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Old 03-07-2012, 07:09 PM   #601
danster82
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Originally Posted by johnbc View Post
I think the difference between the $20 example and the mortgage, apart from the general size, is that we can assume the person lending the $20 did something to earn it and didn't just hack into his bank account and add another $20 so he could loan it.

I meant before the transaction as before the promissory note/ asset was created.

I don't even see how the bank has to pay itself back.

If they get the money from the note there's no need to borrow. Why would they not do it if there wasn't regulation against it? Eventually that money works its way back into bank deposits at which time they have to increase their reserves at the fed. But I think the down payment would help them out with that.

How 'bout this situation. If I could hack into my bank account and add as much money as I needed anytime anyone wanted to loan money from me, and I loaned $20 to all you guys, would you feel morally obligated to pay me back with interest?
The banks are regulated, in a very limited capacity, 10:1 fractional reserve limit is one example of government regulation. Because the owners of the member banks cant trust each other, they have laws passed in order to regulate each other, this is exactly what a cartel is look up cartel, they are essentially used in situations where the people involved in business would fuck each other over at the first opportunity and they know this and therefore create a cartel where they have agreements between themselves and have the governments of each country they operate in pass laws so the cartel members abide by them.

Its just like a drug cartel having agreements over territory. The banking cartel has certain regulations of it system passed as law in order for it to work without one member fucking them over and creating money without collateral and breaking the system.

This is why they just cant create all the money they need because they must have collateral first which in this system is 95% IOU's(debt) from the people.
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Old 05-07-2012, 07:25 PM   #602
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I think the point you brought up of liquidity is key. As a limiting factor on banks and probably the need for them to engage in securitization.
Consider this hypothetical example though.
Suppose Fred wants a $1000 house and goes to BankA.
BankA has $10000 in depositors funds. It keeps $1000 as reserve and has $9000 to loan out. Fred gives $200 down payment and Promissory Note (PN) for $800 to Bank A. House worth $1000 is collateral.
Bank A gives seller a bank check for $1000 to keep him happy. This seller uses BankB which just happens to have the same asset value as bankA ($10000).
At this stage:
Fred, less $200, gets to live in a house,
BankA’s net value hasn’t changed but it is less liquid,
Now it just so happens at about the same time another guy Tom goes to BankB to buy a similar house. He hands over $200 down payment and a PN800.
He gets given, and hands over to his seller, who just happens to use Bank A a $1000 bankB check.
Shortly thereafter both these bank checks get deposited and processed. Bank A says to Bank B, you scratch my back and I’ll scratch yours and they call it even.
After all this:
For $200 a piece, Fred and Tom each are allowed to live in a house.
Now lets look at BankA and BankB:
They both start off with $10000 ($9000 + $1000 reserve).
After each loan they both end up with $8200 + $1000 reserve + PN800.
After the little circle jerk, they both technically have $11000 in depositors’ funds. Therefore they would have $9100 + $1100 reserve + PN800. They seemed to have increased their value and kept their liquidity.
As long as there isn’t a run on the banks, they can keep doing this sort of thing. When down payments aren’t at the 20% level, things could get a little hairy as well, I could imagine.
It just seems like the only extra money that’s been put into system is the down payments and promissory notes, both from the borrowers.
What am I missing? And I do find this quite confusing.
I know this is very hypothetical but I don't it is think totally unrealistic as to what is happening every day between banks.
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Old 05-07-2012, 07:44 PM   #603
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What am I missing? And I do find this quite confusing.
I know this is very hypothetical but I don't it is think totally unrealistic as to what is happening every day between banks.
Whats your point?
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Old 05-07-2012, 07:54 PM   #604
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I guess it's in the line right before the quote you chose.
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Old 05-07-2012, 07:56 PM   #605
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It just seems like the only extra money that’s been put into system is the down payments and promissory notes, both from the borrowers.
Again whats your point?
All the money in circulation is created by the people isn't it?
I thought that was pretty obvious.
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Old 05-07-2012, 09:07 PM   #606
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Quote:
Originally Posted by johnbc View Post
I think the point you brought up of liquidity is key. As a limiting factor on banks and probably the need for them to engage in securitization.
Consider this hypothetical example though.
Suppose Fred wants a $1000 house and goes to BankA.
BankA has $10000 in depositors funds. It keeps $1000 as reserve and has $9000 to loan out. Fred gives $200 down payment and Promissory Note (PN) for $800 to Bank A. House worth $1000 is collateral.
Bank A gives seller a bank check for $1000 to keep him happy. This seller uses BankB which just happens to have the same asset value as bankA ($10000).
At this stage:
Fred, less $200, gets to live in a house,
BankA’s net value hasn’t changed but it is less liquid,
Just an aside here that this depends on how the value of the note is calculated - it's present value will be less than it's face value over the term - but I don't think that's terribly important here
Quote:
Now it just so happens at about the same time another guy Tom goes to BankB to buy a similar house. He hands over $200 down payment and a PN800.
He gets given, and hands over to his seller, who just happens to use Bank A a $1000 bankB check.
Shortly thereafter both these bank checks get deposited and processed. Bank A says to Bank B, you scratch my back and I’ll scratch yours and they call it even.
After all this:
For $200 a piece, Fred and Tom each are allowed to live in a house.
Now lets look at BankA and BankB:
They both start off with $10000 ($9000 + $1000 reserve).
After each loan they both end up with $8200 + $1000 reserve + PN800.
After the little circle jerk, they both technically have $11000 in depositors’ funds. Therefore they would have $9100 + $1100 reserve + PN800. They seemed to have increased their value and kept their liquidity.
I'm not sure what you think the problem is here: the banks are setting off one cheque against another. It is no different than if instead of Bank A and Bank B it were Albert and Bert agreeing that as they each owe the other $800, they'll call it quits. Each banks still has a liability of $800 from the making of the loan, it is just that the liability is a demand-deposit type liability rather than an obligation to pay money on a specific date.
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As long as there isn’t a run on the banks, they can keep doing this sort of thing. When down payments aren’t at the 20% level, things could get a little hairy as well, I could imagine.
Northern Rock is pretty good example of what happens when banks screw up. Its troubles eventually manifested as a run but really started with things like the "Together" mortgages. These were transactions where the Rock made a mortgage loan with a 4 or 5 year teaser rate together with an unsecured personal loan on similar terms: the personal loan was used to pay the downpayment on the mortgage, so that people with no money to put down could get a mortgage, effectively no money down.
Quote:
It just seems like the only extra money that’s been put into system is the down payments and promissory notes, both from the borrowers.
What am I missing? And I do find this quite confusing.
I know this is very hypothetical but I don't it is think totally unrealistic as to what is happening every day between banks.
All that's happened here is that $200 plus a promise of $800 later has been turned into a liability to a depositor (seller) of $1000. The bank is still down $800 in liquidity compared to the amount it owes depositors.. I think.
It is quite confusing and only gets worse if you try to think about things like securitization, factoring in rates of interest, default rates and so on. Things like Roger Hayes' "lawful bank" are even more confusing.
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Old 06-07-2012, 10:48 AM   #607
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I guess I'm just trying to get my head around the fact that the extra money in the system didn't just get created and the banks did bring something real to the party. I mean I can see both sides of the argument and both are pretty convincing. Still trying to mash it out for myself.
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Old 06-07-2012, 11:28 AM   #608
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Here's a hint:

