Man, if it were just this then banks would be pretty stable.
The problem is banks don’t just lend and receive money, they invest. And they invest in everything. And they take super risky bets.
This is what caused the banking collapse of 2008 and what caused the death of SVB and a few other banks.
Your bank doesn’t just hold your money and debt, if you rent it almost certainly owns a peice of the company managing your property. It owns crypto assets. It has shares of startups. And it uses those assets to get more money to create more debt.
Dobb Frank was created to stop some of this, but unfortunately it’s been effectively repealed already.
And Dodd-Frank was passed as a weak facsimile of the previously-repealed Glass-Stegall act that was written after the Great Depression and effectively prevented any major financial collapses for 70 years.
Yup, and banks are returning to high-risk securities, trading in debt-based products like collateralized loan obligations, just like they did leading up to the 2008 global financial crisis.
We created this money to give to you, and you have to pay it back plus a 5-20% fee.
We’re also betting on whether you will pay it back or not, and other people are betting on whether our bet will win.
If we lose too many bets, or too many people bet against our bets, then the money we just gave you disappears, the economy crashes, and you get kicked out of your house.
Fractional reserve banking and the modern securities market is a trip. Kafka was on to something.
Man, if it were just this then banks would be pretty stable.
The problem is banks don’t just lend and receive money, they invest. And they invest in everything. And they take super risky bets.
This is what caused the banking collapse of 2008 and what caused the death of SVB and a few other banks.
Your bank doesn’t just hold your money and debt, if you rent it almost certainly owns a peice of the company managing your property. It owns crypto assets. It has shares of startups. And it uses those assets to get more money to create more debt.
Dobb Frank was created to stop some of this, but unfortunately it’s been effectively repealed already.
And Dodd-Frank was passed as a weak facsimile of the previously-repealed Glass-Stegall act that was written after the Great Depression and effectively prevented any major financial collapses for 70 years.
1000%
Yup, and banks are returning to high-risk securities, trading in debt-based products like collateralized loan obligations, just like they did leading up to the 2008 global financial crisis.
https://www.theguardian.com/business/2024/nov/24/remember-the-global-financial-crisis-well-high-risk-securities-are-back
Bank: You should take out this loan you can’t afford to repay. Don’t worry, we’ll make it seem like a great idea.
Unqualified borrower: Ok, since you made it seem like a great idea.
Bank: Great! Hey, other bank, betcha this guy won’t repay this loan.
Fractional reserve banking and the modern securities market is a trip. Kafka was on to something.