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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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"...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..."

 

what exactly would a "bank emergency"  be    if...depositors placed money into a 'bank' and  the deposit agreement terms stated that some percentage, . say 10 percent, of the deposit would be taken by the bank to go into some type of  pool of money for loans.  so, if 100 grams of gold was deposited, 10 grams taken (loaned to the bank) and say 1 gram of gold charged to the account for storage and transaction handling. now 89 grams of gold left in deposit account.

if the bank made numerous bad loans wouldnt the losses be confined to the risk capital...just the percentage of gold that was lent and not have any effects on the deposits??  thus no emergency would delay acces to deposited money???

 

just wondering.

 

 

 

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Paul replied on Tue, Nov 18 2008 11:44 PM

Maxliberty:

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.

And since you can't loan money for ten seconds, your argument fails.  EOD.

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sthomper:

"...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..."

 

what exactly would a "bank emergency"  be    if...depositors placed money into a 'bank' and  the deposit agreement terms stated that some percentage, . say 10 percent, of the deposit would be taken by the bank to go into some type of  pool of money for loans.  so, if 100 grams of gold was deposited, 10 grams taken (loaned to the bank) and say 1 gram of gold charged to the account for storage and transaction handling. now 89 grams of gold left in deposit account.

if the bank made numerous bad loans wouldnt the losses be confined to the risk capital...just the percentage of gold that was lent and not have any effects on the deposits??  thus no emergency would delay acces to deposited money???

 

just wondering.

 

 

 

It doesn't matter what the emergency is. The arguement you are making is that I can no have an arrangement like this without it being fraud. Example, you open an account and make a deposit. The agreement you make is that if the bank has the funds available you can request withdraws from your account on demand and if the bank doesn't have your funds available you may have to wait up to sixty days to receive your funds. The 60 days represents the time frame the bank has to liquidate its loans and pay its creditors/depositors. I say this is not fraud and you say this contract is by defintion fraud. This is not fraud because there is no deception and all parties are aware of the risks. Make your case why this is fraud.

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Paul:

Maxliberty:

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.

And since you can't loan money for ten seconds, your argument fails.  EOD.

See here is the issue. What is the time limit in your mind? If I said one year you would say that is possible. How about a month, a week, a day, 6 hours, an hour? You can loan money for any time frame that people are willing to borrow it.

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Maxliberty:
You can loan money for any time frame that people are willing to borrow it.

Which after maturity can be automatically renewed making it a deposit with waiting time withdrawal. The limiting case of wich is a demand deposit.

That atriicle falters when accusing Posner of using positive law. Posner recognizes that the contract makes it a loan instead of bailment.

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See the table on page 156 of Money, Bank Credit and Economic Cycles for all the possible iterations of the sort of contract you want to justify.  Even if we accept all of your arguments, you cannot get past the item at the end.  Fractional Reserve banking causes business cycles which harms 3rd parties, and thus contracts which attempt to avoid the responsibilities entailed in an irregular monetary deposit contract are null and void.  A long time ago, economics hadn't progressed to the point that at least some people knew business cycles are caused by fractional reserve banking.  They at least had an excuse.  Current bankers, the lazy public, and many others probably also have the ignorance excuse.  You don't.

I have a great idea, try reading De Soto's book (all 800+ pages) before you go on making worse statements.   Lets list what you all have said so far:

If you expect the bank to misappropriate your money, even if it is a deposit contract, its not misappropriation.  I'm a serious guy, but even I have trouble saying that without laughing.

Said misappropriation does not create multiple property titles, even though you deposit the money (1 claim), which is loaned to a 3rd party (2 claims), the 3rd party now has this money in deposit account, which the bank again may create a new claim to, and make another loan (3 claims) and so on (4 or more claims).  Even if all these parties redeem those claims and hold as cash according to the terms of their contracts, those claims all originated from 1 checkable, withdrawable, instantly redeemable claim.  Are you saying this never, ever has happened or will happen?  Plus, the claim never has to be redeemed.  The existence of the legal claim is enough.  Multiple people have existing legal claims to the same property.

What else?  Oh this one's a dandy.  A demand deposit contract is really not instantly redeemable because you cant instantly redeem it.  You have to go to an atm to get it which takes time, or write a check and wait for it to be cashed which takes time or drive/walk to the bank which takes time or if at night, wait for it to be open which takes time, or you have to turn around right after you deposit it, and stand in line to withdraw it, which takes time!  Thus its not really a demand deposit, so it must be a loan for a multiple, variable and constantly changing period of time.  Yea, I know, a real winner of an argument.  I should just pack my bags and give up.  Oh wait, theres also an "emergency clause" saying that the bank may temporarily suspend my claim to the deposit if they are unable to "pay back a loan" which has a multiple, variable and constantly changing time period?  You mean that happens?  I'd never believe it if you didn't tell me.

The existing bank contracts that people sign are legal because they're contracts and people signed them.  Another winner.  Some libertarians are addicted to contracts - and circular arguments.  Sign yourself into slavery for me why don't you and let me know how that works out.

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dsimo04:

The existing bank contracts that people sign are legal because they're contracts and people signed them.  Another winner.  Some libertarians are addicted to contracts - and circular arguments.  Sign yourself into slavery for me why don't you and let me know how that works out.

What a rambling rant that is. I see you can not address the simple example I have provided. I will simplify and restate for you. Can you loan money to people? Can the terms of that loan be when you demand the loan if the borrower has the money or 60 days after the demand is made with the decision being made by the borrower? I do not see how that is fraud?

