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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:

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.

Here in a nutshell is the whole failure of the anti-FRB arguement. So we agree if we make a 60 day emergency agreement that I can have all the functionality of FRB. In fact since the delay is simply arbitrary it could be one day or six hours or whatever time frame you felt comfortable with. So your arguement is that as long as there is at least some emergency delay you can have all the FRB functionality that you want.

nirgrahamUK:

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.

We have already established that any delay now makes this practice acceptable. So I am not saying that the money is available instantly, I am saying there is a 10 second delay. So there is no fraud. I have 10 seconds to make your money available. Your whole arguement has just crashed and burned. Also, in your example about the 1 year loan, what happens if the person doesn't repay the loan to the bank, in your mind is the bank committing fraud now because they dont have your money at the end of one year?

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so you advocate REFORMING FRB, so that its not fraudulent by being how it is;and you would do this by designing emergency clauses. which merely cause other problems, not least MORAL HAZARD.

Maxliberty:
We have already established that any delay now makes this practice acceptable. So I am not saying that the money is available instantly, I am saying there is a 10 second delay. So there is no fraud. I have 10 seconds to make your money available.

 

so lets imagine with you that you dont offer vanilla demand deposit accounts. you offer a demand deposit with a 10second notice or less.

now lets analyse what this means for how you can conduct your affairs:

you must not design your lending agreements so that your borrowers, whilst maintaining their contract with you, could yet leave you short of all the funds when a withdrawal is demanded.

Maxliberty:
Also, in your example about the 1 year loan, what happens if the person doesn't repay the loan to the bank, in your mind is the bank committing fraud now because they dont have your money at the end of one year?

they do not commit the fraud of conspiring to cheat the depositor of his funds, yet they do breach their contract (and this is by definition a form of fraud). yet not only does the depositor have a claim against the bank, in your scenario the bank have a claim against the borrower

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:

so you advocate REFORMING FRB, so that its not fraudulent by being how it is;and you would do this by designing emergency clauses. which merely cause other problems, not least MORAL HAZARD.

i am not advocating anything. I have demonstrated that with very simple mechanisms your arguements that the practical application of FRB is by definition fraud is incorrect.

nirgrahamUK:
you must not design your lending agreements so that your borrowers, whilst maintaining their contract with you, could yet leave you short of all the funds when a withdrawal is demanded.

And who do you propose will determine what is the appropriate design of lending agreements? Here is a novel idea, why don't we let the market decide so that the customers of the bank and the bank can agree on this through their own vountary action.

nirgrahamUK:

they do not commit the fraud of conspiring to cheat the depositor of his funds, yet they do breach their contract (and this is by definition a form of fraud). yet not only does the depositor have a claim against the bank, in your scenario the bank have a claim against the borrower

In the example I have provided, where is the fraud? Is there risk sure, but that is an integral part of lending money, that is why they charge interest based on risk. Breach of a contract is not by defintion fraud. I don't think anyone would agree that if you loaned money to a bank and the bank loaned the money to someone else that in the end didn't pay then the bank was guilty of fraud. If that were the case then every business decision using borrowed money that didn't work out would be fraud. Fraud requires intent.

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scineram:
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.

You're confusing possession with ownership.

 

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I am not confusing anything. You do not own money in the account. The bank owes you money as a debtor.

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Yeah, you do. Deposits are a bailment. You own the money insofar as quantity.

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Maxliberty:
I have demonstrated that with very simple mechanisms your arguements that the practical application of FRB is by definition fraud is incorrect.

no you haven't. you've simply ignored my arguments to the contrary.

Maxliberty:

nirgrahamUK:
you must not design your lending agreements so that your borrowers, whilst maintaining their contract with you, could yet leave you short of all the funds when a withdrawal is demanded.

And who do you propose will determine what is the appropriate design of lending agreements? Here is a novel idea, why don't we let the market decide so that the customers of the bank and the bank can agree on this through their own vountary action.

here you are just being ridiculous. of course the market should decide how things are done, within the remit of being compatible with the non-aggression axiom and the private property ethic. sadly frb is not compatible with this, so it is not on the list of possible market solutions, just so much as blatant theft is not a legitimate enterprise for any market actor.

 

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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Knight_of_BAAWA:

Yeah, you do. Deposits are a bailment. You own the money insofar as quantity.

And where exactly is it set in stone that it is a bailment?

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Perhaps you should read Chapter 7 of The Mystery of Banking.

