Re:Musk announces funding secured for Twitter buy
by User23 on Thursday April 21, 2022 @10:28AM
(#31109871)
> What follows seems like Elon is "paying" for Twitter with... imaginary money.
The vast majority of money is "imaginary" in the sense that it's just liabilities on some bank's balance sheet, AKA bank deposits.
> Why can't anyone do this? I'll promise you a bunch of debt and equity, too.
Anyone can do this. Nothing is stopping you from writing me a note for $1,000,000 and me writing you a note for $1,000,000. This leaves us both a million richer in assets and a million poorer in liabilities. At that point even hinkier stuff can happen like me using your note as collateral on a loan to further expand my balance sheet. The tricky part is getting third parties to accept our IOUs. US Banks have no such trouble thanks to their membership in the Federal Reserve system. This is one major reason why a banking license is such a huge deal.
The vast majority of money is "imaginary" in the sense that it's just liabilities on some bank's balance sheet, AKA bank deposits.
> Why can't anyone do this? I'll promise you a bunch of debt and equity, too.
Anyone can do this. Nothing is stopping you from writing me a note for $1,000,000 and me writing you a note for $1,000,000. This leaves us both a million richer in assets and a million poorer in liabilities. At that point even hinkier stuff can happen like me using your note as collateral on a loan to further expand my balance sheet. The tricky part is getting third parties to accept our IOUs. US Banks have no such trouble thanks to their membership in the Federal Reserve system. This is one major reason why a banking license is such a huge deal.