a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

I see. That seems to make sense.

So do you state that when I use them, I am not loaning money to the first bank, but am loaning money to the second bank?

correct, pretty much all banks now are in the vein of bank #2! the system has a fancy name, 'fractional reserve banking' - https://en.wikipedia.org/wiki/Fractional-reserve_banking

Do you agree that banks do not state that customers loan money to them?

So, if this is indeed what we, the customers do, a massive amount of dissembling has been going on for a very long time?

I have never even heard of this concept before this thread began.

Re UNDERSTAND THE ECONOMY's claim about banks: "the money in your bank account is loaned to the bank"

it's true that this is an unusual formulation but it remains a fact: the money that you deposit in an account is money you can get back -- and (except in certain emergency circumstances) you can make trouble if they don't give it back. well that's a loan.

so why don't ppl routinely *describe* it as a "loan"? one possible reason (ie i'm guessing) is that within banking loan has become a technical term of art with legally relevant specific characteristics and requirements attached (which aren't attached when you PF loan me MS a tenner to fritter away at the dog track)

so despite being a subset of the ordinary-usage meaning, the technical-professional term has – by virtue of advertising and the financialisation that runs our lives – has swamped and perhaps even ended ordinary-usage term (which ppl now don't use bcz it seems confusing and even inappropriate)

is something shady going on here? well it's banking so possibly yes i guess! but i feel its more of a structural pressure towards sales clarity than a wicked plot (like how ppl purse their lips when you call every vacuumcleaner a hoover! it wasn't made by hoover! but in a deeper and more accurate sense be serious yes it's a hoover)

plus as i've said several time before i think there are two language-use worlds at work here with a subtle but firm barrier to understanding between them. ppl on this very thread (the estimable tracer hand for one) have used the term "loan" in the sense that alarms you.

I would think that the reason is: the idea of me giving the bank my money for safe keeping is appealing. The idea of me loaning the bank my money is not. So, in their own interests, they have dissembled for many decades.

I agree that a barrier to understanding exists.

You are also trying to compress 500+ years of history of the development of the banking system into a couple of paragraphs. There were developments that lead to a second development that lead to the present arrangements/terminology. Just because no one uses a term today doesn't mean it was for nefarious or obfuscating purposes. I would also point out from the wiki link above:

Fractional-reserve banking predates the existence of governmental monetary authorities and originated with bankers' realization that generally not all depositors demand payment at the same time. In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths, receiving in exchange a note for their deposit (see Bank of Amsterdam).

money/valuables for a note = a loan

silversmiths seething at the lost trade

when i was a kid i got a Kid Account at a medium-sized local bank and they gave me a lil cartoon pamphlet w lil cartoon kids "letting the bank use" their money for loaning out to lil cartoon adults who wanted houses and things, in dutiful return for which the bank then dispensed to the cartoon kids interest in comic-book vocabulary bold, big smiles all round, from all the organs of civilization's diverse and harmonious corpus. the truth (this one anyway) has been out there

they have dissembled for many decades

it's still a loan whether or not they refer to it as loan?

i agree that "we will keep you money safe for your convenience!" is a cheerier sell than "lend us your money!" but you ARE lending them your money whatever they call it

a rose by any other name etc

pinefox, you're right that banks do not disclose upfront what they do with your money. but consider also - and I fully realize that banks are to be kept at arm's length, perhaps at a polearm's length, can't be trusted farther than you can throw them, etc. - that from a customer's perspective, what the bank does with the money deposited with them has absolutely no effect on the customer. banking products are designed so that you, the customer, can withdraw your entire account, or move it to another bank, or whatever you want, at a moment's notice, without any impact on the bank's activities. the bank doesn't need to call in any loans, because the bank keeps enough in reserve to pay out customers who do request this. furthermore, as discussed upthread, if you are worried that your bank is acting irresponsibly with your funds, that is definitely a valid worry, but one that the government solves for by providing deposit insurance. so that, even if the coop bank goes down in flames because the CEO has spent it all on K, you, as a customer of the coop bank, can be fully guaranteed to receive at least up to £85,000 of your account back.

another way to put it: other than the principle of it all, what bothers you about the fact that you are lending money to your bank?

"but you ARE lending them your money whatever they call it"

hence my suggestion that they are dissembling, by referring to one thing as another thing.

