Sure they are. They are Ponzi schemes that people "believe" in.

Banks take your money, create money from your deposit via the reserve requirement, loan that money out at interest, gives you some as a kickback (interest) so you don't withdrawl, sends you a monthly statement. If you go to the bank you can withdrawl money - If everyone goes to their bank and asks to get their money; they can cover a 10th of the accounts (then the FDIC shows up to pick up the slack but they are running out of money too). Furthermore if a 10th of the money supply is in banks there is not enough dollars in circulation to pay back all of the loans when you figure in the money multiplier and the fact that they charge interest on loans.

So what did Madoff do? Took money, invested at interest, paid interest, and generated financial statements, redeemed accounts when requested, and if everyone shows up to redeem at the same time he couldn't cover the accounts. The only thing Madoff didn't do was "create" money like the banks do.

Madoff had no assets. While I don't like what a lot of banks do, properly ran banks have true assets. They do much more with their money than loan it. Banks are invested in many assets just like the average investor. Madoff from what I know invested in almost nothing but himself.

I understand your comparison but the problem is that your understanding of banks is not accurate.

The public never mentioned the word reserve requirements a few years ago. Now everyone read an article or two...the reserve requirment on many loans exceeds 10%. 10% is what people hear and assume that's the number. Did you know credit unions have an over all lower requirment? They're not banks so the rules are different. The type of loan funded determines the reserve requirment.

Running a bank isn't about being able to let everyone take their money out. If that were the case you might as well keep in under your matress. Depositors (like yourself I would imagine) understand the service the bank provides and the pros and cons. It's up to you to decide if you want your money there based on what you know about banks. Banking is more about a balance sheet. Assets versus liabilities with some built in mandates.

This is absolute rubbish. Banks don't take your money and split town - at least not anymore.

Regardless, you guys are jacking the thread - please stop.

This is all off topic stemming from a comment I made. But I will answer because I will bring it full circle to the original topic by the end.

A bank's #1 source of income is loans. Banks are not allowed to make a lot of investments that you or I can partake in, and the ones outside of "normal" banking activities are SEVERELY limited by percentage of primary capital. Those activities are used primarily as hedge positions against the default of loans. Don't kid yourself that banks have "assets" and that loans are not a banks PRIMARY source of revenue.

http://www.federalreserve.gov/moneta...reservereq.htm

I don't know what you mean when you say:

I am not sure if you misspoke, wrote unclearly, or I am mistaken by some nuance (correct me if I am wrong). Because reserve requirements are not determined by loans but rather by checkable / on demand deposits. The amount in excess of the required reserve is the money the bank loans / invests / etc.

John Q. Public didn't know how a lot of stuff worked a few years ago. Access to information was somewhat tedious when you think of trips to the library and attempting to understand complex ideas from textbooks which are boring and somewhat difficult to understand for most. For example. fractional reserve banking was something that was taught in business schools and learned from encyclopedias when people wanted to know how banks worked; it wasn't something that the casual person learned. With the advent of the internet a kid or interested party can have their curiosity satisfied on their couch the minutes after they hit enter. No longer does one have to dredge through copious amounts of boring literature - You can now go on youtube and watch a cartoon that eloquently explains somewhat complex ideas (like fractional reserve banking) in a manner that is easy and interesting to learn. People understand banks TODAY more than a few years ago due to this access to information. To belittle that "education" by stating "everyone that reads and article or two," is somewhat condescending to those who have taken the initiative to educate themselves.

FYI - I learned about fractional reserve banking in Business School where it was glazed over by teaching us how to calculate reserve requirements vs loans generated. Youtube actually has a cartoon that gives a better explanation and goes more into depth than the formal education that I received. So lets not belittle the progress that informal education has made in the last few years via the internet.

I used 10% because I am talking about banks; not credit unions. And for arguments sake (and since 10% is the most modest number) it makes sense to cite that number. The lower the required reserve, the more the bank can "create" money - but because of low capitlization even though Credit Unions / small banks can create more money as a percentage of capital; they create less money in total than the BIG banks due to their massive capitalization.

If a bank does NOT loan up to their reserve requirement; they are leaving money on the table. Because they loan money out for more than it costs them borrow it they make money via interest and via the money they "created" by the fractional reserve banking system. This ability to "create" money allows them to see returns that far exceed any "normal" investment return. So when you figure in these returns vs default rate it is a wiser investment than other investment vehicles.

