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Forum Post: What Is A Loan???

Posted 7 years ago on Nov. 4, 2011, 12:55 p.m. EST by SirPoeticJustice (628) from New York, NY
This content is user submitted and not an official statement

You know banks can loan out nine times the amount of deposits they have in members accounts. That means if they have ten dollars, they can go poof and type ninety dollars on a screen, loaning that "money" with interest. So the bank worker spent a half hour worth of work creating that "debt" but the single mother has to spend twenty years paying the bank. I do not see how anyone in their right mind could call that a loan.

While many causes for the financial crisis have been suggested, with varying weight assigned by experts,[9] the United States Senate issuing the Levin–Coburn Report found "that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street."

We SHOULD take a lesson from Iceland:



At Least Have The Decency To use The Term "Debt Supply" Instead of Money Supply. Let's Be Honest.



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[-] 1 points by TheCloser (200) 7 years ago

True! Our tax system has a DEBT bias. There is incentive to carry debt, and to some extent, it's important to have the availability of credit - sadly though, this debt crisis has us by the balls! When our system collapses - it'll make Greece look like kittens playing,..

[-] 1 points by MortgagedTent (121) 7 years ago

Its the Federal Reserve that sets the fractional lending reserve. The Fed has, for the most part, been a corrupt arm of the biggest western banks.

This practice goes back to the dark age goldsmiths (who were also asked to store their clients gold) who quickly realized that on any one day only a small percentage of clients would ever ask for their gold. So they would illegally lend out the money that wasn't theirs. They gained remarkable power until the Church and the Monarchies clamped down. But it never went away. The entire history of western civilization can be seen as a constant struggle between money lenders and the public. By the 1800's the banks became so powerful they were, essentially, the real rulers of the world - controlling the fate of nations through management of their money supplies. Nations that sought a different route, independent from the lending establishment, were mercilessly pounded into submission by debt-generating war and even assassination. The problem only seemed to vanish when the media - which used to be more neutral and often sided with the public, switched sides in the 1920s. There's no inherent law of nature why a nation should pay interest on its own money.

[-] 1 points by CoExist (178) 7 years ago

They loan debt. Money is Debt. That's how this current system works. Check out Money is Debt cartoon on Google and you will quickly see how things work.

[-] 1 points by Teacher (469) 7 years ago

So if I have $10 dollars in the bank and I write a check to my buddy for $90, I'm doing something wrong. But if the bank does the same thing to me, thats just business.

Seems legit.

[-] 1 points by stevo (314) 7 years ago

Yea...it's just like a credit union works.

.Hey...wait a minute...

[-] 1 points by Tryagain (300) 7 years ago

That's completely nuts. Deposits are owed by the bank. It holds some of those deposits in reserve, but then lends the rest out. Where you see money growth is when that loan then becomes a deposit somewhere else and part of it might be lent again. Debt is real.

[-] 1 points by SirPoeticJustice (628) from New York, NY 7 years ago

Basically you just supported my argument! Thank You!

[-] 0 points by KnowledgeableFellow (471) 7 years ago

He absolutely didn't support your argument!!!!! Even if the deposited loan proceeds are deposited in the same bank, the bank records that as another liability and will pay interest on that deposit. Banks are required to place part of their deposits in a reserve account.

Why don't you try to have a grasp of the topic you are ranting about.

You weren't even close to being right.

[-] 1 points by SirPoeticJustice (628) from New York, NY 7 years ago

I have studied economics, majored in business, and worked at an investment bank!!!!!!!!!!!!!!!!!! I KNOW what I am talking about and I am only talking the LEGAL aspects. The federal reserve banks are ten times worse.

[-] 0 points by KnowledgeableFellow (471) 7 years ago

Well, I have worked for an investment bank, too. You are wrong about a bank being able to lend out deposits nine time. And besides why would you call bank customers members? Credit unions have members, not banks. Geesh.

[-] 2 points by libertarianincle (312) from Cleveland, OH 7 years ago

Did you sweep the floor at the bank you worked at? Its called FRACTIONAL RESERVE BANKING and as the OP described it is a VERY real practice.

[-] 1 points by KnowledgeableFellow (471) 7 years ago

Yes, I know what the fractional reserve banking system and how it works. It's just really odd that you or anyone else would see evil in it. It is said that banks create money this way. But the money is created when loan proceeds are deposited in the same or different bank. That is done by the borrower, not the bank. Therefore, using your distorted logic, it this those EVIL BORROWERS who create money. And yes, it is a real practice, but it is not evil as you insinuate. It's just common sense.

[-] 1 points by libertarianincle (312) from Cleveland, OH 7 years ago

What happens when the bank borrows money from the Fed, KF?