"the CEO has spent it all on K"

what is K?

k is the drug ketamine (龜 is referring to the story i linked abt the CEO of the co op where i bank)

it's both things (looking after your money and a loan)

this is the same as the table story in marx's commodity chapter -- something is two things at once which pull in different directions and also read very differently

Poster ― 龜, Tuesday, thanks for your contributions, which are interesting and appreciated, to me.

"what bothers you about the fact that you are lending money to your bank?"

Do you feel good about lending money?

If I lend Mark S £10 for his chocolates, I don't mind because I know I have more money than that, it's not such a big amount. (I'd like to add "I know he will pay it back soon" but I don't know whether that's true. I have an idea that he now lives in a different town from me. But some people, I think, would pay it back soon.)

If I lend him all the money I have, I don't feel so good about that. Just as I wouldn't feel so good about lending him all my books. Lending things is sometimes a good and generous thing to do, but it creates a precarious situation.

Mark S, actually I didn't look up your story and thought it was a beneficial story about why the co-op was good !!

Mark S: as we have noted before, I have read the commodity chapter several times, very closely, and ultimately I did not comprehend it. A worrying thing (probably also stated before) is that I have an idea that the rest of CAPITAL is *harder* than that chapter.

I do feel good about lending money to a bank, since as discussed before, the government has my back in case the bank fails.

lending to mark s is very different than lending to barclays!

Unlike you, I don't feel good about lending money to a bank. I didn't know I was doing it till about 3 days ago.

As for the government -- well, the UK government is corrupt, and I would not feel confident about getting any money out of it for anything.

Perhaps your government is better.

If it’s reassuring at all if the government didn’t make good on its deposit insurance commitments the money you didn’t get back would probably not be worth much anyway

For the bank, it is functionally a loan. For someone with a personal account, it functionally isn't a loan. Government regulation makes both of these statements true. The modern world is full of these matters of incommensurate perspective. If you truly want to use a bank to safely store your money and have it not be a loan, rent a safe deposit box and fill it with cash. But that strategy doesn't even simplify the transaction, really. Money isn't real. You're really just buying a different kind of risk.

re KAPITAL: i am not convinced that the rest of the book *is* harder that that chapter -- but i have only read small sections of it. it's a famously poetic chapter, which some may see as making it the hardest? personally i feel that the chapters preceding it (which are largely definitional) are *much* harder. they're certainly more boring.

there are later chapters that are both more entertaining and more straightforward as storytelling (albeit of pertinent examples in political economy and so on)

re governments: there's an ongoing story right now in south korea about the governor of a prefect who decided unilaterally not to pay for something his predecessor promised to pay for -- it has caused immense chaos and collapse in trust in governmment bonds!

https://foreignpolicy.com/2022/11/10/legoland-south-korea-bond-market-crisis/

One might gloss that with the advent of fiat currency “money” as such ceased to be a “thing” you can “have”, on some level money is all debt. (This may not be orthodox economics.)

"For the bank, it is functionally a loan. For someone with a personal account, it functionally isn't a loan."

Interesting statement! Might actually clarify things (... by ... making them less clear).

"The modern world is full of these matters of incommensurate perspective."

Can you give any more examples? Are they all about money?

what was money before the advent of fiat currency?

Mark S: I agree that it's very rhetorical, at least. I'm not sure that's why I find it incomprehensible. I think it's just the concepts. After reading it very closely I didn't know what it said.

This makes me think that Marx, in translation, as I have read him, is not a very clear writer. Though nor were any of the philosophers before him.

big sacks of precious-metal specie I guess xp

silby: yes, sorry, i was being dumb

forgot what fiat referred to

I mean it's hard to put my finger on exactly what the difference is between having a claim on the bank for a chest full of doubloons and having a claim on the bank for a database entry that says you have $69,420 but it has a different vibe. To the point that some crazy people are still mad about it!

If a bank really did lose all my money, then I would no longer have enough money to pursue a claim to recover it from the government (for instance, I couldn't use a mobile telephone or internet).

I cannot imagine being confident that the UK government would give me £85,000 in any circumstances.

