Supreme Court declares debt buyers immune to FDCPA

In all the years I’ve been writing on debt and debt collections in the United States, I and everyone else who has written on the topic has had the same presumption: anyone other than the debt originator is subject to the full provisions of the Fair Debt Collection Practices Act.

And the Supreme Court of the United States just ended that presumption in one decision. The case is Henson v. Santander Consumer USA, Inc., and it is the first written decision from the new Associate Justice Neil Gorsuch.

First, the facts of the case. The loans were auto loans provided by CitiFinancial — full disclosure: I previously had a personal loan through them before they were spun off into OneMain Financial. The petitioner defaulted on the loan, and it’s safe to presume there was a repossession going along with that, with the petitioners also not paying on what was left over after the repossession was sold off. The leftover balance was then sold – key word there – to the respondent in this case, Santander Consumer USA.

Allegedly the debt buyer didn’t adhere to the full provisions of the Fair Debt Collection Practices Act, and the petitioner filed suit. Here’s where things get shaky.

The key concern here is that Santander Consumer USA is a debt buyer. As such, when they were assigned the debt accounts, CitiFinancial washed their hands of the debts entirely and transferred all rights to the debt to the respondent. This is quite different from a collection agency who merely collects a debt on behalf of the creditor. Quoting the opening paragraph of Gorsuch’s opinion:

Disruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry. From that scrutiny emerged the Fair Debt Collection Practices Act, a statute that authorizes private lawsuits and weighty fines designed to deter wayward collection practices. So perhaps it comes as little surprise that we now face a question about who exactly qualifies as a “debt collector” subject to the Act’s rigors. Everyone agrees that the term embraces the repo man—someone hired by a creditor to collect an outstanding debt. But what if you purchase a debt and then try to collect it for yourself— does that make you a “debt collector” too? That’s the nub of the dispute now before us.

And the Justice borrowed heavily on the exact wording of the statute in deciding that, ultimately, no, Santander is not a “debt collector” in the eyes of the Fair Debt Collection Practices Act. Specifically “debt collector” is defined at 15 USC § 1692a(6):

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

That last word is key. And the statute makes a very important distinction as well. Continuing the paragraph:

Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.

Again, this is very key. A “debt collector” is clearly someone collecting debts for someone else. But a debt buyer isn’t doing that. A debt buyer purchases all rights and interest to a receivables account — the outstanding debt — and takes ownership of the debt, with the seller writing off all interest in the debt and retaining no rights to it. For all intents and purposes, the debt buyer becomes the creditor. And there is a ready assumption with this that Gorsuch points out:

Both sides accept that third party debt collection agents generally qualify as “debt collectors” under the relevant statutory language, while those who seek only to collect for themselves loans they originated generally do not.

Going on the plain language of the statute, Gorsuch then follows the logic:

All that remains in dispute is how to classify individuals and entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account. Does the Act treat the debt purchaser in that scenario more like the repo man or the loan originator?

And the answer is laid bare:

[We] begin, as we must, with a careful examination of the statutory text. And there we find it hard to disagree with the Fourth Circuit’s interpretive handiwork. After all, the Act defines debt collectors to include those who regularly seek to collect debts “owed…another.” And by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself. Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner— whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for “another.” And given that, it would seem a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute, just as the Fourth Circuit explained.

And the rest of the decision basically responds to any other attempts to grammatically interpret the statute in a fashion that pretty much all of us presumed is how the statute would be interpreted.

So basically the Supreme Court has ruled that debt buyers are not debt collectors. Going on the plain text of the statute. In the end, bringing the presumption of the statutory language into the language of the statute is an act for Congress, not the Courts.

Since again, I and many others presumed that debt buyers were treated as debt collectors under the law. This was, arguably, the first time I’ve ever looked specifically at the statutory definition of a debt collector. The difference is very key, since debt collectors are subject to the main provisions of the Fair Debt Collection Practices Act. Items such as debt validation, and the specific provisions surrounding matters such as time and place of contact.

Now does this mean that debt buyers are free to use whatever tactics they want to collect on debts? NO!

The only thing this decision means is debt buyers cannot be sued in Federal Court under the Fair Debt Collection Practices Act. Other Federal and State laws still apply. This means they cannot harass you to collect a debt, and even if relief under the FDCPA cannot be obtained, the provisions laid out can still apply to the definition of harassment.

