How is the banking system not a ponzi scheme?

[allhorsesaresamecolour]

I'm not an expert in economics by any means, but to me, the banking system seems not much different from a ponzi scheme. You deposit your money in a checking account and the bank pays you a ridiculously low interest rate of like 1% a year while charging you a bunch of fees for the privilege of allowing them to hold your money and do whatever they want with it.

It's true that individually, anyone could get their money back whenever they want, but if all Canadians decided they want to cash out everything in their checking account today, from what I know, the banks would not be able to give us our money back. Basically when a person cashes out their money, the bank gives them somebody else's money that has made a deposit and doesn't need the money at the time, just like a ponzi scheme. I also have a feeling this phenomenon is exaggerated in the US by like 100 times compared to Canada. What am I missing here?

BTW if any of us attempted the bank's business model on a smaller scale, we would be under close surveillance and eventually arrested most likely. Why exactly is that?

PS I'm talking about checking accounts specifically. I know investments such as mutual funds are legit and tangible and cannot be compared to a ponzi scheme.

 

[Tugela]

That is not how banks work. The money you deposit is then lent out to other people (mortgages for example) at a higher interest rate, it doesn't go into a big room somewhere. The bank keeps the difference between what they pay you and what they get paid in interest from those investments. They act as the facilitator as it were. The money is all there, it is just reinvested. It only becomes a problem if those investments fail, as what happened in the US with the sub-prime mortgage crisis.

Most of their money is not in short term deposits anyway. The bulk is in long term deposits.

A Ponzi scheme uses the money from new investors to pay returns to older investors, they don't actually have enough money to cover the total investment. They use high interest rates to sucker in new investors and they keep the balance for wine women and song. It is a fraud.

 

[hornygandalf]

Actually Tugela, because the same money is lent and then deposited multiple times (it exists as a book entry rather than something tangible), then he is kinda right. There is only a small portion retained as bank reserves. So, if everyone all simultaneously tried to get their money back, they wouldn't be able to. It is known as factional reserve banking. Another term related to this is fiat money (which is what is the case in most countries), which means there isn't actually any assets directly backing the money in circulation. It is in some ways a legal ponzi scheme, which suits the power elite. One should take a look at the Medici's and many of the great banking families.

Bitcoin is offering an interesting alternative (also fiat money), and I'm sitting on the fence at the moment as to whether it is a game changer in terms of the world monetary system, or will go the way of the tulip bulbs.

 

[killer1177]

If the banks ever fails, you are covered up to $100,000 by CDIC on your deposits in your personal accounts, investments, etc.

 

[sdw]

I'm not an expert in economics by any means, but to me, the banking system seems not much different from a ponzi scheme. You deposit your money in a checking account and the bank pays you a ridiculously low interest rate of like 1% a year while charging you a bunch of fees for the privilege of allowing them to hold your money and do whatever they want with it.

It's true that individually, anyone could get their money back whenever they want, but if all Canadians decided they want to cash out everything in their checking account today, from what I know, the banks would not be able to give us our money back. Basically when a person cashes out their money, the bank gives them somebody else's money that has made a deposit and doesn't need the money at the time, just like a ponzi scheme. I also have a feeling this phenomenon is exaggerated in the US by like 100 times compared to Canada. What am I missing here?

BTW if any of us attempted the bank's business model on a smaller scale, we would be under close surveillance and eventually arrested most likely. Why exactly is that?

PS I'm talking about checking accounts specifically. I know investments such as mutual funds are legit and tangible and cannot be compared to a ponzi scheme.

Banking is very much a Ponzi scheme based on the trust of the depositor. Unfortunately, Mutual Funds and Guaranteed Investment Certificates are NOT protected by Canadian Deposit Insurance. What is protected is the first $100,000 in a Checking, Savings or GIC with a term less than three years.

In 1985 The Canadian Commercial Bank http://en.wikipedia.org/wiki/Canadian_Commercial_Bank and The Northland Bank http://en.wikipedia.org/wiki/Northland_Bank both failed entirely because they didn't have sufficient reserves to cover liabilities. http://www.bankofcanada.ca/wp-content/uploads/2010/07/bank.pdf

The Bank of BC and The Continental Bank of Canada also failed but not so badly that nobody was willing to buy them. The Bank of BC was bought by HSBC.

