How Commercial Banks, Commercial Courts Operate But The Law Prohibit Banks and Courts From Loaning

Credit See http !!www"scribd"com!doc!#$$%$&%''!Title(Compan)(as(Trustee(in(Breach(o*(Fiduciar)(+ut) ,t is well recogni-ed b) banking te.tbooks and e.perts that banks engage in a practice known as /deposit creation,/ which in essence is simpl) the creation o* credit b) bookkeeping entr)" 0s the Federal 1eser2e Bank o* Chicago has so aptl) stated in its publication, 3odern 3one) 3echanics /The actual process o* mone) creation takes place in the banks" 0s noted earlier, checkable liabilities o* banks are mone)" These liabilities are customers4 accounts" The) increase when the customers deposit currenc) and checks and when the proceeds o* loans made b) the banks are credited to borrowers4 accounts" /,n the absence o* legal reser2e re5uirements, banks can build up deposits b) increasing loans and in2estments so long as the) keep enough currenc) on hand to redeem whate2er amounts the holders o* deposits want to con2ert into currenc)"/ Thus, banks simpl) e.tend credit when loans are made" The /currenc)/ *or which these and all others loans in 0merica can be redeemed is known as the Federal reser2e note 6/F17/8" The reser2es held b) Federal 1eser2e Banks ha2e been admitted b) the go2ernment in its work titled 0 Primer on 3one) to be /backed/ b) nothing /Toda), the 0merican people use coins, currenc) 6paper mone)8, and commercial bank demand deposits 6checkbook mone)8,/ ,d", at #9" /The pri2ate commercial banks issue 4checkbook mone)": /,magine there is onl) one bank in the countr) and that it has two pri2ate depositors, each with ;<' in his checking account" Total bank demand deposits would then be ;#''" Suppose =ohn =ones asked *or a ;<' loan *rom the bank, and the bank appro2ed the loan" The bank would then lend the mone) to 3r" =ones b) simpl) opening a checking account *or him and depositing ;<' in it" This is what ordinaril) happens when an)one(( business or pri2ate indi2idual(( borrows *rom a bank" The bank deposits the amount o* the loan in the rele2ant checking account" /,n making the loan to 3r" =ones, the bank did not reduce an)one4s pre2ious bank balance" ,t simpl) credited the =ones account with ;<'" The total amount held in bank demand deposits now becomes ;#<'" The bank has, there*ore, issued ;<' in 4checkbook mone)"4 /The natural 5uestion to ask is, where does the bank get the additional ;<' to issue and lend to 3r" =ones> The answer, as will become clear in the ne.t chapter, is that the bank did not 4get4 the mone) at all" 3one) has been created,/ ,d" at #$(?'" @nknowingl) bonded b) 3r" =onesAs signature" /0ll mone) used in this countr) and in most countries o* the world is o* two t)pes" One is 4printing press mone),4 which is mone) printed b) the corporate go2ernment" The other t)pe o* mone) in use is 4pen(and( ink mone)"4 Pen(and(ink mone) is created b) the pri2ate commercial banks each time a bank makes a loan, bu)s a @"S" Bo2ernment securit), or bu)s an) other asset" Printing press mone) is engra2ed on special paper and with special inksC and it costs about eight one(thousandths o* # cent per bill, whether a ;# bill or a ;#',''' bill" Pen(and(ink mone) is created b) a pri2ate banker simpl) b) making ink marks on the books o* the bank" Howe2er, in recent )ears man) o* the banks ha2e installed electronic o**ice machines which make the entries in the banks4 booksC so someda) we ma) come to re*er to bank(created mone) as 4o**ice machine mone)4 or perhaps 4@ni2ac mone),4/ ,d", at D%(D$" /,n the *irst place, one o* the maEor *unctions o* the pri2ate commercial banks is to create mone)" 0 large portion o* bank pro*its come *rom the *act that the banks do create mone)" 0nd, as we ha2e pointed out, banks create mone) without cost to themsel2es, in the process o* lending or in2esting in securities such as corporate go2ernment bonds" Bank pro*its come *rom interest on the mone) lent and in2ested, while the cost o* creating mone) is negligible" 6Banks do incur costs, o* course, *rom bookkeeping to loan o**icers4 salaries"8 The power to create mone) has been Funlaw*ull): delegated, or loaned, b) Congress to the pri2ate banks *or their *ree use" There is no charge,/ ,d", at %$"

