Saturday, October 25, 2014

Ya Don't Say?

FLG watched this video, which reveals the closely held secret that when you deposit money in the bank it isn't placed in some super-secure vault and left there.  No, the bank...wait for it...lends the money out.   At, you'll never believe this, a higher rate of interest than they are paying you on your deposit.  This all leads to some sort of financial voodoo by way of fractional reserve banking and the money multiplier.

Thanks.  FLG had no idea.  Oh, neither did fucking Aristotle back in 300 something BC.

Also, while in theory this is maybe slightly interesting, there's this thing called the Federal Deposit Insurance Corporation that backstops all this.  So, for retail investors, you know, depositing bank notes as described in the video, this is all more or less irrelevant.

If, however, he wanted to do an educational video on the repurchase agreement or Eurodollar markets and how these both affected and were affected by the financial crisis in 2008, well, that might actually be relevant.

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