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Keep Your Hands Off My Checking Account!
Like every American, my wife and I have greatly benefited our whole married lives by using free checking accounts.
But there are many interventionists who want to take away our freedom to have these free accounts, supposedly for our own good. They want to outlaw free checking as it exists today and has for centuries.
Because free checking is made possible by a kind of business process called “fractional reserve banking” (“FRB”). These interventionists want to take away the freedom of Americans to buy and sell FRB services, just as interventionists in general want to impair or destroy every American freedom that they think allows the individual to do something that they’ve decided is not good for him.
Sadly, the attack is often by people who in most other cases proclaim their support for the market and for the respect for human rights.
My position is this: No one has the right to stop me and an entrepreneur from making a voluntary, honest trade, my money for his free checking services, merely because that interventionist believes that it is for my own good.
The fact is that I am giving up something of less value to me than what I am getting: I am becoming better-off than I would have been without the trade. Likewise, the entrepreneur on the other side of the contract is giving up something of less value to him than he is getting: he is becoming better-off than he would have been without the trade.
The society as a whole has become wealthier than it would have been.Published in General
But where is the role for the government?
Can’t have people just doing deals with each other willy-nilly without the
paternal blessingmeddling hand of the almighty government.
Get with the program, Comrade!
As if you can have banking without government, or even contracts. You need enforcement of the law.
I have 4 free checking accounts so I’m not interested in not having them. We had a decent banking system before the congress repealed the McFadden Act in 1994. One of the repeals did away with the prohibition on interstate banking reducing a person’s choice in where they bank to one-quarter of the institutions that existed 50 years ago. Why do you think they did that? It was all a part of the international financialization that supports consolidation and bigness. It’s always done in the name of efficiency and higher profits but we always find out there are other results that only benefit those in power. Prohibitions against interstate banking were helpful in preserving the people’s freedom.
Just a quibble. You’re not exchanging your money.
Mark, I don’t think that there’s been free checking for centuries. It takes quite a complex system of laws to enable banking. In the Anglo-American legal tradition, some of those laws were initially developed by the common law courts, though those were generally cumbersome.
Have you ever heard of the Uniform Commercial Code, or Article 3 thereof? Article 3 deals with negotiable instruments, which include checks. Then there’s Article 4, which deals with bank transfers.
As one minor example, do you know why it’s important to have the rights of a holder in due course of a negotiable instrument? You couldn’t use checks without this concept.
There is a bewilderingly complex array of laws without which banking can’t work. It requires government.
Most people don’t even know this, because lawyers did a good job writing the laws, and lawyers and judges do a good job enforcing the rules, when necessary, which is rarely, because the banks can function efficiently with confidence that the rules will be enforced.
Pretty sure that he means no-fee checking, that is, at no (direct) cost to the depositor.
How is something that pays no interest on a “loan” free?
It pays the same interest as leaving it under your mattress. Net zero.
Theres a vanishing but real assumed risk — most of us accept for the convenience. You could say that they’re paying us. If not, then only say fifty percent of people in the target demographic would have this sort of account, and they would all be basically indifferent about closing or opening such an account.
When I have a quantity of money that I own sent by wire transfer to my bank for credit to my checking account, I am transferring ownership of that amount of my money to them.
And then they “pay” you (with forward or return transactions) for the exact amount that you deposited. Net zero. Aren’t you arguing that A) this is true, and B) don’t change it?
What does FRB have to do with “free checking”. The fees you pay for checking are market based. With FRB, your savings deposits will be much more valuable as banks will need real money to make loans.
Thanks for this very good comment.
The trade consists of precisely this: a valuable that I own (what is called by the precise technical term “base money”) for valuable services (processing my drafts) provided by them, plus a valuable asset (a demand base-money liability) provided by them. So it certainly is not free to either of us: you are absolutely right!
So how do I justify calling it “free”, then? Here is how.
I mean “free” in the very imprecise common sense of the word: they do not charge me a discrete cash fee (usually…or when they occasionally did charge me in the past, it was less than enough to cover their costs plus acceptable profit). The valuable that I surrender to them is my sole “payment”.
The wrinkle you fail to mention is FDIC insurance. The taxpayers are funding the cost of your risk-free banking. So it’s NOT a market transaction solely between you and a financial entrepreneur. It’s a transaction between you and an entrepreneur and the taxpayers.