Not to complicate the conversation by bringing in an entirely different financial instrument, but the collapse of the FTX crypto exchange is a nice illustration of why we have bank regulations and what they do. FTX more or less operated like a bank — people could deposit money there and then easily use it to buy whatever cryptocurrencies they wanted. Theoretically, FTX was supposed to make money by charging a tiny commission on each transaction (making it somewhat more like a credit card company than what we think of as a bank). But it turned out that in addition to that, FTX was actually lending out its customers' money — to a separate crypto trading company that was actually owned and controlled by the same guy who owned FTX. So he was functionally accepting people's deposits and then lending their money to himself — which is the kind of thing that regulated banks have a whole lot of limits and safeguards against.

The crypto world doesn't have any of that, and nobody realized what was going on until crypto tanked and all of that money he'd borrowed (about $10 billion) basically disappeared as his own investments via the other company tanked. And when people got panicked and came to get their deposits out of FTX, a lot of them couldn't because the money was no longer there. (He had essentially issued IOUs to FTX in the form of a cryptocurrency he created out of thin air, which had no collateral backing at all.) This kind of thing used to happen in real-world banking too, which is why most developed economies now have lots of rules about exactly how banks can use their customers' money and what kind of collateral they are required to keep, and they also have the backup of government insurance of their deposits up to certain amounts.

Of course, those regulations are still pretty fallible and corruptible too, as the 2008 crash illustrated. In that case, banks had made excessively risky loans in the form of mortgages that people were not actually going to be able to pay, and then resold those mortgages to other banks and investors with the (false) promise that they were "good" loans. Then the music stopped and there was no more cash coming into the system and people couldn't pay their mortgages and the banks and investors holding the loans were out gazillions of dollars, collectively.

As for the government -- well, the UK government is corrupt, and I would not feel confident about getting any money out of it for anything.

Perhaps your government is better.

― the pinefox, Tuesday, November 15, 2022 12:53 PM (thirty-one minutes ago)

interesting - and totally fine, a lot of people hold the same perspective - the banks are corrupt and the government is not that much better.

there is an interesting contradiction here though - you don't trust the government to stand behind their deposit insurance guarantee, yet you do trust the government to stand behind the pound that it has printed

xp but to flesh that^^^ out

pinefox i don't know when you last sat down and read the words on a (UK) bank-note: alongside various less pertinent legends (which perhaps refer e.g to the person depicted etc) it says "i promise to pay the bearer on demand the sum of ten* pounds" -- and across from this is a signature, currently of the chief cashier on behalf of the "governor and company of the bank of england"

well those guys are the government and that promise is what keeps all the balls in the air. because i guess it's kind of a fungible promise -- the bank of england makes it so every bank signs on and every shop and every company and more or less every person, even me. we do't just say "this is a bit of paper with writing on it" we say "ok it;s money"

and it's why politicians and others often talk about confidence (as you just did): because confidence wavering is basically ppl thinking "that promise? will they pay? is this still money"

if enough ppl conclude they won't and it isn't then things go south pretty fast :) 👍🏽🚀

*or however many pounds it is, it's ten on the jane austen

here, it is appropriate to introduce the concept of what constitutes 'legal tender' https://en.wikipedia.org/wiki/Legal_tender

the hoohah abt insolvenet pension funds from the liz truss era was the tale of the govt (in the shape of the sotra-kinda autonomous bank of england) promising to step in to stop a "bank run" on a pension fund (in fact several pension funds)

in the event this promise alone calmed things down i believe, and they didn't have to make good on the last-ditch purchase they promised if things got too bad

the political fall out is that (a) the liz truss govt fell instead of the pension funds and (b) there is beef that the BoE acted deliberately to topple her by intervening this way

ps in relation to pension funds i've been meaning to read the LRB piece abt academic pension funds that you talked abt upthread, when i have a moment i will and we can talk that through also

Mark S: yes, I have definitely often heard of those words / that aspect. I have never really understood it. Perhaps it means ten pounds (weight) of gold, or something. They will hand over this weight in gold if you give them the note?

You are convincing in noting that this is 'the government' in which we have ... confidence?

But there is much evidence of corruption in the UK government - this is a fact - take eg:

https://www.lrb.co.uk/the-paper/v42/n21/peter-geoghegan/cronyism-and-clientelism
https://www.lrb.co.uk/the-paper/v43/n09/peter-geoghegan/short-cuts

I agree that we continue to trust the state for many things - health care, for instance (I hope).

But as I said, would you trust the UK state to give you £85k, if you had no money to make any claim for it (eg to use the internet)? Seems unlikely.

there is a very easy, practical, fix for that problem - keep your money in two banks. the chances of both banks failing at the same time are pretty slim in the modern era - even during 2007/2008, I don't believe any commercial banks (i.e. the kinds of banks you'd have accounts with) failed (the ones that were taken out to the back of the shed and shot were investment banks, which aren't retail-facing.)

