Why are banks not ponzi schemes?

Methnerd
Methnerd

Why are banks not ponzi schemes?

No bank has anywhere near the capital required to pay all depositors back if they wished to take their money out all at once. Every bank in existence today would collapse in the event of a bank run (without a bail out of course).

How is this different to ponzi schemes that collapse when too many investors want to pull their money out?

Why is one organisation a scam and the other "legit"?

Not even trolling here, convince me banks are not a giant scam.

PackManBrainlure
PackManBrainlure

@Methnerd
A Ponzi scheme pays dividends with the "investments" of new investors.
A bank actually invests money and pays you with the returns.
Therefore, banks are more like pyramid schemes.

Firespawn
Firespawn

equity owners, lenders and suppliers all want to be paid tomorow
this steel plant is a ponzi scheme

SniperGod
SniperGod

@Methnerd
In any big city 4 out of 5 of the tallest buildings are usually banking buildings, the other one probably a big insurance company.

Life on earth is a ponzi scheme which is why perpetual growth is always the goal.

StonedTime
StonedTime

@SniperGod
Life on earth is a ponzi scheme which is why perpetual growth is always the goal.
Pretty much this. See Japan for what happens when new investors (increasing population/consumers) run out.

CouchChiller
CouchChiller

@Firespawn

I agree with your point.

So, where's the line?

WHAT defines the line? Time?

VisualMaster
VisualMaster

@Firespawn
So you're saying it's a liquidity thing?

If only a bank had more "time". For example for loans to mature, to liquidate all assets if required, then it could pay all its depositors back? Is this actually true of any bank?

If not, the banking system still seems like a scam to me.

DeathDog
DeathDog

@StonedTime
See Japan

Japan stagnated for 20 years. The didn't collapse, which is what ponzi schemes would do.

BinaryMan
BinaryMan

@DeathDog
The[y] didn't collapse
Yet*
Also their stock market definitely collapsed.

PurpleCharger
PurpleCharger

@VisualMaster

This holds true for any company with a positive equity given that the assets can be realised at their book valie.

CodeBuns
CodeBuns

@VisualMaster
The fact that the bank is investing the money you give it disqualifies it from being a Ponzi scheme. A Ponzi scheme doesn't actually generate returns.

BunnyJinx
BunnyJinx

@VisualMaster
If only a bank had more "time". For example for loans to mature, to liquidate all assets if required, then it could pay all its depositors back? Is this actually true of any bank?
Yes. The reason they can't pay everyone in a bank run is because they've loaned out that money - it's temporarily in the hands of others, who are accruing interest owing on this money they borrowed.

Nojokur
Nojokur

A bank does not anticipate tens of millions of customers requesting 100% of their deposits on the same day, therefore, it uses a lot of the deposit money for other things. Is this hard for you to understand?

Dreamworx
Dreamworx

@PurpleCharger
Do you have any links or anything I can google about this?

If it's just a matter of liquidity then I may change my opinion.

So here's an example. A <big name> bank decides it's going to stop operations in 30 years. This gives it time for all mortgages, loans etc to mature. Would a typical bank be able to pay all existing depositors back over the span of 30 years?

girlDog
girlDog

@Dreamworx
Would a typical bank be able to pay all existing depositors back over the span of 30 years?
Yes. Contra internet memes, a bank can loan out no more than it has in deposits. It makes profit by charging borrowers higher interest than it pays on deposits.

Emberburn
Emberburn

@Dreamworx

Just look at a bank's balance sheet.

The number you see on your screen when you log on your bank is not your cash, it's what you've lent out to the bank. I think this is what primarily confuses people. Banks do not hold your cash, they owe you your cash.

Credit expansion and bubbles does not come from banks printing money, it comes from them creating leverage when money changes hands.

Anyone can leverage money. Try to make a balance sheet of your own personal economy.

For example I have

Assets:

Cash 2000
Stocks 20000
Motorcycle 5000

Net wealth -10000
Student loans -17000

If my lender would ask me to pay tomorrow, I would not be able to. I can only pay him after I've liquidated enough assets, either selling my MC or stocks.

