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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:
the bank is lying to me to get my money. it tells me it will hold my deposit, so that i can get it back whenever i like. it then lends it out.

You wish it lied to you. It never said it will hold the money. A demand deposit is a loan as I have proven.

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No. A demand-deposit properly is a bailment. When you put items in a warehouse, you are NOT loaning them to the warehouse-owner, are you?

Of course not. Only an idiot would believe you are.

So why would you believe that it would be the case that a demand-deposit is a loan?

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Maxliberty:
Your fixation with the length of time of the loan is missplaced. In the mordern era with technology it is quite possible to loan money for very short period s of times.......like overnight, a couple of hours, just for one trade on the stock market...etc.etc.. So if a bank loaned out money overnight when it was physically impossible for you to go to the bank and get it then there is no more chance of default than on any other loan. This is why the artificial distinction between timed deposits and demand deposits doesn't make sense.

Actually, my distinction between two different things is not misplaced.  You continue to talk over and around it.

The length of time is not the issue.  I would ask that you not create strawmen, and instead argue honestly.

Your example with the bank making an overnight loan (due to technology) also doesn't account for my going to an after hours ATM and withdrawing my cash (also a product of technology).  Not that your example is even remotely relevant to the discussion or what I wrote.

Maxliberty:
No, I just understand that you can have a bank that makes no distinction between the two and that this is not fraud.

Strawman.  Did I say fraud?  Also, you can't have a bank that doesn't distinguish between the two, unless they have the power of the state making it legal for them to engage in counterfeit.  In a free market, they simply could not loan the same property and deliver back to the depositor on demand.  if I take 10 ounces of gold to the bank, and they loan out 9, and I come back for 10, they are bankrupt.  Period.  Only 10 bars of gold exist.

Maxliberty:
I have already said there are two very simple ways to avoid this problem, 1. the use of an emergency agreement or 2. insured deposits. Both of these things do not the system of having fractional reserves nor would either be a requirement in a free society. I should be able to bank where I want and as long as the bank is being honest about it's activities I have seen no arguement how that is fraud.

Again, insurance doesn't work for an insolvent model.  The risk premium would price the insurance beyond what it would cost to do full reserve banking.

Second, a change in the agreement is fine, but now you are talking about a different model.  In a free market for banking, FRB would be like investing, there would be a risk of loss if there was a run on the bank.  People who wanted to save, store and use money in the financial system would choose full reserve institutions for that purpose.

Maxliberty:
The insurance company is only worried about recovering its commitment so insuring deposits that are being loaned out has only one concern and that is what is the probability that the loans will default. I see no difference between insuring loans/deposits and insuring anything else.

The probability is 100%.  It is like insuring a terminally ill cancer patient against death.  You already know they are going to die, and die soon.  In order to make the insurance profitable for the insurance company to provide it, the risk premiums will err on the side a quick death, otherwise the insurance company will not have collected enough premiums to pay out and be profitable, in which case it will go bankrupt, or not even exist because people do not organize capital towards unprofitable businesses.

Maxliberty:
You have not come even close to demonstrating what exactly the fraud is. If the customer knows the risk and the bank is honest about its business where is the fraud?

The creation of multiple titles to the same property Max.  Now, it can be done.  But it's not banking.  It's gambling.  Understand that.

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Knight_of_BAAWA:

No. A demand-deposit properly is a bailment. When you put items in a warehouse, you are NOT loaning them to the warehouse-owner, are you?

Of course not. Only an idiot would believe you are.

So why would you believe that it would be the case that a demand-deposit is a loan?

When you and I agree to make a loan then we make a loan not a damned bailment

scineram:

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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Merriam-Webster's Dictionary of Law - Cite This Source - Share This
Main Entry: cred·i·tor
Pronunciation: 'kre-d&-t&r, -"tor
Function: noun
: a person to whom a debt is owed; especially : a person to whom money or goods are due

my interpretation whilst it is incorrect to say that all creditors are bailors

yet, it is true that all bailors are creditors.

 

comment?

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:
No. A demand-deposit properly is a bailment. When you put items in a warehouse, you are NOT loaning them to the warehouse-owner, are you?

Of course not. Only an idiot would believe you are.

So why would you believe that it would be the case that a demand-deposit is a loan?

scineram:
When you and I agree to make a loan then we make a loan not a damned bailment

And no loan is made in a demand-deposit, your utter misconception and attempt at legal positivism nothwithstanding.

