money explained

[Challenger1978]

Very interesting lecture about the great money con, how It's fundamentally flawed and what the solution could be. It's amazing how many people can't comprehend or don't believe when I tell them banks don't loan you THEIR own money when you get a loan or a mortgage, they produce it from thin air. I've been telling people for ages, now here is a genuinely intelligent person saying it in a much clearer way.

<a class="postlink" href="https://m.youtube.com/watch?v=NZBRJU6YLtY" onclick="window.open(this.href);return false;">https://m.youtube.com/watch?v=NZBRJU6YLtY</a>

<a class="postlink" href="http://en.wikipedia.org/wiki/Fractional_reserve_banking" onclick="window.open(this.href);return false;">http://en.wikipedia.org/wiki/Fractional_reserve_banking</a>

 

[roaminblue]

But this makes sense, no?

With millions of customers depositing amounts withdrawing amounts, the banks liabilities are subject to high degrees of volatility. When creating assets, I.e. loans, it's better to have an overall view of liability levels rather than ear Mark a specific depositers money to a specific asset.

Plus with Vickers ring fence and 100% rwas being held against retail deposits, I wouldn't worry a great deal about your money being used for much at all.

That's not really the point. What caused the financial crisis was banks with total assets(deposits, cash, buildings etc) of say £10bn having total loans out of £100bn and upwards, mostly in currency and property speculation. They do this by conjuring unsecured money into existence for the capital/initial amount of the loan and then upon repayment erasing the capital from existence and keeping the interest as revenue. But when they overexposed themselves to certain sectors and those sectors and consequently the loans went bad.....

I think it is the point. The poster isn't asking about the crisis, or fractional reserve banking. He's asking about money creation through what, to many people, look like strange accounting practices (and I admit it does look strange). However if he'd have asked about frb or the crisis, I would have answered differently.

I didn't watch the video though, so if that was the content of the video, I apologise

I'm simply saying with retail deposits, there is so much volatility, asset creation must be benchmarked against liabilities, not individual deposits. Whether that is done, in practice, I'm not sure. But when assessing default risk, or loss-given default risk, the bank must model the probability of a withdrawal of funds against the loans credit risk. This model should, in match up the probabilities against assests or loans.

Also, 100% rwa must be held against retail operations. So it's unlikely his cash is used for anything except over capitalising a bank

You mentioned the ratio of capital to loans, yeah I agree. Banks have historically been too highly leveraged. Basel iii attempts to solve that through leverage ratios, liquidity ratios, etc. Whether it goes far enough, I dont know. But the leverage wasn't the sole problem with the financial crisis. Everything from moving to automated credit approval processes, to Fannie Mae, to security valuation processes, to securitization and the ratings assigned went wrong. It was a perfect storm. For what it's worth im researching leverage currently. The way banks diversify through securities, syndication etc, May actually reduce diversity, making them all prone to systematic risks. So rather than differentiation through diverse portfolios, they are actually ALL gaining exposure to the same risks, at a greater level.

Edit: sorry mate, been posting on my.phone today and wasn't reading properly.

To address both yours and the ops comments quickly.

Yeah I agree that the notion of assets bring created and only "becoming tangible" when repayment occurs is a strange concept. It kinda assumes that, to an extent, the loanee is good for the money. Of course there are models that are supposed to predict the probability of default, but it can never be certain and can never properly assess credit risk when, as is the case now, automation is providing a risk rating based upon credit history (my opinion)

I think it's not wrong to assume someone should pay back a loan, and consumers should think carefully about taking on credit. The trouble is it seems like easy money. But if it's available, peop will take it. Perhaps regulations should be tighter around lending to individuals, however in a hot housing market like London that brings reputstional risks.

There is an feeling of invincibility in some banks. While I've never worked in a retail bank, I think the target driven culture is potentially damaging

 

[SWP's back]

Not sure of the OP's point here. It's hardly a secret.