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Banks. We need them.
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Hexxx
Sebiestor Tribe
Minmatar Republic
#61 - 2012-03-18 13:15:58 UTC  |  Edited by: Hexxx
This is partly to address some comments Adunh Slavy made and to clarify the theory.

A character that deposits ISK in the Bank only deposits ISK that they can't use (this is why people invest in the first place). Maybe they're too busy, maybe they're taking a break from the game, maybe they just have so much money that it's too hard to use all of it to make more money. At any rate, they deposit it. It's money they wouldn't use in the near term and so this money deposited would not have been used to increase the velocity of money.

The Bank, being a fractional reserve bank, MUST use it's money to make more money. Loans are an easy and scalable way to use large amounts. Money loaned is also used, increasing the velocity of money. The depositor would not have used that money, but the person receiving a loan or the Bank who trades commodities does use it and contributes to the velocity of money.

The hidden gem to banking in EVE may sound a bit repulsive to some, but it's true none the less; some depositors will never return. They end up not liking EVE, suddenly find they enjoy spending time outdoors, or rage quit in tears after getting hot dropped by +20 PL Titans at a gate between high-sec and null-sec...doesn't matter what the reason is honestly. The point is that money:

1) Would never be used in EVE again
2) Would never contribute to the velocity of money
3) Would only add to the measured money supply

A Bank with depositors that leave is great because it keeps their money in the "active" money supply, that is to say, the portion of the money supply that will eventually contribute to the velocity of money.
Hexxx
Sebiestor Tribe
Minmatar Republic
#62 - 2012-03-18 13:19:10 UTC
Darth Tickles wrote:
Hexxx wrote:
And yet it's happened before....crazy. Big smile


And those irrationally exuberant examples showed just how awful and unworkable the idea is.


I don't give up as easily as some people do. I'm weird like that. Big smile
Darth Tickles
Doomheim
#63 - 2012-03-18 13:38:30 UTC
Fortunately it doesn't matter what you will or won't do.
Jake Andarius
Andarius Trading Corp.
#64 - 2012-03-18 13:47:08 UTC  |  Edited by: Jake Andarius
RAW23 wrote:
I don't think that the money multiplier effect is really what the issue is but, rather, the velocity of money. The money multiplier, and fractional reserve banking in general, can't really apply in eve because it requires that people be able to spend something other than physical currency, which is not the case with the eve markets (although parallel markets using bank created money could, presumably, be set up).


Adunh Slavy wrote:
If the Eve bank can commoditize its owed debts, the asset it created, by the issue of some additional security, then it can increase the functional money supply, albeit in a far less liquid form. That is far far different than commercial banks printing money with pencils and keyboards.


I would like to clear up some confusion. Private commercials banks in the real world do not print money. Central banks are the only banks that can print money in the real world, and we can lay aside central banking in our discussions because there are no central banks in EVE (ISK is created through missions instead). Private commercial banks in the real world increase the money supply, which is a measurement of all physical currency and bank deposit records, through the money multiplier effect. In the real world, when someone deposits $100 and the bank lends out $90, the money supply has now become $190 (physical currency + bank deposit records). This would be the exact same as EVE banking. In EVE, when someone deposits 1 billion ISK and the bank lends out 800 million ISK, the money supply would become 1.8 billion ISK. You can think about it this way. If there are no banks in EVE, there is a lot of ISK sitting around doing nothing. However, if banks arise and people start depositing ISK, then that ISK is loaned out to people who plan on spending it. The overall effect on the economy if banks exist is that purchasing power is actively put into use that would not have been used if banks did not exist. The active usage of purchasing power is what leads to inflation.

(Also I edited my previous post to clarify that 400% money supply is created from any given amount, if there are 20% reserves. So the end result is that the money supply is 5X. Again, the money supply is increase by 4X, not 5X. The end result is that the money supply would be 1X +4X = 5X.)

Andarius Trading Corp. | MD Borrowers and Trustees
Mookie Quantico
Doomheim
#65 - 2012-03-18 13:55:05 UTC
No.

We don't.

