits (or even a fraction of them), the claim of fund security is just a lie.

If you are referring to printing trillions of dollars of fiat in case of a disastrous bank run, that is not an option. At all. First of all it doesn't solve the problem, it simply siphons value directly from the rest of the currency in circulation, stealing from citizen a to pay citizen b is not a solution... but worse, it can lead to a crisis of confidence in the ability of the U.S. to pay debts and cause hyperinflation. That would be even worse than half the country losing their money, the U.S. would let people starve before it did that. We have some deviously smart Keynesians running the show and they know how these things work.

I found this idea on a website, I think it's great.... What if fractional banks simply acknowledged they weren't typical banks? But rather speculative institutions?

Consumers would be informed, and gvt wouldn't have to lie and deceive people who just want some security... everyone wins!

Withdraw FDIC insurance of all deposits at fractional reserve banks (which doesn't really exist anyways, this is simply telling the truth) And on each account, add the clause:

“This check is on an account in a fractional reserve bank; in accepting it in payment, you assume the risks involved.”"

I'm into it. Frac. reserve goes from being an extremely unethical stranglehold on the banking system to perfectly ethical alternative if banks/gvt just stop lying about fund safety/guarantees.

If is implicitely backed by government in a fiat system then it is available. The actual funds in vaults dont change that but along the lines you go down below there's no ethics/fraud problem if its clear what the insurance provides even if its less than 100%

It is an option in functional fiat fractional system. Even better as long as its an option there's no need to do it. Systemic risk is the problem and its that we seek to avoid with regulation.

What most of us want is a well regulated fiat based fractional reserve syste.

A few demand an end of fractional banking, return to gold standards etc etc. It seems a very tough case to make.


The alternative might be far worse overall. You might find the USA becoming poor compared to other countries if in fact fiat/fractional is better as most of us seem to believe.

typical banks are speculative institutions

but I tend to agree with that approach being along the right lines. I've advocated default law/regulation which can be explicitely opted out of or extended. I dont think the world is ready for it though (even assuming its not tosh and it not anti-regualtion it pro-progressive regualtion).

That isn't how the FDIC is set up. They don't need assets to cover all deposits.

Since the rest of your comments rested on that assumption, I didn't feel the need to respond to them.

If you are referencing the 250k limit, I mentioned that several times and the vast, VAST majority of citizens (>99.9%) accounts are obviously under this limit... if not...

Directly from the FDIC website:

"ARE MY DEPOSITS INSURED?

FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."

Ignorantly over the backboard on just about every fact so far... But I can tell you are a smart guy, which leads me to believe this could just be an example of plain manipulative intellectual dishonesty. You pick.

^ I dont know much about FDIC (i assume the F stands for foreigner)

but I guess BTM means they dont claim or attempt to provide the cover by holding sufficient funds to pay the lot. If they did it would be the same as non-fractional reserve.

Still not 100% sure what you are asking... I think you are talking about tremendously inflating the money supply. The Fed would never print trillions in case of a bank run. It would destroy confidence in the dollar, and possibly hyper inflate the currency as worldwide demand for it falls. Actions like this say one thing to foreign investors, and they get out quick.

http://en.wikipedia.org/wiki/Hyperin...eimar_Republic

Ultimately, it would never happen. Theres too much precedent for it to go wrong, and the people in charge are too capable at manipulating markets to make that mistake.

But it's skirting the issue anyways. Even if it were viable (it isn't) All printing trillions of dollars in cash would do is steal trilions of dollars of value from other citizens holding USD.

You are still stealing value (albeit from other people). It is identically unethical to take that approach.

The fact that people are able to think that way and see no contradiction, is the problem with modern democracies.

Full Reserve banking (how banking originated) is not speculative. But in a system where inflation is purposefully created through government policy/allowing/guaranteeing Frac. Reserves, it is not a feasible alternative.

They don't insure your accounts purely by holding cash. They insure your accounts by seizing the assets of the troubled bank and selling them to raise cash.

I wasn't referencing anything about the $250k limit.

Banking did not originate as full reserve.

The most recent attempt at it was in the 1600s by the Bank of Amsterdam. They charged 5% per half-year to hold deposits. It did not turn out well.

You may claim its unethical to impose stuff by democratic government but ethically it holds its own.

There is no basis here for a discussion in BFI. Its neat politics and rarely discussed by adults so I recommend you dont bother with it unless you like a lot of gibbering.