This means a debt buyer cannot go outside the bounds of what is reasonable to collect a debt. No Court would side with a loan originator calling you at 3am to discuss your debts, let alone a debt collector. That easily falls outside the bounds of what is reasonable and could likely qualify as harassment. It just means you have to sue for harassment instead of violating the FDCPA.

And if you tell a debt buyer in writing to stop trying to contact you, they must still comply.

So while this decision out of the Supreme Court is certainly quite eye-opening, don’t think it means that debt buyers can now do whatever they want. They can’t. They must still act reasonable in collecting a debt. And you can still hold them to that. It also means that debt validation with debt buyers, however, may become a little more complicated.

Hopefully Congress and the President will act on this decision soon to amend the definition of “debt collector” at 15 USC § 1692a(6) to also include debt buyers.


Nuance, meritocracy, and the upper 20%

If there’s one adage in life that has proven itself true numerous times it’s this: you might get rich through luck, but you won’t stay rich through stupidity. There are numerous nuances about wealth that many don’t understand, or don’t want to understand. Instead they just want to stare that the aggregate figures and complain.

In the case of Richard Reeves of the New York Times, it’s basically to tell the upper-middle class that we are “rich”. And I say “we” because I am fortunate enough to have gotten to that income level. But Reeves completely misses the nuance that goes with the income level.

Such as where you live. My current salary in San Francisco wouldn’t garner anywhere near the standard of living that I have in Kansas City. In 2013, Learnvest published an article highlighting how $166,000 per year in New York isn’t exactly middle-class. Note: it’s not upper-class either. And in Silicon Valley, software engineers earning what I make or more are “scraping by“.

Now Reeves does point out that class segregation does exist in the United States. It’s quite easy to tell where the more affluent members of society are likely to live. For example, in Kansas City, Missouri, drive along US-169 near Briarcliff Road and you’ll see an area that is obviously occupied by the more well-off in Kansas City. Same with driving down Ward Parkway. Other areas of the Kansas side of the metro are similar.

At the same time, though, you can also see that between completely different metro areas by looking at cost of living. The comparison between Silicon Valley and Kansas City I’ve already highlighted. And there’s also a comparison to be made between even Des Moines and Kansas City.

But where Reeves goes a little out of bounds is in trying to describe why that class segregation exists, and whether it’s actually a problem.

The big difference is that most of the people on the highest rung in America are in denial about their privilege. The American myth of meritocracy allows them to attribute their position to their brilliance and diligence, rather than to luck or a rigged system. At least posh people in England have the decency to feel guilty.

Meritocracy is far from a myth. I did not earn my place on the ladder in the US economy through “luck or a rigged system”. Instead I earned it through my choice of career, along with my expertise and experience allowing me the job I currently hold where I earn my salary. As such I’m not in denial about my “privilege”. I know I earned it.

And many others above me on the income rungs also earned theirs. It wasn’t given to them in any way.

In the United States, the most liberal politician can pay for a lavish education in the private sector. Some of my most progressive friends send their children to $30,000-a-year high schools. The surprise is not that they do it. It is that they do it without so much as a murmur of moral disquiet.

Why should they have any sense of moral disquiet? Because they are well-off enough to be able to send their children to prestigious private schools and enjoy their wealth in other ways? I’m sure the Obamas had no feeling of moral disquiet sending Malia and Sasha to private schools, both in Illinois and Washington.

While that alone isn’t a guarantee of future success, it does give them one hell of a head start. But, again, where is the concern?

There seems to be a rather common point of view wherein the rich should feel ashamed for being rich. “Rich guilt”, which is loosely related to “white guilt”, it seems. And President Obama’s statement that “you didn’t build that!” in reference to people who did build successful business ventures.

But another nuance often lost in discussions of wealth in the United States is socio-economic mobility. This is the approximate measure of how easy it is for someone in the United States to not only move up income brackets, but also move down. Interestingly, a lot of people decry low socio-economic mobility as being bad, but don’t understand how their policy ideas only make that situation worse by, in essence, punishing success.

But while socio-economic mobility in the United States appears to be low compared to our European counterparts — for numerous reasons I won’t venture into here — it hasn’t changed much compared to the 1970s.

As such, the statement “Most of the children born into households in the top 20 percent will stay there or drop only as far as the next quintile” misses a lot of nuance. Not to mention it’s also not correct (more on that in a second). Again, you might get rich by getting lucky, such as luck of birth, but you won’t stay rich by being stupid. A lot of those born into the upper 20% will also attend some rather affluent schools, allowing them to learn what they need to keep from dropping out of the upper 20%.