CCP has far better uses for it's DIMINISHED manpower --given the shitkicking CCP took last year about spending too much time on trivial crap-- than creating specialized financial interfaces to help a tiny minority of players count pennies in their CQ... Evil

Mook
Adunh Slavy
#66 - 2012-03-18 14:00:08 UTC  |  Edited by: Adunh Slavy
Johnny Frecko wrote:
Stuff


Ok, you're kinda all over the place there, so not going to do a point by point. Please go read the document "Modern Money Mechanics" available on the web site of the Federal Reserve Bank, a private bank btw that is about as federal as Federal Express. (Got to love catchy standards).

Banks in the real world don't physically print money, but they create money, happy now?

If you go deposit $10 in cash (m1) into a bank, they create a ledger entry and give you $10 in "check book money", (M2).

(we'll assume a 10% reserve, a multiplier of 10).

You deposit $10 in hard cash, they keep $1 in hard currency (M1) and loan out $9 (M1) in hard currency. That $1 (M1) backs up your check book money of $10 (M2). How much money is in circulation? $19. $10 of that is check book money (M2). It is not a hard currency. $1 (M1) is sitting in a vault someplace. (these days though, it's on a computer at whatever central bank to which you are being subjected, but let's move on) You can easily exchange your check book money for hard currency if you want to, if the bank runs out of hard currency, not a big deal, they can get some from the central bank, which BTW does not exist in Eve.

In Eve, the check book money (M2) from some Bank run by a bunch of players can not be traded on the Eve market. I can't use it as ISK (M1). In the real world I CAN use check book money as just as easily as hard cash.

What you are failing to differentiate is, "money" from debt and credit. In the real world money and debt and credit are all the same thing when you get right down to it. But that is not the case in Eve. The Money in Eve is not debt, it is not credit.

Eve banks can not create ISK, all they can create is credit and debt. The amount of ISK is not impacted by this at all. How fast the ISK can move, and how much can be gathered up and utilized is not the same thing as creating it.

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt
Kara Roideater
#67 - 2012-03-18 14:07:43 UTC
Jake Andarius wrote:

I would like to clear up some confusion. Private commercials banks in the real world do not print money. Central banks are the only banks that can print money in the real world, and we can lay aside central banking in our discussions because there are no central banks in EVE (ISK is created through missions instead). Private commercial banks in the real world increase the money supply, which is a measurement of all physical currency and bank deposit records, through the money multiplier effect. In the real world, when someone deposits $100 and the bank lends out $90, the money supply has now become $190 (physical currency + bank deposit records). This would be the exact same as EVE banking. In EVE, when someone deposits 1 billion ISK and the bank lends out 800 million ISK, the money supply would become 1.8 billion ISK.


That's not true. Just ask yourself this: can all 1.8billion be spent in Jita at the same time? The answer is no because the money supply remains the same. There is still only 1bil in isk available in total to spend. If the depositor with the billion in his account takes it out to spend in Jita then when the guy with 800mil in his account rocks up five minutes later to withdraw his money, there will be nothing there to give him.

You are correct that private banks don't print money. What they do is, effectively, write promissary notes for the additional 800mil, with that promissary note in turn backed by the asset they hold, the 800mil debt from the borrower. So long as vendors and other businesses are willing to accept the promissary notes written by the banks (or the digital equivalent nowadays), the money supply effectively increases because the 'bank paper' is accepted as usable in exactly the same way as is the hard currency. But in eve you simply can't use bank paper on the ingame markets, so their is no actual money multiplier. The only thing you can spend on the market is isk and the amount of isk in the game is set by CCP. There is no way for players to increase the actual quantity of isk by writing 'bank paper' because the market on which trades are overwhelmingly made just doesn't accept anything other than the hard isk.
Adunh Slavy
#68 - 2012-03-18 14:23:15 UTC  |  Edited by: Adunh Slavy
Ok, let's clear up some words "print money", it is being loosely used as "creating money". In the US the central bank doesn't print the money either, the Treasury Department prints it for the Fed. 90% of the money used in the day to day lives of the people is created by the banks. When someone says a commercial bank "prints money" or "out of thin air" they do not literally mean stamping ink on paper. Ok, we all clear now? Good.

