The Kirtland Bank

[wenglund]

I wasn't describing leverage, unless you idiosyncratically refer the mainstream economics theory of monetary creation as leverage.

It's not indiosyncratic. But if you prefer, let's call it "velocity" (not that this should matter at all).

Thanks, -Wade Englund-

[Analytics]

It's not indiosyncratic. But if you prefer, let's call it "velocity" (not that this should matter at all).

Thanks, -Wade Englund-

On the one hand, I'm really curious about what in the heck you are talking about. I'm reasonably sure I know what I'm talking about when it comes to economics and finance. If what I'm describing really isn't the mainstream economic theory of how fractional reserve banking creates money, but rather is "leverage" (or "velocity"), I'd really, really like to know; it would be a valuable opportunity to improve my understanding of basic Economics.

But on the other hand, I'm quite curious about why you are nitpicking here. Is it bringing you closer to Christ?

[Pahoran]

Central points of Mr. White's arguments were that "Joseph Smith's and Sidney Rigdon's management was sound" (page 5), and that "No one starting a bank in Kirtland, 1837, would have had any more knowledge of how to do it than Joseph Smith and Sidney Rigdon." (transcript)

So you think that by saying "No one starting a bank in Kirtland, 1837, would have had any more knowledge of how to do it than Joseph Smith and Sidney Rigdon," he was asserting that "Joseph and Sidney were well-qualified professionals?"

All I can say to that is, "Oh."

Let's look at that statement in the light of something that is anathema to your anti-Mormon principles: context.

Well, let's step aside from presentism and look at it from frontier America in 1837. It was actually very common for banks to be started with little knowledge of how to run it, for the simple reason that anyone who did know how was already running one. The financial sector was still in its infancy, and they didn't have a nationwide network of universities churning out MBA grads every year.

No one starting a bank in Kirtland, 1837, would have had any more knowledge of how to do it than Joseph Smith and Sidney Rigdon.

Did you perhaps miss the bolded bit?

If you'd like to argue that Joseph Smith and Sidney Rigdon didn't run the bank in a prudent manner and weren't well-qualified to be running a bank at all, I'll happily listen to your arguments.

I have non reason to think them "qualified." And you have no reason to think they were imprudent.

Regards,

Pahoran

[Analytics]

...I have non reason to think them "qualified." And you have no reason to think they were imprudent.

But doesn't the assertion that they didn't do anything wrong imply that they were indeed qualified?

Qualifications aside, are you suggesting it was prudent to put somebody like Warren Parrish in a position where he could steal all of the alleged species without a witness or a trace?

[ERayR]

Let's review what we are talking about. ERayR said,

Now he is correct in the implication that a fractional reserve banking system creates money, and he was getting the correct result using the money multiplier formula, but he is absolutely wrong in describing how it works: he said that with a 10% reserve requirement, every time somebody deposits $1 the bank can loan $10. That is flat-out wrong. With a 10% reserve requirement, every time somebody deposits $1 the bank can loan 90 cents. The banks assets and its reserves are two different things.

A banks reserves is the cash on hand or available to pay to the depositors should they request it. A banks assets are the property, buildings, furniture, equipment and loans to borrowers.

You say it is incorrect that a deposit of $1 can result in $10 in loans. As long as the bank holds the $1 in reserve they can loan the $10. You have them keeping only .10 in reserve. They can have 10 times as much in loans as they have on deposit. Loans by the way that are nothing more than bookkeeping entries backed by notes from the borrowers.

[Analytics]

A banks reserves is the cash on hand or available to pay to the depositors should they request it. A banks assets are the property, buildings, furniture, equipment and loans to borrowers.

You say it is incorrect that a deposit of $1 can result in $10 in loans. As long as the bank holds the $1 in reserve they can loan the $10. You have them keeping only .10 in reserve. They can have 10 times as much in loans as they have on deposit. Loans by the way that are nothing more than bookkeeping entries backed by notes from the borrowers.

If that is the case, why would a bank bother accepting deposits? Hereâ??s an example.

Say I have $1,000,000 and decide to use it as capital to open a bank. I establish $1,000,000 in reserves using the capital I invested. I donâ??t accept any deposits.

