Ron Paul: Crotch Groped by TSA, Calls for Boycott of Airlines

Would you boycott the airlines?

  • Yes

    Votes: 46 66.7%

  • No

    Votes: 23 33.3%
  • Total voters
    69
Quote from LeeD:



Note that "fractional reserve" banking and bills backed by a commodity (such as gold) are 2 completely different things.
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That's what I said. I suggest you read my post again.



Quote from LeeD:

Now would 100% reserve requirement stop the banking crisis? Apprently not.
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You don't understand. Fractional reserve systems allow banks to leverage assets (loans) by the multiplier. At the height of the crisis, most banks were leveraged a minimum of 30 to 1 against their balance sheet. When asset values depreciate 3.33%, by mark-to-market accounting standards, lenders are technically insolvent.

Under a full reserve system, the multiplier is 1. Banks cannot create "new" money. Depositors and borrowers cannot enjoy simultaneous access to the same asset. A depositor forfeits access to money in exchange for interest at the end of the term. Asset bubbles are then self policing as the exponentiating credit necessary to fuel speculative euphoria's doesn't exist - either on the finance or real economy side = money supply is relatively fixed. So to correct your question, yes, a full reserve system would have undoubtedly prevented the housing crisis and the Nasdaq bubble (and the Great Depression).
 
Quote from achilles28:

You don't understand. Fractional reserve systems allow banks to leverage assets (loans) by the multiplier. At the height of the crisis, most banks were leveraged a minimum of 30 to 1 against their balance sheet. When asset values depreciate 3.33%, by mark-to-market accounting standards, lenders are technically insolvent.

Under a full reserve system, the multiplier is 1. Banks cannot create "new" money. Depositors and borrowers cannot enjoy simultaneous access to the same asset. A depositor forfeits access to money in exchange for interest at the end of the term. Asset bubbles are then self policing as the exponentiating credit necessary to fuel speculative euphoria's doesn't exist - either on the finance or real economy side = money supply is relatively fixed. So to correct your question, yes, a full reserve system would have undoubtedly prevented the housing crisis and the Nasdaq bubble (and the Great Depression).
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You totally miss the point of how "fractional reserve" system works.... Maybe you didn't read the final part of my last post. (I accept it was a bit long.)

Anyway, "fractional reserve" refers only to "current", "on demand" or "transaction" deposits, which means the owner of the deposit can make a withdrawal via a cach machine, money transfer or debit card payment at any time without incurring a penalty (for using his or her money).

This means banks can lend 100% of money they received via time deposits (where the client may loose interest if the money is withdrawn before the term of the deposit is finished), loans from other banks (sometimes as short as 1 day), issuing bonds etc.

If you look at a typical "investment bank" that doesn't accept deposits like Morgan Stanley or Goldman Sachs or Lehman Brothers (before they collapsed), you will still see that only 10% to 20% of the assets is financed by "shareholders' equity" and the rest is financed via various kinds of loans, bonds etc.

So, even banks that effectively follow "100% reserve" system are highly leveraged. These banks rely on the availability of loans any time the banks need a loan.

Again, in the old-fashioned way, a bank would borrow from Mr. A for a year and would lend to Mr. B, who owns a shop for 10 months. This would mean that as long as Mr. B pays on time the bank receives the money before the bank has to pay out to Mr. A.

With the current financial system a bank may give a 20-year mortgage and finance it via overnight loans from other banks. The bank can not deman the mortgage back for 20 years till it expires (except for special circumstances that are not so special these days) but even if the bank could claim the mortgage back via repossession it would take month for the funds to flow in. On the other hand, overnight borrowing assumes that money borrowed should be returned the next day by means of borrowing from the next bunch of overnight lenders. As soon as overnight lenders have minor doubt in the bank's sustainability, they refuse to give overnight loan... and the bank collapses.

OK, here is something that DID keep a failed bank from destroying the financial system (you know, the "too big to fail" argument). It is Glass–Steagall Act, which was saving the US economy from the bank insolvency since 1933 till 1999; in 1999 provisions that prohibit a commercial bank from owning an investment bank (and vice versa) were repealed by Gramm–Leach–Bliley Act.

The basic idea of Glass–Steagall Act is "investment" banks are involved in inherently risky activities such as leveraged buyouts, securities and derivatives trading, underwriting, borrowing in the money market etc. These activities may appear as having only moderate risks on average but the extreme-event risks are so high that they can bankrupt the whole bank. On the other hand, "commercial" banks take deposits and give loans to businesses and individuals. This is a very much conservative self-sustained banking model.
 
Quote from telozo:

Please let us know how 9/11 could have been prevented by the TSA patting techniques? The terrorist were only carrying box cutters that back then were not illegal to carry in a hand bag. How can you prevent a martial arts trained terrorist commando to highjack a plane by checking their genitalia?
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The USA army had information about Mohammed Atta (leader of hijackers) 1 or 2 years before 9/11 attacks. They had forwarded the information to FBI.

In 1998, Osama bin laden was on a hunting trip with a Saudi Prince in Afghanistan. Both Osama and Saudi prince were in the same camp. The USA army had this information and was 100% ready/prepared to launch a tomahawk cruise missile strike on Osama. But Bill Clinton cancelled the missile strike at the last moment just to save the Saudi Prince. Otherwise Osama bin laden would have been dead in 1998.

