Felix Salmon says the money you deposit in a bank isn't yours

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Felix Salmon says the money you deposit in a bank isn’t yours

Felix Salmon says the money you deposit in a bank isn’t yours

Seeking Alpha-

Bill Cohan declares, today, that the money JPMorgan (JPM) lost in its infamous “London Whale” trades actually belonged to depositors. He’s wrong about that.

Here’s Cohan’s argument:

To my mind, the money that Iksil lost was depositors’ money. Iksil worked for the CIO, where depositors’ money is invested until it is lent out. The trade lost almost $6 billion in cash, which we know is real because hedge funds such as Saba Capital, run by wunderkind Boaz Weinstein, and Blue Mountain Capital staked out the other side of Iksil’s trade and made a fortune. How could there be any confusion that the money Iksil lost came from the bank’s depositors?

This is just silly. If you deposit money at a bank, you’re lending that money to the bank. Bank deposits count as liabilities on the bank’s balance sheet: they’re money that the bank owes to its depositors. And like all other debt, bank deposits are a contractual arrangement: the bank borrows your money — and agrees to repay it — on certain terms. Often, those terms include an effective call option: the depositor can ask for her money back at any time.

[SEEKING ALPHA]

image: e-how

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