The Not-So-Fractional Banking System

NetRight Daily ^ | September 2011 | Robert Romano

[Skepolitic]

The article confuses bank capital with bank reserves.

[Skepolitic]

The brilliant physicist Richard Feynman said in 1988:

There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.

[PieterCasparzen]

Too bad such meaningless blabbering got posted here on FR.

If people would actually learn some basic accounting, i.e., how to interpret a P & L and balance sheet, then actually learn a tiny little bit about financial statements in the banking environment, then review the financial statements of publicly traded banks which have them all out their for public viewing, they would not be so wacked out - if they really learned. Otherwise, conspiracy is very easy to believe when one has not the foggiest clue about the subject.

[mlocher]

My understanding is that the banks do keep 10% in reserve and loan out 90% and that in itself creates new money.

I think you for the most part nailed it, although some have called this "velocity of money" and not "new money". A technicality, but one worth noting. I cannot vouch for the 10% number, but I have read numbers close to that over the last 6 or 7 years. Either way, it impacts economic activity and inflation.

When I was in high school (longer ago than I care to admit) this number ranged from about 17% to 19%. I think the number began to come down drastically during the Greenspan years and may have helped create the housing bubble.

[blam]

Thanks for posting the article. Keep it up.

[Wuli]

ping a ding ding

[stephenjohnbanker]

” ...billionaires will be worthless street bums...”

Want me to name the ones who already are?

LOL!

[GoDuke]

Bfl

[Lorianne]

That quote is great!

[EternalVigilance]

The money-changers never change.

[Marine_Uncle]

RE: From the Market Watch Article:
"It isn't the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished -- trading phony instruments to the tune of $700 trillion."
This IMHO is the real killer. Various writers can put all kinds of spin on many of the things discussed in the main article, mixed bags of who to interpret and place levels of importance on how bad off the whole is at present.
But those estimated 700 Trillion in US dollars the world payed out for supposed solid investment are not just going to go away. The AIG European branch who issued so much of them as well as large WS banks, are the super criminals.
But BJ. Clinton with his signing those Congressional changes to banking behavior relative to providing huge sums of money to the lame, blind, and halt, for basically give away housing, along with Dodd, Franks and their merry band who wrote the changes to take place so that folks with no chance of repaying loans could get loans from bankers or the bankers got huge fines, etc., are the super criminals that go hand in hand with the AIG and Wall Street gang that had to come up with the crime of the century actions.

[PAR35]

Instead, keeping with the 10 percent capital requirement example, for every dollar kept in reserve, the bank or financial institution can create $9 to lend

He's still missing it. The seed capital doesn't come from the deposit, but from (initially) sale of shares and (later) retained earnings. (It works slightly differently at mutuals - that's why there are almost none of them left).

Deposits aren't capital, they are liabilities.