Yeah, I thought the same thing in 2008, then the haunting words "too big to fail" were used by both Obama and McCain, so it didn't care who won the presidential election, the banksters would still get a bail out. Fast forward to today, and it still doesn't matter whether a Dem or Rep sits in the oval office, the banksters will always have safety net.

That was, of course, the point of trying to do something to make them NOT too big too fail, an effort that appears to have really gone nowhere.

Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. Private businesses meeting the above criteria would have boomed under those conditions, as there competitors were wiped out. The world is addicted to banks, and it really needs to treat the source, not the symptoms.

Yes, we do indeed to need to deal with the banking system, but until that's done, if large elements within it fail, the pain is going to be felt by a lot of the little people much more than the bankers.

The stock market crashed despite the bailout. People lost their jobs and houses despite the bailout. What would have been worse if the banks had not been bailed out?

If the large banks have liquidity problems, it means they’re no longer able to give people their deposits back as cash. They simply don’t have the money to give to depositors. In this scenario government steps to cover the shortfall, but there’s a limit to how much the government can cover, so many people, in particular business, will simply take involuntary haircuts to their bank balances.

In this situation people start taking their money of banks, because trust has been destroyed, causing a bank run. Which makes the situation even worse, because then any bank that lends will have a liquidity crisis, because they operate as a fractional reserve.

In the end the government ends up effectively bailing out the banks anyway, by covering peoples deposits. Except now most banks have collapsed completely, taking huge amounts of financial infrastructure with them, plus the people needed to administrate and operate financial aspect of the economy, and nobody trusts the banks that managed to survive (assuming any did).

So worst case is bad, really bad. A cascading failure of banks means you wake up one morning and money that isn’t under your mattress has disappeared. You cash accounts, your savings accounts, your investment accounts. In addition you’ll have a line of people demanding you repay any loans you have, your car lease, your mortgage, your credit cards etc.

Banks considered “to-big-to-fail” have that label because their collapse has a significant risk of causing a cascading failure of banks across the entire economy. So bailing them out is much cheaper and safer to do, but allowing them to continue existing is just negligent.

Close, but not quite. The banks are barred from using customer deposits to fund loans. They also have a 0% reserve ratio currently so it is 100% fractional reserve.

In short the banking system is a scam, always has been. It is the greatest scam ever perpetuated on humanity. If any other industry operated on the level of fraud involved in running a fractional reserve, they would be jailed by midnight.

If banks didn’t lend the money, how would you expect them to pay internet on your savings or fund the costs associated with just storing your money for you? It costs quite a lot of money to run a bank, even a bank that only handles customer deposits and has no lending activity. Most consumers aren’t in paying the full cost of administrating their budgets, but cost has to be covered somehow.

Additionally if banks didn’t operate as a factional reserve, we would have a permanent credit crisis, because there would be no capital to fund any form of credit, from credit cards to mortgages. Either that or you would have to engage entirely in P2P lending, which removes the ability to aggregate and distribute risk, lowering each individual exposure. Or you would have a P2P system with someone aggregating and selling that risk, but that’s just banks in another name.

> On March 15, 2020, the Federal Reserve Board announced that reserve requirements ratios would be set to 0%, effective March 26, 2020. Prior to the change effective March 26, 2020, the reserve requirement ratios on net transactions accounts differed based on the amount of net transactions accounts at the institution.

A reserve ratio of 0% means no customer funds are used to pay loans. The fraud is that the money is fractionalized into thin air.

> Additionally if banks didn’t operate as a factional reserve, we would have a permanent credit crisis …

Or there wouldn’t be as much cheap credit floating out there, forcing lenders to charge a more reasonable rate for borrowing. Cheap money creates financial crises.

No, that means that all customer deposits can be used for loans. There’s zero requirement for banks to hold any deposits in reserve to ensure they’re able to pay out individual depositors on request.

In short, they can lend an amount of money equal to the amount deposited with them. They can’t magic money out of nowhere, only the fed can do that.

> Or there wouldn’t be as much cheap credit floating out there, forcing lenders to charge a more reasonable rate for borrowing. Cheap money creates financial crises.

