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The Banking Scam, Fractional Reserve and How Apple Can Be An $800 Billion Bank

post #1 of 6
Thread Starter 
Transfer of off-topic discussion from http://forums.appleinsider.com/showthread.php?t=134327

1. With $80 billion in reserves, hypothetically, Apple can be an $800 billion bank
2. Wall Street and the Banking System is the biggest scam in our lifetime
3. Juxtaposition of the above two points can be used to help us understand Fractional Reserve and it's insidious nature

More to come...
post #2 of 6
Quote:
Originally Posted by nvidia2008 View Post

Transfer of off-topic discussion from http://forums.appleinsider.com/showthread.php?t=134327

1. With $80 billion in reserves, hypothetically, Apple can be an $800 billion bank
2. Wall Street and the Banking System is the biggest scam in our lifetime
3. Juxtaposition of the above two points can be used to help us understand Fractional Reserve and it's insidious nature

More soon...

You get 8 to 1 leverage with a 10% reserve requirement, so they can only be a $640 billion bank.
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post #3 of 6
Thread Starter 
(See below)
post #4 of 6
Thread Starter 
(See below)
post #5 of 6
Thread Starter 
Quote:
Originally Posted by e1618978 View Post

You get 8 to 1 leverage with a 10% reserve requirement, so they can only be a $640 billion bank.

OK hang on. I am now realising I have confused fractional reserve with capital requirements.

Capital requirements relates to how much a bank must have in regards to their assets and liabilities.

Remember, these are reversed for banks. Loans are assets and deposits liabilities.

Let's assume AppleMoney has $80billion in deposits and has loaned out $800billion.

Therefore it's capital ratio is simplistically liabilities/assets which is 80/800 = 10% which is about the Basel standards depending on what kind of assets and liabilities are in play. http://en.wikipedia.org/wiki/Capital_adequacy_ratio

Now I understand why you all are using the term leverage, it is a suitable simple term to use.
post #6 of 6
Thread Starter 
Fractional reserve is different from capitalisation of banks. My mistake. Fractional reserve relates to deposit expansion and how money comes out of thin air.

Let's start with the AppleMoney having $80billion. It can only lend out 90% of that i.e. $72billion at this stage. But, because the banking system works as a closed system, that $72billion has to be deposited in another bank. So, another bank gets $72billion in deposits. Now that bank can then loan out 90% of that. So it can loan $64.8billion. That $64.8billion has to be deposited somewhere, say, back at AppleMoney. So now, AppleMoney has $64.8billion in deposits.

So now, AppleMoney has $80billion + $64.8 billion in deposits.

AppleMoney now has $144.8billion. It can now loan out 90% of that which is ~$130billion.

But wait, you say. How can AppleMoney now have $144.8billion if it lent out $72billion? It should only have $80-72=$8billion, plus the $64.8billion deposited.

THIS IS THE BEST PART AND HOW BANKING IS THE BIGGEST SCAM IN OUR LIFETIME

"If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created."
http://en.wikisource.org/wiki/Modern...osit_Expansion

Read the above again: THEY DO NOT REALLY PAY OUT LOANS FROM THE MONEY THEY RECEIVE AS DEPOSITS

The $72billion "paid out" as a loan from AppleMoney does not "come out" of the $80billion deposit.

"If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise"

LOANS AND DEPOSITS BOTH RISE ie. AppleMoney now has $72billion as assets (loaned out), $80billion still as deposit, plus now $64.8billion as deposit from the other bank loaning somebody the money, which goes back to AppleMoney since that loaned money doesn't go under the mattress.

So again, AppleMoney now has $144.8billion in deposits ($80billion + $64.8billion). It can now loan out 90% of that which is ~$130billion.

AppleMoney's total assets (loans) = 72+130 = $200billion.
AppleMoney's total liabilities (deposits) = 80+64.8 = $144.8billion

I'll pause here for all to reflect. This is the most important point for us to understand how money comes into existence through loans, ie. money as debt.
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