If there was a run on the banks, the Bank of Canada would do what the USA did on 911 - Withdrawals would be limited until the extent of the emergency was known. This option is now known as the "Cyprus Option" because what Cyprus did was refuse to pay out the Deposit Insurance because it's a direct charge on the central bank and would have made Cyprus bankrupt.

 

[normisanas]

Actually Tugela, because the same money is lent and then deposited multiple times (it exists as a book entry rather than something tangible), then he is kinda right. There is only a small portion retained as bank reserves. So, if everyone all simultaneously tried to get their money back, they wouldn't be able to. It is known as factional reserve banking. Another term related to this is fiat money (which is what is the case in most countries), which means there isn't actually any assets directly backing the money in circulation. It is in some ways a legal ponzi scheme, which suits the power elite. One should take a look at the Medici's and many of the great banking families.

Bitcoin is offering an interesting alternative (also fiat money), and I'm sitting on the fence at the moment as to whether it is a game changer in terms of the world monetary system, or will go the way of the tulip bulbs.

Your analysis is 100% correct.

 

[PlayfulAlex]

Actually Tugela, because the same money is lent and then deposited multiple times (it exists as a book entry rather than something tangible), then he is kinda right. There is only a small portion retained as bank reserves. So, if everyone all simultaneously tried to get their money back, they wouldn't be able to. It is known as fractional reserve banking. Another term related to this is fiat money (which is what is the case in most countries), which means there isn't actually any assets directly backing the money in circulation. It is in some ways a legal ponzi scheme, which suits the power elite. One should take a look at the Medici's and many of the great banking families.

Bitcoin is offering an interesting alternative (also fiat money), and I'm sitting on the fence at the moment as to whether it is a game changer in terms of the world monetary system, or will go the way of the tulip bulbs.

Your analysis is 100% correct.

http://en.wikipedia.org/wiki/Fractional_reserve_banking

Almost correct, with the exception of the typo or mis-spelling, as corrected above.

We should all invest a little time in researching these things, which affect us greatly. And although the situation in the US is not exactly like it is in Canada (we have more rules), it's worth understanding more about how their money system works (it's not that far from our own)!

 

[Horse99]

The banking system isn't the culprit...it's the government controlling the money supply...aka printing plastic money without limits......and with the unofficial inflation rate of 2%, this means they are stealing from long term savers to the benefit of long term borrowers.....in that your purchasing power decreases every year by 2%......and who does this benefit? Long term borrowers, of which, the largest are the governments......

Further more, all you people, that use your credit cards for everything, that costs even more, because of the skim, the bankers take......and I'm not even talking about the 18%+ interest rates...

 

[nickcan]

Banking is very much a Ponzi scheme based on the trust of the depositor. Unfortunately, Mutual Funds and Guaranteed Investment Certificates are NOT protected by Canadian Deposit Insurance. What is protected is the first $100,000 in a Checking, Savings or GIC with a term less than three years.In 1985 The Canadian Commercial Bank http://en.wikipedia.org/wiki/Canadian_Commercial_Bank and The Northland Bank http://en.wikipedia.org/wiki/Northland_Bank both failed entirely because they didn't have sufficient reserves to cover liabilities. http://www.bankofcanada.ca/wp-content/uploads/2010/07/bank.pdf

The Bank of BC and The Continental Bank of Canada also failed but not so badly that nobody was willing to buy them. The Bank of BC was bought by HSBC.

If there was a run on the banks, the Bank of Canada would do what the USA did on 911 - Withdrawals would be limited until the extent of the emergency was known. This option is now known as the "Cyprus Option" because what Cyprus did was refuse to pay out the Deposit Insurance because it's a direct charge on the central bank and would have made Cyprus bankrupt.

Accounts and products insured by CDIC
•savings accounts and chequing accounts
•GICs or other term deposits with an original term to maturity of 5 years or less
•money orders, certified cheques, travellers’ cheques and bank drafts issued by CDIC members
•accounts that hold realty taxes on mortgaged properties

http://www.cdic.ca/Coverage/Pages/default.aspx

 

[sdw]

Accounts and products insured by CDIC
•savings accounts and chequing accounts
•GICs or other term deposits with an original term to maturity of 5 years or less
•money orders, certified cheques, travellers’ cheques and bank drafts issued by CDIC members
•accounts that hold realty taxes on mortgaged properties

http://www.cdic.ca/Coverage/Pages/default.aspx

I wikied to see when they changed from 3 years to 5 years on GICs - pretty sure it was 3 years a few years ago.

