I Don’t Understand


The other day I was driving down the street in my old Ford pick-up when I saw a crowd of people standing around a parked automobile. In my usual curious way, I had to stop and see what was going on. There, was parked, a sleek little automobile. A two-seater convertible in bright red, with white upholstery. What a beauty! And standing nearby was the proud owner. He was explaining that the car was all electric, and all one needed to do is plug it in to an outlet in one’s garage at night, and the next morning it was ready to go again. He said it is made right here in California. It would only hold two people and cost about 100,000 dollars, but it was going to save the planet.

The assembled people would gaze at the car, and then gaze at the owner in admiration, for it’s true – a man is known by the car he drives. There he was, in suit and tie, and a halo over his head. I decided, right then and there, that I would buy one of those and be an admired owner, an important person; though I knew I didn’t qualify for a halo.

That evening I thought some more about it, and realized that when I plugged it in at night it was going to take nearly all the juice coming into the house, and I might have to give up television or my furnace, but this was for the planet, and for my ego. I also figured out that the cost of twenty two cents per kilowatt hours to charge this little beauty would be more than the cost of gas for my Ford. Even worse, I would have to give up my over-alls and wear a suit and tie. But, what the hell!

So, I talked with a salesman at the sales room and made a deal. Ten percent off if I paid in cash. Now, if I was going to buy a car made in California, I wanted to borrow the money from a California Bank, and, by George, there was such a bank right in my town – The Bank of The West.

The bank officer was very nice, offered me some coffee, which I declined for I had had my daily quota at breakfast, and we drew up a lot of papers – a 100,000 dollar loan secured by my house. He suggested a car loan would be more appropriate, but knowing the interest rate would be higher, I insisted on the real-estate loan.

So then I said, when the papers were drawn up and signed, “I would like that in one-hundred dollar bills.”

“Oh no.” he replied, “you don’t understand. We don’t give you cash; we just give you a check book.”

“No, no,” I said, “I want it in cash so I can get my discount. The salesman told me if I paid in cash I would get 10,000 off.”

“Well,” he answered, “we don’t have that much money here, you see what we do is…”

I didn’t let him finish. “How can you lend me the money if you don’t have it?”

“You don’t understand.” He said. “Here is what we do: on our books we debit loans receivable, and credit deposits. Then we give you a check book and you can pay your bills. Now do you understand?”

“I’m getting more confused.” I said. “How can you lend me money you don’t have, and how can I give my car dealer the cash to get the discount? I want to talk with your president. Is that his desk over there?”

“No,” he said, “He sells our IRA and ROTH retirement accounts. Would you like to sign up for an IRA?”

I answered “The only Ira I know wrote music. Would you like me to hum “Fascinating Rhythm” for you?” I threw that in to relieve some of the tension that was building.

He ignored my offer, which was probably best, for I wasn’t too sure of the tune. “You don’t understand.” he said, “Our president doesn’t work here. Just sign the checking account papers and then you can go buy your car. Are you sure you wouldn’t like a cup of coffee?”

“Where does your president work?” I requested, ignoring his latest offer. “In San Francisco? I see you have an office there. I’ll go there and get my cash. If you don’t have it here, they should have it.”

“No, no, you still don’t understand. You see, our president lives in Paris, and that would be a bit out of your way.” He made a joke of this, but I was serious. “You see, The Bank of The West is owned by The Banque Nationale de Paris.

“O.K.,” I said, “I’ll just take the cash in francs. Oh no, that would have to be in Euros.”

“No.” he said, “they don’t have the cash either, all banks operate this way, they merely debit loans receivable, and”

I finished his statement. “And credit deposits.”

“You’ve got it now,” he added. “This is the way banks all over the world have always operated. It’s called the fractional reserve banking system. You sure you don’t want some coffee?”

“Wait a minute,” I was getting pretty annoyed by now. “You charge interest for money you don’t have?” I’m pretty slow, but then it dawned on me. “And you call yourself The Bank of The West though you are a French bank, so people will think they are dealing with a local firm.”

He started to reply, but stopped as I reached across his desk, picked up all the papers, tore them in half, then in half again. He started to talk again, but I just held up my hand and stopped him. And as I walked out I said “I guess I’ll just drive my Ford pick-up a few more years and be a nobody, because I just don’t understand.”

Then I phoned the auto salesman and cancelled my order. I was a bit surprised when he casually replied “No problem, I’ll just call the Lotus factory in London and tell them to cancel the order.”

Lotus? I didn’t order a Lotus! Now I really didn’t understand. No California car and no California bank.

George W. Parker
January 2010

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