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Maxliberty:
In the example I have provided, where is the fraud? Is there risk sure, but that is an integral part of lending money, that is why they charge interest based on risk. Breach of a contract is not by defintion fraud. I don't think anyone would agree that if you loaned money to a bank and the bank loaned the money to someone else that in the end didn't pay then the bank was guilty of fraud. If that were the case then every business decision using borrowed money that didn't work out would be fraud. Fraud requires intent.

im not sure which example you are referring to, on the other hand it hardly matters.

you say breach of contract only becomes fraud when one can prove intent. (intent is hard to prove in the absolute, because of the difficulty of reading peoples minds).

consider a simple case. i have a dollar and am willing to buy an apple from you. you tell me you are happy to sell me an apple. i give you a dollar. you give me a paper bag with something in it. when i get home i open the bag and there is potato. (hint: no apple)

clearly a breach of contract has occured.

further one might say that we can label this fraud, if we have intent to sell potatoes 'as apples'. but not otherwise.

yet, would you not say that the selling-of-potatoes-'as-apples'  is fraudulent?, and is this not what was done? the case for calling the selling of potatoes 'as apples' fraudulent is greatly strengthened by, for example; uncovering the principle that you the shopkeeper , to cut corners and save on wages, have fired your stock checkers, and are happy as a rule to just reach round the back for whatever lucky bag might be there, be it potatoe or apple inside. am i mistaken to say such a random rule shop owner is a fraudster, or not?

 

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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Knight_of_BAAWA:

Perhaps you should read Chapter 7 of The Mystery of Banking.

I think you should read something else.

Deposit Agreement And Disclosures

Effective June 30, 2008 for deposit accounts at Bank of America in the following states:

Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia and Washington D.C.

Effective October 17,2008 for deposit accounts with LaSalle Bank in Illinois and LaSalle Bank Midwest in Indiana and Michigan. These accounts convert to a deposit account at Bank of America on October 17,2008
Table of Contents
[...]

II. The Agreement for Your Account
A. Binding Contract

This Deposit Agreement and Disclosures, the applicable Schedule of Fees, the signature card and other account opening documents for your account are part of the binding contract between you and us (this "Agreement") for your deposit relationship with us. They contain the terms of our agreement with you for your account and other important information about your account. You can find the accounts we offer and the fees applicable to them in the Schedule of Fees. Please read all of the documents carefully.

By signing our signature card, requesting an account, or keeping an account open, you acknowledge that you have reviewed and understand the terms of this Agreement and you agree to be governed by these terms. You understand that these terms, as we may amend them periodically, are a binding contract between you and us for your deposit relationship.

This Agreement and the deposit relationship do not create a fiduciary, quasi-fiduciary or special relationship between us. We owe you only a duty of ordinary care. Our deposit relationship with you is that of debtor and creditor. Our internal policies and procedures are solely for our own purposes and do not impose on us a higher standard of care than otherwise would apply by law without such policies or procedures.

We give this Agreement to you when we open your account. You may obtain additional copies of this Agreement at a Banking Center or by calling the number on your statement.

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Knight_of_BAAWA:
Perhaps you should read Chapter 7 of The Mystery of Banking.

scineram:
I think you should read something else.

Why? A fraudulent contract isn't a contract at all.

 

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I'm done.

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nirgrahamUK:

Maxliberty:
I have demonstrated that with very simple mechanisms your arguements that the practical application of FRB is by definition fraud is incorrect.

no you haven't. you've simply ignored my arguments to the contrary.

Maxliberty:

nirgrahamUK:
you must not design your lending agreements so that your borrowers, whilst maintaining their contract with you, could yet leave you short of all the funds when a withdrawal is demanded.

And who do you propose will determine what is the appropriate design of lending agreements? Here is a novel idea, why don't we let the market decide so that the customers of the bank and the bank can agree on this through their own vountary action.

here you are just being ridiculous. of course the market should decide how things are done, within the remit of being compatible with the non-aggression axiom and the private property ethic. sadly frb is not compatible with this, so it is not on the list of possible market solutions, just so much as blatant theft is not a legitimate enterprise for any market actor.

 

The whole anti-frb arguement hinges on the belief that a demand deposit is immediately available. So if there is an emergency delay agreement then this negates your entire arguement. Also, deposits can be insured to povide emergency liquidity as well which could eliminate the need for any delay at all. So with very simple mechanisms the functinality of FRB can continue and would not be fraud by any reasonable defintion.

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scineram:

I'm done.

Don't be discouraged, a lot of Austrian followers are not capable of thinking for themselves. All many of them can do is blindly refer you to one of their gods.

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