Here's the page on CDIC http://www.cdic.ca/Coverage/Pages/default.aspx

What's Covered, What's Not?

CDIC insures most — but not all — savings. Click on any of the following to find out which are covered and which are not:
Accounts and products insured by CDIC

savings accounts and chequing accounts
GICs or other term deposits with an original term to maturity of 5 years or less
money orders, certified cheques, travellers’ cheques and bank drafts issued by CDIC members
accounts that hold realty taxes on mortgaged properties

Accounts and products must be held in Canadian dollars at a CDIC member institution.
Accounts and products NOT insured by CDIC

mutual funds and stocks
GICs and other term deposits with a date to maturity of more than 5 years
bonds
Treasury bills

CDIC does NOT insure any accounts or products in U.S. dollars or other foreign currency.

CDIC does NOT insure any accounts or products held in banks or other institutions that are NOT CDIC members.
Accounts and Products Insured by CDIC UNDER CERTAIN CIRCUMSTANCES

Read these pages closely to get the whole picture:

RRSPs and RRIFs
TFSAs
debentures

At a Glance: What's Covered, What’s Not Covered

http://www.cdic.ca/Coverage/MutualFundsStocks/Pages/default.aspx

Mutual Funds and Stocks

CDIC does NOT insure mutual funds or stocks.
For example…

If you have the following in your name at a CDIC member:

$1,000 in a chequing account
$3,000 in a savings account
$20,000 in mutual funds
$10,000 in stocks

You have $4,000 insured by CDIC in case your bank fails, because the mutal funds and stocks above are NOT insured by CDIC.

CDIC also insures other types of deposits from $1 to $100,000. Find out more about how CDIC calculates insured deposits.
CDIC covers more!

See what else CDIC covers: savings held in one name, savings held in more than one name (joint deposits), savings held in trust, savings held in RRSPs, savings held in RRIFs, savings held in TFSAs, and savings held for paying realty taxes on mortgage payments.

 

[huggzy]

Even though I think you are trolling I believe I have some insight to share. This topic is one that I am passionate and angry about.

Economic theory is bullshit. The logic of banking is supported by Keynesian economics to impose government borrowing from private banks for the benefit of the banks.
Here is a quick link. I took economics in university and I just didn’t get it. It wasn’t that I didn’t understand what was being taught - I didn’t get it after I learned it. Economics is hard to learn because it doesn’t make sense. It took me a long time to finally understand why.
http://www.marketoracle.co.uk/Article15187.html

Watch out for the red herrings. They are a ruse to lead you astray and implement the next bullshit banking system.

Fiat money – nothing wrong with it. Money is an arbitrary object used to define and hold value.

Fractional reserve banking – Nothing wrong with it. The quantity of FRB currency in the money supply needs to be controlled and the interest rate is the actual culprit.

Gold System – Pure bullshit. There is a push for it now and if you ever hear those words from a politician you know they are either corrupt or stupid. No alternatives. Physical gold and the gold market are controlled by the same people that control the banking system. Another ruse to maintain control. The value of gold is artificially controlled to begin with and the reserve ratio can easily be changed or manipulated. The push for it is to keep the control of the banking system exactly where it is now.No conspiracy theory here. Look into missing gold and wall street or the federal reserve.

Usury – This is the elephant in the room. Why does the government need to borrow money from itself and pay for the right to do so?

The National Debt is bullshit. It doesn’t exist. Why are we ( Canada ) paying interest to a private bank to have money that they create? Why don’t we do it ( create it ) instead. What would happen if we simply wrote it off? Nothing!!! The money could then be put into infrastructure and services. How about free education? Imagine.

Interest rates need to rise!! A lot!
We need a decent reserve ratio for our banks - Canada's is zero. People need to be able to put money in the bank and earn more than the rate of inflation with out any risk. Simple isn't it. The reason for this is to fleece the average Joe. Because your real rate of return for deposits is 0 or negative you are forced to put money in the stock market which is the actual ponzi scheme to steal you dough. Christ the dart board theory is universally accepted. " Past performance is not an indicator of future performance" - haa?!?

Government should spend money into existence on services and infrastructure. All levels of government should be able to borrow money without any interest for their activities.

