Why the bank didn't want to discuss mortgage contracts

ranaihrs

'I fear we could be being groomed for :spam: but, apologies if I am wrong.'

Let me allay your fears - I am not a spammer. No apology necessary

'struanhellier'

Thank you, at least, for a thoughtful reply.

'Even if you were right that the money comes from nothing that does not mean it cannot be sufficient consideration.'

That's a good point. It tackles the heart of my conclusion. Would you be able to expand on this and explain why this is so? Although there is a precise meaning of 'consideration' in contract law, the definitions of 'real' and 'tangible' seem to be open to interpretation. Believe me, I have no problem being wrong - this is why I put my experience into the public domain - yes, on a number of sites - so that, where the bank failed to provide any answers, perhaps someone with a more in-depth knowledge of contract law and/or economics could provide them.

'OP, are you trying to sell us something?'

LOL - no, I am not selling anything.

'Because they didn't want to waste their time with a fruit cake'

Then neither will I!

'someone has too much time on their hands'

I do love a reasoned argument, don't you?

Ok, for those who didn't read the sources, you can read the information at wikipedia if you search for 'Modern Money Mechanics' and 'Contract' (although this was not my source, the same info is presented here).

Now, look - I started all this because I wanted some answers to my questions, I believe that the bank has a responsibility to explain the nature of its terms. If searching for the truth makes me a 'weirdo' or a 'fruit cake' then let it be so.

Rather that than blind acceptance.

Beardmidget

You misunderstand fractional reserve, possibly because you want us to believe that there is something more sinister going on and therefore we could all have our mortgages/ loans written off. Forget about it- it is a flaw in your understanding which leads to an equally flawed conclusion about the enforceability of loans.

ranaihrs

'You misunderstand fractional reserve, possibly because you want us to believe that there is something more sinister going on'

As I repeat, I don't mind being wrong - if I have misunderstood, that is fair comment. You are just stating that it is a 'flaw' but you don't reveal what the flaw is. Simply to say it is so is no real argument, is it?

Beardmidget

Fine-

The fractional reserve system does not mean that banks just magic money out of nothing.

When they take a deposit of (say) £10,000, as you rightly point out they must keep £1000 in reserve and can then use the extra £9000 for lending to other customers.

They have literally used your money to give to someone else. They still promise to give the original customer all £10,000 back if he asks, and this is possible because in normal conditions they will have enough spread out across the reserve to pay all that money back, or they can borrow that money from other banks.

The problem arising when there is a run on the bank is that they don't have enough cash in the reserve to give all the money back to every customer with savings- they have to borrow this money, and when there is a problem with bank-to-bank credit, they cannot do so and they're completely stuck.

So, when they make a loan, they do not just type numbers into a computer, they genuinely do use actual money.

I suspect the confusion lies in the fact that if I ask my bank for a loan, then they will just change the amount in my account without having to physically move money, but then I don't take a personal loan just to populate my bank account, I do it to buy something. Whilst there is no initial movement of money, there will be when I take that loaned money and, say, pay for a car with it. Nevertheless, even when it was sitting in my account, they have had to add my loan on to their balance sheet- precisely because they don't just pull money from thin air.

If banks were simply making money from nothing, the economy would have collapsed very quickly.

If you are wondering how banks make money, then that is a fairly simple question- they take profit from the interest on money they have loaned to customers, and they also make profit from their investment branches.

ranaihrs

Thank you for taking time to explain.

However, now there is a bit of a conundrum, specifically with the point:

'They have literally used your money to give to someone else.'

This suggests that the loan sums come from the deposits. Is this what you meant? According to 'Modern Money Mechanics', and I re-quote them here:

'If business is active, the banks with excess reserves will have opportunities to loan the £9000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts.

Loans (assets) and deposits (liabilities) both rise by £9000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.'

This is the description of the system as provided by the Federal Reserve Bank of Chicago - why do they talk of money creation if new loans come from existing deposits (which they explicitly say it does not). If both asset and liability increase during a loan transaction it seems reasonable to assume the 'additional money would be created' because of that transaction.

struanhellier

ranaihrs wrote: »

'struanhellier'

Thank you, at least, for a thoughtful reply.

'Even if you were right that the money comes from nothing that does not mean it cannot be sufficient consideration.'

