AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (6 comments)

    1. RonRonDoRon

      “fraudulent fractional reserve lending”

      Fractional reserve lending is not, in itself, fraudulent. It provides a useful flexibility in money supply but, yes, it can be very risky without adequate safeguards.

      Necessary safeguards are: high enough reserve requirement to incentivize bank investors to demand caution in lending; limitation on deposit insurance, to make depositors prudently spread their capital; most importantly, with the first two conditions satisfied, the understanding that if the bankers screw up, the bank will go bankrupt and bank investors will take the loss.

      1. When turn $100 in deposits into $900 of loans that is fraud. So is the use of money that you can create out of thin air as you rob savers of purchasing power.

        Why do you think that we are having a global banking and sovereign debt crisis? Such things are not possible under a hard money system that limits the creation of credit.

        1. RonRonDoRon

          It’s not fraud unless their is deception (look up the word).

          You can claim it’s immoral, unethical, or bad economics, but it’s not fraud when the banks are not deceiving anyone about what they are doing. (Ignorance on the part of the public is not the same as deception on the part of the bank.)

          1. RonRonDoRon

            Oops: “unless there is deception”

  1. Axel Kassel

    The EU-inspired “tax” confiscation of bank deposits in Cyprus is not only foolish policy, but a glaring inequity as well. Whatever its intentions, the policy punishes savers while imposing no sacrifice on improvident people who spend everything (possibly including proceeds of bank loans that have now gone bad) and save nothing, or on canny folk who save elsewhere or via other mechanisms (real estate, artwork, coins buried in the back yard, bonds, etc.). If placating the Germans’ (understandable) desire to see some Cyriot skin in the game is indeed an objective in the national interest, then the funds were better secured by a broad-based tax that would be less economically inefficient and less destructive of public confidence in good governance.

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