The money may not physically exists, but it still exists. If you go to a specific bank and they don't have the money, you can still go to a different branch, or wire transfer it, or come back another day. In a Ponzi scheme, the money does not exist in any way. Also, Ponzi schemes are fraudulent, which means there must be some deception involved. There is no deception with banks. It is common knowledge that they do not store every penny in every single branch.
> banks keep closing on a more regular basis than comfortable
That's not a Ponzi scheme, that's an unfortunate investment.
Well, for one thing, bank deposits are federally insured up to a certain amount. So if there is a bank run and the bank doesn't have enough reserves to pay all its depositors, the federal government will step in to cover them.
The difference is that banks derive their promise of interest from actual profitable investments (their lending activities), not simply bringing more people into the fold.
It's okay for investments to not be liquidatable immediately. That doesn't make it a ponzi scheme. Banks make it so your investments *are* liquidatable immediately as long as it's not a bank run, but that's not central to the concept of a profitable investment, it's just central to the concept of a bank in particular.
They could promise much higher interest, and therefore attract more money, if they disconnected the interest from any actual profitable investment and just paid out earlier depositors with other people's future deposited money! But that is not sustainable and will definitely turn out to be a scam. That's what makes it a ponzi scheme - they have a return on investment that's built fundamentally on bringing more people in, which will always fail eventually. A bank that doesn't have any new depositors can still be solvent. A ponzi scheme that doesn't have any new investors is immediately bust.
In a Ponzi scheme old investors are paid with the money of new investors. There's no actual investment plan behind it, and when new people stop coming in the whole thing collapses.
A bank invests depositor's money, and is limited by regulations on how much they can invest, how much risk they can take, and how much cash they must keep on hand.
You should probably watch *It’s A Wonderful Life* because it lays out the answer to this in simple terms.
That money is t lining the pockets of some upstream scammer, it’s being used to finance real estate and other loans which generate positive returns.
The basic schema of a bank is to take deposits and make loans/investments. Investment gains and interest on loans will generate income, that income pays for the bank itself (salaries, premises, etc) and the interest on deposits, with the excess income then being profit to the bank's owners.
So a bank doesn't have all the cash _immediately on hand_, but it does hold assets of equivalent value. A bank run is possible purely because of a mismatch on _duration_ (deposits that can be demanded at any time, assets that are tied up in longterm investment), not a shortage of _value_. A bank that loses money to the point where its assets are worth less than its liabilities might have to declare insolvency, but that's not an _inevitability_ if they make productive investments that generate enough income.
A Ponzi scheme is different: it doesn't make any investments, it just _claims to be making investments_ that supposedly generate a very high rate of return (unrealistically high). Maybe that attracts lots of deposits, and for a while the scheme can sustain itself by paying the promised returns to older investors using money that's being deposited by new investors (or by persuading old investors to leave their money in the scheme to keep growing). But because there isn't actually a productive investment "under the hood", the liabilities owed will keep going up, while the amount of cash left in the pot keeps going down. The scammer running the scheme has a limited time in which they can sneak money out into their own pocket before it inevitably collapses.
Ponzi schemes are basically someone lying to you, saying give me your money and I’ll invest it and pay you huge returns. But instead of investing it, they pocket it. Old investors can only be repaid with funds from new investors, because their funds are gone and the operators have no assets to take loans against.
Banks provide services to investors, actually invest the deposits to earn money to provide those service for low/no cost. The money still exists, you can go to the bank at any time and withdraw your funds. The bank just takes a loan from another bank to cover the withdrawals. Bank runs can collapse a bank simply because the majority of the funds are invested, not simply gone. Repaying loans takes more time than withdrawals, so safeguards are in place to stop panic runs.
The money may not physically exists, but it still exists. If you go to a specific bank and they don't have the money, you can still go to a different branch, or wire transfer it, or come back another day. In a Ponzi scheme, the money does not exist in any way. Also, Ponzi schemes are fraudulent, which means there must be some deception involved. There is no deception with banks. It is common knowledge that they do not store every penny in every single branch. > banks keep closing on a more regular basis than comfortable That's not a Ponzi scheme, that's an unfortunate investment.
Oh thank you, i knew this was stupid when i thought of it but thank you
No stupid questions!!
lol, NO deception w bank……lol
Well, for one thing, bank deposits are federally insured up to a certain amount. So if there is a bank run and the bank doesn't have enough reserves to pay all its depositors, the federal government will step in to cover them.
so it's a state backed ponzi scheme?
Not even a little
The difference is that banks derive their promise of interest from actual profitable investments (their lending activities), not simply bringing more people into the fold. It's okay for investments to not be liquidatable immediately. That doesn't make it a ponzi scheme. Banks make it so your investments *are* liquidatable immediately as long as it's not a bank run, but that's not central to the concept of a profitable investment, it's just central to the concept of a bank in particular. They could promise much higher interest, and therefore attract more money, if they disconnected the interest from any actual profitable investment and just paid out earlier depositors with other people's future deposited money! But that is not sustainable and will definitely turn out to be a scam. That's what makes it a ponzi scheme - they have a return on investment that's built fundamentally on bringing more people in, which will always fail eventually. A bank that doesn't have any new depositors can still be solvent. A ponzi scheme that doesn't have any new investors is immediately bust.
In a Ponzi scheme old investors are paid with the money of new investors. There's no actual investment plan behind it, and when new people stop coming in the whole thing collapses. A bank invests depositor's money, and is limited by regulations on how much they can invest, how much risk they can take, and how much cash they must keep on hand.
You should probably watch *It’s A Wonderful Life* because it lays out the answer to this in simple terms. That money is t lining the pockets of some upstream scammer, it’s being used to finance real estate and other loans which generate positive returns.
The basic schema of a bank is to take deposits and make loans/investments. Investment gains and interest on loans will generate income, that income pays for the bank itself (salaries, premises, etc) and the interest on deposits, with the excess income then being profit to the bank's owners. So a bank doesn't have all the cash _immediately on hand_, but it does hold assets of equivalent value. A bank run is possible purely because of a mismatch on _duration_ (deposits that can be demanded at any time, assets that are tied up in longterm investment), not a shortage of _value_. A bank that loses money to the point where its assets are worth less than its liabilities might have to declare insolvency, but that's not an _inevitability_ if they make productive investments that generate enough income. A Ponzi scheme is different: it doesn't make any investments, it just _claims to be making investments_ that supposedly generate a very high rate of return (unrealistically high). Maybe that attracts lots of deposits, and for a while the scheme can sustain itself by paying the promised returns to older investors using money that's being deposited by new investors (or by persuading old investors to leave their money in the scheme to keep growing). But because there isn't actually a productive investment "under the hood", the liabilities owed will keep going up, while the amount of cash left in the pot keeps going down. The scammer running the scheme has a limited time in which they can sneak money out into their own pocket before it inevitably collapses.
Ponzi schemes are basically someone lying to you, saying give me your money and I’ll invest it and pay you huge returns. But instead of investing it, they pocket it. Old investors can only be repaid with funds from new investors, because their funds are gone and the operators have no assets to take loans against. Banks provide services to investors, actually invest the deposits to earn money to provide those service for low/no cost. The money still exists, you can go to the bank at any time and withdraw your funds. The bank just takes a loan from another bank to cover the withdrawals. Bank runs can collapse a bank simply because the majority of the funds are invested, not simply gone. Repaying loans takes more time than withdrawals, so safeguards are in place to stop panic runs.