[dennisw]

You are completely correct as far as Bear Stearns...... But not in the general way that banks are allowed to “create money”

[AndyJackson]

But not in the general way that banks are allowed to “create money”

The FED loans a $ and it creates $5-$10 in credit in the banking system. Ok so the banks "owe" back the $1 at 2% interest or whatever the fed funds rate is today. What about the market rate interst on the $5-10? Do they owe all of that back to the Fed too? Oh I know, it is in demand deposits on which they have to pay interest, so they lend it at prime + (7-8%) and have to pay the depositor (1-1.5%). Such a hard life, and to get in you have to put all that capital at risk, expect that if you lose your capital, well the Federal Reserve just cooks up a bailout.

What part of this do you think we don't understand. All the blood sweat and tears that go into trying to make a profit off of someone else's money, worry that you might lose it! Hah!

[dollarbull]

They don't keep it in the sense of "let's print up $250K and buy a Ferrari".

More like - "let's take our $1million of reserves, use it to create $10 million of out thin air and loan the $10MM @ 6% interest. Then we take the interest we earned (on nothing) and buy a Ferrari with it".

Essentially the same thing.