Topic: You work your butt off, and a rich dude does nothing and gets rich - how? - page 9. (Read 23781 times)

Too much misinformation in this thread.

1.  Lehman is not a commercial bank so its not part of the Federal Reserve System
2.  Lehman was doing the borrowing not lending.  It borrowed money to buy MBS's at the lower tranches (subprime & risky).  When the housing market went bust the MBS lost money and they couldn't deleverage fast enough to avoid bankruptcy

http://en.wikipedia.org/wiki/Lehman_Brothers_bankruptcy

3.  Fannie & Freddie don't guarantee mortgages.  They were created in order to expand secondary mortgage market. 
4.  Guarantor is the person who takes on legal obligation of payment in case of default.  I can tell you that if you default the bank will take your house.  Govt (in USA) will not pay your mortgage for you.  Nor they will even sign as guarantor

http://en.wikipedia.org/wiki/Fannie_mae

http://en.wikipedia.org/wiki/Freddie_Mac

this is technically true however a lot of mortgages are guaranteed by GSEs (government sponsored entities) which have an implied guarantee by the government

This explanation, together with many books from economy schools, try to fool people by mixing checkbook money with base money, unfortunately, most of the people fall for the scheme

Central banks create base money, but checkbook money are just numbers recorded at commercial bank's checkbook, in most of the case, banks don't have that money (otherwise Lehman brothers won't go broke, they can just create more credit on their checkbook), they already lend that money out

By lending the same $100 bill 10 times they would create $1000 checkbook money, but at any time, there is only one $100 bill note in existence, if bank's customers request more than $100 withdraw at the same time, the bank will have a bank run thus go broke

Nowadays, when customer do electronic bank wire transfer, withdraw from bank A will eventually reach another bank B, so bank A can simply borrow those money back from Bank B to deal with more withdraw pressure, thus reduce the risk of a bankrun. But for cash withdraws they have no control, so they have to limit how much cash each debit/credit card can withdraw in a day

This explains why credit creation equals money creation: http://www.positivemoney.org/how-money-works/banking-101-video-course/do-banks-create-money-or-just-credit-banking-101-part-5/

I have ignore on twiifm, as he prone to outbursts of filth.

To be precise, the purpose of the fed reserve is to act as lender of last resort. So deposits are back stopped, end of story. This has been the case since the creation of the fed reserve. That is the purpose of the fed reserve: to backstop deposits. So, how come the banking system melted down?

During the GFC, due to banks not being able to trust each other's balance sheets (thus jamming up the credit creation mechanism as banks refused to lend to each other) treasury was forced to step in with backstops on tier 1 bank capital.

The problem was caused by banks rehypothecating treasury notes over the last few years. Basically, lending each other treasury notes and pretending everyone had enough tier 1 capital.

The banks were practicing a special form of UNLIMITED FRB, which allowed banks to effectively create unlimited amounts of credit-money.

When mortgage assets inevitably became impaired, the house of cards collapsed. Treasury "fixed" the problem by backstopping tier 1 capital via tarp, modifying GAAP rules to not recognise losses of Mortgage Backed Securities and issuing cheap credit to banks to reinflate lending and asset values.

As a consequence of treasury's helpfulness, all the previous imbalances were restored, including the rich and poor divide; except now the rich are even wealthier and the middle classes are being eroded by low wage growth and high cost of living pressures. Welcome to modern debt based capitalism. Totally rigged in favour of asset holders over non asset holders.

I think the poster is pointing out that in the 2008 debacle, the Govt did bail out the banks. Granted the Govt under Obama *did* make a tidy profit on this, but there are people who do not believe this was "right".

So in that case, credit *was* being backstopped by the Govt.

C

Credit is not guaranteed by govt you dumbshit

If you take out a mortgage and you default on it the bank takes your house and if they sell for less than the mortgage they take a loss.  If you overspend your credit card and declare bankruptcy the bank takes the loss.