[-] 0 points by KnowledgeableFellow (471) 7 years ago

that definitely increases the money supply. why?

[-] 2 points by SirPoeticJustice (628) from New York, NY 7 years ago

BANKS run the show. They OWN the planet.

And YES, banks loan out POOF money.

If you were a broker, you are the peasant. You are NOTHING to the higher ups. FINRA and SEC enable the guys with the most money to get away with whatever because they play golf with those guys.

DEBT supply.

Maybe the bank you worked at was ethical and legal. The one I worked at was not.

The game is rigged because white collar crime RARELY gets prosecuted.

When it does get prosecuted, the guy is almost always convicted to make a "we wont stand for this" charade.

and then most of the money was put offshore and the guy gets early parole and goes and lives on his island after a year at the cushy prison.

[-] 0 points by KnowledgeableFellow (471) 7 years ago

You don't gain any respectability when you say crazy things like Banks own the planet. That's pretty laughable. Really.

[-] 1 points by libertarianincle (312) from Cleveland, OH 7 years ago

Do you understand why the interest rates are low and what that means?

[-] 0 points by KnowledgeableFellow (471) 7 years ago

There are a number of reasons rates are low....both real and artificial.

[-] 1 points by frontierteg (137) from Kalamazoo Township, MI 7 years ago

Actually that is incorrect. The fractional banking system requires 1) a deposit into the "banking system" (let's say someone deposits a paycheck for $100) 2) a loan to a borrower (say $99) 3) The person getting loan then deposits the $99 into the "banking system", probably in an other bank, or spends the money and the business owners deposit their earnings into the banking system. 4) Whatever bank the money was deposited into can now loan out $98.

After all the depostiing and reloaning occurs, the "money supply" increases exposnentially. (it used to be that the reserve requirement was 10% so the money supply expanded by a factor of 10)

The "banking system" has assets (loans made to borrowers).

HOWEVER!!!! All too often forgotten, the "banking system" also has an equal number of liabilities (the money it owes its depositers)

So, there is NOTHING inherantly wrong or evil about the fractional banking system. I wish this lie would stop some day, but the fools perpetuating the lie are ignorant and won't pick up a book on monetization and read it cover to cover. They would rather read snippets and articles from misinformed journalists than read books published by the American Banking Association.

[-] 1 points by whatishumanity (54) 7 years ago

then why did we need a bank bailout?

[-] 1 points by frontierteg (137) from Kalamazoo Township, MI 7 years ago

3 reasons. 1) Banks gave people loans who couldn't pay them back. 2) People who couldn't pay the loans back took the loans 3) Due to the G/S act being dropped, the banks then used the toxic mortgages as AAA "investments" that they sold to investors at AAA prices.

None of this has anything to do with fractional banking. It started with greed (loan officer trying to get loan origination commission) and stupidity (borrower who couldn't afford a loan that big actually took the loan), and then a little bit criminal corruption was added.

Fractional banking, without greed, stupidity or corruption, is a very good thing.

[-] 1 points by whatishumanity (54) 7 years ago

you cannot convince me that a debt based money system is a very good thing.

I remember listening to Greenspan on tv telling us the american dream was finally within reach for all, touting the benefits of ARM mortgages. the uneducated masses bought it hook line and sinker

[-] 1 points by frontierteg (137) from Kalamazoo Township, MI 7 years ago

Give me an functional alternative.

Even when we were was on the gold standard, all that meant was that the certificates printed by the mint were backed by gold being held by the US.

HOWEVER, we still had a fractional (debt based) money supply. It's always been that way. You can't have money without it unless you pass a Constitutional amendment against interest and usury, in which case;1) no one will be able to purchase homes, they will have to build them over the course of 20 years as they earn the money for them. 2) the government will have to have a balanced budget because they can no longer sell bonds. 3) all the banks and credit unions will charge you for holding your money and making it convenient to spend and there would be no way for them create massive financial problems. And that's just not gonna happen. The right to contract in America is limited only to the point of infringing on other peoples rights, and allowing people to enter into contracts doesn't violate anything unless you can prove that they knew you couldn't pay it back, at which point that constitutes fraud. Good luck.

[-] 1 points by whatishumanity (54) 7 years ago

After less than 100 years under this money system, the value of the dollar has diminished by 95% due to this system of creating money from nothing. This is a hidden tax on the backs of all of us and the only way to payback any of the debt is by creating more money out of nothing, at interest of course.

Can a system such as this be a successful system? Leverage is a wall street invention, and we have been trained to think that the best thing to do with an asset is to borrow against it many time the value of that asset.

So what was found when a stripped down audit of the fed was completed?

"$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious — the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.

