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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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nirgrahamUK:

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.

 

It is quite simple. When you deposit your money you sign an agreement that says you can have your money on demand but in case of emergency the bank reserves the right to delay up to 60 days to give you your funds. All of your imaginary objections are now gone with a simple agreement. This arbitrary defintion you give to demand deposit is irrelevant. Take another example, suppose I required you to wait 5 minutes for your money, is it now a timed deposit?

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dsimo04:
A demand deposit is not a loan.

Says who? If I start a bank Ican create whatever restrictions I want. I can create a system that generally gives you your money on demand with agreements for emergencies. All of this idiotic thinking that these things are impossible is mind boggling. 

dsimo04:
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.
If the bank lies to you about what it is doing then yes but if you know the risks involved then you should be allowed to take them. In the example given, if you know your friend might use your bike while it is in the garage then that is a risk you have accepted.

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Maxliberty:
When you deposit your money you sign an agreement that says you can have your money on demand but in case of emergency the bank reserves the right to delay up to 60 days to give you your funds.

errrrrr..... are you describing the agreement i and other actually have between ourselves and our banks. or one that youd imagine youd like us to have,?

 

Maxliberty:
Take another example, suppose I required you to wait 5 minutes for your money, is it now a timed deposit?

yes, obviously. and your point is?

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:

errrrrr..... are you describing the agreement i and other actually have between ourselves and our banks. or one that youd imagine youd like us to have,?

Well, if you accept the idea of an emergency 60 day waiting period then the arguement against FRB goes out the window because you can have all the functionality of FRB with a simple emergency waiting period.

nirgrahamUK:

yes, obviously. and your point is?

My point about 5 minutes is if that is a timed deposit then the definition of demand deposit goes out the window. That is why the distinction between demand and timed deposit is nonsense.

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is an emergency waiting period unlimited?

how trivial can an emergencybe?

 

a demand deposit is very different from a timed deposit account with a period of  5 minutes. because a demand deposit account would allow access any nanosecond and so on to infinity. and if you want to offer timed deposit accounts with such short periods do it, but dont pretend they are demand accounts(which dont place such time limits!)

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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Demand deposits don't exist. They are deposits with 1 second waiting period. Wink

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dsimo04 replied on Fri, Nov 14 2008 12:37 AM

If the bank lies to you about what it is doing then yes but if you know the risks involved then you should be allowed to take them.

Knowing has nothing to do with it.

 

If the banks intention is to loan out the money then it is a loan contract.  If it is the depositors intention to retain full availability of the deposit on demand then it is a deposit contract.  These two intentions are mutually exclusive.  

Just because such contracts exist today does not mean they aren't legal abominations.  It doesn't even matter that people agree to such contracts.  Because the terms in the contract are incompatible they are all null and void.

With regards to knowing the risks, you are missing the whole point of demand deposit contracts:  their legal function for the depositor is to nullify risk. Risks naturally belong with loan contracts.

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dsimo04:
If it is the depositors intention to retain full availability of the deposit on demand then it is a deposit contract.  These two intentions are mutually exclusive.  

The deposits are fully available. When was the last time you couldn't get your money out?

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Paul replied on Fri, Nov 14 2008 5:04 AM

Maxliberty:

nirgrahamUK:

errrrrr..... are you describing the agreement i and other actually have between ourselves and our banks. or one that youd imagine youd like us to have,?

Well, if you accept the idea of an emergency 60 day waiting period then the arguement against FRB goes out the window because you can have all the functionality of FRB with a simple emergency waiting period.

Can I use my account in Bank of Max for immediate payment purposes?  I.e., can I write a cheque against it, or ask your bank the transfer $100 to someone else's account, etc.?

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Paul replied on Fri, Nov 14 2008 5:06 AM

nirgrahamUK:

a demand deposit is very different from a timed deposit account with a period of  5 minutes. because a demand deposit account would allow access any nanosecond and so on to infinity. and if you want to offer timed deposit accounts with such short periods do it, but dont pretend they are demand accounts(which dont place such time limits!)

Why would anyone borrow money with a 5 minute repayment time?  They wouldn't even get out the door.  What would be the point?  Most people don't borrow just to see their account balance increase for a few seconds.

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ha, exactly the point i was trying to make (subtly!) contrasting the difference between demand deposit accounts and timed accounts (with arbitrarily small times)   as scineram was conflating the two.

it would be better for his bank to operate morally and legally sound practices and find it self going out of business due to only offering product that consumer doesnt want, than raking in huge profits for a few years defrauding his customers.

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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What is fraud, if anyone knowingly does it?

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nirgrahamUK:

is an emergency waiting period unlimited?

how trivial can an emergencybe?

 

a demand deposit is very different from a timed deposit account with a period of  5 minutes. because a demand deposit account would allow access any nanosecond and so on to infinity. and if you want to offer timed deposit accounts with such short periods do it, but dont pretend they are demand accounts(which dont place such time limits!)

Once you accept that the emergency agreement makes the arrangement valid inyour mind then all the arguements about the fraud of FRB go out the window because I can have all the functionality of FRB with a simple emergency waiting period. It doesn't matter what the emergency is, its the idea we are discussing.

The time limit issue is relevant because if there is a one second waiting period then it again negates the FRB as fraud arguement because now all deposits are timed deposits. So the distinction between timed deposits and demand deposits is not relevant.

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nirgrahamUK:

ha, exactly the point i was trying to make (subtly!) contrasting the difference between demand deposit accounts and timed accounts (with arbitrarily small times)   as scineram was conflating the two.

it would be better for his bank to operate morally and legally sound practices and find it self going out of business due to only offering product that consumer doesnt want, than raking in huge profits for a few years defrauding his customers.

The point is, that the time difference is just arbitrary. See, you are happy to draw a distinction between timed deposits and demand depsoits when you think the time difference is relevant. So for you a minimum one week delay might seem reasonable and for others maybe 90 days and for others that are constantly using money in elaborate financial networks then maybe just a few minutes would be reasonable. The time distinction you are making is arbitrary and that is why the arguement falters.

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Maxliberty:
Once you accept that the emergency agreement makes the arrangement valid inyour mind then all the arguements about the fraud of FRB go out the window

well of course thats exactly whats unnaceptable. i know that i actually have a demand deposit account. i know that there is no emergency clause in its terms and conditions.

 

Maxliberty:
The time limit issue is relevant because if there is a one second waiting period then it again negates the FRB as fraud arguement because now all deposits are timed deposits. So the distinction between timed deposits and demand deposits is not relevant.

 

ok lets try again from first principles.

analyse good practice and bad practice in the straightfoward case of a depositor saving 10,000$ in a time deposit account for 1 year. with a bank.

in good practice , the bank makes arrangements to loan out the 10,000$ so that during the year, the 10,000$ is used by entrepeneurs to grow their business or consumers to buy now and pay later. the bank arranges its affairs so that the 10,000$ (plus interest) is collected from the borrowers in good time, so that it is available to be returned to the depositor on the anniversary of the initial deposit.

bad practice, would be , the bank making arrangement to loan out the 10,000$ over two years, the bank is arranging its affairs so as to miss the deadline , for the funds to be returned to the depositor on the anniversary of the initial deposit; here the bank have acted fraudulenty.

 

now, in a demand deposit, when the money must be available at any time, it would be fraudulent to make arrangement for the deposited funds to be loaned out for any length of time, because this would constitute breaching the contract that states the money must be available at any time.

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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