There were commercial banks like Wachovia that got taken down by their mortgage lending, but even in those cases your average account-holders were OK because of federal insurance. It was the banks' shareholders that got screwed.

I actually quite like poster Jaime Pressly's statement above, that to a bank, money in a bank is a loan, and to a customer, it isn't.

This would give a rationale for banks not telling us that we are loaning them money.

I like this list of defunct banks in the UK: https://en.wikipedia.org/wiki/Category:Defunct_banks_of_the_United_Kingdom

customers of cocks biddulph bank, where are they now?

pinefox i went to see how you would go about an FSCS (financial services compensation scheme) claim and it's true that the first big picture you see is of someone with red-painted fingernails about to start typing on a laptop!

https://www.fscs.org.uk/making-a-claim/

but they do include a snail-mail address so all you ultimately need is a pencil, a sheet of paper and i guess a stamp (plus the relevant paperwork proving it was yr account and so on)

here it is just in case:
Financial Services Compensation Scheme
PO Box 300
Mitcheldean
GL17 1DY

If you truly want to use a bank to safely store your money and have it not be a loan, rent a safe deposit box and fill it with cash. But that strategy doesn't even simplify the transaction, really. Money isn't real. You're really just buying a different kind of risk.

― Jaime Pressly and America (f. hazel), Tuesday, November 15, 2022 12:56 PM (one hour ago)

that is another solution for the pinefox, to withdraw all his money from his bank and to keep it under lock and key, perhaps in a safe deposit box (which would also be at the bank.)

historically, the chinese have been distrustful of banks, and some are like the pinefox in that they prefer to keep their money in a safe deposit box rather than the bank itself, to the point that when banks open a branch in chinatown, they outfit the branch with more safe deposit boxes than usual: https://www.nytimes.com/2005/07/08/nyregion/keeping-luck-under-lock-and-key.html

A feng shui master has already checked the new Commerce Bank building that will open today at 155 Canal Street in Chinatown to confirm "that everything is facing the right way," said William G. Leung, the manager of the new branch.

Befitting its prominent corner location in Chinatown, at Bowery Street, the bank will have trilingual cash machines in Chinese, English and Spanish. And its 30 employees will converse in Cantonese and Mandarin, as well as in English.

It is hardly a coincidence, furthermore, that today, the eighth, because some people of Chinese descent consider eight a lucky number, "is a fortunate day, good for business," said Mr. Leung.

Oh. One more thing.

The new bank will have 7,500 safe deposit boxes, instead of 500 in the average Commerce branch. "Culturally, this is something very different for us," said Gregory B. Braca, a senior vice president of the company who manages the 38 branches in New York City.

In fact, construction work on the bank was nearing completion in January until "we began hearing that we needed more safe deposit boxes," Mr. Braca recalled. "We didn't know. So we began rebuilding from the bottom up, until we had a brand new building -- and an extra floor, just for the boxes."

Chinatown, in fact, is safe deposit box country, one aspect of the highly competitive, and escalating, bank war in the neighborhood. Across the street from the new banking interloper, the domed HSBC branch at 58 Bowery has 21,000 safe deposit boxes. And the HSBC branch at 11 East Broadway has 12,000.

What is going on here?

"There is a waiting list for safe deposit boxes in Chinatown, and that can become Commerce Bank's competitive advantage," said Charles Lai, executive director of the Museum of Chinese in the Americas at 70 Mulberry Street. A safe deposit box "gives you a sense of privacy," said David S. Chen, the executive director of the Chinese-American Planning Council, a community group that provides social services. "Chinese don't flaunt their wealth, especially the old-timers. And when you have a bank statement, anyone could know how much you have."

Some Chinese immigrants live principally in a cash economy, with many family members pooling their income, Mr. Chen said.

And immigrants sharing rented rooms "don't want to keep their valuables around," Mr. Lai said, "since keeping everything under the mattress was for the 1940's and 1950's."

Many apartments are small, and so residents entrust to the boxes items like cash, significant paperwork, bankbooks, checkbooks, sentimental photographs, mementos and jewelry, "because it's portable and can be worth a lot of money," Mr. Chen said.

