In addition to the nightmare that is money—and I’ll get to that in a moment—there is the horrible thing called banking.
Specifically, the horrible thing is called “fractional-reserve banking.” This is the kind of banking that’s practiced everywhere in the sophisticated, cosmopolitan world, where people are too polite to shout, “Show me the money!” (The rest of the world, quite sensibly, operates on a cash-on-the-barrelhead basis.)
Although we know better, at a subconscious level we all have an image of banks as being like Scrooge McDuck’s money vault. We put our money in banks, and bankers put that money—all those ones and fives and dimes and quarters—into a great big safe, where they rub it and dust it and stack it in piles, and where sometimes, late at night, the bankers take off all their clothes and roll in the stuff and yell, “Whee!”
In fact, banks don’t keep any money. Money is kept only in ATM machines. (No one knows where this money comes from. But somehow wives always find out whom it goes to on husbands’ “business trips.”)
All banks keep in their great big safes are a few Sacagawea dollars and a stack of twenties with an exploding dye pellet to give to bank robbers.
This is why your bank is always urging you to “bank online.” That way you’ll never notice that there isn’t any money in the bank. And, what with “online banking automatic bill payment” (whether you want to pay the bill or not), you won’t have any money in the bank anyway.
Banks are required to keep only a “fractional reserve” of the money that you put into them. The rest of your money is then available for the bank to loan to such creditors as college students in the ninth semester of their junior year, credit card bingers who’ve just spent their annual income on a lifetime supply of figet spinners, and buyers of used cars from dealers whose credit rating checks are so sketchy that every car they sell comes with a repo man in the trunk.
Under the system of fractional reserve banking, the fraction of your money that the bank has to keep in the bank can be (depending on what Republicans have been up to with banking regulations lately) as small as %. Possibly less.
Each bank has a certain “capital requirement”—a minimum net worth—that it has to maintain to stay in business. But all sorts of things can be included, on paper, to raise that capital requirement to the necessary regulatory level. For instance, the bank counts the money that you’ve deposited in the bank as part of its capital even though it owes you the money. The bank counts its shareholder equity and retained earnings as part of its capital (like anybody is ever going to see those again). It counts the bank building and the land under the parking lot. And—my favorite—the bank counts something called “subordinated debt.”
Subordinated debt is not money that the bank has. It’s money that the bank has borrowed from somebody else, maybe you. In other words, the money that you have deposited in a bank is guaranteed by money that you’ve loaned the bank plus money that you’ve deposited in the bank, which the bank owes you back, plus a parking lot.
Hello, mattress. Meet my savings.