Also no, poor risk management creates financial crises. Cheap credit itself doesn’t cause anything. It’s irresponsible lending, and failure to properly account for credit risk that creates a problem.

There would be pretty much no risk in lending Jeff Bezos huge amounts of money at 0%, because it would be trivial to securitise it with physical assets and stocks. But lending at similar amount of money to someone with no income or assets would be very risky.

Lenders always want to charge more interest, that’s how they make money, and they need to charge a minimum amount to cover the costs of administering the loans, and the costs of loans that default. The idea that lenders want to lend cheaply is nonsense, it like saying a shop only wants sell everything as cheap as possible. Both shops and lender sell/lend as cheap as is needed to compete, and no more. Anything else would be voluntarily giving up profit margin, find me a bank that wants to do that.

If I am mistaken please correct me with citations but respectfully, I believe your understanding is incorrect. In a fractional reserve system banks can and do fractionalize dollars into existence. The mechanism is slightly different than when the FED prints money. Instead of creating money out of nothing, banks can only create loan money out of thin air.

For example, when you are issued a new car loan from a bank, those funds do not come from another depositor. (see my comment above on 0% reserve ratio). Instead the money is literally created by the stroke of a pen when the borrower signs the loan agreement. The funds did not exist anywhere prior to the loan. The numbers were added to the customer's bank account the moment they signed the loan agreement. Money created out of thin air via fractional reserve lending.

If it were not for the free money creation feature of the banks, then banks would have to lend customer funds or their own reserves. The risk and cost of lending these real assets would greatly exceed the ultra-low interest rate environment we currently experience and the cheap credit days would be over.

The fraud involved in fractional reserve lending is that the lender has no cost of funds. They are not risking their own assets and are therefore more willing to lend cheaply. This leads to credit bubbles that perpetuate the business cycle and lead to a series of booms and crashes. Fractional reserve lending is a scam and banks are technically all insolvent.

You are mistaken, citation: me working in bank on stuff related to this, and generally needing to be aware of capital requirements etc.

> For example, when you are issued a new car loan from a bank, those funds do not come from another depositor.

Sort of, depends on what level of abstraction your working at. Inside the banks ledger this is entirely true, however this doesn’t create new M1 money [1], only M2 money [2]. Just because the bank can write a number into a database, doesn’t mean they can actually materialise it. That would be money printing, also known as forgery, unless you happen to be a reserve bank with the right to print money [3].

So banks ledger might have more money in it, that ledger is banked by a reserve account at a federal reserve bank (where banks keep their money), and that account doesn't have more money in it. Which is important, because that’s the account the bank will ultimately use to settle payments such as ACH, Debit/Credit card, Fed Express etc.

So while the bank can “create” money in it ledger, it can’t be moved or spent because it can’t create money in its reserve account, so it can’t settle payments. Hence the bank can’t materialise the money it’s “created”.

However this inability to materialise the “created” money isn’t important, as long as they have customer deposits on hand to cover all of the outgoing payments. The “created” money and “real” money all sit in one big pot (the banks ledger), and as long as you don’t try to withdraw an amount larger than the “real” money, you can pretend it’s all “real” money.

The reserve ratio sets the limit on how many $ of “real” money a bank must have for each $ of money it “creates”. That ratio breaks down a little bit a 0%, because it suggests that a bank with no customer deposits can still lend. But the fact that bank with no deposits can legally issue loans doesn’t change the fact it can’t physically issue them. It literally doesn’t have the cash to give out. So they could lend you money, and you could pay interest on loan, but you would never be able to withdraw the money as cash, or spend it using a card, or transfer it elsewhere. So, yes, technically the loan can exist, and technically a bank can lend without customer deposits. But no one in their right mind would ever borrow money that couldn’t be spent or transacted with. Kinda defeats the point of borrowing the money.

We can also show this must be true, because if it wasn’t, it means that every bank in the US issuing loans effectively an unregulated licence to print money. If that was true, why bother lending it? Banks lend money in the hopes of making money. If they can legally print money, then why don’t they just print their own money and profit margin. No need to mess around find people to lend to, then having do credit checks and collections. They could cut the middle man out, and print cash straight into their pockets.

> If it were not for the free money creation feature of the banks, then banks would have to lend customer funds or their own reserves.