This is why I get rather taken aback by those who call individuals such as President Donald Trump “stupid”. Openly and brazenly calling him that. Because Trump is far from stupid. The fact he’s a billionaire shows that. He took what his father gave him and built upon that.

Bill Gates got very, very lucky in starting Microsoft. The economic tides very easily could’ve turned against him and his startup. At any time that also could’ve happened. Instead he’s still the richest person in the world, though don’t think for a moment he’s sitting on $80+ Billion in cash.

And depending on the variety of his securities, one bad market swing could wipe away a significant chunk of it. And that is the case for most of the rich. Because the rich aren’t sitting on cash. Don’t think the images of Scrooge McDuck having so much cash he needs a giant building to store it are in any way realistic.

As such, contrary to the assertion of Gary Solon, who Reeves quotes in his op-ed, there isn’t a “wealth trap”. Again, you don’t stay rich being stupid. And there are plenty of examples of people born into affluent families squandering the wealth they inherited. Time published an article in 2015 with the rather eye-opening title: “70% of Families Lose their Wealth by the Second Generation“. And Time reveals another eye-opening statistic: 90% of rich families lose their wealth by the third generation. This is where this statement comes from: “riches to rags in three generations”.

There’s a kind of class double-think going on here. On the one hand, upper-middle-class Americans believe they are operating in a meritocracy (a belief that allows them to feel entitled to their winnings); on the other hand, they constantly engage in antimeritocratic behavior in order to give their own children a leg up.

How is giving your kids the best starting chance “anti-meritocratic”? Indeed isn’t that what virtually all parents want: to give their kids a better chance in life than they had? It’s actually why we have the luxuries we enjoy in the United States: people building on the ideas and achievements of those who came before.

But leads can be squandered through complacency. Just talk to anyone who was cheering on the Atlanta Falcons in last-year’s Super Bowl. Being able to send your kid to a prestigious private school is no guarantee they’ll succeed in life. And plenty of people who went through public schools are successful.

Things turn ugly, however, when the upper middle class starts to rig markets in its own favor, to the detriment of others.

Okay this ought to be good…

Take housing, perhaps the most significant example. Exclusionary zoning practices allow the upper middle class to live in enclaves. Gated communities, in effect, even if the gates are not visible.

This is the class segregation to which I referred earlier. But this didn’t occur through exclusionary zoning practices, and I invite Reeves to back up that assertion with reports if he has them. Instead home values create these “enclaves”. I mentioned earlier the Briarcliff area of Kansas City, Missouri.


When it comes to real estate clichés, “Location, location, location” has all other contenders (including “Not a drive-by!”; “Cash is king!”; “Is that your checkbook or are you just glad to see me?”; and “Worst house, best street”) beat by a mile. Not only has it been in use since at least 1926 (according to the New York Times), but it’s utterly and inarguably true.

In the quoted article, they also have an image showing what can bring down home values quite a bit. And when you look at this image, these are often things you don’t think of when thinking of affluent areas:

I should note that I don’t live far from a large cemetery and a funeral home. And it’s perfectly understandable that a cemetery being nearby would lower a home’s value and likely make it somewhat difficult to sell. Cemeteries give a lot of people the willies.

But a bad school having almost double the effect of a cemetery is worth noting. High renter concentration and homeless shelters tend to also point to a lower-earning population. Especially since a high renter population also means higher likelihood of Section 8 housing.

The effect tends to compound: bad schools may occur from less property taxes being collected on lower-value homes.

And these tend to be areas that more affluent people either avoid or escape. Also compounding the problem is attempts for the rich to bring their money into those areas may be met with animosity by the population living there.

Atlantic Bay points out other things that negatively affect home values in an area:

  • Crime (which tends to exist with poverty in a feedback loop)
  • Poorly maintained exteriors
  • Foreclosures nearby the home
  • Unpleasant odors
  • Dangerous trees and limbs
  • Unkempt yards
  • Annoying pets

Along with crime is also the sex offender registry. A home in an area with a higher concentration of registered sex offenders could see a significant drop in home value, according to Business Insider, and will likely be avoided entirely by home buyers with children.

But again, these are things you won’t see in affluent neighborhoods.

The federal tax system gives us a handout, through the mortgage-interest deduction, to help us purchase these pricey homes.