Jake Andarius wrote:

In the real world, when someone deposits $100 and the bank lends out $90, the money supply has now become $190 (physical currency + bank deposit records). This would be the exact same as EVE banking. In EVE, when someone deposits 1 billion ISK and the bank lends out 800 million ISK, the money supply would become 1.8 billion ISK.


The money supply in Eve is still 1 billion ISK, not 1.8B. The bank ledger now has a debt of 1 Billion ISK for that depositor. What has been created is a 1 Billion ISK debt. Let me ask you honestly, will you trade me your dread for the 1 billion ISK that Hexxx owes me, or would you prefer some ISK in your wallet?

Since they are the same according to the quote above, then taking this debt note is just as good, so good infact I can put it on the Eve market in contracts ... oh wait, no I can't. Still, you'll take it anyway, right?

Jake Andarius wrote:

You can think about it this way. If there are no banks in EVE, there is a lot of ISK sitting around doing nothing. However, if banks arise and people start depositing ISK, then that ISK is loaned out to people who plan on spending it. The overall effect on the economy if banks exist is that purchasing power is actively put into use that would not have been used if banks did not exist. The active usage of purchasing power is what leads to inflation.


This is a different argument, this is the velocity and liquidity argument, which everyone agrees with as far as I can tell in the thread.

If it will lead to price increases is a different matter. Under normal circumstances I would agree that it would have an upward pressure on prices. But as we saw in that recent devblog, 1300% increase in the monetary base and zippo in terms of a general price increase. There is some funky stuff going on in Eve, and it is structural, but let's not get off in a tangent here, there's threads in GD for that right now.

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt
Kara Roideater
#69 - 2012-03-18 14:25:02 UTC  |  Edited by: Kara Roideater
Hexxx wrote:
The Bank, being a fractional reserve bank, MUST use it's money to make more money. Loans are an easy and scalable way to use large amounts. Money loaned is also used, increasing the velocity of money. The depositor would not have used that money, but the person receiving a loan or the Bank who trades commodities does use it and contributes to the velocity of money.


Hexxx, you're really confusing the issue by using the term 'fractional reserve bank[ing]'. What you describe is not really a fractional reserve bank in a meaningful way, although it is, literally, a bank that keeps a fraction of its deposits in reserve. But because of the nature of eve this doesn't have the same consequences and it is these consequences that have become synonymous with fractional reserve banking in RL.

Edit - Tags Adunh.
Hexxx
Sebiestor Tribe
Minmatar Republic
#70 - 2012-03-18 14:36:08 UTC
Kara Roideater wrote:
Hexxx wrote:
The Bank, being a fractional reserve bank, MUST use it's money to make more money. Loans are an easy and scalable way to use large amounts. Money loaned is also used, increasing the velocity of money. The depositor would not have used that money, but the person receiving a loan or the Bank who trades commodities does use it and contributes to the velocity of money.


Hexxx, you're really confusing the issue by using the term 'fractional reserve bank[ing]'. What you describe is not really a fractional reserve bank in a meaningful way, although it is, literally, a bank that keeps a fraction of its deposits in reserve. But because of the nature of eve this doesn't have the same consequences and it is these consequences that have become synonymous with fractional reserve banking in RL.

Edit - Tags Adunh.



Any Bank that offers interest has to use some of it's deposited money to make money; how's that?
Kara Roideater
#71 - 2012-03-18 14:37:30 UTC
Hexxx wrote:
Kara Roideater wrote:
Hexxx wrote:
The Bank, being a fractional reserve bank, MUST use it's money to make more money. Loans are an easy and scalable way to use large amounts. Money loaned is also used, increasing the velocity of money. The depositor would not have used that money, but the person receiving a loan or the Bank who trades commodities does use it and contributes to the velocity of money.


Hexxx, you're really confusing the issue by using the term 'fractional reserve bank[ing]'. What you describe is not really a fractional reserve bank in a meaningful way, although it is, literally, a bank that keeps a fraction of its deposits in reserve. But because of the nature of eve this doesn't have the same consequences and it is these consequences that have become synonymous with fractional reserve banking in RL.

