posted on Sep, 17 2009 @ 10:24 PM
Yes, it's a decent article - Would like to know who really wrote it, as it says that the article is open for "editing". Hard to trust anything for
the Wiki folks - just about anyone can say whatever they want.
Nevertheless, my point still stands. Do banks have assets besides the money tied up in deposit accounts? Yes or No?
My answer is a definite YES. Banks definitely have huge assets. Have you ever looked at JPMorgan Chase's annual report? How about Bank of
Banks have their own cash reserves, real estate that they own, and first lien positions on all kinds of collateral - ranging from real estate,
receivables, inventory, equipment, autos, etc. They also have liquid loan loss reserves set aside for loan losses. They have their claws (er, I mean
hands) into a lot of different Easter egg baskets.
The suggestion that is always given is this totally fabricated story about how banks "create money out of thin air". That's not true at the local
level - I am not referring to the Federal Reserve, which is a whole other enchilada.
At the local level, banks have assets. Lots of them. First, they own tons of real estate. Second, they have investments. Third, they have loan
loss reserves, and just plain reserves - money they have socked away for a rainy day many moons ago. This is especially true for the more
conservatively managed banks that have been around for 100 years or more. They have accumulated wealth over time, and have a diverse portfolio of
loan assets on the books paying interest to the bank every month.
I always hear this silly, insane story about how banks take money from John's account, and lend it out to Bob. Well, guess what? Bob doesn't
always pay back. Bob defaults sometimes. You never, ever hear that side of the equation in these silly stories about "magic money out of thin
Does the Federal Reserve contract our money supply? You betcha.
Now, ask yourself "Why?". If you understand the Federal Reserve - which is a whole separate topic - you understand that it is an enormously
profitable enterprise for some very lucky people that live on this planet. We used to call these folks robber barons, but that's a name from a
My point: Banks have assets. They don't need to artificially play some Mickey Mouse game of "creating money out of thin air". They have money.
Lots of it.
The issue right now, as I stated before, with most banks, is that they are clogged with defaulted real estate loans. That's the main issue. I am
not even touching on the derivatives mess, which is the main discussion in this thread, other than to say that 1) you need to differentiate between
big banks and small banks, and 2) big banks are really heavy into derivatives (especially Chase), but most of your small banks are not.