/Since reports that the member banks o* the Federal 1eser2e S)stem had a certain number o* millions o* dollars in 4cash reser2es4 on deposit with the Federal 1eser2e Bank, , asked i* , might be allowed to see these cash reser2es" This 5uestion was met with some looks o* surpriseC the bank o**icials then patientl) e.plained to me that there were no cash reser2es" The cash, in truth, does not e.ist and ne2er has e.isted" Ghat are called cash reser2es are simpl) bookkeeping credits entered into the ledgers o* the Federal 1eser2e Banks" These credits are *irst created b) the Federal 1eser2e and then passed along through the banking s)stem" /On another occasion, a 2isit to the Federal 1eser2e Bank o* 1ichmond, along with se2eral other 3embers o* Congress, and in the course o* the 2isit asked the President o* that bank i* , could see the cash reser2es which the member banks had on deposit with that bank" Here the answer was in substance the same" There is no cash in the so(called cash reser2es" ,n other words, the cash making up the banks4 4cash reser2es4 with the Federal 1eser2e Bank is Eust a m)th,/ ,d", at H%" 3r" 1ussell 3unk, an o**icial emplo)ed at the @nited States Treasur) +epartment, has declared that common banking practices toda) in2ol2e mere e.tensions o* credit 2ia loans /,* the mone) suppl) is to be increased, mone) must be created" The Federal 1eser2e Board 6or 4the Fed4 as it is o*ten called8 has se2eral wa)s o* allowing mone) to be created, but the actual creation o* mone) alwa)s in2ol2es the e.tension o* credit b) pri2ate commercial banks"/ /,n both the goldsmiths4 practice and in modern banking, new mone) is created b) o**ering loans to customers" 0 pri2ate commercial bank which has Eust recei2ed e.tra reser2es *rom the Fed 6b) borrowing reser2es *or e.ample8 can make roughl) nine dollars in loans *or e2er) one dollar in reser2es it obtains *rom the Fed" How does it get nine dollars *rom one dollar> ,t simpl) makes book entries *or its loan customers sa)ing 4)ou ha2e a deposit o* ten dollars with us"/ But banks are prohibited b) law *rom loaning their creditC see Citi-ens4 7at" Bank o* Cameron 2" Bood 1oads Bra2el Co", ?H& S"G" #<H, #&# 6Te.as 0pp" #$??8C 7ational Bank o* Commerce o* Iansas Cit) 2" 0tkinson, << F" D&<, D9# 6+"Ian" #%$H8C Bowen 2" 7eedles 7at" Bank, $D F" $?<, $?9 6$th Cir" #%$$8C 3erchants4 Bank o* Jaldosta 2" Baird, #&' F" &D?, &D< 6%th Cir" #$'%8C First 7at" Bank o* Tallapoosa 2" 3onroe, &$ S"K" ##?H, ##?D 6Ba" #$##8C 0merican K.press Co" 2" Citi-ens4 State Bank, #$D 7"G" D?9, D?$ 6Gis" #$?H8C Howard L Foster Co" 2" Citi-ens4 7at" Bank o* @nion, #H' S"K" 9<%, 9<$ 6S"C" #$?<8C Farmers4 L 3iners4 Bank 2" Blue*ield 7at" Bank, ## F"?d %H, %< 6Dth Cir" #$?&8C Best 2" State Bank o* Bruce, ??# 7"G" H9$, H%' 6Gis" #$?%8C 7orton Brocer) Co" 2" People4s 7at" Bank o* 0bingdon, #DD S"K" <'#, <'H 6Ja"0pp" #$?%8C Federal ,ntermediate Credit Bank 2" L4Herisson, HH F"?d %D# 6%th Cir" #$?$8C First 7at" Bank o* 0marillo 2" Slaton ,nd" School +ist", <% S"G"?d %9', %9< 6Te.as 0pp" #$HH8C and Ferguson 2" Fi2e Points 7ational Bank o* 3iami, #%9 So"?d D<, D9 6Fla" 0pp" #$&&8" B07I de*ined 0 bank is an institution, usuall) incorporated, whose business it is to recei2e mone) on deposit, cash checks or dra*ts, discount commercial paper, make loans, and issue promissor) notes pa)able to bearer, known as bank notes" @"C"C" M #(?'