Monday, 14 June 2021


Looking up a youtube video on Fractional Reserve v Full Reserve Banking I observed that the video was sponsored by 'compare who advertise 'no repayment mortgages' and a factoid that house prices have gone up by 41.09% since Q1 2010.

Irony somehow doesn't quite cut it.


Mark Wadsworth said...

There's no such thing as full reserve banking.

I give the bank £1,000 in coins and notes for safe keeping, let's imagine the bank just puts it in a big safe and does not lend on anything in a vague attempt to do full reserve banking.

OK, the bank now has:

Asset - receivable from government £1,000 (because that is what coins and notes are)
Liability - owed to Mr Wadsworth £1,000.

How is that different from the government lending my £1,000 to a mortgage borrower?

The bank now has:

Asset - receivable from mortgage borrower £1,000
Liability - owed to Mr Wadsworth £1,000

Obviously, the receivable from government is very 'safe', but so is a mortgage if it's very low loan-to-value and low loan-to-mortgage borrower's income ratios.

Lola said...

I know I know...It was the advert that sponsored the video that was amusing. Like Trusted Trader sponsoring Minder...:-)

Mark Wadsworth said...

Oh yes, the irony is delicious.

Bayard said...

This is being slightly economical with the truth:

"Keep 100% ownership
Unlike 'Home Reversion Equity Release' with a Lifetime Mortgage you keep 100% ownership of your property, still live there and you do not have to make any monthly repayments if you wish."

I would disagree that anyone with a mortgage has 100% ownership of their property.

Lola said...

B. Quite. The whole ad is a travesty. I should know. We provide equity release advice. (First point on being asked to advise - Don't do it.).

Lola said...

MW. To reply to your first comment, true. But. That only applies when you have legal tender and government money monopoly.

Mark Wadsworth said...

L, so we get back to gold, which is not 'money' it is a valuable raw material.

Lola said...

MW. Ah. Money is what the market decides it is. Gold has been chosen as money by 'the market' for eons, precisely because it is a 'valuable raw material' and has other properties that make it an excellent money.

Bayard said...

AFAICS, money is just debt, either secured (gold standard, full reserve banking) or unsecured (fiat currency, IOU from a mate). Currency (government debt) used to be secured, now it is unsecured, but people, especially politicians, keep on acting as if it is secured. Precious metals are just another form of security, because we can do other things with them. I was told that, back in the days of communism, Polish peasants kept their surplus wealth in the form of bricks. This had several advantages, bricks are hard to steal in a big enough quantity to make the effort worthwhile, they don't need to be kept under cover, they last forever, they are easy to sell and people will always want them. If the banks all go bust, you still have something useful, not just a pile of worthless paper.

Lola said...

N. Er, bricks do not last forever. Not even top quality engineering bricks. But I take your point. And communism produced all sorts of lovely gaming - the 'second hand light-bulb trade' for example. As you could only get a new light-bulb if your produced the broken one a market grew up in broken light bulbs.

The 'debt' bit of a gold standard are the 'notes' issued as claims on your/the gold stock.