No mentioning of fractional reserve. No wonder some people still think the banks are fine.
A bank is an incredibly fragile scheme, as in MLM scheme. A bank can go "
bankrupt" if minuscule group of their clientele decides to withdraw all their money.
It is not about making profits AT ALL, that is not the problem. The problem is how the clients are absolutely unaware of fractional reserve.
People are misled to believe their money is "safe" in the bank. No it isn't, quite the opposite, in fact.
Here is the gist of it: You deposit 1000 they keep 100 in the vault, 900 is "lent away" immediately.
Someone gets those 900, deposits it in the bank again, 90 is in the vault, 810 "goes away"...
Someone gets that 810, deposits it in the bank, 81 is in the vault 729 "goes away"
Someone gets 729, deposits it in the bank, 72 is in the bank 657 "goes away"
I hope you start to see the pattern. So far, only 1000 entered the system, but the bank has already produced: 3096 the bank is already 2096 short, oh but they don't stop at 657, it goes all the way down... 592, 533, 480, 432, 389, 351, 316, 285, 257, 232, 209, 189, 171, 154, 139, 126, 114, 103, 93, 84, 76, 69, 63, 57, 52, 47, 43, 39, 36, 33, 30, 27, 25, 23, 21, 19, 18, 17, 16, 15, 14, 13, 12, 11, 10, 9...
When 1000 enters the system, bank has produced "Over 9000!"™ out of thin air, it doesn't really exist anywhere, but to them it does...
This is only sustainable as long as all of them don't "think" of withdrawing their money
at the same time. Like an MLM scheme? Like an MLM scheme. Until the late 19th century this practice was illegal, and in many countries punishable by death. The older banks, were supposed to keep all the money that was given to them in their vaults. Of course, they would need to be paid (not the other way around) for this service.
This is why it shocks me when people get shocked over the idea that you should be paying the bank, not the other way around. This is because something this fundamental isn't teached, why, because... History of banking.
You see, some bankers did in fact infringed the law. They used some of that money "that was in the vault doing nothing" without permission. Those bankers that returned the money to the bank (and kept the profits) prospered, and became influential, and managed to change laws. With time, the scheme got legalized into what is currently modern banking.
But that is not how it should be. To break this scheme, the followers of the Austrian school of economy propose that banks "by default" become full reserve, ie. any money you deposit is entirely in there, and YOU have to pay a month fee for the service. IF the client want that money to be lent (or part of it) it should, previous authorization and fool knowledge of the risks involved, be moved into a separate type of account. However here comes the critical part, if the money is actually lent, that money CANNOT be available to the client until its returned. This is critical because its stops the MLM type scheme on its track. If the bank however offers you all the money any time regardless, the bank is playing fractional reserve again.
A bank that has full reserve, cannot go bankrupt. Everyone can withdraw the entirety of their money at anytime, and it will be there. Of course a bank without customers isn't much of a business, but even it if closes, none would lose their money.
That is not what happens with modern banks, to say the least, its always the clients that lose their money, sometimes the banks are saved, but the people never can. The State needs to save the bank "at all costs", including forsaking that bank's clientele. This is out of fear that a bankrupting bank would create a domino effect and crash the economy of that country, and that is why...
The State made an institution that lends to banks "just in case" too many clients decide to withdraw, thus creating the illusion the the money has always been safe. Yes, the bank of banks on a national level is called the Central Bank, its usually (but not necessarily) owned by the State, and it happens that in some countries they are also given free reign over the national currency.
Well this is sort of a buffer, with a proper Central bank in place, no bankruns would ever occur, as long as they are limited to one bank or a few banks, that is unless... The entire country enters in panic, and not only 10% of the people withdraw their money from that bank, but from ALL banks in the country... Fear not, because the World Bank was made for that...
Did you know each lender has their own conditions? I hope you do, and they all want their cut of the pie, it was YOUR fault for not preventing your customers to "flee" in the first place...
Please, don't waste your time with minuscule things like bank working hours, or fee amounts, that is the LEAST of your problems.
Do your own research about fractional reserve banking online. Never forget this, it takes about 10% of the entire money in banks to be withdrew to cause an economy crash. Sorry but there is no galactic bank to buffer Earth's economy... (yet).
Nothing broadcasts fear more than a closed bank. This is why they try their best to keep their doors open even when bad rumors come in. The fact that "rumors" can break a bank into pieces, is because of how fragile their system is.
A bank with full reserve don't need to mind rumors. At some point in history, the bank of Amsterdam operated in such conditions, even with War ravaging Europe, they had no problem returning the entire money to any client that requested it. That in turn made that bank a legendary reputation.
Alas, but a bank operated like that is less profitable than one using fractional reserve. Well duh you can potentially earn much more in a MLM than in a honest (boring) investment. This is similar to the difference from the currently dominating Chicago school of economy vs the Austrian school of economy (debt vs saving for growth).
One would think more people would be more aware of this, but they aren't. Otherwise they would not be using banks at all. Ah but how to keep the money that is intentionally losing purchasing power every year by State intervention? Perhaps by having a money that cannot be made to lose its value overtime...
When someone mention banks always remember about
fractional reserve banking this is the center of the issue. Full reserve banking can return, but after a century or brainwash, people need to relearn what a bank is.
Look, getting paid when you give a stranger your money to keep safe, is NOT logical, that should raise your suspicions immediately. But you are letting your bank do it, because the State regulates it, and you
trust it will be safe... Well hope you never experience a bank-run or a coin devaluation...
