Quote:
Originally Posted by roly
investment banks are privately owned (although they are gambling with other peoples money), how can it not be capitalism?
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In a
free market system, banks wouldn't be able to run all the scams they are able to run in a
mixed economy.
One of these scams is know as
fractional reserve banking. Banks basically create money out of thin air. This causes inflation, the transfer of wealth from the hands of people who actually created/produced products (or services) to the hands of the people who created the money out of thin air (the banks) (known as the Cantillon effect),...
If you or I started doing that, that would be considered fraud and counterfeiting and we would be sent to jail. If banks do that in a mixed economy, they are 1) allowed to do that by the government, 2) aided by the government (the whole concept of legal tender*) and 3) protected by the government and central bank.
In a free market system, banks that commit fraud would lose their customers and go out of business. Customers would be forced to act more responsible with their money and banks wouldn't be able to continue doing business or grow if they acted fraudulently.
*
"Legal tender or forced tender is an offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force."