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Author Topic: Why Fractional Reserve Banking Didn't Prop Up Yet?  (Read 3956 times)
em3rgentOrdr
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January 13, 2011, 04:57:59 PM
 #41

Any other suggestion on how to verify the integrity of banks/e-wallet/whatever.

A synchronized audit by everyone who has an account in those banks.  Secretly pick and have everyone agree on a random time (without the bank's knowledge), and at that time, simultaneously login to the bitcoin bank (or mybitcoin, or mtgox, or whatever), and have everyone withdraw all their bitcoins.  If that bank is unable to provide anyone's deposit on demand, then they are in breach of contract and are thus criminals.  Sue them, ostracize them, or use (legitimate) violence against them.

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bitanarchy
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January 13, 2011, 09:09:40 PM
 #42

David Friedman addresses the problem of inflation caused by private banks in the book "Future Imperfect". Here is the section:
http://www.daviddfriedman.com/Future_Imperfect/Chapter6.html

"Some economists, in rejecting the idea of private money, have argued that such an institution is inherently inflationary. Since issuing money costs a bank nothing and gives it the interest on the assets it buys with the money, it is always in the bank’s interest to issue more. The rebuttal to this particular argument was published in 1776. When Adam Smith wrote The Wealth of Nations, the money of Scotland consisted largely of banknotes issued by private banks, redeemable in silver.5 As Smith pointed out, while a bank could print as many notes as it wished, it could not persuade other people to hold an unlimited number of its notes. A customer who holds $1,000 in virtual cash – or Scottish banknotes – when he only needs $100 is giving up the interest he could have been earning if he had held the other $900 in some interest-earning asset instead. That is a good reason to limit his cash holdings to the amount he actually needs for day-to-day transactions.

What happens if a bank tries to issue more of its money than people wish to hold? The excess comes back to be redeemed. The bank is wasting its resources printing money, trying to put it into circulation, only to have each extra banknote promptly returned for cash – in Smith’s case, silver. The obligation of the bank to redeem its money guarantees its value, and at that value there is a fixed amount of its money that people will choose to hold.

Let us suppose that all the paper of a particular bank, which the circulation of the country can easily absorb and employ, amounts exactly to forty thousand pounds; and that for answering occasional demands, this bank is obliged to keep at all times in its coffers ten thousand pounds in gold and silver. Should this bank attempt to circulate forty-four thousand pounds, the four thousand pounds which are over and above what the circulation can easily absorb and employ, will return upon it almost as fast as they are issued. (Wealth of Nations, Bk I, chapter 2)"
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January 13, 2011, 09:36:19 PM
 #43

A synchronized audit by everyone who has an account in those banks.  Secretly pick and have everyone agree on a random time (without the bank's knowledge), and at that time, simultaneously login to the bitcoin bank (or mybitcoin, or mtgox, or whatever), and have everyone withdraw all their bitcoins.  If that bank is unable to provide anyone's deposit on demand, then they are in breach of contract and are thus criminals.  Sue them, ostracize them, or use (legitimate) violence against them.
So, organized bank runs. That would do the trick. Smiley
marcusaurelius
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January 13, 2011, 09:39:29 PM
 #44

but you couldn't organise that in secret, could you? you would give the bank at least a few days of warning by starting the organising.

so either you not find not enough customers for your bank run - bank wins.
or you alert them in advance and they can take measures - bank wins.

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January 13, 2011, 10:28:02 PM
 #45

but you couldn't organise that in secret, could you? you would give the bank at least a few days of warning by starting the organising.

so either you not find not enough customers for your bank run - bank wins.
or you alert them in advance and they can take measures - bank wins.

Historicly, it was competing banks that organized runs on a bank that they suspected of cheating.  They didn't need to tip off the bank in question, simply accumulate their banknotes and hit them hard with as many at once as possible while spreading a rumor that said competitor was insolvent.  The term 'viral' was never used in this context, but that's exactly how we might describe such an event today.  Once one was set off, the bank under attack wouldn't likely be able to take measures.  If they could, then they were not insolvent, by definition.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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