I stand by my statement that banks are Ponzi schemes. They just happen to be something we believe in. By saving our money, we get a little cash and help grow the community through loans. If you have money in a bank look around you at the houses, cars, buildings; without people that believe in banks not all of that would be there. It is a trade-off - you fueled that growth via the mechanism of fractional reserve banking but you have also created inflation at the expense of that growth. How much would a house, car, building cost if everyone had to pay cash? how much cheaper would gas be if there weren't as many cars on the road, how much cheaper would everything be at a store if everyone had to buy with cash (remember there is only enough cash in circulation to give every American about $3,000).

Over 100 banks have failed in 2009 and 26 in 2008? That is over 130 banks in LESS than a two year span, there were only 24 in the prior 8 years.
http://www.fdic.gov/bank/individual/.../banklist.html

It is not because they are holding money and have true assets. It is because shadow banks (where the "WEALTHY" keep their money) were purchasing the crap that banks were lending (freeing up more money for more loans). When investors learned that it was crap, and all of the derivatives and other financial products that the shadow banks offered were junk they began pulling their money. THIS IS WHAT CAUSED THE GLOBAL CREDIT CRISIS - not the crackhead that defaulted on a subprime home loan. The fact that BILLIONAIRES pulled their money from their shadow banks causing the flow of credit to all but come to a stop leaving banks with all of these "assets" that they could no longer pawn off and freezing their liquidity. Money stopped moving through the market so no money could be created via the banking system. That is what caused "wealthy" people like Bill Gates, Warren Buffet and the other billionaires to lose 1.4 trillion dollars of "wealth."

Like I said originally "wealth" is a lot of money on paper. It is subject to change.

we are told by well meaning fools that the rich steal their wealth from the poor and i have to ask, "where did the poor steal this wealth?"

perhaps from the dead.

__________________
When her work is done, she forgets it. That is why it lasts forever.
If you do not change direction, you may end up where you are heading.

I'll break it down for you, since you seem unable to grasp the simple concept of corporate slavery.

Poor man works his fingers to the bone to produce a product for his employer to sell. The employer gets the bulk of the monetary benefit, while the poor man gets tossed scraps from the rich man's table. Rinse, repeat.

Pretty effing simple.

The poor man (the WORKER) actually CREATES the wealth, in the form of a tangible product or service that can be traded for MONEY. The rich man takes 99% of the return, and the poor man gets next to nothing.

__________________
A government big enough to give you everything you want, makes Santa Claus pretty much obsolete.

oh, i get the concept all right. what is missing in your explanation is the necessary complicity of the armed might of government to enforce the desires of the wealthy. in a free marketplace, poverty alone does not account for the willingness of the worker to be abused. at the very least, government must be willing to turn a blind eye to the monopolization of an industry by the unscrupulous and the infringement on the rights of its citizens. avarice alone does not enslave a population. without the participation of government's force, such abusive corporate entities would find no fodder for their mills.

__________________
When her work is done, she forgets it. That is why it lasts forever.
If you do not change direction, you may end up where you are heading.

Many of the poor in the US have Cell phones, Video Games, Flat Screen TV's and computers. That's not poor to the rest of the world.

See even now I'm participating in the demise of what started as a great thread. It quickly turned into politics.

LoL - I feel the same way.

It is the "politics" section...

Way, way, way wrong!!!!!!!!!!!

The rich man produces the product!

The poor man makes a teeny, tiny contribution to the actual production of the product even if he is working a lot harder.

Think of it like this:

You spend years reading and learning about pot growing. You procure the place to grow, buy all the equipment and produce a killer strain that takes you years to produce. You contribute all the knowledge which is the most important part. You then hire a guy to hump soil into your basement and manicure your buds.

Are you telling me that since he is doing "all the work," he is the one responsible for the production? Should he get the majority of your harvest just because he busted his ass doing work that is of little value?

I run a manufacturing business. The guy in the back may work harder but his work has very little value in reality. It was my vision and talents that built my business. It is my ability to make things happen and to do the important work that is 99% of the cause of production. His work, though physically demanding is the least important part of the business.

One more example before I go. If a guy who cuts lawns for a living hires a lawyer and they decide to trade services, should they trade on an hour by hour basis or should they trade based on the value of each one's product?