by Robert W. Hopper
BANK LOAN FRAUD
On page 6 of Modern Money Mechanics, the Federal Reserve Bank of Chicago tells us that the banks DO NOT "pay out" the funds for loans from money they received from other depositor's accounts.
What they do is "accept" promissory notes in "exchange" for, credits to the "borrower's" transaction accounts - called "liabilities."
Can the bank legally create money? You bet. If anyone ever asks you if it is legal for the banks to create money, the answer is yes. By the transactional method of mere "bookkeeping" entries (debits and credits), the bank is able to create money (or what is called money today.) And here's how they do it.
When the bank receives a deposit of funds, either in Federal Reserve notes (cash) or some other form of a promise to pay, like a "check", or a "promissory note", they will open a "demand deposit account", or make a deposit in an account already opened, in the name of the "depositor."
Once the bank obtains that promise to pay, they own it. It's theirs. It is how they obtained that "promissory note, and how they "create money" with that "promise to pay", that is of special interest to you.
The following is the example from the fed publication, Modern Money Mechanics, and reflects a typical bank deposit transaction.
For every deposit entry on the "asset" side of the ledger, there must be a corresponding and matching "liability" entry. The liability is there because it is a Demand Deposit Account, which means you could withdraw it all at any time. The two ledgers, "assets" and Liabilities" must always balance out to "zero."
THIS IS KNOWN AS THE "TRANSACTION" CONCEPT OF MONEY
You take it to the bank, deposit it, bank has an asset and a liability, and the bank balance is "zero."
At this point, the new money has been created, but it is not in circulation. The bank has it in a Demand Deposit Account. If you have opened a checking account, you may write checks on that account, and buy goods or services. When the person to whom you wrote the check, deposits that check in their Demand Deposit Account, at their bank, that account is credited for the amount on the face of the check. The check you wrote (your promise to pay), is returned to your bank, and the Demand Deposit Account, that has your name and the Account Number attached to it, will be debited, for the amount you assigned to the check.
Goods and services have been purchased, but no new money has been created.
So how is new money created? One way is by you applying for a loan.
What are the steps a bank uses to handle a loan transaction, and how does that loan create new money?
Modern Money Mechanics tells us, if the banks were to take their own money, or other depositor's money, and loan it to you, they would never be able to create any "new" money and birth it into the economy. So, they are allowed to take your note, (which is new money, based on your promise to pay), and birth it, into the economy through, they're access to the, clearing houses for negotiable instruments, and loan you "credit."
However, let's look at a typical loan transaction today.
You go to the bank and ask to apply for a loan. Can the bank loan you they're own money (assets)? No. Can the bank loan you the other depositor's money (credits in a Demand Deposit Account)? Well, they could, if they requested and received written permission of every single depositor, from whose account they would be using to make the loan. But that would defeat the effort to create new money, since they would just be recycling a certain amount of currency. So, the answer is, no.
So, here is what they do. For purposes of this example, we will use $100,000, but the principle used in the 'checking" (Demand Deposit Account) above, is the same. Your application for a loan is approved and you begin signing all the paperwork. Once you have signed the Promissory Note, the bank will make a book entry of a deposit into a bank Demand Deposit Account in the amount of your note, and show that amount as an "asset" to the bank. Remember there must be a corresponding and matching ledger entry as a liability. The loan is for $100,000. On the books of the bank, the establishment of the loan transaction would look similar to that of the checking account.
There would be a deposit for $100,000 (your promissory note), and a matching ledger liability book entry of $100,000 (the numerical face amount of your note). Now, here is where it gets tricky. Let's track the transactions of a loan, in the following example.
Let's say this $100,000 loan was for a mortgage. Here's what happens next:
$100,000 $100, 000
The Bank still owns asset. [Your Note]
Suppose they discount it 10%. 90,000
WHAT IS WRONG WITH THIS PICTURE?
First, it becomes very obvious, that the bank raised an asset to itself, when it deposited your note in a bank Demand Deposit Account, and made a book entry of a "asset" and a matching book entry of a "liability." (a T accounting of the account will prove that.)
Second, it becomes very obvious, that the bank wrote a check on the "liability", and paid the seller, while keeping your note in the bank Demand Deposit Account, as an "asset." (An examination of the bank's books will prove that.)
Third, it now becomes very obvious, that in the loan transaction, the bank, exchanged their liability to the seller, for your note. Which means, the bank enriched itself in an amount equal to the face amount of your note. (Call in the Regulatory Examiner.)
Fourth, it becomes very obvious, by standard and well known business practice, that the bank does not hold your note, but will typically sell the note, at a discount, enriching the bank twice over. (Ask to see the original, unmarked and unaltered note.)
But, everybody's happy, right? Everyone got what, they bargained for, right? The seller is happy because he got the house sold. The buyer is happy because he got the house he wanted.
OR DID YOU GET WHAT YOU BARGAINED FOR?
Here are some serious questions that the above scenario of a loan transaction naturally raises.
1. Does the bank raise an asset to itself, in addition to the liability?
2. Was this disclosed in the contract?
3. Was I compensated for the bank using my note, and my signature, to raise this asset to the bank?
4. Was this account containing the asset for the bank, opened before the bank received my note?
5. When I pay off the loan, who gets the asset the bank raised to itself, with my note?
QUESTIONS DERIVED FROM PRIMARY QUESTIONS:
1. Is, there fraud here?
2. If there is fraud here, what are the damages?
QUESTIONS THAT MAY LEAD TO THE DISCOVERY
OF FRAUDULENT DAMAGES: Return to top of What Really Happened
3. Was there inducement? (Advertising, Solicitation)
4. What does the note represent? (Your promise to pay)
5. Where will you derive the funds to pay? (From your labor)
6. Is your labor, your property? (Duh!)
7. How many years will you be paying on this note? (5, 10, 15, 30)
8. What is the interest rate? (8%, 10%, 12%)
9. Is that interest rate compounded annually, monthly, weekly, or daily? (Hint)
10. What is the actual rate of interest? (25-50%)
11. Does this violate the Usury Laws? (12% or higher annual interest rate)
12. Was this disclosed in the contract as required by the Federal Usury Disclosure Act?
13. Did the bank raise an asset to itself on your hand written name? (Without your knowledge and consent)
14. Did the bank use the note first (before) you received your loan, to raise the funds for the loan? (Did they sell it, or use it for collateral for a loan from another institution)
15. Does this make the note a negotiable instrument? (Tendering a future earnings instrument for consideration to a third party and endorsing, "without recourse.")
16. Did the bank properly apply the proceeds from your note to the purported debt?
17. What did the bank do with those proceeds? (Look at the building)
18. Who else is deriving a benefit from your note, (and hand written name) without your knowledge or consent?
19. Have you been damaged?
You will have to decide if there is fraud here. But, if you get a Complaint to Foreclose your Mortgage and you do not answer and dispute every allegation, then you must counterclaim. What do you think a good counterclaim might be?
Or, should you answer and dispute every claim, and deny there was a valid contract, because the contract was constructed by fraud and is void ab initio, and counterclaim for fraud?
ONLY YOU CAN MAKE THAT DECISION.
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