“You have a lot of nerve trying to earn $15,000 on one deal..."
sebastianmarshall.com
sebastianmarshall.com
1. the lender is characterized as a greedy man, who has made a killing from the financial misfortunes of others. I really can't tell if he is describing an individual, or someone who is actually an employee of a bank, and does no more than personify the accumulated earnings of the shareholders. Maybe wealthy and unscrupulous individuals write mortgages, and if not, bank employees are hardly known for their spiritual generosity; but it seems like he's taking a loan officer's assertions about professional ethics as a personal insult.
2. tactical shenanigans aside, the basic business model of lending money is that one collects a rent on the amount at risk. I know, fractional reserve bankers lend out many times more than they have on deposit, so it's easy money...but then so is insurance until the time comes to pay out. A broker's risk is virtually nil, the work being essentially a matter of selection and compliance with various administrative requirements - at least, I've not heard of any brokers being asked to make good on mortgages gone sour.
So while I have nothing against his making a good income, it seems to me that the lender's complaint has more to do with the broker jacking up the costs he will be passing on to his client, towards whom he supposedly has a fiduciary duty (and not incidentally, slightly increasing the risk borne by the lender), even though he is not providing any discernable increase in value to the client. The lender finds himself an unwilling competitor in a race to the bottom; he may refuse to do business with this broker, but a less scrupulous lender can be found who will, resulting in an opportunity cost if he sticks up for the person on the other end of the transaction (with whom he cannot deal directly). Rejecting the proposal of someone he views as an unethical middleman results in an economic disadvantage for no discernible gain, and in contravention of his fiduciary duty to maximize the potential earnings of his own investors.
I'm not saying that such is inevitably the case, just that that's how it looks on the limited information supplied.
If the people borrowing the money then re-deposit that money in the same institution, then yes, you get a money-multiplier effect, and the institution ends up lending out more and more money - generally this takes place across separate banks with money moving back and forth though.
Assuming a 10% reserve, it's not like someone can deposit $10 in a bank and the bank can "magically" loan out $90 - they don't have it to loan out. The most they can loan out is $9. If that $9 ends up deposited in another account at the bank, they can then loan out 90% of that deposit, etc etc.... but that's slightly different and more limiting than what people generally think of with regards to fractional reserve banking.
As so often happens, wikipedia can explain it far better than I can put into words on the spot: http://en.wikipedia.org/wiki/Fractional_reserve_banking
I know I'm going off-topic - but it's a sensitive point with me, because most people who rail out against fractional reserve banking don't actually understand it. (That said, I'm not arguing for or against it, just for understanding before arguging at all).
People call it a "catch" or a "scam" - but I"d counter that just because the banking system isn't a big vault full of peoples money like they thought it was doesn't make it a scam - how banking works hasn't been a secret, and nobody lied about it - it's just an assumption people make, and are often shocked when they learn how fractional-reserve banking really works. The general populace's ignorance of how money works doesn't make fractional reserve banking a scam.
The law generally says the bank has to pay you. A run on the bank due to panic WILL bankrupt the bank - nobody pretends otherwise... the fact of the matter is most people won't do that, and won't take their money out of the bank, and the system as designed allows the banks to take on some risk in order to make the money flow and keep things moving.
And there are banks out there in the world that have huge reserve requirements (50% +), and even some that don't lend out your money, and don't pay interest - they also charge you a reasonably hefty fee for keeping your money safe.
Imagine the fallout if banks suddenly had 100% reserve requirements. No more loans, for business or otherwise. Everyone would be charged hefty fees to keep their money in the bank, and no interest at all on their deposits (not that there's much to speak of nowadays anyway). Nobody would go for that.
Good comment and I'm upvoting you, but you're actually describing classical banking. Under classical banking, there's two different kinds of banks - "deposit banks" that you pay fees to hold your money for you which you can get whenever, and "loan banks" where you can only collect your money at certain times that pay interest (it works similarly to a bond).
We're in a system that's mixed - a "savings and loan banking" system. The problem is that your money is both loaned out, and you can collect it at any time. When too many people do this, it's a bank run, and the bank goes bankrupt leading to lots of problems and turmoil.
