Aren’t both airlines and hotels required to make some kind of compensation to those who book with them but get bumped?
Not exactly.
You deposit a dollar with the bank, they can lend 80 cents of it out.
Now, if the person they lend it to buys something with those 80 cents, and if the guy he paid then deposits that 80 cents in the bank, the bank can then loan out 64 cents of that. And if that 64 cents is then spent and happens to also be deposited in the bank, the bank can then loan out 51 cents of that. So at this point, you think the bank owes you one dollar and two guys think they’re owed 80 cents and 64 cents.
And if you work out the math, from the original dollar deposit the bank could theoretically result in loans for a bit less than four dollars. But it’s not like the bank is just making things up as they go along – the bank is regulated, the deposits are insured, and there are other parties that the bank could itself get loans from if enough depositors want their money back all at the same time.
Yes, that’s the 101 textbook account. But it is not how bank lending works in reality. If you borrow money from your bank, the bank willl create that money by crediting your account with it. It’s not as if the bank took the cash deposited by another customer to give to you. Of course, the deposit is still important -it provides the bank with the liquidity (in the form of central bank money) it needs to meetpayment obligations, and it shows up on the balance sheet as funding on the liability side for the loan to you on the asset side. But the money lent to you is freshly created, it’s not what someone else deposited previously.
If you want to know what happens when this scheme collapses you can read Re GoldCorp Exchange.
Goldcorp was essentially an early version of the OPs scheme.
Far as I know, Bernie never ran a bank.
[QUOTE=nearwildheaven]
If it did, the gold would still exist, although it might melt if the fire was hot enough.
[/QUOTE]
Melted gold is still gold, and it would take a lot more effort to *vaporize *the gold ;).
Early ?? Much earlier overselling scams were of land titles back in the 1900’s - 1930’s. At the time people trusted the title system, even when buying from faceless companies… The land vendors were taking payment in installments, eg over two years, with the title to be handed over when all the installments have been paid…
Of course , the other real estate scam was the title to land in a swamp or desert…
Laws vary from state to state, but essentially yes. I just wanted to make it clear that an overselling scam is not the same thing as overselling done by the hospitality and transportation industries (nor is it the same as regulated fractional reserve banking).