According to your claims here, with that $1,000,000 to serve as reserves, I can loan $10,000,000, right?

I go ahead and loan somebody $10,000,000 for one year, charging 6% interest on the loan.

A year later the loan is repaid with interest and I get back $10,600,000. Assuming the $10,000,000 in principle disappears back into the ether from where it originated, Iâ??m left with $600,000 in profit.

In this scenario, my $1,000,000 in capital generated a 60% annual return by making a simple, low-risk loan. Is that really what you are claiming?

[wenglund]

On the one hand, I'm really curious about what in the heck you are talking about. I'm reasonably sure I know what I'm talking about when it comes to economics and finance.

Way to go Analytics. You caught me. I must now admit that I am nowhere close to being an expert in finance and economics. I haven't even an undergraduate degree in either field. It was absurd for me to suggest that there is a relationship between leverage and the example you gave of bank loans. I was clearly out of my depths to think that velocity has anything to do with expanding money supply as also with your example. Worse yet, I am evidently struggling to grasp the basic principle of reserve rates, and have consequently taken the discussion far afield of the topic, for which I sincerely apologize. So, please allow me to humbly take my hands slowly away from the key board and step way back from your line of discussion, and let you go ahead and impress whomever with your banking accumen.

Thanks, -Wade Englund-

[wenglund]

Without intending to detract from Analytics' stintilating pontifications in which he tangentially strains at the gnat of bank reserves, may I just reiterate that the issues surrounding the failure of the KSS some 160 years ago have no direct relevance, then or now, to the verity of the restored gospel or the prophetic calling of Joseph Smith.

As such, anyone whose faith is somewhat shaken thereby or who thinks to use it to criticize the Church and its leaders, clearly do not rightly grasp the intent and purpose of the restored gospel and Christ's Church.

Thanks, -Wade Englund-

[Analytics]

Way to go Analytics. You caught me. I must now admit that I am nowhere close to being an expert in finance and economics. I haven't even an undergraduate degree in either field. It was absurd for me to suggest that there is a relationship between leverage and the example you gave of bank loans. I was clearly out of my depths to think that velocity has anything to do with expanding money supply as also with your example. Worse yet, I am evidently struggling to grasp the basic principle of reserve rates, and have consequently taken the discussion far afield of the topic, for which I sincerely apologize. So, please allow me to humbly take my hands slowly away from the key board and step way back from your line of discussion, and let you go ahead and impress whomever with your banking accumen.

Thanks, -Wade Englund-

You don't sound quite as sincere as you claim you are, but in any case, I'm not trying to impress anybody--I'm just trying to move the conversation forward by doing what I can to contribute accurate understanding and clear thought on the topic. It sounds like you think the basics of what banks do now and what they did then is off-topic, but I'd suggest that these are closely related to the paper referred to in the OP.

[Gervin]

Way to go Analytics <etc>

this is a neat trick; eating crow and kicking Analytics under the table at the same time

[Pahoran]

But doesn't the assertion that they didn't do anything wrong imply that they were indeed qualified?

No. It merely implies that they were honest.

I take it that you concede that the sentence you previously quoted does not actually imply or assert that they were qualified?

Qualifications aside, are you suggesting it was prudent to put somebody like Warren Parrish in a position where he could steal all of the alleged species without a witness or a trace?

Ah, so now we have a new test for prudence: the hindsight test.

On that basis, can you point to an example of your kind of prudence? How many financial institutions are there that have never been ripped off by a person in a position of trust?

Regards,

Pahoran

[Analytics]

No. It merely implies that they were honest.

I take it that you concede that the sentence you previously quoted does not actually imply or assert that they were qualified?

Ah, so now we have a new test for prudence: the hindsight test.

On that basis, can you point to an example of your kind of prudence? How many financial institutions are there that have never been ripped off by a person in a position of trust?

Regards,

Pahoran

You are really straining at gnats here Pahoran. But I tell you what. I hereby retract the original post I made (2 points, Pahran!) and replace it with the following:

It is fun and easy to say that Joseph Smithâ??s and Sidney Rigdonâ??s management was sound and that the failure was due to Church antagonists and Warren Parrish.

Happy?