Edit - Tags Adunh.



Any Bank that offers interest has to use some of it's deposited money to make money; how's that?


Much slicker. Big smile
HalfArse
Wixo Trading Co.
#72 - 2012-03-18 14:38:43 UTC
+1 for more economy tools to help develop a more complex, player run economy.
Florestan Bronstein
Ministry of War
Amarr Empire
#73 - 2012-03-18 15:07:26 UTC
Kara Roideater wrote:
You are correct that private banks don't print money. What they do is, effectively, write promissary notes for the additional 800mil, with that promissary note in turn backed by the asset they hold, the 800mil debt from the borrower. So long as vendors and other businesses are willing to accept the promissary notes written by the banks (or the digital equivalent nowadays), the money supply effectively increases because the 'bank paper' is accepted as usable in exactly the same way as is the hard currency. But in eve you simply can't use bank paper on the ingame markets, so their is no actual money multiplier. The only thing you can spend on the market is isk and the amount of isk in the game is set by CCP. There is no way for players to increase the actual quantity of isk by writing 'bank paper' because the market on which trades are overwhelmingly made just doesn't accept anything other than the hard isk.

A stock market or a 3rd party service would actually be quite logical side-ventures for a bank in EVE that would allow people to make use of their account balances without having to convert into isk first.
Kara Roideater
#74 - 2012-03-18 15:22:10 UTC  |  Edited by: Kara Roideater
Florestan Bronstein wrote:
Kara Roideater wrote:
You are correct that private banks don't print money. What they do is, effectively, write promissary notes for the additional 800mil, with that promissary note in turn backed by the asset they hold, the 800mil debt from the borrower. So long as vendors and other businesses are willing to accept the promissary notes written by the banks (or the digital equivalent nowadays), the money supply effectively increases because the 'bank paper' is accepted as usable in exactly the same way as is the hard currency. But in eve you simply can't use bank paper on the ingame markets, so their is no actual money multiplier. The only thing you can spend on the market is isk and the amount of isk in the game is set by CCP. There is no way for players to increase the actual quantity of isk by writing 'bank paper' because the market on which trades are overwhelmingly made just doesn't accept anything other than the hard isk.

A stock market or a 3rd party service would actually be quite logical side-ventures for a bank in EVE that would allow people to make use of their account balances without having to convert into isk first.


Sure. Would that have a significant effect on the money supply, though?

Edit - Or do you think that this would lead to a great new interest in shares as being the only thing that most peoples' account balances could be used for at any one time?
Adunh Slavy
#75 - 2012-03-18 15:23:19 UTC
Maybe part of the answer is to create a banking alliance. The only purpose is to loan money and enforce payment with guns and grief.

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt
Kara Roideater
#76 - 2012-03-18 15:34:35 UTC  |  Edited by: Kara Roideater
Adunh Slavy wrote:
Maybe part of the answer is to create a banking alliance. The only purpose is to loan money and enforce payment with guns and grief.



There aren't enough guns and grief in all of eve to enforce payments of debts. I've got to say that I'm with Tickles on this one. I think there are useful things that can be done with the lower level financial market (whereas he doesn't) but banks have huge problems. a) their historical failure rate in eve is 100%; b) the potential size of a bank makes it a prime target for a scam; c) the technology required is sufficiently complex that you have to widen the circle of trusted people to programmers as well and a bank can fail due to tech failure as well as breach of trust; d) earnings don't scale in eve and none of the previous banks have been able to utilise their funds in such a way as to get decent returns (from memory, scams and uncollateralised defaults aside, its unclear whether EBANK even managed to earn enough to cover its interest obligations), which connects to e) much of the deposited isk will have to lie idle in any case so as to provide a buffer against withdrawals, but interest will still need to be paid on this isk even if it is not earning anything. I just can't see any way to bridge the gap between the extremely high risk involved in investing by depositing in a bank and the extremely low returns. Say returns average 1%/month, you'd have to ask yourself whether you would be surprised to find that a bank, on average, fails more frequently than once every eight years, as it would take eight years of earning interest to cover the loss of your initial investment. And the historical data just makes a mockery of that requirement!
Adunh Slavy
#77 - 2012-03-18 15:36:17 UTC
Florestan Bronstein wrote:
Kara Roideater wrote:

A stock market or a 3rd party service would actually be quite logical side-ventures for a bank in EVE that would allow people to make use of their account balances without having to convert into isk first.