#6D8" 0merican commercial banks *all into two main categories state chartered banks and *ederall) chartered national banks" See also Banking" 0 bench or seatC the bench o* EusticeC the bench or tribunal occupied b) the EudgesC the seat o* EudgmentC a court" The *ull bench, or *ull courtC the assembl) o* all the Eudges o* a court" See Banc" 0n accli2it)C an ele2ation or mound o* earth, especiall) that which borders the sides o* a water course" The land adEacent to a ri2er" That part o* a stream which retains the water" The ele2ation o* land which con*ines the waters o* a stream in their natural channel when the) rise the highest and do not o2er*low the banks" 0 water(washed and relati2el) permanent ele2ation or accli2it) at the outer line o* a ri2er bed which separates the bed *rom the adEacent upland, and ser2es to con*ine the waters within the bed and to preser2e the course o* the ri2er" The land l)ing between the edge o* the water o* a stream at its ordinar) low stage and the line which the edge o* the water reaches in its ordinar) high stage" 0n ele2ation o* land which con*ines the waters o* a stream when the) rise out o* the bed" 7either the line o* ordinar) high(water mark, nor o* ordinar) low(water mark, nor o* a middle stage o* water can be assumed as the line di2iding the bed *rom the banks" Banks are *ast land, on which 2egetation appropriate to such land in the particular localit) grows where2er the bank is not too steep to permit such growth, and bed is soil o* a di**erent character, and ha2ing no 2egetation, or

onl) such as e.ists, when commonl) submerged in water" On the borders o* na2igable streams, where there are le2ees established ac cording to law, the le2ees *orm the /banks o* the ri2er"/ BlackAs Law +ictionar) Si.th Kdition 6page #DD8 CO33K1C,0L @SK de*ined Term implies use in connection with or *or *urtherance o* a pro*it(making enterprise" 1oberts Knterprises, ,nc" 2" Secretar) o* Transp", ?H9 Ian" ?9&, &$$ P"?d D9$, D%H" BlackAs Law +ictionar) Si.th Kdition 6page $%98 CO33K1C,@3 de*ined Lat" ,n the ci2il law, commerceC businessC tradeC dealings in the nature o* purchase and saleC a contract" BlackAs Law +ictionar) Si.th Kdition 6page ?9#8 Commercium Eure gentium commune esse debet, et non in monopolium et pri2atum paucorum 5urestum con2ertendum de*ined Commerce, b) the law o* nations, ought to be common, and not con2erted to monopol) and the pri2ate gain o* a *ew" BlackAs Law +ictionar) Si.th Kdition 6page ?9#8 CO33K1C,0L de*ined 1elates to or is connected with trade and tra**ic or commerce in generalC is occupied with business and commerce" 0nderson 2" Humble Oil L 1e*ining Co", ??& Ba" ?<?, #9D S"K"?d D#<, D#&" Beneric term *or most all aspects o* bu)ing and selling" Commercial acti2it)" Term includes an) t)pe o* business or acti2it) which is carried on *or a pro*it" Lanski 2" 3ontealegre, H&# 3ich" DD, #'D 7"G"?d 99?, 99D" 0cti2it) relating to or connected with trade and tra**ic or commerce in general" Steinbeck 2" Berosa, D 7"N"?d H'?, #9< 7"N"S"?d #, &, #<# 7"K"?d #9', #9H" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 CO33K1C,0L 0BK7CN de*ined 0n o**ice *or the collection o* debts *or clientsC also an agenc) *or gathering credit in*ormation" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 CO33K1C,0L KST0BL,S3K7T de*ined 0 place where commodities are e.changed, bought or sold" State e. re," Iansas Cit) Power L Light Co" 2" Smith, HD? 3o" 9<, ### S"G"?d <#H, <#<" The term contemplates a pro*it(making establishment" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 CO33K1C,0L ,7SOLJK7CN de*ined ,nabilit) o* a business to pa) its debts as the) become due in the regular and ordinar) course o* business" See also BankruptC ,nsol2enc)" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 CO33K1C,0L L0G de*ined 0 phrase used to designate the whole bod) o* substanti2e Eurisprudence 6e"g" @ni*orm Commercial CodeC Truth in Lending 0ct8 applicable to the rights, intercourse, and relations o* persons engaged in commerce, trade, or mercantile pursuits" See @ni*orm Commercial Code" BlackAs Law +ictionar) Si.th Kdition 6page $%98 CO33K1C,0L 703K de*ined See Trade name" BlackAs Law +ictionar) Si.th Kdition 6page ?9#8 CO33K1C,0L P0PK1 de*ined Bills o* e.change 6i"e", dra*ts8, promissor) notes, bank(checks, and other negotiable instruments *or the pa)ment o* mone), which, b) their *orm and on their *ace, purport to be