The fractional reserve banking system has a serious flaw in that the entire system can (and has done in other countries) collapse if depositors get spooked and demand their funds to be withdrawn in large amounts. There is not enough money in circulation to cover all deposits after the banks have taken their fees and paid out interest, and certainly not enough to come close to meeting this demand if depositors require their currency immediately or over the short term. The whole idea that the government can put controls to slow down (or even stop) withdrawals is also contrary to the whole concept of a deposit system where a client assumes that they should be able to access their money at anytime.

 

[huggzy]

That is not how banks work. The money you deposit is then lent out to other people (mortgages for example) at a higher interest rate, it doesn't go into a big room somewhere. The bank keeps the difference between what they pay you and what they get paid in interest from those investments. They act as the facilitator as it were. The money is all there, it is just reinvested. It only becomes a problem if those investments fail, as what happened in the US with the sub-prime mortgage crisis.

Most of their money is not in short term deposits anyway. The bulk is in long term deposits.

A Ponzi scheme uses the money from new investors to pay returns to older investors, they don't actually have enough money to cover the total investment. They use high interest rates to sucker in new investors and they keep the balance for wine women and song. It is a fraud.

This is not correct.

 

[sdw]

@hugzgy
all systems have flaws
some more than others
an economy needs a means of increasing the money supply and borrowing is a necessary tool - again the culprit is the interest rate and the reserve ratio
i do not believe that the entire money supply should be borrowed or FR
that is the point of my post isn't it? Government should not have to borrow money from private lenders
That is why government needs to spend a base amount of money into existence
I did say that interest rated need to rise and we need an actual reserve ratio
Canada's is ZERO

Canada used to have a fractional reserve rate, it was done away with by Paul Martin in 1994. Since the Minister of Finance owns 100% of the shares of the Bank of Canada, the Minister of Finance can pretty much do what he wants with Canada's money supply.

 

[Tugela]

This is not correct.

It is correct. Apparently most of you don't know what a Ponzi scheme is.

 

[Tugela]

Actually Tugela, because the same money is lent and then deposited multiple times (it exists as a book entry rather than something tangible), then he is kinda right. There is only a small portion retained as bank reserves. So, if everyone all simultaneously tried to get their money back, they wouldn't be able to. It is known as factional reserve banking. Another term related to this is fiat money (which is what is the case in most countries), which means there isn't actually any assets directly backing the money in circulation. It is in some ways a legal ponzi scheme, which suits the power elite. One should take a look at the Medici's and many of the great banking families.

Bitcoin is offering an interesting alternative (also fiat money), and I'm sitting on the fence at the moment as to whether it is a game changer in terms of the world monetary system, or will go the way of the tulip bulbs.

The money is secured by loans that the bank offers. The only time the wheels fall off is if there is massive default on those loans all at the same time. The difference in what interest you get as opposed to what the bank charges represents that risk of default, less the bank's operating costs and profits. That is why the interest rates on sub-prime loans is so high - the risk is great and that risk is covered by the people borrowing from the bank, they essentially repay the loans of the people who don't.

In essence when you invest your money in a bank (as opposed to placing it in a vault or under your bed) you are using them as a middle man to invest in the enterprise of other people. There is always risk associated with that. The government moderates that risk somewhat by acting as an insurance agent, and since the government is society, society is the insurance agent.

Anyone who thinks that a bank takes your money to store in a big box somewhere, and then pays you interest for the honor of doing so, is an idiot.

In a Ponzi scheme there is no reinvestment, or very little. What happens is that new investments are used to pay the interest and the balance is stolen. It is fraud. As long as people are getting their "return" they don't know that it is being stolen. That goes on until the inflow from new investments can't match what needs to be paid out in interest, and at that point the people running the scheme disappear with all the money they have siphoned off.

Bitcoins are not an interesting system, it is a prime target for manipulation because it is essentially a barter token that can be created by anyone who feels the inclination. And if a manipulator vastly inflates the "value" of that object, they can siphon off wealth. It is the same as when currency was tied to the gold standard, something that was essentially worthless from a practical point of view, but assigned a "value" due to its rarity. The problem was that "value" changed from day to day arbitrarily, and could be mined. So it was not a real standard at all.

 

[huggzy]

It is correct. Apparently most of you don't know what a Ponzi scheme is.

