The Counterfeiter's Tale

[Rasputin_Vol]

I think it's just another Ras "Hey, look how clever I am with another bad analogy to try to make blah blah blah political point."

You still havent explained how it is different than what goes on right now.

 

[bamawriter]

You still havent explained how it is different than what goes on right now.

Your analogy assumes that the government, the Federal Reserve, and the lender are all one entity. So it's a terrible analogy in that it's not at all analogous to how our financial system works.

 

[McDad]

I like John Anderson's version of your scenario better than yours.

Late last night, I had a crazy dream
I met a man who invented a money machine

He said, "I know things are tight and times are tough"
But he'd give me the machine if I'd give you up
I just looked him in the eye and I said, "No thanks"
Honey, your love's better than money in the bank
Honey, your love's better than money in the bank

 

[red butler]

Just? No, in that you broke the law and exposed another person to legal peril. If you were a bank or a lender lending within the bounds of the law and sound ethical practice, then that's just.

Noble? I don't buy into the concept of nobility in the business world. Nobility is for charities.

The legality is irrelevant. He would have simply bought enough congressmen with his printing press to make it legal.

 

[red butler]

Your analogy assumes that the government, the Federal Reserve, and the lender are all one entity. So it's a terrible analogy in that it's not at all analogous to how our financial system works.

Our financial system is much worse. Ras's printing press would not pose the risk to the general population that the financial system does because he couldn't possibly print enough 100s to be dangerous.

A better analogy would be a bank borrows money from a depositor. They put that money in a copy machine and make the number of copies that are within the legal limit (the capital reserve requirement). They loan the copies out and charge interest. Then they risk the depositors real money in the stock/bond market. It wouldn't be so bad if they paid the depositor interest... Sadly they haven't done that in years.

 

[Vol8188]

Our financial system is much worse. Ras's printing press would not pose the risk to the general population that the financial system does because he couldn't possibly print enough 100s to be dangerous.

A better analogy would be a bank borrows money from a depositor. They put that money in a copy machine and make the number of copies that are within the legal limit (the capital reserve requirement). They loan the copies out and charge interest. Then they risk the depositors real money in the stock/bond market.

What makes that money any more real than the other money?

 

[bamawriter]

A better analogy would be a bank borrows money from a depositor. They put that money in a copy machine and make the number of copies that are within the legal limit (the capital reserve requirement). They loan the copies out and charge interest. Then they risk the depositors real money in the stock/bond market. It wouldn't be so bad if they paid the depositor interest... Sadly they haven't done that in years.

The risk is far less to the depositor than if he had invested his own money in the market. At the very least, he has FDIC insurance on his deposits, as opposed to sticking his cash under his mattress.

 

[red butler]

What makes that money any more real than the other money?

The side of the bank's balance sheet it's on. I'm half kidding. If you're talking about fiat in general, Since we generally don't differentiate between spending credit and money, I guess they're the same just issued by a different entity.

 

[red butler]

The risk is far less to the depositor than if he had invested his own money in the market. At the very least, he has FDIC insurance on his deposits, as opposed to sticking his cash under his mattress.

So the taxpayer takes the hit. That's quite a system. The banks get to reap any of the profits... Losses are backed up by everyone else.

 

[bamawriter]

So the taxpayer takes the hit. That's quite a system. The banks get to reap any of the profits... Losses are backed up by everyone else.

Pre-'08, I'd be more inclined to agree. But FDIC membership fees are now so incredibly steep that another payout wouldn't be a hit for taxpayers unless several large banks fail at once.

 

[Rasputin_Vol]

Pre-'08, I'd be more inclined to agree. But FDIC membership fees are now so incredibly steep that another payout wouldn't be a hit for taxpayers unless several large banks fail at once.

There's only $25-30 billion in the FDIC trust fund to insure about $10.8 trillion in FDIC insured acounts.

Several large banks? All you would need is for one of the Too Big Too Fails to plow through that.

 

[bamawriter]

There's only $25-30 billion in the FDIC trust fund to insure about $10.8 trillion in FDIC insured acounts.

Several large banks? All you would need is for one of the Too Big Too Fails to plow through that.

But the FDIC will never pay out on the massive banks. The real purpose of the FDIC is to force solid banks to purchase those close to failure. A situation like IndyMac is extremely rare because the FDIC usually doesn't get caught flat-footed. So the insurance fund never gets drained.

 

[Rasputin_Vol]

Your analogy assumes that the government, the Federal Reserve, and the lender are all one entity. So it's a terrible analogy in that it's not at all analogous to how our financial system works.

The analogy had two distinct individuals. The counterfeiter (Federal Reserve) and the borrower or the entity that will ultimately be left with the resposibility to honor the terms of the loan (the taxpayer). Adding middle men in the process such as The Treasury or the Executive and Legislative branches adds a nuiance to the analogy, but really is of no significance in the outcome. It simple boils down to a simple borrower vs lender tale.