To make this system work, you need a central reserve bank and fiat currency that can be printed. Unfortunately, this inevitably gets abused by some unfrugal government sooner or later, leading to the country's financial system going through hell and back. Historically, every fiat currency has eventually gone down to zero value.
I think classical banking could work in the modern era - separating out into savings banks and loan banks. Interest rates would go up, and there'd be less speculative buying. It'd smooth the boom/bust cycle, at the expense of some growth during booms. I think it could work, but yeah, it'd be very different than things are now.
Nobody is forcing you to allow your money to be loaned out to other customers. Rent a safe deposit box and put your money into that. You won't earn any interest, of course; but that's inevitable, since the bank has no means to pay interest on money it can't utilize.
Or an airport that rents out cars left in long-term parking.
Imagine an airport which paid you to park there rather than vice versa.
A little of both - the context within the book is the author is talking about his first three years in business, when he gets repeatedly screwed over. This talk with the condescending lender was one of the things that made him wise up to where he was going wrong - he was coming across as "just a broker" - after that he resolves to establish a better image and come across more powerful and be more valuable.
The lender incident isn't really described so clearly - it was mainly to illustrate his point about how he was being perceived before toughening up. Also, I edited it down some, because the really fascinating part to me was the bolded quote. He mentions that deal fell through and the lender didn't buy, but just a year or two later he made more in one year that he had in the entire rest of his life, largely driven by the epiphanies of how he was being perceived beforehand.
Now keeping that in mind I'll also say that I've seen numerous deals go down the drain because of greedy intermediaries & brokers who seem to forget that while their involvement did help the deal along, they are not the ones ultimately putting funds at risk.
It has been retitled "To Be Or Not To Be Intimidated?: That Is The Question" due to people thinking it was actually about intimidating other people, rather than standing up to certain types of business intimidation.
It's a mostly autobiographical account of a real estate broker, and how he learned to stand up for himself against a series of different sorts of intimidating business types. There's nothing revelatory in any of this: go in prepared, have a fallback plan, don't buckle under to crazy demands. There is some interesting stuff about real estate brokering in there, which I found interesting, but which can easily distract from what the author is actually trying to discuss.
I read Trump's first book "The Art of the Deal" right after, and I think Trump's book does a better job of doing the same thing with much more interesting stories. First of all, Trump's arena is New York City real estate, which is more dramatic than Missouri real estate. Second, Trump talks about the actual personalities and organizations he dealt with, rather than the cutesy pseudonyms that the Intimidation author uses and the generic locales he describes. Third, Trump, for all his faults, comes off as a real guy with real ways (good or bad) of dealing with business problems, where the Intimidation author is mostly creating a hammed-up and semi-ficitional account of his modest deals.
Bottom line: "Winning Through Intimidation" is ok if you get it from the library, and you enjoy watered-down business parables. "Art of the Deal" is much better if you care about how someone who did some pretty spectacular things describes how he did them (which may or may not be wholly accurate).
Guys, cmon, this is obvious book spam. There's even an affiliate link at the bottom
False. Carefully chosen, hand-transcribed, edited-for-brevity excerpt of a relevant and obscure book, with a particular quote bolded.
> There's even an affiliate link at the bottom
I've had 40,000 unique visitors in the last four months, and I've had $0 in Amazon commissions. Does it mess credibility up? I'm tempted to cancel the damn thing, if anyone buys from the link I get like 20 cents or whatever. I thought Amazon commissions would maybe help me pick up a free book every month or two, but they've done no such thing. I should ask other bloggers if they've made anything from Amazon on book recommendations - even a very small credibility hit isn't worth the 40 cents or whatever.
Admittedly ad placement is part of this but I've used Amazon book links where there are large amounts of people coming to a site with a particular interest - I've researched and picked out good books for that interest but nearly nobody bites (or Amazon aff links are not working?!).
But yes, Amazon hasn't performed for me, and I've tried to make it work. Short, snappy posts with Amazon link - nothing. Extremely long, detailed posts with obscure but really good books - nothing. For a while, I thought I'd be patient with it, but it's almost to the point where it's not worth the screen real estate.
Anyway, thanks for the insight. I wanted to drop you a line but no info in your profile - email me?