Crime Against Humanity: Fractional Reserve, Namely Legalized Counterfeiting, 3

Turning fraud into an institution:
Since fractional reserve is a crucial component to understand, in order not to take anything for granted I will suppose you were incredulous and start approaching it from there. So you believe that bankers only lend the money you deposited with them, and no more than that. After all, you say, one can’t use something that does not exist. To better unravel the knot, I’ll temporarily move you to Example Island: there, you give 10 units of money to the banker, whom as a consequence of your deposit cannot lend to other people more than these 10 units of money. Seen from here, fractional reserve apparently means that the banker is even required to retain a given percentage of your 10 units as reserves; the reason is that any depositor like you may want to withdraw some units at any time, and the required percentage of reserves is calculated to cover the amount of units that may be withdrawn.
If you observe carefully, already at this early stage something begins not to add up. It’s: debt or bailment, debtor or bailee? That is the question.
It all starts with conveniently blurring under the label of “banking” two distinct and separate functions: investment and deposit. On Example Island, you entrust your money to the investment banker – from the very definition – for the explicit purpose of lending it and returning a yield against the risk intrinsic to the loan; instead, you entrust your money to the deposit banker – again, from the very definition – for the quite distinct and different, though once again explicit, purpose of guard it at a fee, and protect it against any and all risk whatsoever. Further services such as transfers come obviously under deposit banking rather than investiment banking because they are intended to be safe against a fee, not gambles against a yield or a loss.

Crime Against Humanity: Fractional Reserve, Namely Legalized Counterfeiting