To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world."

Why should the american people be liable for this treachery?

[-] 1 points by frontierteg (137) from Kalamazoo Township, MI 7 years ago

You do realize that the "Federal Reserve Banks" are private banks, and that the People and the Government don't own them, or their money, right?

The only thing the US owns debt through the sale of bonds. The Federal Reserve Banks can do anything they want with their money, just like you can do anything you want with your money. Should the government regulate how you spend your money?

[-] 1 points by SirPoeticJustice (628) from New York, NY 7 years ago

I have taken economics and business and double majored in business and psychology. I have read the books. I also am a former employee of an investment bank. The system IS CORRUPT.

[-] 1 points by frontierteg (137) from Kalamazoo Township, MI 7 years ago

No argument that people and the system are corrupt.

However, fractional banking is necessary for the economic activity we need to sustain a population as large as our own.

I just don't like people saysing there is someonthign wrong with fractional banking. It's like saying algebra is the cause of the worlds problems. That's just ridiculous.

[-] 1 points by Rico (3027) 7 years ago

You'll never convince them. It's hopeless. I tried to take them all the way down to the basics at http://occupywallst.org/forum/what-is-money/ , but just as soon as you corner them, they'll declare you're an idiot, a shill, or a troll, and rejoin the comfortable club of people that agree with them.

The Age of Reason is Dead.

[-] 1 points by frontierteg (137) from Kalamazoo Township, MI 7 years ago

Yup, it's a pity that the mob rules.

[-] 1 points by Febs (824) from Plymouth Meeting, PA 7 years ago

The OP is talking about fractional reserve banking and this is how banks in America. It doesn't matter if you understand it or you don't for understanding does not change reality.

To understand loans one first must understand interest. To do so please see http://chestofbooks.com/finance/economics/Elementary-Principles-of-Economics/The-Austrian-Theory-of-Interest.html

[-] 0 points by KnowledgeableFellow (471) 7 years ago

All interest is, is rent on money. No big deal.

[-] 1 points by Febs (824) from Plymouth Meeting, PA 7 years ago

I view interest as the measure of the cost to consume now rather than later.

Its the value placed on the current time as opposed to future time. This sends an important market signal about the availability of the money supply.

[-] 1 points by pierpontluv (10) 7 years ago

Do you have any clue at all?

[-] 1 points by SirPoeticJustice (628) from New York, NY 7 years ago

Like Sherlock Holmes

[-] 0 points by Daennera (765) from Griffith, IN 7 years ago

Ok, let me try to explain this.

I deposit my paycheck for $1,000. The bank then takes let's say $900 of that and loans it to someone else to buy a car.

The borrower pays the car dealership for the car and the dealership deposits the $900 into a different bank.

That new bank now takes that $900 and loans $800 of it to someone to fix up their house. That person goes to the hardware store and buys the materials needed. The hardware store then deposits that $800 in their account. That bank then takes that $800 and loans out $700..........

Do you see how this works now?

[-] 1 points by Tryagain (300) 7 years ago

There's no way he can see how that works, now or ever. LOL.

[-] 1 points by SirPoeticJustice (628) from New York, NY 7 years ago

From some posts I've read here it seems most 'money' in the system is actually on loan from banks, only 10% of it or so is in cash. Normally the leveraging was something like 10 times or so, but during the last 10 years with the take up of derivatives this allowed banks to loan out up to 28 times the money on their books. To me this is the biggest money making scam in history. Since the management and traders work off an annual commission bonus structure they just had to increase the overall money in the system to get rich quick, rather than actually compete for business. They didn't need to worry about pay-back as long as they structured the loans for 5-10 years or could package it and sell it as a "security"

The OP states that ..the bankers were self regulating and would report honestly to the financial regulator. This was the "biggest Joke" the OP ever heard. Well I know a bigger joke ...our own financial regulator,who was in bed with the bankers...of course he knew what was going on, but felt his job was not to regulate but to appear in news bulletins talking up the banks even as they were collapsing all around him. His reward was a lotto type resignation package.Actually a VERY BIG SICK JOKE....and the worst thing is that the joke is on all of us!

[-] 1 points by Rico (3027) 7 years ago

So what ? You're complaining about mere tokens that have no intrinsic value.

See my post at http://occupywallst.org/forum/what-is-money/ for details.

[-] 0 points by whatishumanity (54) 7 years ago

it's a ponzi scheme of infinite proportions, which is why the power to create money belongs to the people by extension of a government that represents them.

[-] 1 points by Rico (3027) 7 years ago

Sophomoric and dangerous to the well being of the citizens of this country.

[-] 1 points by SirPoeticJustice (628) from New York, NY 7 years ago