Not to the degree you might think. And the ability to take certain itemized deductions is reduced at greater incomes. Buying a pricey home in an affluent neighborhood means you have a greater level of income, but it also means your eligibility to deduct all of the mortgage interest could be reduced.

For the upper middle classes, regardless of their professed political preferences, zoning, wealth, tax deductions and educational opportunity reinforce one another in a virtuous cycle.

That “cycle” doesn’t exist.

Instead the cycle is a little more like what we’ve seen with Donald Trump: born into a rich family, gets a good education, and so learns how to take risks that will pay off.

And again anything can derail this. A bad investment here, a bad business venture there. And a person starting off born into a family with 8 figures to their net worth may find themselves with… less. Much less. Same if they don’t do anything to maintain the wealth and just squander it.

You might get rich by getting lucky, but you won’t stay rich being stupid.

It takes a brave politician to question the privileges enjoyed by the upper middle class. Recently, there have been failed attempts to make zoning laws more inclusive in supposedly liberal cities like Seattle and states like California and Massachusetts.

There’s not really much that laws can do with regard to the enclaves that form. Investment in the lesser-off areas is what is needed. But since these lesser-off areas tend to have higher rates of crime, that tends to scare away potential investors. While the damage from the New Deal policy known as “redlining” is still being felt today, there really isn’t much laws can do to undo that damage.

But the people who make up the American upper middle class don’t just want to keep their advantages; armed with their faith in a classless, meritocratic society, they think they deserve them. The strong whiff of entitlement coming from the top 20 percent has not been lost on everyone else.

And have you talked to upper-middle class earners? I can tell you from my own perspective that it isn’t any sense of entitlement. And the luxuries I enjoy I don’t feel I deserve. Rather it’s what I have earned. Since they are advantages and luxuries I pay for from my salary.

It’s the lesser fortunate that seem to believe they have a claim to my salary and so demand the government take more of it.


Revisiting the Fourth Amendment and passwords

After posting the previous article, I decided to dig around a little more to see where the idea originated that passwords are protected by the Fifth Amendment as opposed to the Fourth. And in that, I discovered a rather key case out of the United States Circuit Court for the 11th Circuit called US v. Doe.

And at a cursory glance, it would appear that the Court is saying that a person has a Fifth Amendment protection from being compelled to produce a password. But that isn’t what the Court is saying.

First, let’s establish the facts of the matter. In 2010 the person represented by the alias John Doe was determined by investigators to be a key figure regarding the trafficking of child pornography. As part of their investigation, they seized computers and storage media in excess of 5TB (impressive for 2010). Everything was forensically imaged.

Unfortunately, much of the media was encrypted with TrueCrypt, and the examiners weren’t able to recover anything as a result.

So they tried to get the United States District Court to compel Doe to either turn over the password(s) or produce the unencrypted contents of the drive. This is where the Fifth Amendment claim was initially raised.

In response to the initial claim, the Court granted limited immunity to the production of the media contents, but did not extend that immunity to any derivative uses by investigators. And since any derivative uses could lead to charges, Doe again raised the Fifth Amendment. And he was held in contempt of Court.

But before you think that the Fifth Amendment absolutely controls here, a few key details come into play, specifically from the testimony of one of the forensic investigators, Timothy McCrohan:


Doe: So if a forensic examiner were to look at an external hard drive and just see encryption, does the possibility exist that there actually is nothing on there other than encryption? In other words, if the volume was mounted, all you would see is blank. Does that possibility exist?

McCrohan: Well, you would see random characters, but you wouldn’t know necessarily whether it was blank

Doe pressed the investigator to explain why they believed something specific was hidden on the drive.

McCrohan: The scope of my examination didn’t go that far.

Doe: What makes you think that there are still portions that have data[?]

McCrohan: We couldn’t get into them, so we can’t make that call.

What exactly was John Doe (likely his attorney, actually) doing with these questions? Trying to establish probable cause. And there’s a major reason he’s trying to do that which I’ll explain later.

But is producing evidence “testimony”? Well that depends.

The 11th Circuit references two cases at the Supreme Court to answer this question: Fisher v. United States, 425 US 391 (1976), and United States v. Hubbell, 530 US 27 (2000). Both cases refer to the production of evidence on the part of the accused in tax liability cases. Borrowing the 11th Circuit’s interpretation of Fisher:

[The Supreme Court of the United States] then held that the taxpayers’ act of production itself could qualify as testimonial if conceding the existence, possession and control, and authenticity of the documents tended to incriminate them.

