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FRB & Life-insurance

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Koen Swinkels posted on Sun, Nov 9 2008 3:50 PM

don't want to start a FRB debate again, but I was wondering about one particular question: with life insurance companies make calculations about the premium they have to ask to have enough funds to pay out possible claims. There is a risk that their calculations are incorrect in which case they cannot pay out, at which point they can be sued/go bankrupt etc.

How is this categorically different from FRB'ing in which calculations are made to determine how much in reserves the banks should have to pay out possible claims? I understand the principle of 'two claims to the same property at the same time' but how does this not at least in some sense apply to life insurance too?

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Greg replied on Mon, Nov 10 2008 4:08 PM

I don't see much of a difference.  You put money in expecting to withdraw it.  The withdrawl requirements for life insurance are a tad more restrictive...being that I have to die first...They do the same thing with the money...invest it..pay out other depositors...etc.

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my first instinct is that FRB is fraudulent as it confuses the ownerships rights of the various parties.

(i.e. saver deposits 100£, 90£ of this is loaned out to loaner who becomes saver at another bank 90£). hence there is 90£ with two owners.

life insurance might not have that same failing, if we are talking about term based insurance, i.e. pay 25£ a month and in the even of your death the life insurance pays out £100,000. in this arrangement there is no claim that the 25£ paid to the insurer, is 'your money'. you can think of it like paying a membership fee to a book or cd club, which entitles your family to take out 1000books on the event of your death. no there might be a risk that such an insurance company cant meet all its obligations, but this is an insurable risk, i hope im not naive to think that life insurance companies pay for their own 'cashflow' insurance. etc.

anyway the point is that life insurance doesnt conflate ownership issues as does FRB.

to my understanding.

caveat.

:-p

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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scineram replied on Tue, Nov 11 2008 10:44 AM

I don't see conflated ownership with frb either. The cash you deposited in the bank is not in your ownership, only the claim to it is.

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what relevent distinction are you making between 'ownership of X' and 'having a claim to X'.

you ocmpletely lost me, because to me its nothing more than semantics.

a claim being, an assertion of ones ownership.

'i have a claim over x', 'i own x'

 if you have a rightful claim, you are the owner; if you have no rightful claim, you are not the owner, but ifd you claim to be the owner, you are a fraudster.

 

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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Having a claim to an amount of gold means you can demand to be paid that amount. You don't own it because you have to ask for it before you can do anything with it.

And I don't really care if I lose anyone.

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dsimo04 replied on Wed, Nov 12 2008 11:04 AM

You don't own the gold deposited, not because all you have is a claim and "you have to  ask for it," but because the good which you have deposited is a fungible good...easily mixed with other units of the same thing.  If there were an oil bank, it would be ridiculous for anyone with oil deposited to claim ownership of a specific part of the deposit.  However, what each depositor owns is a specific amount, equal in quality and quantity to that which he deposited, the tantundem as De Soto calls it.  And since the depositor owns a claim to that specific amount, the deposit institution has a legal obligation to hold it available.

On a side note, these claims are "demand deposits."  The deposit -or at least the specific amount- belongs legally to the depositor.  He does not ask for what is his, he demands it with legal force. 

If a kid asks his friend to store his bike in his garage, does this mean the former doesn't own the bike because he needs to "ask for it?"

 

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And can the friend take it for a ride? Why not?

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you can answer this question for yourself if you consider the corresponding question...

can original owner, and borrowing friend, both take a ride on the bike , at the same time, in two opposite directions ?

 

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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How is that relevant? As long as it is lent to the friend, he can ride it.

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dsimo04 replied on Thu, Nov 13 2008 10:18 AM

Who said anything about the bike being lent?  Its been stored in the friend's garage, not lent out to the friend.

 

To the original poster:   I think de Soto has either a section or a whole chapter dedicated to life insurance in his Money, Bank Credit and Economic Cycles.  You may find your answer there.

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a possible epxlanation for why we might be talking past each other would be a confusion over the difference between not-controversial time deposit accounts and demand deposits accounts

 

eg. time deposits

at T1 i own it. at T2 you own it with a contractual obligation that at time T3 I own it, plus some money for compensation for my not having owned it through T2 (if needed)

Demand deposits.

at T1 i own it. at T2 the bank says we BOTH own it, at T3 who the hell owns it... Huh?

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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nirgrahamUK:

a possible epxlanation for why we might be talking past each other would be a confusion over the difference between not-controversial time deposit accounts and demand deposits accounts

 

eg. time deposits

at T1 i own it. at T2 you own it with a contractual obligation that at time T3 I own it, plus some money for compensation for my not having owned it through T2 (if needed)

Demand deposits.

at T1 i own it. at T2 the bank says we BOTH own it, at T3 who the hell owns it... Huh?

A demand deposit is nothing more than the bank borrowing money from the customer with the customer having the right to call the loan on demand. You can borrow money like this and you can loan money like this. It is not unethical or inherently fraudulent.

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Maxliberty:
A demand deposit is nothing more than the bank borrowing money from the customer with the customer having the right to call the loan on demand. You can borrow money like this and you can loan money like this. It is not unethical or inherently fraudulent.

 

no

if i put $x in a demand deposit account, and if that means I can demand my money at anytime with no warning, the only way the bank can accomodate that is to keep 100% reserves, so its there at anytime and redeemable without warning, otherwise they are by definition failing to keep all my money available for withdrawal at anytime.

to summarize

if the money is not availabe by virtue of having been loaned onto someone else, then i have been defrauded.

 

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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dsimo04 replied on Thu, Nov 13 2008 11:46 AM

 

A demand deposit is not a loan. 

All of this boils down to 2 questions:  When banks treat demand deposits as their money to invest with, and when the friend who is holding his buddy's bike in his garage decides to use it, and upon the proper owner demanding the money or the bike back the bank cannot return it, and the friend is away with the bike (or more to the point, he loaned out the bike to another friend) is it or is it not misappropriation?  And if it is, when did it occur:  when the owner "caught" them or when the bank/friend used the property in the first place?

I realize that many libertarians see no issue with free banking.  But to my eyes, how you could say that the above is not misappropriation or that the misappropriation only counts when the bank/friend is caught is at best unsound thinking.

 

But by all means, I'd appreciate it if someone tried to convince me otherwise.

 

 

 

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