If an entrepreneur wants to offer you free checking WITH NO DEPOSIT INSURANCE where you bear the risk of the entrepreneur’s inability to return your mi et … fine. But that’s NOT the case today.
You assume that I deposit money with the bank. I do no such thing, under US banking law. A deposit contract would in fact be slightly more valuable to me than the one I actually make for “free” checking: there would be no risk of the bank defaulting due to “adverse clearances” or a bank run by other customers, whereas I have always knowingly accepted that risk my whole adult life.
To contract for “deposit” of an identifiable valuable, in plain English, is to surrender only possession of it, for the purposes of safekeeping to the benefit of the depositor, under these conditions
To “deposit” a quantity of fungible goods cannot possibly mean exactly that, unless those goods are artificially made nonfungible (by the depositee placing the parcel of goods immediately in a separate container, eg. in a numbered safe deposit box or a legally separate ledger account), and returning that exact parcel, or a subdivision of it to the depositor.
In the case of fungible goods, including money, the depositor would experience precisely zero benefit by having the depositee segregate the parcel of goods (at considerable cost to him) and returning that same parcel. The only desire of the depositor of a fungible good like crude oil, wheat, or money is to get the tandundem of what he surrendered. Tandundem is a word from Roman banking law meaning “the same quantity of goods of the same type and quality”.
What the “depositor” of fungible goods does want is obtained by what is technically called the “irregular deposit” contract: it includes a promise by the depositee to maintain the tandundem freely available for restoration to the depositor at any reasonable hour.
I have never in my life made an irregular deposit contract with my bank, and neither have you. You just think you have made this more valuable (because: less risky) contract. The government, whose job it is to ensure the sanctity of contracts, has done exactly the opposite in this case: they have by their actions ensured that you would be deceived in this manner, by collaborating with the banks in calling your contract (in reality a demand fungible goods “loan” contract) a “deposit” contract.
Thanks for a very good comment.
You assume that I meant to say
1. Keep Your Hands Off My Checking Account!
2. Keep subsidizing insurance on my checking account.
Your assumption is incorrect.
I meant to say only what I did say, and not the thing I didn’t say.
The people who have decided to give me unconstitutionally subsidized property insurance through FDIC, and then use it to justify depriving me of my property rights in contracting for free checking, can take their FDIC and shove it where I don’t have to smell it.
There’s an enormous gulf between having a code of commercial law, (much of the UCC built upon generations of mercantile practice from as early as the 17th and 18th Centuries) to regulate private transactions, and having the central government take over all basic banking functions. The whole ever-bigger consolidation, together with the ultimate goal of a centralized, digital financial system leaving no private options, seems to me as the road to unbridled tyranny.
I am using these terms as we commonly use them, not setting new definitions or arguing with the old.
I am pointing out that you say you want the government to keep its hands off your free checking. You use this term several times in your post. And as I said earlier, I take this to mean a no-fee checking account, that is, no (direct) cost to you. So taking you at your word, I find this incompatible with your later assertion that you have exchanged money for a service (snippet above). If you had, then you would not get your money back (no matter whose it was in the interim) upon completing your use of the service, i.e., closing the account. If this is not the case, then the account was not free to begin with. So you are not “trading money for a service” in the fair-trade sense of your own sentence.
Do any of these generic observations about banking law have any relevance to something I wrote in the post? If so, what?
Yes, I have read up on this code on a number of occasions. It’s been quite a while. I don’t remember any of the articles by name, sorry.
I have to ask once again: if one or both of these observations have any relevance to something I wrote, would you mind quoting the text and explaining the connection?
Thanks, BDB. These are good points, and I need to clarify them probably for others as well as you.
You understand perfectly.
When you refer to “getting my money back“, you assume that the bank possesses some of my money. That is incorrect. At no time does my bank ever possess any money that belongs to me.
I hope this is answered by the above.
You are eluding (I do not say evading) the key point. In your example above, if you write a check to yourself for the entire balance and then close the account, is a fee then charged? Disregard check cashing fees, opportunity cost, and minimum balance requirements/penalties. In this case the bank has provided a service, yet returned all of the money you put in. The whole thing from account opening, processing a check and then closing, has cost you nothing in fees. If you have paid no fees, then you have indeed received the service for free, which is as you said in your post, and then denied in your comments.
Your point about ownership of the money is true, but not relevant to this question.