"My parents are a good example," said Paul W. Ho, senior vice president for the Asian market domain at HSBC Bank U.S.A., a unit of HSBC Holdings Corporation. "Every time they get invited to a wedding, they go to the safe deposit box. They retrieve their jewelry, and go to the wedding. Then they put it back. That's my mom."

It is the first Commerce Bank assault on the neighborhood, where some other competitors are long established. For example, as the modern-day descendent of the Hong Kong and Shanghai Banking Corporation, HSBC established its first Chinatown branch 28 years ago at 50 Bowery Street. Now it has three branches, Mr. Ho said, "and we're opening up another one soon."

Indeed, there are more than 30 bank branches in Chinatown, Mr. Leung said, and the number continues to grow. Within three blocks of the new Commerce branch are a Citibank, an Abacus Federal Savings Bank, a United Orient Bank, a Chinatrust Bank and a Bank of East Asia.

Why so many? "It's like the man said when they asked him why do you rob banks?" Mr. Braca said. "Because that's where the money is."

Financial institutions are responding to the high savings rates of Chinese-American residents, Mr. Lai said. "Saving isn't just for a rainy day -- when you see your entire life as a rainy day," he added. "Saving is an important part of the safety net -- in a mattress or in a bank."

Banks are also proliferating because "though Chinese may live in other neighborhoods, many open their accounts in Chinatown," Mr. Chen said. "When I came here 30 years ago, I lived in Brooklyn but I opened up my bank account on Mott Street."

Indeed, Manhattan has only 24 percent of the city's Chinese-Americans, or 90,158, according to the 2000 census ; 71 percent live in Brooklyn and Queens. Those of Chinese descent make up the largest Asian-American group in New York City, nearly half of the Asian-Americans in the city. Three-fourths of them are immigrants.

As a consequence, "Chinatown is an important economic engine for the banking industry in the city," Mr. Lai said. The aggregate deposits in Chinatown bank branches exceed $5.4 billion, according to a study by the Asian American Federation of New York, a nonprofit public policy organization.

"Plenty of competition is good for everybody," said Mr. Ho of HSBC.The 7,000-square-foot Commerce Bank branch will feature speckled white marble floors, blond figured-anigre wood, jazzy red neon striping and the company's distinctive red logo, "a fortunate coincidence," Mr. Braca said, "since our color signifies good luck."

Deposit boxes at the new branch will cost $50 to $250 a year, depending on their size. The bank will be open seven days a week; its Sunday hours will be 11 a.m. to 4 p.m. However, "Chinatown had seven-day banking more than a decade ago because it's busier on the weekend," Mr. Chen said. "Many Chinese who moved out of the neighborhood come back on weekends to shop, to buy food, to get a newspaper, and to visit relatives."

Like some of its other competitors, Commerce Bank will provide customer-service workers to make it easy for patrons to wire money transfers and buy money orders "since many immigrants have families back home, and they send them money," Mr. Lai said.

Like its Chinatown competitors, Commerce Bank will go after retail consumers, small businesses and nonprofit organizations. "It's so important to know everyone here," said Kelvin Kan, the commercial banking director in the new Commerce branch. "In Chinatown, it's all about credibility."

Therefore, the bank has sought local expertise in hiring its personnel, including Mr. Kan, who worked for HSBC for 10 years, and Mr. Leung, who has been a manager at North Fork Bank and Citibank.

To attract customers, the bank is sponsoring a lion dance promotion today at noon, as well as clowns, balloons, free hot dogs, pretzels and, bien sûr, dim sum.

And since it's Chinatown, there will be a raffle for the luckiest deposit box of them all: 888, since "many depositors want an account with lucky number eight at the end or the beginning," Mr. Leung said.

Not to mention four raffles today and tomorrow, Mr. Leung said, "for prizes of $888 in cash."

re defunct banks, i remember feeling a great pang as a child when i learned (how?) that martin's bank had been folded into barclay's -- bcz my uncle is called martin and he is a very sweet man and i somehow felt the family was under attack. i asked my dad why we hadn't been banking at martin's bank and as i recall he gave no very satisfactory answer

The name GIROBANK is familiar.

lol just found a webpage devoted to the relevant branch of martins: http://www.martinsbank.co.uk/11-80-70%20Shrewsbury.htm

(this answers the "how" i think: this is an extremely prominent spot in shrewsbury so someone will have commented on the frontage change)