They do lend out of their customer deposits.

> The risk and cost of lending these real assets would greatly exceed the ultra-low interest rate environment we currently experience and the cheap credit days would be over.

I think you grossly over estimate the risk of lending money, even at low interest rates. Most of the extremely low interest lending is securitised, so if the borrower goes bust, the bank can claim a physical asset (like a house, or an office or a factory) to recover borrowed money. In these situations the biggest loss a bank suffers is that the loan is paid back quicker, and thus they earn less interest, and selling a factory is a pain in the arse to manage.

For most consumer lending, like credit cards etc, the interest rates are stupidly high, and the products are designed to milk consumers over many years. Keeping them stuck in a cycle of debt they struggle to escape from, and ensuring a steady supply of payments to the bank. Also ask yourself, if lending is risk free to the banks, why isn’t everyone offering 0% interest loans, and why do credit agencies exist?

> The fraud involved in fractional reserve lending is that the lender has no cost of funds. They are not risking their own assets and are therefore more willing to lend cheaply.

Again, if this was true, why would any of the banks bother lending to anyone? They could just issue themselves a trillion dollar loan at 0% to be paid back in 1000 years, the buy a yacht and retire. Why the hell would they voluntarily subject themselves to the of actually lending money to other people, then have to try and chase them down for repayment?

[1]: https://www.investopedia.com/terms/m/m1.asp [2]: https://www.investopedia.com/terms/m/m2.asp [3]: https://www.investopedia.com/ask/answers/082515/who-decides-...

So your citation is yourself and your claim that you work in the field and therefore we should trust you blindly? I don’t buy it. It seems you have a vested interest in preventing others from learning about the fractional lending scam.

As for your claim that a 0% reserve ratio means banks CAN lend depositor funds, that is either a huge misunderstanding on your part or an outright lie. Show me any documentation anywhere that supports your novel interpretation, and I’ll back down.

> The fraud involved in fractional reserve lending is that the lender has no cost of funds. They are not risking their own assets and are therefore more willing to lend cheaply.

>> Again, if this was true, why would any of the banks bother lending to anyone? They could just issue themselves a trillion dollar loan at 0% to be paid back in 1000 years, the buy a yacht and retire. Why the hell would they voluntarily subject themselves to the of actually lending money to other people, then have to try and chase them down for repayment?

The rules require that a real flesh and blood borrower, signs a loan agreement obligating that they repay the loan with interest. Only a signed loan agreement creates the fractionalized funds in the borrower’s bank account.

This is what prevents a bank from borrowing an unlimited amount. They can create money to issue loans but they cannot create money without a loan agreement with a borrower.

This isn’t a huge conspiracy, I’m no where near important enough to benefit from such a conspiracy even if it did exist.

> As for your claim that a 0% reserve ratio means banks CAN lend depositor funds, that is either a huge misunderstanding on your part or an outright lie. Show me any documentation anywhere that supports your novel interpretation, and I’ll back down.

I’m not sure how many I can say this. Unless you’re the fed you can’t magic money out of thin air. If the banks aren’t lending depositor funds, then what are they lending? Where does the money come from?

You seem to be basing your understanding of fractional banking upon an old blog post, which talked about an interest quirk of how banks worked. But that quirk only exists if, and only if, you ignore the abstraction that supports it.

It’s not different to over allocating disk storage using ZFS. I can build a volume that capable proving 10TB quota to 100 people, using only a 1TB drive. When I create those quotas I “make” storage, by writing their available storage into a storage quota journal. But the only works if we ignore the fact that the storage quota journal itself is an abstract, and leaky one at that. If people actually tried to use their 100TB quota, they would quickly discover that writes beyond 1TB just don’t work, because I only have 1TB of actual physical storage.

Same applies to banks and their ledgers. The reserve ratio just determine how much cash the banks has to hold in reserve at a reserve bank, that’s all. That cash is customer deposits. If you want to assert that isn’t the fact, then you need to explain where the money is actually coming from, and why a billionaire hasn’t bought a bank, and lent themselves a few billion more dollars out of thin air.