"Lender of last resort" means they LEND the money as last resort NOT "give it away for free".  God this thread stupid and annoying.  I regret replying but too much FUD here

The other end of a debt contract is the person taking on the debt receiving money in exchange for the loan. In essence they are creating money. 

252k for a US flat in a major city? You haven't been to New York lately, have you? :-)

To be honest I have seen a number of small houses at the Solar Decathalons that are not too much bigger but have more than enough space for two. Check them out sometime; google it.

C

If we keep going down this path, we will see people live like this in western countries: http://www.zerohedge.com/news/2014-07-19/listed-only-hk194-million-what-hong-kongs-cheapest-home-looks

Yes I did. Debt contracts create money because credit is guaranteed by govts.

As that is what practically happens because the purpose of the central bank is to act as lender of last resort, therefore, banks ARE able to print money out of thin air.

I.e. the entire foundation of banking is based on explicit and implicit guarantees from central bank/govt.

How do you have actiity 0? wouldn't posting this give you activity 1?

Because fortune may have come down to the rich guy earlier.

Did you even bother reading my comment? Fractional reserve banking does NOT allow banks to print money out of thin air. It allows them to print DEBT CONTRACTS out of thin air, which is kind of the entire point of a bank. Its the FED/FDIC/Government's implicit promise that allows banks to print money out of thin air. The free market doesn't allow creation of money from nothing. Fractional Reserve Banking does exist in the free market.

We can offer two forms of positive (non debt based) money:

Option 1: Use money printed by central banks that is not debt dependent. Supply controlled by independent central bank with nominal inflation target.

Option 2: issue cryptocurrency, which is non debt based money. Eventually, this money supply will prove more stable than debt based money.

We are choosing the latter as effort to shift government to option 1 will take significant time. Option 2 can be implemented immediately and early adopters can opt out of debt based money immediately.

We are not advocating communism. We are advocating a purer form of capitalism that is not based on debt. The current debt based system unfairly advantages asset holders over non asset holders. We find this reprehensible and contrary to the concept of open competition and free markets.

Nothing wrong with capitalism, the problem is regressive wealth distribution due to banks being able to create unlimited money out of thin air and charge interest on monies created.

Technically, this comment is incorrect for the reason that banks are able to create money out of thin air and their losses are bailed out by taxpayers.

Secondly, FRB is fraudulent for the reason that people do not read fine print, do not understand that their deposits are being lent out and that they do not have free access to the entirety of their deposits.

This is silly. There's nothing wrong about fractional reserve lending. People confuse Fractional Reserve Lending with printing money. If you agree to lend me 10 BTC with which I can do whatever I want (i.e, pretty much every loan on this board), and I decide to lend out 9 BTC of that... what's the problem here? Is God supposed to strike me down because I decided to lend that 9 BTC out? Would it be any different if I had just spent that BTC, to a user that again spent that BtC, so the 9 BTC ended back up on you? In either case, you think you have 19 BTC total in BTC and BTC collectibles. If you have something against fractional reserve lending, you have something against debt in general.

What IS wrong is having certain institutions debt be synonymous with cash. Im not even picking a technicality here, people even say stuff like "oh microsoft has sooo much cash." Wrong, they have so much debt of banks. When you make that debt synonymous with cash, then the banks are in fact printing money. What makes it synonymous with cash? FDIC, FED, and the government's implicit promise to bail out every bank.

The correct way for fractional reserve lending to exist:

"Deposits", including CDs, should be legally defined as "super-senior" debt obligations of any institution. If an entity fails to pay something that it calls a "deposit" upon the depositor's request, so long as that request meets the terms of the contract, then the entity must either come up with the shortfall by liquidating its assets, or it enters bankruptcy, and its assets (including debt assets) become the depositor's. All depositor's must be paid before any other creditors, and obviously before any owners of equity in the company.

At least raise the reserve requirement higher when demand for loan is high.

The problem? Capitalism.