That's a good point. It tackles the heart of my conclusion. Would you be able to expand on this and explain why this is so? Although there is a precise meaning of 'consideration' in contract law, the definitions of 'real' and 'tangible' seem to be open to interpretation. Believe me, I have no problem being wrong - this is why I put my experience into the public domain - yes, on a number of sites - so that, where the bank failed to provide any answers, perhaps someone with a more in-depth knowledge of contract law and/or economics could provide them.

It does not matter where money came from. What matters is what it can buy in the future - which is real, tangible and of discernable value. To take your position to its logical conclusion one could argue that he whole universe arose 'ex nihilo', meaning everything came from nothing, therefore nothing is (by your definition) real. Descartes might be proud, but I'm not sure a mortgage lender would fall for it.

ranaihrs

'It does not matter where money came from'

It does within the context of 'consideration'.

'To take your position to its logical conclusion one could argue that he whole universe arose 'ex nihilo', meaning everything came from nothing, therefore nothing is (by your definition) real.'

That is not a logical conclusion - to say that a human construct such as a banking system has any bearing on the formation of the Universe is a tenuous link to say the least!

And when exactly did I provide a definition for 'real'?

struanhellier

ranaihrs wrote: »

'It does not matter where money came from'

It does within the context of 'consideration'.

No it doesn't. What matters is that it is real (present tense) not what it was (past tense).

ranaihrs wrote: »

'To take your position to its logical conclusion one could argue that he whole universe arose 'ex nihilo', meaning everything came from nothing, therefore nothing is (by your definition) real.'

That is not a logical conclusion - to say that a human construct such as a banking system has any bearing on the formation of the Universe is a tenuous link to say the least!

My point was that things that are real can come from nothing. See above for why that is important.

ranaihrs wrote: »

And when exactly did I provide a definition for 'real'?

Apologies, I assumed this from your (crucial) claim: "The money, which never existed in the first place, is 'not real'!" I mean it literally and in no way with the intention of insulting you when I say that I assumed you knew what you were talking about. To me, having a large wad of money placed in my account is a real, tangible and valuable consideration. If you think it isn't then, for the reasons I have given, you will need to put forward a much better argument than the rather odd claim that because the money came from nothing it is unreal, paricularly when you don't even know what you mean by unreal.

ranaihrs

Incidentally, a little more digging reveals this little reported case from 1968. [FONT=Arial,Helvetica]

First National Bank of Montgomery vs. Jerome Daly, Scott County, Minnesota

[/FONT][FONT=Arial,Helvetica]The full judgement can be read here:
lawlibrary.state.mn.us/CreditRiver/1968-12-09judgmentanddecree.pdf

I've heard that a similar, more recent, case occured in the UK but I have yet to find any information about this.

In case you'd rather not read the (short) judgement, the judge summed up:

'The issues in this case were simple. There was no material dispute on the facts for the Jury to resolve.
Plaintiff admitted that it, in combination with the Federal Reserve Bank of Minneapolis...did create the entire $14,000 in money or credit upon its own books by bookkeeping entry. That this was the Consideration used to support the Note...and the Mortgage of the same date. The money and credit first came into existence when they created it. Mr. Morgan admitted that no US Law or Statute existed which gave him the right to do this. A lawful Consideration must exist and be tendered to support the Note. The Jury found that there was no lawful consideration and I agree. Only God can create something of value out of nothing.'


[/FONT]

ranaihrs

'No it doesn't. What matters is that it is real (present tense)'
Sorry, you're still wrong, dude! Consideration must be given for the contract to be legal, but since the money does not come into being until the credit is made to your account (after the contract has been signed) this is not a legal form of consideration.

'My point was that things that are real can come from nothing.'
Can't argue with that - virtual particles are constantly being created in the vacuum (and annihilated, of course). But in the banking system this is an illusion.

'paricularly when you don't even know what you mean by unreal'
Neither have I attempted to define 'unreal'. Since I never said that the credits to your account could not be used for anything (you'd obviously use it to purchase your property) you misunderstand the point - the crucial point is that when the contract is signed, the banks consideration is based upon money that hasn't been created yet. That is an invalid consideration as far as I'm concerned.
Edit: And, additionally, the promise to pay money is invalid if the way it is done is by bookkeeping entry, because it is created from nothing. All it seems to serve is the devaluing of the existing money supply.

I am trying to gain understanding by factual research and I am providing sources for that information. Despite the 'I won't insult you, but...' type of comment, I shall continue. Even if I am wrong, I see it as a positive thing because at least I will be closer to the truth of the matter - that's what's important.