this post was submitted on 20 Aug 2023
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The mortgage.
Yep. Totally insidious. Everyone accepts it like fish in water. But the banks don't own the money they are lending into existence it's created out of this air. If a bank has 1 dollar savings they can leverage that to create 30 dollars for a mortgage. As in almost no minimum liquidity reservation requirement.
It artificial drives up the cost of housing. It consolidates wealth upward and it should be illegal.
I don't quite understand. Doesn't the bank have to pay someone for the house? So the money has to exist before they can lend it to you.
Iirc correctly mortgages work like this.
The bank ik a place for people to store their money, and I have 15K on my account. The chance that I'll need that in full is pretty low and like me are 99 other people.
What the bank does is give someone else part of that stored money as a loan. If someone else loans 30K, they get that money out of the banks reserves (made with the 100x15K). However, I still see 15K on my account, and not 14.7K. So essentially making money out of thin air.
This is also why bank runs are so dangerous to the bank, because if everyone start funneling out their savings eventually the bank doesn't have enough money in stock to pay everyone causing them to fall.
The bank makes money on the mortgage through the interest rate, so while 30K was loaned, 40K has to be paid back.
Also please correct me if I'm wrong.