Sure. Would that have a significant effect on the money supply, though?

Edit - Or do you think that this would lead to a great new interest in shares as being the only thing that most peoples' account balances could be used for at any one time?



I think the later. Deposit "money" is a debt owed by the bank, it is "anti-isk" if you will. It's a money that exists on the other side of the equation. It can't influence the ISK supply, it can move it around between players when those players withdraw ISK from the banks, but until that happens it is ISK-Side neutral.

Gives me some ideas though.

P.S. TQ go down? Can't send mail through the eve-gate

Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.  - William Pitt
Kara Roideater
#78 - 2012-03-18 15:40:13 UTC
Adunh Slavy wrote:


P.S. TQ go down? Can't send mail through the eve-gate


Yeah - is down at the mo.
Darth Tickles
Doomheim
#79 - 2012-03-18 16:10:09 UTC
A "teller" deposit bank is inherently illogical and simply a vanity project. Vanity projects are fine, except when you require destroying trillions of isk in value as part of the process, unless of course that is your intent from the start.

If somebody wants to be a "trusted" party, take on uncollateralized obligations, and then loan that money back out on a spread, then fine. Tornsoul has been doing this successfully for years now. It's obviously viable, though I personally wouldn't trust a stranger with my money, but that's the individual's call to make.

From repeated experience we've seen that somebody trusted enough to take on the vast sums of isk necessary to create a viable business from the loan spread can secure quite literally hundreds of billions at 1-2% interest. The only cap I've seen on how much money these people can borrow is how much they actually need.

Now, if someone with the requisite trust to act as a "bank" can borrow seemingly unlimited money in huge individual quantities at absolutely bottom end interest rates, what possible reason could they have for introducing some complicated teller deposit system? Instead of taking on a small number of large, set-term deposits, now they have to take on tens of thousands of tiny individual deposits with no set term. They need to run a huge teller service which vastly increases transaction costs and security risks, and they need to keep a reserve of deposits sitting idle, all for approximately the same rate as they pay for large set-term deposits.

It makes absolutely no sense to the "banker", and vastly increases the already substantial risk to the depositor. It is quite literally illogical, such that no sane person could justify it based on fundamental principles of business.
Hexxx
Sebiestor Tribe
Minmatar Republic
#80 - 2012-03-18 16:17:30 UTC
Darth Tickles wrote:
A "teller" deposit bank is inherently illogical and simply a vanity project. Vanity projects are fine, except when you require destroying trillions of isk in value as part of the process, unless of course that is your intent from the start.

If somebody wants to be a "trusted" party, take on uncollateralized obligations, and then loan that money back out on a spread, then fine. Tornsoul has been doing this successfully for years now. It's obviously viable, though I personally wouldn't trust a stranger with my money, but that's the individual's call to make.

From repeated experience we've seen that somebody trusted enough to take on the vast sums of isk necessary to create a viable business from the loan spread can secure quite literally hundreds of billions at 1-2% interest. The only cap I've seen on how much money these people can borrow is how much they actually need.

Now, if someone with the requisite trust to act as a "bank" can borrow seemingly unlimited money in huge individual quantities at absolutely bottom end interest rates, what possible reason could they have for introducing some complicated teller deposit system? Instead of taking on a small number of large, set-term deposits, now they have to take on tens of thousands of tiny individual deposits with no set term. They need to run a huge teller service which vastly increases transaction costs and security risks, and they need to keep a reserve of deposits sitting idle, all for approximately the same rate as they pay for large set-term deposits.

It makes absolutely no sense to the "banker", and vastly increases the already substantial risk to the depositor. It is quite literally illogical, such that no sane person could justify it based on fundamental principles of business.


You sound like you could talk yourself out of nearly anything. Blink