Obviously this means that accused persons cannot be compelled to turn over evidence to investigators, right? Not so fast. There’s a limiting doctrine to this idea called the “foregone conclusion” doctrine. Again, borrowing the 11th Circuit’s summary:

The Court reasoned that, in essence, the taxpayer’s production of the subpoenaed documents would not be testimonial because the Government knew of the existence of the documents, knew that the taxpayer possessed the documents, and could show their authenticity not through the use of the taxpayer’s mind, but rather through testimony from others. Where the location, existence, and authenticity of the purported evidence is known with reasonable particularity, the contents of the individual’s mind are not used against him, and therefore no Fifth Amendment protection is available.

For the production of evidence to be privileged under the Fifth Amendment, the investigators could not have yet established probable cause. The Constitution states with the Fourth and Fifth Amendments that you cannot be compelled to help the government build a case against you.

But it should be obvious why Doe’s attorney, in questioning McCrohan, was attempting to determine what specifically the investigators were attempting to find. That specificity is necessary to establish probable cause. Quoting the Fourth Amendment, emphasis mine:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Probable cause means, in short, that investigators need to have some evidence giving them cause to believe you’re up to something illegal. For a search, they need to know in advance of the search what they hope to find. If you revisit McCrohan’s testimony above, you’ll see that they can’t even establish that there is anything on the drive at all. Again, the 11th Circuit, this time referencing Hubbell:

Asserting that the Government could not convict him without the immunized documents, Hubbell moved the district court to dismiss the indictment. The court held a hearing, found that the Government could not show that it had knowledge of the contents of the documents from a source independent of the documents themselves, and dismissed the indictment.

And quoting the Supreme Court of the United States directly, at 530 US 44-45:

While in Fisher the Government already knew that the documents were in the attorneys’ possession and could independently confirm their existence and authenticity through the accountants who created them, here the Government has not shown that it had any prior knowledge of either the existence or the whereabouts of the 13,120 pages of documents ultimately produced by respondent. The Government cannot cure this deficiency through the overbroad argument that a businessman such as respondent will always possess general business and tax records that fall within the broad categories described in this subpoena.

Again, the investigators must be able to establish through some other evidence specifically what they expect to find where they intend to search. Again, in the above testimony by the forensic investigator, they could not establish that any files exist on the media in question.

Absent probable cause and a warrant and affidavit testifying to that probable cause, the production of evidence is a violation of the Fifth Amendment protection against self-incrimination, as well as the Fourth Amendment protection against searches and seizures. Absent probable cause, police cannot search your car, home, or digital devices, nor can they compel you to hand over whatever they want. If they had probable cause, they’d be able to get a warrant.

Again, the 11th Circuit:

[U]nder 24 the “foregone conclusion” doctrine, an act of production is not testimonial—even if the act conveys a fact regarding the existence or location, possession, or authenticity of the subpoenaed materials—if the Government can show with “reasonable particularity” that, at the time it sought to compel the act of production, it already knew of the materials, thereby making any testimonial aspect a “foregone conclusion.”

And later:

The Government has not shown, however, that the drives actually contain any files, nor has it shown which of the estimated twenty million files the drives are capable of holding may prove useful.

And later statements by the 11th Circuit show what is already known to apply with the Fourth Amendment: before the government can obtain a warrant to search a home, car, or digital device, they must be able to specify to a reasonable level of clarity what they expect to find.

Case law from the Supreme Court does not demand that the Government identify exactly the documents it seeks, but it does require some specificity in its requests—categorical requests for documents the Government anticipates are likely to exist simply will not suffice.

And that is probable cause.

So what does this mean for a password or PIN lock on your phone? A few key things.

First, the government cannot search your phone without your explicit permission. To repeat what I said in my previous article, never give this voluntarily. Absent that permission, police must establish probable cause to search your phone. Once they have probable cause to believe there is evidence of a specific crime on your phone, they must also specify what specifically they intend to find by searching your phone. They can’t just go on a fishing expedition.

Unless you voluntarily let them. So don’t.

Note that I haven’t mentioned the password or PIN lock. Because in the end it’s largely immaterial. It’s merely a hindrance that ensures the police can demonstrate probable cause to search the phone, and demonstrate through some other evidence or testimony what they expect to find.

In the case of a man recently sentenced to 180 days for contempt for refusing to give up his iPhone password, the police were specific in what they expect to find: pictures documenting the injuries to a child the person was accused of abusing. So long as police can show some independent evidence supporting their assertion the pictures exist, such as testimony from another person, then they have probable cause and the Court can rightly compel the production of those pictures.