I didn't call this system a Ponzi scheme. What I did say was that your statement is incorrect. Which it is. You are completely off on it if you think lenders keep 100% reserve funds. In Canada, theoretically they don't have to keep ANY reserve.

 

[huggzy]

@hugzgy
all systems have flaws
some more than others
an economy needs a means of increasing the money supply and borrowing is a necessary tool - again the culprit is the interest rate and the reserve ratio
i do not believe that the entire money supply should be borrowed or FR
that is the point of my post isn't it? Government should not have to borrow money from private lenders
That is why government needs to spend a base amount of money into existence
I did say that interest rated need to rise and we need an actual reserve ratio
Canada's is ZERO

There are many schools of thought that would argue that an economy does not "need" to have any means of increasing the money supply. Rather, it is simply a tool that brings harm to many people in an economy by creating opportunity for the financial predators of our world to profit off the backs of the hard working, but less financially sophisticated, producers (ie. the working man).

 

[sdw]

There are many schools of thought that would argue that an economy does not "need" to have any means of increasing the money supply. Rather, it is simply a tool that brings harm to many people in an economy by creating opportunity for the financial predators of our world to profit off the backs of the hard working, but less financially sophisticated, producers (ie. the working man).

Yes, but the flaw with a system that doesn't "create" new money is that the available employment doesn't increase. There is the story of Rip Van Winkle who went to sleep for 20 years and was still able to by lunch for the same amount. In 1998 the British did a report on the value of a Pound from 1750 to 1998. http://www.parliament.uk/documents/commons/lib/research/rp99/rp99-020.pdf

The table is normalized to 1974 = 100
In 1750 5 pounds would buy what 100 pounds would buy in 1974
In 1750 the World Population was about 791 Million http://en.wikipedia.org/wiki/World_population
1792 USA goes onto the Gold Standard
In 1799 9.7 pounds would buy what 100 pounds would buy in 1974
In 1800 13.3 pounds would buy what 100 pounds would buy in 1974
1844 Britain goes onto the Gold Standard
In 1916 12.8 pounds would buy what 100 pounds would buy in 1974
In 1931 Britain went off of the Gold Standard
In 1973 USA went off of the Gold Standard
In 1998 592 pounds would buy what 5 pounds would buy in 1750 or 100 pounds would buy in 1974.
In 1999 the World Population was 5 Billion 978 Million

If we look at the "good" years where the economy of the Western World was firing on all cylinders and we had a functional middle class
In 1946 26.4 pounds would buy what 100 pounds would buy in 1974
In 1950 the World Population was 2 Billion 521 Million
In 1973 85.4 pounds would buy what 100 pounds would buy in 1974

Therefore, It seems that a Central Bank that backs it's currency in Gold and/or Silver is necessary to prevent inflation of the money supply and devaluation of the currency. Both the British and the Americans "adjusted" what an ounce of gold was worth over the years and both limited redemption in Gold by requiring the person to redeem a bar of 400 ounces of Gold rather than gold coins.

However, if you look back at living conditions and employment in 1750, Britain was in the process of exporting it's unemployable poor to the colonies. There were few jobs in Britain because the feudal farming economy was over and the industrial economy didn't require as many employees. There was lots of employment in 1950 with a population of 2.5 Billion, however now there are people that are never going to be fully employed with a population of 7 Billion.

Unless something happens that is similar to "finding" (it was never lost) North America - - - we are going to go from comfortable to poor in the next few years. Governments are already over stressed trying to meet the incompatible demands of the voters and the corporations.

 

[huggzy]

Yes, but the flaw with a system that doesn't "create" new money is that the available employment doesn't increase. There is the story of Rip Van Winkle who went to sleep for 20 years and was still able to by lunch for the same amount. In 1998 the British did a report on the value of a Pound from 1750 to 1998. http://www.parliament.uk/documents/commons/lib/research/rp99/rp99-020.pdf

The table is normalized to 1974 = 100
In 1750 5 pounds would buy what 100 pounds would buy in 1974
In 1750 the World Population was about 791 Million http://en.wikipedia.org/wiki/World_population
1792 USA goes onto the Gold Standard
In 1799 9.7 pounds would buy what 100 pounds would buy in 1974
In 1800 13.3 pounds would buy what 100 pounds would buy in 1974
1844 Britain goes onto the Gold Standard
In 1916 12.8 pounds would buy what 100 pounds would buy in 1974
In 1931 Britain went off of the Gold Standard
In 1973 USA went off of the Gold Standard
In 1998 592 pounds would buy what 5 pounds would buy in 1750 or 100 pounds would buy in 1974.
In 1999 the World Population was 5 Billion 978 Million