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liberty student:
Did I say fraud?
You by definition are saying that the bank is commiting fraud. If your not saying this then there is no problem.

liberty student:
In a free market, they simply could not loan the same property and deliver back to the depositor on demand.  if I take 10 ounces of gold to the bank, and they loan out 9, and I come back for 10, they are bankrupt.  Period.  Only 10 bars of gold exist.

And if you loan your nine gold bars for one year and come back in a year and the bank doesn't have your gold bars you are faced with the exact same situation. I will keep it simple for you, if you loan money to banks or people then you have some risk that it won't be paid back. Please explain why loaning money is fraud because that is what you are saying. What you want to say is that when you go to the bank that you are going to make an agreement with them that they can't loan your money, fine. Why is it fraud if i make an agreement that they can loan my money out?

liberty student:
The probability is 100%.

 Only if you believe that loaning money by definition will always default.

liberty student:
The creation of multiple titles to the same property Max.

There are no multiple titles, loaning money does not create multiple titles.

Now answer these questions please.

Is it fraud if I make an agreement with a bank that says they can loan out my money while I am not using it?

Is it fraud if I agree that I will wait 60 days for my money in the event of an emergency?

Is it fraud to insure loans against default?

Is insurance fraud? Because by your definition all insurance must be fraud because no insurance company has the money in reserves to pay in the event that all events they have insured occur simultaneously.

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An actual contract is now legal positivism?

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A contract based on fraud is a valid contract?

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Maxliberty:
You by definition are saying that the bank is commiting fraud. If your not saying this then there is no problem.

In the moral sense, it is fraud.  Under the laws of your Constitutional Republic, it is not.  Or it is, if you still believe in that scrap of paper the Constitution is written on.  IANAL

Maxliberty:
And if you loan your nine gold bars for one year and come back in a year and the bank doesn't have your gold bars you are faced with the exact same situation.

The difference is, why would the bank (in a loan situation) deliberately make itself insolvent, by loaning past the date of redemption of my loan?  They wouldn't.

Maxliberty:
I will keep it simple for you, if you loan money to banks or people then you have some risk that it won't be paid back.

Right.  Most people just want to deposit, not make loans through their bank.  Banks pay poor returns on cash.

Maxliberty:
Please explain why loaning money is fraud because that is what you are saying.

Strawman.  I never said that loaning money was fraud.  Counterfeit, or the production of titles without the property to back them, is fraud.  You and I can't do it.  Banks can only do it (fiat) with government collaboration.

Maxliberty:
What you want to say is that when you go to the bank that you are going to make an agreement with them that they can't loan your money, fine. Why is it fraud if i make an agreement that they can loan my money out?

When I go to the bank, there is an understanding, that I can come back at any time, and get my money, in full.  What they do with it, in the meantime, is irrelevant to me as a depositor, as long as it is all there when I come back for it.  The only way a bank can make fix termed loan with capital it can lose title to instantly, is to allow titles to exist both in the form of loans out, and deposits returned.

This is very simple stuff max.  Stop thinking paper money, and imagine hard money.  Then you will understand why it is impossible to do this (honestly) with money that has backing.

Maxliberty:
Only if you believe that loaning money by definition will always default.

And it will.

Maxliberty:
There are no multiple titles, loaning money does not create multiple titles.

Full reserve, you are correct.  Fractional, you are incorrect.

If I put $10 in your bank, and you loan $9 to scineram, and provide me with my $10 on demand, there are now $19 in the economy unless you call scineram's loan.  How did this happen?  You adjusted your reserve ration downwards.  When it gets below 0%, you are broke.

Maxliberty:
Is it fraud if I make an agreement with a bank that says they can loan out my money while I am not using it?

That's an investment, not a deposit.  If you call it a deposit and guarantee the money back on demand, while allowing the loan to exist simultaneously, it is fraud.

Maxliberty:
Is it fraud if I agree that I will wait 60 days for my money in the event of an emergency?

This is a stupid question.  If you make a contractual agreement, I am for it.  However, if you lie (have opposing clauses) in a contract, that is fraud.  Saying you will loan out money on fixed terms, while providing redemption on demand is a lie.  A business which does this will be insolvent.

Maxliberty:
Is it fraud to insure loans against default?

No, it is just prohibitavely expensive and will likely lead to business failure, either of the frb bank or the insurer.  Either the bank is insolvent, or the insurance company is insolvent.  One of them has to pay.  The insurer has to charge more than the amount the bank is insolvent in order to turn a profit and cover expenses, thus the bank must pay more in premiums than if it kept a full reserve.

Maxliberty:
Is insurance fraud? Because by your definition all insurance must be fraud because no insurance company has the money in reserves to pay in the event that all events they have insured occur simultaneously.

