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A totally normal thing (lemmy.world)

submitted 3 weeks ago by The_Picard_Maneuver@lemmy.world to c/memes@lemmy.world

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[–] superkret@feddit.org 84 points 3 weeks ago (20 children)

What it actually is:

We've given big, privately owned banks the right to create money out of thin air.
They lend it to you for a while, if you can prove that there's no risk involved.
You still have to pay them back a lot more than you got.
Once you've given the money back, it disappears.
The banks keep the interest, though. And can use it to create 10x more money out of thin air.

[–] cogman@lemmy.world 54 points 3 weeks ago (4 children)

Man, if it were just this then banks would be pretty stable.

The problem is banks don't just lend and receive money, they invest. And they invest in everything. And they take super risky bets.

This is what caused the banking collapse of 2008 and what caused the death of SVB and a few other banks.

Your bank doesn't just hold your money and debt, if you rent it almost certainly owns a peice of the company managing your property. It owns crypto assets. It has shares of startups. And it uses those assets to get more money to create more debt.

Dobb Frank was created to stop some of this, but unfortunately it's been effectively repealed already.

[–] disguy_ovahea@lemmy.world 21 points 3 weeks ago* (last edited 3 weeks ago)

Yup, and banks are returning to high-risk securities, trading in debt-based products like collateralized loan obligations, just like they did leading up to the 2008 global financial crisis.

https://www.theguardian.com/business/2024/nov/24/remember-the-global-financial-crisis-well-high-risk-securities-are-back

Bank: You should take out this loan you can’t afford to repay. Don’t worry, we’ll make it seem like a great idea.

Unqualified borrower: Ok, since you made it seem like a great idea.

Bank: Great! Hey, other bank, betcha this guy won’t repay this loan.

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