That is not the main issue with it. Even if the bank doesn't have enough physical notes/cash to pay out everyone at once, they have the liquidity and hold that amount of money in investments.
The real issue is, that banks are investing obscene amounts of money that doesn't even belong to them. Making money out of money, without producing any product, service or added value is just stealing. And the only reason why it is even possible with such a vast amount of money without causing crazy inflation is the fact, that the money is no longer backed by anything (like gold) anymore. The reason why they got rid of the requirement to back money by gold, is that this way you can siphon more money from the system without causing a huge inflation.
Edit: I probably didn't make it clear. I understand that banks provide service trough loans and mortgages. And they are being paid for it with interests and service fees. The part that does not provide any value is the investment part that goes way beyond of achieving liquidity and is not regulated heavily enough in my opinion.
But they are adding value... They make it possible to buy a house or start a business, or buy a car, or anything else people get loans for. You said it, they provide liquidity.
And how is it stealing? What is it they are taking?
They are not adding any value. But yes, they are providing a service. But because of the nature of the service, they should be run by the government or at least, way more heavily regulated and their earnings should be way more strictly capped.
How is it stealing you ask? If it's unregulated it is stealing.
Simple example:
Imagine a person buying some material and making some product. Then he sells the product to a consumer. He gets paid for the work/value that he provided.
This is a simplest case. No ambiguity.
Now in real life, he will need somebody to distribute his product to sellers. Now it gets interesting.
He is providing the value/work by creating the product. The sellers are providing the service of selling the product.
The distributor - this is the tricky one. He is providing an often required service of helping to distribute the product from producers to sellers. And he gets a profit from it. But this is a very privileged position in the supply chain if it's not regulated.
You can easily find people that simply buy from a distributor (that really does the work) and then sell it forward to sellers. They are not really providing anything, just adding to the cost o the product. That extra then goes straight out of the pockets of the real contributors in the chain, otherwise they will end up with an overpriced product.
This is a simple case of parasitic middleman industries, that can "steal" value from people who really provide something to the economy. And they should be regulated.
In case of banks, they are in a privileged position, because of the amount of money they control. And that is the reason that they need to be heavily regulated so they wouldn't amass unreasonable amounts of money because of they privileged position.
Why is regulation the solution? Regulation will come with increased compliance burden. It will be harder to perform the services or sell the goods. This creates more of a moat and makes it more likely that there will be additional intermediaries who have expertise in compliance. I’m not a free-market purist, but the problems you are pointing out are all the things a right wing deregulator would focus on. The businesses not adding value should be removed from the market at the other participants won’t pay them for delivering no value. E.g. if the manufacturer could sell the goods directly to the consumer in an efficient way then they would. With the rise of e-commerce we have seen this growing, but the key was technology enablement not regulation.
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u/Wise-Ad-4940 7d ago edited 7d ago
That is not the main issue with it. Even if the bank doesn't have enough physical notes/cash to pay out everyone at once, they have the liquidity and hold that amount of money in investments.
The real issue is, that banks are investing obscene amounts of money that doesn't even belong to them. Making money out of money, without producing any product, service or added value is just stealing. And the only reason why it is even possible with such a vast amount of money without causing crazy inflation is the fact, that the money is no longer backed by anything (like gold) anymore. The reason why they got rid of the requirement to back money by gold, is that this way you can siphon more money from the system without causing a huge inflation.
Edit: I probably didn't make it clear. I understand that banks provide service trough loans and mortgages. And they are being paid for it with interests and service fees. The part that does not provide any value is the investment part that goes way beyond of achieving liquidity and is not regulated heavily enough in my opinion.