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Comment by ianferrel | Hacker News Reader

Does that provide a better outcome for society than something like FDIC deposit insurance and the occasional run?

Seems like for the vast majority of people it does not. Most banks make enough money to pay their FDIC premiums and some interest on demand accounts and profit for their shareholders, and the few that don't are covered by insurance. That seems way better than having to pay a monthly fee to keep my money safe and liquid.

>there wouldn't need to be a reserve ratio at all.

Wouldn't there? The bank could still end up with bad loans in excess of their models and require some capital to take the loss before depositors. Or are you suggesting that banks are simply a market maker between depositors and those with loans? That seems even less optimal, societally.

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Yes, it does.

Lying is wrong[1]. Therefore, it is bad to base your banking system on it. It's the typical thing where the costs to the system accrete over time and then cause a crisis: the elites are bailed out, the taxpayers eat it.

There wouldn't need to be a reserve ratio. A dollar could, in theory, be lent out an infinite number of times, so long as that dollar were lent (and saved) at increasingly shorter durations. At any given point of time, a single person "owns" that dollar. Of course, the market would signal what dollars were available when. And, also, loan losses would need to be covered out of other profits by banks (who would need to charge service fees for, well, the services they provide, rather than hiding behind long/short duration arbitrage)

(I'm also in favor of a citizens dividend for controlling money growth, and a modern debt jubilee per Steve Keen. So, yes, you can safely ignore anything I say as implausible, almost certainly wrong, and unlikely to ever be realistically considered by the powers that be. This has one advantage, however: I will never be proven wrong :)

[1] - see all moral traditions across all cultures, or ask mom

If you think fractional reserve banking is “lying” how are you okay with fiat money at all? If you were consistent you’d be a true goldbug.

It is a fact that the IRS requires me to pay taxes in federal reserve notes.

That makes them real enough.

Nope. I was a gold bug once, but I don't think it's a good way to manage the total money supply: it can't grow as fast as the economy (labor productivity) does. I view money is a public social tool, and so it should be owned by all of us. Hence I am in favor of a citizens dividend for growing the money supply.

I do think you should be able to trade fiat into gold and vice versa tax free, so gold can be used for savings, which it is very good at.

In fairness, nobody agrees with me on this stuff, including myself at times!

Who is lying in this case?

Banks are one, if not the most, regulated companies in the US.

What are banks lying about and who are they lying to?

I'd assume the government would come down on them pretty hard if it turns out that all banks are lying to their customers as federal and state regulations on banks are pretty heavy handed to make sure that the vast majority of banks are healthy at any given time.

The bank is telling two or more people they own (or, at least, have access to) the same dollar at the same point in time.

With duration matching you can have loans, but it is clear that depositor A can't get dollar X back until time point T, and that borrower B can have the dollar until then.

> The bank is telling two or more people they own (or, at least, have access to) the same dollar at the same point in time

But they don't do that. Or, I've literally never seen them do that.

What the bank tells me is what my current deposit is. That's the truth. They aren't representing that the amount they're listing is a specific dollar somewhere, they're telling me how much money I've given to them.

They are telling you you can have all that money immediately. And they are telling that to all the depositors. That's the lie. It's a bit abstracted due to aggregation, admittedly, but that's the lie.

I use a single dollar just to make the idea concrete.

> They are telling you you can have all that money immediately.

I don't think they're even telling you that. And that is absolutely not what we were taught about banks in school. I think that banks do assume that everyone basically knows how banking works, though, so they don't engage in an educational program about it when you open an account.

What banks have told me is that my deposits are safe (in the sense that I won't lose my money) up to $250k. That's true enough. And I also remember reading the paperwork I signed when I've opened accounts where they specifically say that my deposits might not be available at the moment I want to withdraw them, for various reasons.

No responsible bank says that. They absolutely have the right to limit withdrawals, and they explicitly say that if you read the fine print.

> Lying is wrong

What explicitly is the lie?

See my sibling comment.

> Lying is wrong[1]. Therefore, it is bad to base your banking system on it.

Where is the lie, though?

>And, also, loan losses would need to be covered out of other profits by banks

But, like, what if they aren't? Who holds the bag when losses exceed profits? That is of course exactly the case where deposit insurance comes in handy. So I'm pretty sure you still need it.

Your model protects specifically against losses due to time mismatch between deposits and loans, but there are other ways that loans can go bad!

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