such instruments" Short(term, unsecured promissor) notes, generall) issued b) large, well(known corporations and *inance companies" @"C"C" 0rticle H is the general law go2erning commercial paper" See also Bearer instrumentC ,nstrumentC 7egotiable instrumentsC 7oteC Trade acceptance" Securities law" Commercial paper is a /securit)/ under the Blass(Steagall 0ct and there*ore is subEect to its proscriptions on commercial banks marketing /stocks, bonds, debentures, notes, or other securities"/ Securities ,ndustr) 0ssociation 2" Board o* Bo2ernors o* the Federal 1eser2e S)stem et a,", D&% @"S" #H9, #'D S"Ct" ?$9$, $? L"Kd"?d #'9" BlackAs Law +ictionar) Si.th Kdition 6page ?9#8 CO33K1C,0L B1OIK1 de*ined One who negotiates the sale o* merchandise without ha2ing the possession or control o* it, being distinguished in the latter particular *rom a commission merchant 65" 2"8" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 COMMERCIAL CODE defined: See Uniform Commercial Code. Blacks La Dic!ionar" Si#!$ Edi!ion

&'a(e 2)*+ @7,FO13 CO33K1C,0L CO+K 6@CC8 de*ined one o* the uni*orm laws dra*ted b) the 7ational Con*erence o* Commissioners on @ni*orm State Laws and the 0merican Law ,nstitute go2erning commercial transactions 6including sales and leasing o* goods, trans*er o* *unds, commercial paper, bank deposits and collections, letters o* credit, bulk trans*ers, warehouse receipts, bills o* lading, in2estment securities, and secured transactions8" the @"C"C" has been adopted in whole or substantiall) b) all states" Black4s Law +ictionar) Si.th Kdition CO33K1C,0L CO1PO10T,O7 de*ined One engaged in commerce in the broadest sense o* that term" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 CO33K1C,0L CO@1T de*ined ,n Kngland, a court constituted as part o* the Oueen4s Bench +i2ision o* the High Court, to take causes and matters entered in the commercial list" Supreme Court 0ct, #$%#, M &" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 CO33K1C,0L 3OTO1 JKH,CLK de*ined Those used primaril) *or business and industr) as contrasted with pleasure 2ehicles, e"g" trucks" BlackAs Law +ictionar) Si.th Kdition 6page ?9#8 CO33K1C,0L ,7S@107CK de*ined See ,nsurance" BlackAs Law +ictionar) Si.th Kdition 6page ?9'8 L0G 3K1CH07T de*ined merchant" Bod) o* law go2erning commercial transactions, which had its origin in common law o* Kngland regulating merchants" See @"C"C" M #(#'H" See also Commercial lawC 3ercantile lawC @ni*orm Commercial Code" BlackAs Law +ictionar) Si.th Kdition 6page %%&8 3K1CH07T de*ined One who is engaged in the purchase and sale o* goodsC a tra**ickerC a retailerC a trader" Term commonl) re*ers to person who purchases goods at whole sale *or resale at retailC i"e" person who operates a retail business 6retailer8" 0 person who deals in goods o* the kind or otherwise b) his occupation holds himsel* out as ha2ing knowledge or skill peculiar to the practices or goods in2ol2ed in the transaction or to whom such knowledge or skill ma) be attributed b) his emplo)ment o* an agent or broker or other intermediar) who b) his occupation holds himsel* out as ha2ing such knowledge or skill" @"C"C" M ?(#'D6#8" 0 man who tra**ics or carries on trade with *oreign countries, or who e.ports and imports goods and sells them b) wholesale" 3erchants o* this description are commonl) known b) the name o* /shipping merchants"/ Commission merchant" See Commission merchant" Law merchant" See Commercial lawC 3ercantile law" Statute merchant" See Statute" BlackAs Law +ictionar) Si.th Kdition 6page $%98 3K1CH07T 0CCO@7TS de*ined 0ccounts between merchant and merchant, which must be current, mutual, and unsettled, consisting o* debts and credits *or merchandise" BlackAs Law +ictionar) Si.th Kdition 6page $%98 3K1CH07+,SK B1OIK1 de*ined One who negotiates the sale o* merchandise without ha2ing it in his possession or control, being simpl) an agent with 2er) limited powers" Hughes 2" Noung, #9 Tenn"0pp" ?D, &< S"G"?d %<%" See Broker" BlackAs Law +ictionar) Si.th Kdition 6page $%98