Now I had a whole thing written out here with sources from the Federal Reserve etc explaining via tiny little steps what a reserve requirement is, then what a reserve requirement ratio is, and how that all links to net-transaction accounts, which basically account the hold depositor funds etc etc

But then I realised I don’t give shit if you remain uneducated and ignorant while wearing a tin foil hat, so whatever. Have good life, goodbye.

Here is an article explaining how banks create money for loans, search for “The money creation process”: http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-1...

> banks create money when doing their normal business of accepting deposits and making loans. When banks make loans they create money. remember from chapter 12 that money (M1) is currency (coins and bills) AND checkable deposits. When I got a loan for my boat the bank called me up and said that they deposited the loan in my checking account. This new deposit is NEW MONEY created by the bank. they just turned on their computer, logged into my account, and changed the amount that I had. They created money.

If I make money, great, if I lose, it’s someone else’s problem.

When government provides too cozy a safety net it encourages risky lending.

Federal flood insurance is another fun topic related to this.

I am saying that pulling that support during a banking crisis will generally be a disaster for the rest of us. We need to change the support for the banking industry but in a manner that doesn't screw the rest of us over with side effects.

You should know, in the fallout of that Recession, LOTS of banks lost. There were plenty of regulations on lending and capital restrictions. This forced small banks to be sold and consolidate into big banks. There were plenty of big banks who wanted to expand but couldn't because they couldn't meet the regulatory pressures. There were plenty of executives who lost their jobs.

Lots of banks lost.

There's a reason the FDIC was set up as part of the reforms triggered by the Great Depression. Bank failures tend to cascade.

But we did have the FDIC, so normal people would not have lost their deposits from a bank failure.

Also, resolution through the FDIC means that you get your money... eventually. That can still be a problem if you have to pay your bills this week, though. (And then, if you and enough other people can't pay your bills this week, that can be a problem for businesses...)

So you are paid in cash, by a company that also does all its business in cash?

Protection of systemic banks is not about investors and loans, it's about the liquidity/working capital of companies and the people's salaries.

The world is addicted to banks, and more specifically lending because that's how you convert future, uncertain payouts into steady, predictable capital that can be used to buy inventory, pay employees, make repairs, etc. To kick our bank addiction would be ruinous.

These two sentences contradict each other. You see, the competitors that get wiped out have employees who would lose their jobs regardless of how their money was stored.

> We're tracking where taxpayer money has gone in the ongoing bailout of the financial system. Our database accounts for both the broader $700 billion bill and the separate bailout of Fannie Mae and Freddie Mac.

> Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $635B has gone out the door. Money has been coming back in two ways: $390B of principal has been repaid, and the Treasury has collected revenue from its investments of $353B.

> In total, the government has realized a $109B profit as of August 30, 2021.

I'm sure there are a lot of other hidden costs with the bailouts that aren't accounted for here, but it seems the companies that were specifically loaned money generally paid back more than what was given?

If not, what else is missing here?

>$109B profit as of August 30, 2021

That's less than 1.5% average yearly ROI. That's a joke. An index fund, the least risky type of investment, has an average yearly interest rate of 10%. The stock market averages 8%. The irresponsible mortgages that got the banks into this situation had rates between twice and quadruple that. Hell, even inflation outpaces that on average.

Accounting for inflation, that's not even an interest rate of 0%, that's a real interest rate in the negatives.

The taxpayers paid for the bailout. Socialism for the rich, rugged capitalism for the poor.

For a random example, JPMorgan Chase got funding of $25B and returned it only some 8 months later (https://projects.propublica.org/bailout/entities/282-jpmorga... the gov't earned some 1.7B on it which comes out to an annualized interest rate of approximately 10%.

JPMorgan was actively buying up assets in 2008 and were one of the banks that was well capitalized.

“JPMorgan Chase did not want or need TARP money, but we recognized that if the healthy banks did not take it, no one else could — out of fear that the market would lose confidence in them.”

https://www.usatoday.com/story/money/economy/2018/09/14/jami...

Taxpayers realized significant profits on the loans, since by law Fed profits past a small amount return to Treasury, which offsets taxes.

And they were loans, as well documented in this thread. Paid back with interest.

Do you know the difference between the Fed and Treasury?

I don't believe those words were spoken by Obama in 2008, except possibly to criticize the idea.