If you believe in a free market then I should be allowed to determine the terms that I loan money to other people. 

 

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Maxliberty:

dsimo04:

The existing bank contracts that people sign are legal because they're contracts and people signed them.  Another winner.  Some libertarians are addicted to contracts - and circular arguments.  Sign yourself into slavery for me why don't you and let me know how that works out.

What a rambling rant that is. I see you can not address the simple example I have provided. I will simplify and restate for you. Can you loan money to people? Can the terms of that loan be when you demand the loan if the borrower has the money or 60 days after the demand is made with the decision being made by the borrower? I do not see how that is fraud?

If you believe in a free market then I should be allowed to determine the terms that I loan money to other people. 

 

If the terms of the deal harm 3rd parties, then it is unenforcible.  If the causes of the contracting parties are incompatible, it is unenforcible.  Whether or not people know that banks are taking deposit money and loaning it out (most people know this) they view the cause of their deposit account as safekeeping, and the ease of transferability, i.e. checking services, i.e. they reserve a claim to the tantundem.  That is the entire cause of that side of the contract.  The banks cause is to increase loanable reserves, i.e. they view the client as transferring temporarily their claim to the bank.  However, loan contracts are termed.  There is no specifiable term here.  So, this contract is neither a deposit contract, nor is it a loan contract, although the different parties think it is one of the two.  This confusion over the intent of the contract makes it null and void.

 

But that is different from the question whether or not one can knowingly contract to loan money for an unspecified period for no interest, in exchange for a service such as drawing checks on that loan, with the understanding that a 60 day grace period may be enacted if the borrower cannot honor a withdrawal request.  But even in that case, the end result is that the contract is still null and void, because even with a signed contract, even with both parties fully knowing and understanding the terms of the contract, each side still acts in a way that shows the terms are incompatible with each other.  The loaner, drawing checks, withdrawing funds or otherwise transferring money away from the account treats the account as an immediate claim to property, as though ownership has not been transferred.  The borrower, by taking the money and using it as his own, lending it out to another person or investment treats the contract as though title of the property has been transferred.  These 2 acts are incompatible, and, as has been shown, creates multiple claims to the same goods.

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dsimo04:
Whether or not people know that banks are taking deposit money and loaning it out (most people know this) they view the cause of their deposit account as safekeeping, and the ease of transferability, i.e. checking services, i.e. they reserve a claim to the tantundem.  That is the entire cause of that side of the contract.

Where is the proof? Show me a contract which says it is a bailment.

dsimo04:
However, loan contracts are termed.

 Unless they are not.

 

 

dsimo04:
These 2 acts are incompatible, and, as has been shown, creates multiple claims to the same goods.

There are no "same goods" .

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dsimo04:
Whether or not people know that banks are taking deposit money and loaning it out (most people know this) they view the cause of their deposit account as safekeeping, and the ease of transferability, i.e. checking services, i.e. they reserve a claim to the tantundem.  That is the entire cause of that side of the contract.

scineram:
Where is the proof? Show me a contract which says it is a bailment..

Please stop trying legal positvism.

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if commercial banks actually do 'seize' and loan out some 90 percent of a depositors deposit and the account balance never indicates that this is happening...some lucky person has a check for 90 percent of a depositors deposit but when i look at my account balance i luckily never see a 90 percent decrease in the balance...and go on spending 'money' as if the 90 percent were never removed.

what 'particular good'  then is comprising the full balance in a depositors account?

if the bank and the depositor both know that 90 percent of the 'account balance' has been lent out but the account balance never reflects this,  is the deposit contract then based on the hopes of getting someones elses goods  or some additional 'instant goods' similar to goods deposited but 'earned' in a different way??

 

 

 

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Paul replied on Wed, Nov 19 2008 8:08 PM

Maxliberty:

See here is the issue. What is the time limit in your mind? If I said one year you would say that is possible. How about a month, a week, a day, 6 hours, an hour? You can loan money for any time frame that people are willing to borrow it.

Sure; the question is why would anyone want to borrow money at all?  If you can answer that, the reason you can't make a ten second loan will be obvious, but you never seem to want to think about that.

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dsimo04:
But that is different from the question whether or not one can knowingly contract to loan money for an unspecified period for no interest, in exchange for a service such as drawing checks on that loan, with the understanding that a 60 day grace period may be enacted if the borrower cannot honor a withdrawal request.  But even in that case, the end result is that the contract is still null and void, because even with a signed contract, even with both parties fully knowing and understanding the terms of the contract, each side still acts in a way that shows the terms are incompatible with each other. 

How are the terms incompatible? There is no multiple claim. The depositor has a claim to his entire deposit. To the extent that the bank has this amount in cash they provide it on demand and to the extent they do not then he has to wait until the funds are available. We are talking about loaning money. By your twisted definition all loans represent dual ownership and are incompatable. Just because you are clinging to this bailment arguement doesn't mean I can't make a loan with the terms I described. It might help you to think of just one person making a loan to another.

Let's use the bike example: You ask me to store your bike in my garage. I say ok but with the following conditions, I can loan your bike to other people for money. If you ask for your bike back and I have it in the garage then i will give it to you. If I have the bike loaned out then you agree to wait 60 days before I give the bike back. You say ok that's fine. How are you being defrauded?

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