A History of the Mandrake Mechanism:
The federal reserve states that member banks must keep no less than 10% in reserves. If someone makes $100 deposit, the member bank can lend out $900.
Let's see how this Mandrake Mechanism works:
A $100 deposit is made and Joe borrower, borrows $900 at 1% per month, and starts making $90 payments. Imagine that goes on and on and on, until that's paid back.
Although that's good money, there is more good news. The lender can use that performing note as collateral, and borrow against it. It can actually borrow up to 100% of it's value.
Let's say they do that, and the bank uses the promissory note as collateral, and borrows all of it's value @ half of the interst rate. So they are owed $45 month to their lender (the bank's lender). So the bank then gets their $900 back, but they owe $45/month.
So let's review.
The bank receives a deposit of $100. They lend out $900, receiving $90/month. They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan. They then do this again.
They lend out $900, receiving $90/month. They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan. They then do this again.
They lend out $900, receiving $90/month. They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan. They then do this again.
They lend out $900, receiving $90/month. They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan. They then do this again.
Do you see why banks have the nicest buildings?