I believe insurance is a scam if you believe collecting on your claims is guaranteed.  It's another form of gambling. The insurance company gambles that an event won't occur for "x" time, and you gamble that it will happen sooner.

If most people understood banking, they would hide their money under their mattresses.

I'm kinda tired of arguing with you.  You can never admit you're wrong, and in this case, you are very wrong.  It's pointless to continue.  Whether or not something constitutes legal fraud, is irrelevant in the empire of lies.  Morally, having multiple titles in play, is counterfeit.  Period.  And counterfeit is fraud.  The FDIC exists because only the government, through a lender of last resort (the FED) can cover the losses of insolvent banks, through cartelized counterfeit.  The private market would never insure insolvent businesses, cheaply enough to be affordable.  The cost in premiums would kill the host.

I'd suggest you read some of Rothbard's work on money and banking.

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Maxliberty:
And if you loan your nine gold bars for one year and come back in a year and the bank doesn't have your gold bars you are faced with the exact same situation.

tell me who has the gold bars in your scenario?, and do they have them justly?

Maxliberty:
I will keep it simple for you, if you loan money to banks or people then you have some risk that it won't be paid back

when the debtor fails to payback the capital on the loan. has he breached the lending contract or hasnt he? i say he has. it seems you want to say he doesnt.

Maxliberty:
Please explain why loaning money is fraud because that is what you are saying

your comprehension has let you down. what can you cite to indicate we believe the practice of lending some good to another is fraudulent. who do you think we say it defrauds, the borrower or the lender? what we say is that loaning out a sum of money which is has been entrusted to a bank to store is the bank defrauding the depositor.

Maxliberty:
what you want to say is that when you go to the bank that you are going to make an agreement with them that they can't loan your money, fine

yes, we do make those agreements, they are called demand deposits.

Maxliberty:
Why is it fraud if i make an agreement that they can loan my money out?

its not fraud to do that, its called a timed deposit account.

Maxliberty:
There are no multiple titles, loaning money does not create multiple titles.

of course it does. as lib student posted if a depositor pays in 10 gold bars, and the bank loans out 9. we still try to say that the depositor owns 10 bars, whilst maintaining that whoever has 9 gold bars owns them (until loan repayment date comes along). so during that time there is 1 gold bar with one owner, and 9 gold bars with 2 owners.

Maxliberty:
Is it fraud if I make an agreement with a bank that says they can loan out my money while I am not using it?

not if their lending on the basis that the funds they lend can be recalled by them, to synchronize with the depositors withdrawal demand.

Maxliberty:
Is it fraud if I agree that I will wait 60 days for my money in the event of an emergency?

no, just naive.

Maxliberty:
Is it fraud to insure loans against default?

no.

Maxliberty:
Is insurance fraud?

it may or may not be depending on what is promised.

Maxliberty:
Because by your definition all insurance must be fraud because no insurance company has the money in reserves to pay in the event that all events they have insured occur simultaneously.
if the insurers are clear on exactly this point , that the payouts are not guaranteed.(in life insurance if mortality spikes unexpectedly)

the concept of insurance, involves the sharing of risk, not the absolvment of risk.

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This is a timely article up today on LRC.

Fractional Reserve Banking Is Indeed Fraudulent

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liberty student:

This is a timely article up today on LRC.

Fractional Reserve Banking Is Indeed Fraudulent

I read this article. The problem with the anti-frb arguement is that it is fixated on this deifference between a time deposit and a demand deposit. So let's examine and see if this makes sense.

I can have a time deposit due in ten seconds. Before those ten seconds are up the bank can without fraud loan the money out according to the anti-frb group. So as long as the bank has some established time delay between when you request the money and when it is paid then the bank is acting appropriately. Please correct me if I am missing something in the anti-frb arguement.

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Max, I don't want to argue with you anymore.  Just because you are resolute in your ignorance, doesn't mean you have a case.  You've been answered numerous times, and repeating the same fallacious argument I have refuted at least twice, shows you're not being honest.  Now you are just grasping at anything to carry on the argument.  Surely you have better things to do.  I know I do.

Have a nice day.

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liberty student:

Max, I don't want to argue with you anymore.  Just because you are resolute in your ignorance, doesn't mean you have a case.  You've been answered numerous times, and repeating the same fallacious argument I have refuted at least twice, shows you're not being honest.  Now you are just grasping at anything to carry on the argument.  Surely you have better things to do.  I know I do.

Have a nice day.

This micro time deposit is on eare where the anti-frb arguement falters. If loaning money for ten seconds is acceptable without fraud then for all practical purposes FRB as practiced now is not inherently fraudulent.

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