[lsiq]

Thank you, was hoping for someone to point this out.

Banks don't take deposits and they don't lend money. Banks create money.

When they "lend," what they are legally doing is purchasing a newly issued security for your home. And they are doing so with created money, that money is not transferred from some other account.

Similarly when you "deposit," the money is legally now the bank's. The bank now has a liability to you, but it is not a custodial intermediary "holding" your money for you.

It is poorly understood that banks are in fact creating credit. Most people believe in either the fractional reserve model of banking or in the financial intermediary model.

This is a real problem, because as they create credit to finance existing asset purchases (as opposed to financing new investment) they create asset price inflation & bubbles and foster inequality.

Read anything by the brilliant Richard Werner who writes about this extensively, this interview has a short summary of how banks actually work in law: https://youtu.be/EC0G7pY4wRE https://professorwerner.org/shifting-from-central-planning-t...

[chii]

> create credit to finance existing asset purchases (as opposed to financing new investment)

the seller of that purchase transaction will have received the financing credit as cash.

This cash is, in most cases, invested. If the seller had a loan, they might've repaid the loan - but then this repayment would in part, cancel out the credit creation the buyer's bank did. The net outcome, if it was positive, is the profit that the seller obtained, and this is real wealth created.

This wealth is often reinvested somewhere - either to purchase existing assets (in which case, this cycle repeats), or to finance a new asset/investment (like a startup).

However, the purchasing of existing assets is required for this system to work - like an exit strategy for the initial investors of that asset.

Banks doing lending _could_ cause a bubble, if the rate of interest is too low compared to the growth in the economy (the assumption is that there's a limit to how fast you can grow new assets). Whether the past decade since the GFC had too low an interest rate, is up for debate.