So long as a bank is lending out its savings and checking balances, it is insolvent. There are two claims to that money, the saver and the borrower, and the only thing preventing that fraud from being exposed is that the saver isn't likely to spend much of it.
Yes but when the banks lose 50% of their assets, such as several borrowers declaring bankruptcy or investments going underwater, they are in much worse condition.
It's at that point that the insolvency is exposed, sure. I'm just pointing out that the insolvency doesn't begin when the investments lose value, it was chosen the minute the bank chose to be fractional reserve.
So long as a bank is lending out its savings and checking balances, it is insolvent. There are two claims to that money, the saver and the borrower, and the only thing preventing that fraud from being exposed is that the saver isn't likely to spend much of it.
Yes but when the banks lose 50% of their assets, such as several borrowers declaring bankruptcy or investments going underwater, they are in much worse condition.
It's at that point that the insolvency is exposed, sure. I'm just pointing out that the insolvency doesn't begin when the investments lose value, it was chosen the minute the bank chose to be fractional reserve.