@rebdav
You're against fractional reserve banking? Really? And you have your Master's in Finance?
Here are the broad steps of how a deposit taking bank works.
1) A depositer places money in the bank, earning an interest rate for doing so.
2) The bank lends the money to a borrower, earning a higher interest rate for doing so.
At this point, the bank has both an asset (the loan) and a liability (the deposit) on its books. They cancel each other out and the bank's true income comes from the difference in interest rates.
When you speak to 'free money creation' I presume you refer to the money-multiplier effect:(http://en.wikipedia.org/wiki/Money_multiplier).
I think it is important to note that no new wealth is being created - the money supply is simply being expanded beyond the constraints of currency, allowing for more economic activity. This is a good thing. The money-multiplier does not effect the banks balance sheets since the banks stock of assets (cash reserves and loans) and liabilities (deposits) remain in equilibrium.
On a more substantive note, the abolition of fractional reserve banking would be terrible. It would lead to the following conditions:
-> Banks would be able to lend only out of their profits, since they would have to maintain enough cash on hand to cover all their liabilities. This would dramatically reduce the financial sectors ability to lend money.
-> Ignoring the catastrophic effects on industry (especially for small businesses which can't issue bonds) this would dramatically raise the cost of borrowing money for consumers. Starting a business or buying a house becomes much more expensive, in the unlikely event that you can find someone to lend you money.
[marxist analysis] This entrenches class divides [/marxist analysis]
-> Banks would not be able to pay interest rates on deposits, since deposits are no longer income generating. This reduces any incentive towards saving.
These are just a few of the consequences of the abolition of fractional reserve banking. I'm positive that a wiser man could come up with many more.
The only theoretical downside of fractional banking is the possibility that the bank will not be able to repay you the money you've deposited. Fortunately a balanced regulatory approach, which balances reserve levels with the risk of investments minimizes that chance. Federal Deposit Insurance means that even in the event of a bank bust, depositors will still recieve their savings.
For what it is worth, I agree that what happened in this specific case is outrageous. I would hesitate to suggest criminal prosecutions, since arresting a filing clerk is probably not going to fix anything.
Rep. Darrell Issa
is aiming to launch investigations on everything from WikiLeaks to
Fannie Mae to corruption in Afghanistan in the first few months of what
promises to be a high-profile chairmanship of the top oversight
committee in Congress.
According to an outline of hearing topics obtained by POLITICO, the
House Oversight and Government Reform Committee is also planning to
investigate how regulation affects job creation, the roles of Fannie Mae
and Freddie Mac in the foreclosure crisis, recalls at the Food and Drug
Administration and the failure of the Financial Crisis Inquiry
Commission to agree on the causes of the market meltdown.
But apparently somebody forgot to tell the Wall Street Journal about Darrell Issa, because last October, on the eve of the midterm elections when Republicans were trying to push the image of responsible legislators, the Journal published a profile of Issa in which he stressed his interest in working with the White House and downplayed any investigations he might launch.
Here was the Journal's rather naive headline at the time:
Source:http://removeripoffreports.net/
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