If we look at the "good" years where the economy of the Western World was firing on all cylinders and we had a functional middle class
In 1946 26.4 pounds would buy what 100 pounds would buy in 1974
In 1950 the World Population was 2 Billion 521 Million
In 1973 85.4 pounds would buy what 100 pounds would buy in 1974

Therefore, It seems that a Central Bank that backs it's currency in Gold and/or Silver is necessary to prevent inflation of the money supply and devaluation of the currency. Both the British and the Americans "adjusted" what an ounce of gold was worth over the years and both limited redemption in Gold by requiring the person to redeem a bar of 400 ounces of Gold rather than gold coins.

However, if you look back at living conditions and employment in 1750, Britain was in the process of exporting it's unemployable poor to the colonies. There were few jobs in Britain because the feudal farming economy was over and the industrial economy didn't require as many employees. There was lots of employment in 1950 with a population of 2.5 Billion, however now there are people that are never going to be fully employed with a population of 7 Billion.

Unless something happens that is similar to "finding" (it was never lost) North America - - - we are going to go from comfortable to poor in the next few years. Governments are already over stressed trying to meet the incompatible demands of the voters and the corporations.

The issues you've highlighted here have to do with out of control population growth which is a world social problem. The whole idea of governments attempting to link currency and population growth is asinine and compounds the problem.

Currency is supposed to be a simple tool to facilitate the trade of goods so that people do not have to barter goods directly. It should be easy to use, easily quantifiable, measurable, easy to valuate FOR EVERYBODY that uses it (including the simple minded ditch digger), and the value of that currency should be easy and reliable to store over time. When you have central banks running printing presses out of control, banks that can magically expand and contract the money supply when it suits their needs through the simple tap of a computer key (and then take a chunk (in the form of interest) of that magically created out of thin air money supply - ie. taking money from the M0 money supply and putting it into its own pockets when they have created nothing), and governments that can change the valuation of its currency against bullshit such as precious metal quantities held by the financial elite (as opposed to setting it against resources that every person trades, needs and uses every day...items such as real property, energy, food, water etc.), then you have a system that is nothing but smoke and mirrors easily manipulated by the powers that rule and completely beyond the understanding of the average person (and thus impossible for them to valuate themselves).

The average person has no way of being able to determine what the true value of their currency holdings is, and storage of that value over time in the form of currency is anything but reliable. And that is just plain criminal.

Currency should be a fixed quantity. Period. If our world runs rampant with problems such as population growth then our governments need to focus on policies that directly determine how our world resources ought to be doled out among the masses - and simplifying the currency system would make tackling these kinds of problems much, much less complex to do.

But simplifying the currency system is not something the financial elite would ever want to do. Why would they? Owning the majority of capital, controlling world resources, and possessing the knowledge and ability to manipulate the world's currencies are the biggest advantages the elite could ever want in the competition of life against the masses. If the value of a currency could be easily determined by the masses then determining strategies to reallocate capital and resources away from the power brokers of our world becomes a much more straight-forward exercise.

(as a side note - as I get older it seems that the more I think about it, the more I truly believe from an ideological point of view that certain forms of usury should be illegal - debt and the taking of money by interest seems to be the root of all evil in this world. I have a whole lot of thoughts on this subject but I'm not going to share them here at this point)

 

[PlayfulAlex]

snip...(as a side note - as I get older it seems that the more I think about it, the more I truly believe from an ideological point of view that certain forms of usury should be illegal - debt and the taking of money by interest seems to be the root of all evil in this world. I have a whole lot of thoughts on this subject but I'm not going to share them here at this point)

Thanks for the insight, huggzy (and the rest of the posters here too). You state that you don't want to share all your thoughts but I wonder if you could add this?

What alternative do you suggests vs. interest? Doesn't it kind of make sense that, if I lend someone money, I can ask for it to be returned with a premium? After all, I took the risk of lending the money in the first place, without which the borrower couldn't build their building or start their business, etc. If there isn't a profit in lending, why would anyone lend me any money for my adventure, whatever that may be?

Article: http://blogs.reuters.com/edward-hadas/2013/08/07/imagine-a-world-without-debt