Things to love about the economy
Dec. 12th, 2008 04:35 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
In fractional reserve banking, banks offer interest to customers to invest their money so that they can then lend on more than they have, a situation that's tenable so long as the customers don't require more than the bank has handy at any one time.
In a pyramid scheme, companies offer returns to chumps to invest their money, so that they can use it to pay off money they've already promised, a sitation that's tenable so long as the customers don't require more than the scheme has handy at any one time.
There are two main differences between the two:
1) The bank doesn't offer such stupid rates of return that it can't afford to pay them.
2) The bank actually has some assets in the first place.
Of course, sometimes these differences are more theoretical than actual.
In a pyramid scheme, companies offer returns to chumps to invest their money, so that they can use it to pay off money they've already promised, a sitation that's tenable so long as the customers don't require more than the scheme has handy at any one time.
There are two main differences between the two:
1) The bank doesn't offer such stupid rates of return that it can't afford to pay them.
2) The bank actually has some assets in the first place.
Of course, sometimes these differences are more theoretical than actual.
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Date: 2008-12-12 05:48 pm (UTC)no subject
Date: 2008-12-12 09:09 pm (UTC)no subject
Date: 2008-12-13 08:07 am (UTC)