Same goes for any leveraged person or corporation.

RavySnake
RavySnake

@CouchChiller

The line is being able to pay anyone that claims payments they are entitled too.

Banks allow their lenders (ordinary people) to claim payment any time for most deposits.

This is not the case with most corporations, which makes a bank run possible but a steel plant run inconcievable.

takes2long
takes2long

@DeathDog
Japan stagnated for 20 years. The didn't collapse, which is what ponzi schemes would do.
See the Nikkei. Their stock market still isn't worth HALF of what it was in 1989, despite 27 years of inflation and technological advancement.

I'd call that a pretty fucking big collapse.

TreeEater
TreeEater

@girlDog
this is absolutely not true. Have a look at the balance sheet of any major bank and compare the size of its loan book vs. deposits at call.

Burnblaze
Burnblaze

Banks keep capital moving and working by managing the logistics of renting it out to people/businesses/etc.

The fact that the wealth is out in the world being used to create more wealth rather than sitting somewhere ready to be withdrawn at any moment is the entire point. Banks prevent useless, wasteful hoarding.

5mileys
5mileys

@Nojokur

Also this did happen during the economic crisis in 2008 when everybody wanted zo pull their money out of the banks

PackManBrainlure
PackManBrainlure

@Methnerd
Systematically, you are correct.

Skullbone
Skullbone

@Methnerd
if your bank collapses the government will print more money to save you.

not so much with a Ponzi scheme.

JunkTop
JunkTop

@Methnerd
no because FDIC: Federal Deposit Insurance Corporation. deposits are insured. if there is a run on the banks FDIC will cover the shortfall. because FDIC exists, a run on the bank is unlikely. i think it covers cash deposits of up to $250k per bank account.

GoogleCat
GoogleCat

@Methnerd
get bitcoin, avoid banks

Techpill
Techpill

@Methnerd
Because banks own assets. Company shares, derivatives, loans, fees. A Ponzi scheme does not. You're confusing a lack of liquidity with not having the wealth to pay back.

SniperGod
SniperGod

@CodeBuns
A Ponzi scheme doesn't actually generate returns.

Wrong, every individual joining a ponzi scheme must pay some entry fee.

RumChicken
RumChicken

@TreeEater
size of its loan book vs. deposits at call.
loan book
But do these represent the actual amount of money lent out or the figure expected to be received in repayment of the loan (i.e. with interest)?

StonedTime
StonedTime

@Methnerd

Money is worthless anyway. If the economy were collapsing those bills wouldn't be worth bupkiss.

Sharpcharm
Sharpcharm

Has someone actually studies econonomics or finance here?

Obviously they don't have all the money on cash because they invest it you faggot. Let's say you $100,000 deposit, they give you 2% annually. Well these money doesn't stay in a secured chamber? How do you think they are able to give you 2%? But planting money trees? They give loans at for example 5%.

And actually in order to avoid liquidity issues Basel Regulations, tells you how much % you can give as loans and how much % you have to let in your books in case loans don't get paid back.

Banks business model is very complicated, because their risk is time management. They give a loan to a company with your money, that will be paid back in let's say 5-10 years. How much money can they actually give as loan? Because during those 5-10 years people can come and want to withdraw their money? So how do you manage this.

Fucking leftist anticapitalist propaganda "banks don't have real money, it's just number on a book", "banks are pnzi schemes", "banks print all the money they want", etc.

Educate yourself

Deadlyinx
Deadlyinx

@takes2long
I'd call that a pretty fucking big collapse.

Then there's a pretty big disconnect between what we're talking about.

Japans stock market collapsed, but their living standards were maintained at ridiculously high levels in these 20 years.

Its not like Japan went full Argentina and went from a first world living standard to 3rd world.

Snarelure
Snarelure

@takes2long
Stock Market =/= Real Economy

B-but my book about charts

SniperGod
SniperGod

@Deadlyinx
Japans stock market collapsed, but their living standards were maintained at ridiculously high levels in these 20 years.

In fact, their health care, life expectancy have all INCREASED

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