The silly idea that banks create money out of thin air is so childishly dumb that it's almost Menardian in it's stupidity.
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Old 10-07-2012, 08:44 PM   #609
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You're going to have to do a little better than that.

Did the banks bring a liability to the table with the contract? Is that allowed?
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Old 10-07-2012, 09:22 PM   #610
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Originally Posted by johnbc View Post
You're going to have to do a little better than that.

Did the banks bring a liability to the table with the contract? Is that allowed?
I can't say any principle of contract law that would prevent banks from making loans as they do. Given that various cases have held sweet wrappers, the weighing of steam boilers and payment with a single peppercorn to be valid consideration, I don't think there's any realistic legal argument that the financial or economic complexities of the transaction cause a failure of consideration or means that the transaction is "not allowed."
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Old 10-07-2012, 09:50 PM   #611
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Quote:
Originally Posted by mungo View Post
Here's a hint:

The silly idea that banks create money out of thin air is so childishly dumb that it's almost Menardian in it's stupidity.
Childishly dumb that they get away with it? Or childishly dumb in your opinion because you're defending the way it works? I'm just curious

I see some good posts in this thread by more knowledgeable people than the average poster who is ignorant of the inner details. On the outside and the top of the 'pyramid' so-to-speak, it's really easy to explain the scam on an elementary level even to the average person who would be ignorant.

I see some well-meaning posts, for example, who know too much about it for their own good. What I mean by that is they're looking within the confines of the system instead of looking outside their perceptions at the big picture. I'm more interested in educating others to change their perceptions.

It's easier to convince the mob to overthrow the entire system rather than play by their rules. What the OP wrote sounds great, but individuals won't get away with it or paying taxes. It has to be done in groups and the best way to get away is to play dumb.

In America there are so many simultaneous foreclosures and nobody helping anybody that despite some laws that might go into effect some people are living freely in their homes awaiting an eviction notice. Some have for years while receiving the occasional call to start paying for what is owed despite all the people who have walked away. They're looking for the suckers who fall for it and they don't like the ones who try to play them at their own game because they play it better. I also have a theory that some of this was deliberate because there are communities where the government now owns several properties spread out across land because of meddling with mortgage companies and owning the mortgage. They can buy land this way. Lots of it in some areas, even beachfront areas.
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Old 10-07-2012, 10:45 PM   #612
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Agreement - A meeting of the minds did occur as we were in agreement that you would offer us a valuable asset of 250,000 pounds in return for our repayment of this sum plus any interest accrued.

Consideration – We have promised to provide our house as surety for the loan of 250,000 pounds from you and agreed to pay back to you the loan amount plus any interested accrued. In light of the recent findings described above we cannot at present see any consideration provided by you.


Is the loan to pay for the house put as security? yes. So bank pays for house now the borrower is claiming its unfair to pay back the loan/mortgage because the bank has not taken any risk. why does the bank need to take a risk for the agreement to be valid?. they have taken no risk ie with out the loan they would not have the house therefor the only one taking a risk is the bank although minimal , it could be destroyed in a way that the insurance don't cover ect. Or is that they don't believe that the money that they purchased the house for has no value, which evidently does as they bought the house with it? If they believe this should they not return their home to the seller? This makes no sense at all. ....Scratches head....
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Old 11-07-2012, 10:53 AM   #613
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I'm not sure if the issue is risk or consideration.

I think its more that the whole amount of money in the system was increased - in my example each banks net worth went from $10000 up to $11000. But the bank didn't inject this money. It was effectively created from fractional reserve banking and the borrowers note.

Given similar conditions, they could maintain liquidity and keep doing this.
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