I believe the 19 hijackers were allowed to move freely in USA.
 
Quote from bearice:

The USA army had information about Mohammed Atta (leader of hijackers) 1 or 2 years before 9/11 attacks. They had forwarded the information to FBI.
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The more interesting part is there is a well-documented link between Osama and G.W.Bush (43rd american president): they had common business interests. However, the link between Osama and alledged hijackers is very much dubious.
 
Quote from LeeD:

You totally miss the point of how "fractional reserve" system works.... Maybe you didn't read the final part of my last post. (I accept it was a bit long.)

Anyway, "fractional reserve" refers only to....

So, even banks that effectively follow "100% reserve" system are highly leveraged. These banks rely on the availability of loans any time the banks need a loan.

.
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You don't get it.

Under full reserve banking, the money supply is fixed to the quantity of precious metal on deposit, in the banks possession.

That means, at any given time, no new money can be created through fractional lending. If bank A has 1000 ounces in trust and lent out 900, Bank A has only 100 ounces available for loan to Bank B. Once Bank B takes possession, the maximum amount Bank B can loan is the additional 100 ounces. It can not be ponzi'd out via the reserve ratio and lent ~10 times the base deposit. Under a full reserve system, every note in circulation (or on deposit), must be backed 100% by metal.

So, in that case, the housing bubble would not have occurred. Every bank, whether financed via retail deposits or overnight lending, can only borrow money (backed by gold/silver) already in physical existence. No new money is created. It's simply transferred via one mechanism or another, but the quantity remains fixed in the short term.

Fractional reserve is diametrically opposite. In simple terms, for every loan, new money is literally created, increasing the quantity of money in existence.

I think the confusion stems from the two different mechanisms of credit creation: reserve-first and endogenous money theory. Typically, banks literally create new money, then tap the FED for a loan to satisfy the reserve requirement on the new loan they made. For instance, if the reserve requirement is 10%, Bank A borrows 100 dollars from the FED at the discount window, deposits it at the FED, then turns around and loans 1000$ to a customer. That's 900$ in new money created by the commercial bank. And the FED probably created that 100$ out of it's ass. That's predominately how most money comes into existence. The other mechanism you're talking about is what happens after Customer A spends that 1000$. Usually, not all money finds it's way back into the system, which is why Banks borrow at the discount rate in the first place (access to cheap reserves which allow further lending).
 
Quote from achilles28:

You don't get it.

Under full reserve banking, the money supply is fixed to the quantity of precious metal on deposit, in the banks possession.
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OK, suppose a bank has 20 ounces of their own gold (shareholders' equity). Now a client comes and wants to deposit 80 ounces of gold for safekeeping. Now the bank has 100 ounces. However, the client states that they want to collect their 80 ounces in a month.

A bank lends 100 ounces to a someone who is short some gold to buy a castle in France. The borrower promises to return 120 ounces in 10 years.

Now the bank has no gold. The gold is coming back in 10 years while the bank should return 80 ounces in a month. If the bank can't return the 80 ounces on time, it's insolvent.

What happens next? The bank convinces the client to keep the gold in the bank for another moth and the business keeps going. Then for another month and so on... for 10 years. When the bank can't convice the client they go to another bank and ask them to lend 80 ounces of gold.

If no one agrees to lend to the bank, the bank is in a pickle. The bank has to return 80 ounces of gold while 120 ounces is arriving only in so many years.

That's how banks become insolvent.
 
Quote from LeeD:

OK, suppose a bank has 20 ounces of their own gold (shareholders' equity). Now a client comes and wants to deposit 80 ounces of gold for safekeeping. Now the bank has 100 ounces. However, the client states that they want to collect their 80 ounces in a month.

A bank lends 100 ounces to a someone who is short some gold to buy a castle in France. The borrower promises to return 120 ounces in 10 years.

Now the bank has no gold. The gold is coming back in 10 years while the bank should return 80 ounces in a month. If the bank can't return the 80 ounces on time, it's insolvent.

What happens next? The bank convinces the client to keep the gold in the bank for another moth and the business keeps going. Then for another month and so on... for 10 years. When the bank can't convice the client they go to another bank and ask them to lend 80 ounces of gold.

If no one agrees to lend to the bank, the bank is in a pickle. The bank has to return 80 ounces of gold while 120 ounces is arriving only in so many years.

That's how banks become insolvent.
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And that's fine.

There's nothing wrong with banks going under.

The free market isn't here to enrich bankers. The bankers are here to facilitate and aid the free market.

Under your example, the bank should have gone under. It lent out money it knew, in 30 days, it must cough up.

If the example was an attempt to analogize the credit crisis, yes, it's true. But again, so what?

The problem isn't sufficient capital for banks. It's banks recklessly lending money they don't have, via a monetary system that allows it, which ramps up money supply and creates asset bubbles.

See the forest from the trees. The problem is fiat fractional reserve banking (forest). Not banks rolling over their loans (trees).
 
Quote from AMT4SWA:

Also, since the supposed terrorists were already in the cockpits prior to take off on 9/11 aircraft then your loving FAA allowed those aircraft to takeoff anyhow.....so who cares who gets on board! :eek:
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Are you sure that the hijackers were already in the cockpits prior to take off on 9/11/2001? I have been observing 9/11 stories and reports for past 10 years but never heard this one.
 
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