When dealing with a topic it’s incumbent on you, as the author to deal with all major aspects of that topic. If you are talking abou bank checking accounts you need to deal with FDIC insurance. And if your checking account is FSIC insured then, as a dedicated free marketeer, I’m certain you have no problem with paying for the insurance protection you are receiving. You could opt to Bank an a non insured institution.
Correct. It has repaid the loan I gave them in full.
I have not received the services for free. I have made a loan to the bank (with a market value of some non-zero interest rate) at zero (below-market) interest. That interest-free loan is the economic goods that I gave in trade, in return for the economic goods (checking services) I received.
Perhaps this is your argument:
You are absolutely right. The banker is an entrepreneur: he takes risks on a million contracts in the hope that enough of them are profitable enough to more than make up for the ones that don’t. Some are not.
Although these propositions seem to be a red herring (no logical connection has been given for their relevance to the point of the OP), they are very interesting to me. I hope to comment without being drawn in to hijacking my own thread.
A given society during a given time period can have banking
to the extent, and only to the extent, that
These are continuously variable attributes that never, as a practical matter, (a) obtain perfectly nor (b) obtain not at all. At every time, every country is somewhere in the middle. (Rich, happy countries have more of all three than poor, oppressed countries).
So, in every conceivable modern society, there is
Therefore, it is always theoretically possible that markets will function marginally better, on the whole, if government adds
The converse is true, too. Whatever the government interventions are at a point in time, it is always theoretically possible that markets will function (or would have functioned) marginally better, on the whole, if government removes (or fails to add) some regulatory convention or violently enforced law.
Because government is almost always flying blind: by definition, it lacks market-generated knowledge, which is the necessary information needed to approach the optimal behavior rationally, or with as great a degree of confidence as man would have if the common people solved the problem themselves.
The credit union I use (DFCU) is pretty well run. They charge a small amount more than most for loans, they pay a small amount less than most for deposits. I refinanced at the right time; my mortgage is at at an interest rate very favorable to me. I have a HELOC; they have jacked the interest rates high enough that I will pay it off soon ( Trump ended the deductibility of HELOC interest; probably a good decision but hurts me personally.). I find the no fee checking and hassel free banking to be useful and not stress inducing.
There’s no such thing as “free” checking. The question is only who pays.
In this case, you pay part of it by giving your bank access to your money when you’re (probably!) not using it, and I pay part because my tax dollars insure your deposits.
Good deal for you. Bad deal for me.
I would be OK with DFCU not being federally insured. I don’t think they will ever need the insurance. DFCU is well run. I agree you have no business paying for my insurance.
You raise five points that I have already addressed. Here are the references.
Hope this helps!
I have already addressed your misunderstanding of my post in Comment #12. Please read it? Thanks. If that doesn’t address your point, please clarify in a Reply to that Comment.
Please read Comment #22, where I explained precisely how I pay for the services I receive. If it’s still not clear, or you still have a point after reading it, let me know what it is by replying to that Comment.
Regarding the bank holding my money, you are making the same error as an earlier commenter. Please read Comment #20, and if you still don’t understand, or disagree, please let me know in a Reply to that Comment.
I addressed your point about FDIC in Comment #15. Please read it. I think my position on FDIC is clear enough. But if not, please reply to that Comment with your issue.
It is FRB that generates loanable funds for the bank, allowing them to generate income, that permits my bank to offer me expensive checking services without charging me a separate fee.
If my bank held 100% reserves against its checking liabilities, it would have to charge me for checking.
It is incumbent on the author of a thesis to deal with each counter-argument that is raised against it by others, by…
I did that in the case of the counter-argument in Comment #13. (I pointed out that the government doesn’t buy the moral right to deny me the right to enter into FRB contracts merely by illegally providing free insurance on the checking account. Two wrongs don’t make a right.
But to your point: No, it is not incumbent on the person stating a premise to present and disprove every possible false argument against it.
I probably didn’t read the other comments carefully. Or at all, come to think of it…
Yeah, I think we agree about this. I didn’t mean to imply you pay nothing for “free” checking. My point is that it is subsidized by the FDIC (i.e., me) and I wonder if the the risk of losing your deposit would really worth the trivial savings in fees plus near-zero interest if you had to, say, buy insurance on the open market. You might instead invest in something at least as safe but with a higher return than “free checking.”