bank failures Essay -- essays research papers

http//www.worldnewsstand.net/2001/ member/bank_ crushures.htmBank FailuresWe leave written before astir(predicate) the remarkable might of banks to create property when making lends, and of their equally remarkable ability to reckon these newly created-from-nothing bank deposits via fractional reserve banking. What we have written is true, and slow verified.But banks fail That fact is equally true, and easily verified as well. How can we reconcile these app atomic number 18ntly contradictory facts? If banks can create, and multiply, money, how can they fail? Could your business fail if what you made was, literally, money, or what people took for money?The modifier gene is important. It is what people assume about money that makes modern banking possible. The Federal mental reservation itself points out that it is the peoples confidence that make paper devices serve for money. Belief (i.e., " quotation") is what keeps the system going. Psychology is everything.If mod ern money is an illusion, then bank failures argon an important means of reinforcing that illusion. Consider the alternative. If a bank made impart after loan, and these loans were not repaid, and the bank continued to do business twelvemonth after year with mounting millions of bad loans on its books, wouldnt that look ridiculous? People would question how the bank could continue to thrive despite so many bad loans. Would they maintain their confidence in the system if the banker cheerfully admitted that he made those loans by simply crediting the borrowers account, and that to do so comprise him nothing? Some might wonder why the bank would not honor checks written on insufficient funds, if the banks create those funds from nothing. Corporations which be unable to meet their financial obligations to banks might wonder why they mustiness work to repay the bank for something it got with a flick of a loan officers pen.No, it is important, if confidence is to be unshaken, that b anks appear to be give care other businesses, when, of course, they are nothing like other businesses. This means that banks must be allowed to fail, dismantle though they are the source of modern money.Failure occurs when liabilities outweigh assets. What are a banks assets? The IOUs of its customers. Its liabilities are their deposits. If a customer has borrowed a million dollars from the bank, and addicted the bank his IOU for that number, the bank has a million dollar asset---un... ...op out of indoctrinate and go to work? Will he face charges for check-kiting, or counterfeiting? It doesnt come along likely. The illusion can be maintained without such extreme measures tail end Maynard Keynes put it succinctly "If, however, a government refrains from regulations and allows matters to take their own course, the slowness of the money becomes apparent, and the fraud upon the public can be concealed no longer." Expect to hit more bank failures as the economy declines. Otherwise, the clumsiness of the money might become apparentSorry this article is so long but I thought it was a great article and wanted to share it. It makes some great points about loaning money to the government and the fact that when you loan the money them they rarely re-pay the principle, so they have to continue to pay the interest payments. It also goes into some detail about the relationship between the government and banks. The government doesnt want to see banks fail because they want their sources of money to be strong. I also like the way this article describes how banks fail. It gives some good examples about those banks that fail imputable to bad debts and non repayment on loans.