We have all heard of this sort of stuff you know, there's no point in links to the Weimar republic etc. We all know there are dangers which is why most of us want regulation (and to not fight very expensive self-destructive wars)

The issue we have to address is how would counties that didn't have fiat/fractional perform overall compared to ones that do.

Well I'd hope the troubled bank would be liquidated no matter what, it owes depositors whatever money it has.

But in a bona-fide 2014 US bank run we're talking trillions upon trillions of dollars in deposits.

Looking at BOA's financials (the biggest bank in America) it only has 230 hundred billion dollars in equity... how would you be able to raise enough capital without stiffing someone on trillions in debt/liabilities along the way?

So even if what you say is true... There's still nowhere near enough "actual" money to go around... wasn't that the whole point of fractional reserve to begin with?

I think it's pretty clear that in any reasonable sized bank run many people would simply lose a large % of their money. An extremely improbable second would simply inflating the value out of others to repay depositors.

Robbing Citizen A through inflation to pay Citizen B does absolutely nothing so I don't see how that is a solution.

I don't agree. Using force (the core value of democracy) to coerce 49% of the country to act a certain way is very very immoral. This is a violation of the universally accepted principle of absolute rights. Actually, I think the burden of proof is on you. Why is it okay for two wolves and a sheep to decide what's for dinner?

As an online poker pro, I know what it's like to be under the jack boot of government regulation with no one to help you. I was forced to leave the country almost immediately just to ensure money wasn't taken by the Justice Department! It's the most helpless feeling in the world.

You absolutely can't say with a straight face that a democratic resolution is by nature ethical. Some of the worst things imaginable have been committed by democratic decision.

So yeah, to most libertarians, anything beyond defense of property rights is very, very immoral. The government is in the wrong once it says the word "should".

I posted that link because a lot of people are just reading the forum, I assume as a poster you are more educated in general, but TBH, If you had even a basic understanding of the Weimar Republic situation, you'd understand that massively inflating the currency supply overnight is simply not going to happen.

But to some extent I agree about this being off topic, I'll stop posting in general before I blow an artery.

Did some more in deth research, the first banking originating in Mesopotamia and Egypt was absolutely for storage purposes only, precious metals, salt etc. Far from ideal, most were under the control of the local "god-king"...

But just wanted to clear up the fact that banking did NOT start as a fractional reserve system. That practice has its roots in fraud, investors were usually unaware of the skimming, and before government stepped in, most of these banks were simply run out of business.

The problem isn't that we disagree about ethics (which we do), but we are arguing at cross purposes when we discuss how banks should be run as we are not trying to achieve the same thing.

Much as it sucks to live in the land of the free (oops bit of politics there but i think I got away with it) we might count ourselves damn lucky if that's the most helpless sort of feeling we get to suffer.

Just because we live in a better society than in the past doesn't mean there isn't massive room for improvement.

You just don't even understand my argument still. Nor does Brian... I'm not arguing for how banks should be run! I am arguing that government regulation changes the playing field, and corrupt practices emerge as a result.

I officially need about 20 valium and a few spritzers... so I'll sum up my entire argument on the matter below in concise easy to digest form. Can't.... post.... anymore.

Fractional reserve banking isn't by itself unethical if the risk is fully disclosed and the false guarantees removed. All it is is a form of gambling/risk. (as I proposed earlier). But the current frac. res. system definitely is massively unethical, and it's the false security and policy of the government that make it so. That allow it to blow so far out of proportion.

Perhaps in my earlier post I should have stated "government (aka falsely) guaranteed fractional reserve banking is theft" so as to avoid constant nitpicking...But I assumed I yapped about the government enough in almost every sentence and post before that one that people would understand. That is what I have been trying to say (and have said) this entire time.

"The land of the free". Kinda LOL. We have "freedom" here in Hungary... of assembly, of representation, religious beliefs. All over the world actually.

You have to always keep trying to improve society.

me and Brian agree that the future will generally be better still so we all agree there is massive room for improvement.

Of course it changes the field and of course corrupt practices emerge. I doubt Brian disagrees that happens either. The new field and the corrupt practices are addressed with a new generation of regulations and standard practices changing the field further and no doubt seeing some more corrupt practices emerge and so on... such is progress. This isn't obviously worse than no forceful regulation, most of us see an upside as well though.

I dont think you are being misunderstood and I have more sympathy with libertarian type views than most non-libertarians but I think you are wrong when you claim democracy is unethical and we really really don't want to go there.