Does it really matter that the taxpayer pays the interest to the treasury, who then turns around and pays it to the Fed or sovereign debt bond holders?

 

[red butler]

But the FDIC will never pay out on the massive banks. The real purpose of the FDIC is to force solid banks to purchase those close to failure. A situation like IndyMac is extremely rare because the FDIC usually doesn't get caught flat-footed. So the insurance fund never gets drained.

How does that work? I'm guessing The bigger bank gets to buy the failing bank for pennies on the dollar, then pays the depositors (which is only about 20% of even a failing banks assets), then the bigger bank gets to pocket the remainder.

 

[bamawriter]

How does that work? I'm guessing The bigger bank gets to buy the failing bank for pennies on the dollar, then pays the depositors (which is only about 20% of even a failing banks assets), then the bigger bank gets to pocket the remainder.

Depends on the situation. Wells Fargo converted Wachovia, so the depositors weren't owed anything. They simply got new checks and debit cards and went on with their lives as usual.

 

[Rasputin_Vol]

The real purpose of the FDIC is to force solid banks to purchase those close to failure.

Huhh? That bridge was already crossed in 2008 when the likes of Lehman Brothers, AIG, and SolomonSmithBarney were picked over by Goldman Sachs and JPMorgan. Who the hell is left to pick up the pieces next time around when CitiGroup goes under? Ohh... nevermind, it will be the taxpayers, thanks to the legislation written this winter that Elizabeth Warren was screaming about. Now the FDIC is going to have exposure to the derivatives market.

 

[Velo Vol]

Ban money.

 

[red butler]

Ban money.

There's nothing wrong with money. I don't even mind fiat money if done correctly. In fact I would favor something similar to Milton Friedman's Permanent Overt Money Finance (POMF) with significantly higher reserve requirements for banks and free market interest rates.

 

[Rasputin_Vol]

There's nothing wrong with money. I don't even mind fiat money if done correctly. In fact I would favor something similar to Milton Friedman's Permanent Overt Money Finance (POMF) with significantly higher reserve requirements for banks and free market interest rates.

Lincoln issued debt free greenbacks during the Civil War.

 

[allvol123]

I think it's just another Ras "Hey, look how clever I am with another bad analogy to try to make blah blah blah political point."

Wow, pot.

 

[Rasputin_Vol]

A better analogy would be a bank borrows money from a depositor. They put that money in a copy machine and make the number of copies that are within the legal limit (the capital reserve requirement). They loan the copies out and charge interest. Then they risk the depositors real money in the stock/bond market. It wouldn't be so bad if they paid the depositor interest... Sadly they haven't done that in years.

I was just trying to make the analogy as simplistic as possible. No need to complicate it with trying to explain fractional reserve banking. Their heads would explode.

 

[red butler]

I was just trying to make the analogy as simplistic as possible. No need to complicate it with trying to explain fractional reserve banking. Their heads would explode.

My head almost exploded when I realized how it works. Heck, I pretty much went through all the stages of grief.

First denial. I watched a Milton Friedman PBS special from the 70s called "Free to Choose" and he made the simple comment "most people don't know when banks make a loan they're creating money." I couldn't believe it, so I obsessed over the next several months as I studied how the financial system works.

Then anger. Jackwads like Jamie Dimon and John Corzine get to make fortunes at the expense of everyday hardworking people by creating loans with money they don't even have. When the system implodes, they get to keep their fortunes at the expense of hardworking people because they've bought off all the politicians and have their cronies appointed to powerful government positions. Then I learned how private equity firms using leveraged buyouts to buy companies works, and I wanted to explode.

Next came sadness. Because I realized this ponzi scheme won't last much longer, so what kind of future does that leave my kids. All these Wall Street entities will have essentially bought the majority of the world's assets using ledger entries. Sure they'll let a legitimate businessman make a living as long as they get their cut, but miss a payment and the bank gets to seize the assets.

Now I'm at acceptance. I realize there's nothing I can do about it, so I'll make the best of it. Heck, I can even make jokes about it now.

 

[Vol8188]

I was just trying to make the analogy as simplistic as possible. No need to complicate it with trying to explain fractional reserve banking. Their heads would explode.

I don't honestly have a problem with fractional reserve banking.

 

[Rasputin_Vol]

Well, for one thing the government is authorized to mint, and to fluctuate money supply in the process.

Pretty huge difference right there. And obvious.

The Constitution says that Congress has that power, but the power to create money has been in the hands of the privately owned Federal Reserve since 1913.

 

[Vol8188]

The Constitution says that Congress has that power, but the power to create money has been in the hands of the privately owned Federal Reserve since 1913.

And this is the only real thing I have an issue with. The large amount of unchecked power held by the fed.