But the Fourth Amendment still controls here since we are still talking about a search. And all the quotes above from the 11th Circuit seem to dance around that quite a bit.



Passwords and the Constitution

Which Amendment to the Constitution covers your passwords and the PIN lock on your phone? If you’re the numerous journalists I’ve seen attempt to tackle this subject, most recently Rachel Blevins with the Free Thought Project, it’s the Fifth Amendment protection against self-incrimination.

A password, pass code, or PIN are designed to prevent unauthorized intrusion to an account or device. In this vein, they’re similar to the locks, doors, and windows on your home or apartment. They are also designed to prevent unauthorized entry to your home.

The Fourth Amendment to the Constitution states that you have such a right to privacy:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

If a peace officer, as part of an investigation, wants to search your phone, you have two options: demand a warrant, or provide access. If they have a warrant, however, or the Court directly orders you to provide that access, you must comply. Just as you’d be under obligation to provide access to a specific area of your home or vehicle upon presentation of a search warrant.

Your protection against self-incrimination means you cannot be compelled to provide any statements to the police. I’ve said previously that the right to not speak is so sacred that police have to inform you of it before interrogating you. But your phone isn’t speech. It’s physical evidence. Just as the files on your computer’s storage, or in any cloud storage accounts you have are also physical evidence.

And obtaining physical evidence that is not in plain sight requires a search warrant.

This means if police want to search your phone, you can demand a warrant or voluntarily surrender it — note: do not do the latter, EVER! Now if you don’t have a PIN lock or other type of intrusion prevention on your phone, that doesn’t mean police can willy-nilly search it. They still need either your permission (again, NEVER give it) or a warrant.

And if you have a PIN lock on your phone and the police present a warrant, you must unlock your phone or provide the PIN lock to police.

Here’s the other reason to demand a warrant: in stating a phone is to be searched, the warrant must still describe “the … things to be seized”. In other words, if they’re looking for e-mails, they can only look through your e-mails. Same with voice mails, photos, or what have you. The warrant must still be specific to what they want to find, and they can’t just go on a fishing trip through your digital data.

Unless you voluntarily surrender your phone. Then unless you document specific permission you are granting the police with regard to it, they can and will search wherever they want on your phone.

But again, if the police have a warrant, you must provide access to the phone. This includes the PIN lock code if you have the phone secured in that manner. The Fourth Amendment is what protects you on that regard, not the Fifth.


This isn’t about feminism

This question seems to be unanswered and answered at the same time: who was the Manchester bomber targeting?

If you read the Rolling Stone, Emily Crockett seems to think the ultimate target was feminism, as she attempts to lay out in her article “Why the Manchester Bomber Targeted Girls“. Amazing how someone can take this incident and make it all about them or their pet ideology.

Here’s the thing about terrorism: it largely doesn’t care who you are. So was the bomber targeting girls specifically, or did he target a venue that would reliably have a large number of people in close proximity, thereby allowing for a large body count?

Personally I think it’s the latter. Which is likely why venues all across the world are now going to be stepping up security. Here in Kansas City, Faith Hill and Tim McGraw will be coming through in September at the Sprint Center. It’s probably going to be maddening getting through there now, because there will be a heightened state of security.

Islam isn’t friendly to women. We already know that. But does that mean the bomber specifically targeted Ariana Grande’s concert because there’d be a lot of girls gathered there? I doubt that.

And for a feminist like Emily Crockett to take the deaths of the men and women, boys and girls, and turn it around and make it about her pet ideology is disgusting in the kindest terms. What next? Are you going to assert that the 9/11 attacks occurred because the hijackers and masterminds didn’t like all those women working in downtown New York City?

Anyone who knows anything about terrorism and the patterns that it has taken in recent decades, especially the Islamic terrorism we’ve seen in the United States and Europe, can readily say the perpetrator picked the venue hoping for a high body count. Because he was likely hoping to outdo previous terrorists in terms of deaths. Thankfully he failed on that mark. But the next terrorist, and there will be a next one, may not.

Because these terrorists don’t care about who they kill, only how many. They want to inflict damage and instill fear in the general population of a country. And to do that, they’ll pick their targets with that goal in mind. Targeting a large venue where a concert is held featuring an internationally acclaimed pop singer is one hell of a way to do that.

But somehow, I guess in the minds of the perpetual victims, somehow they were being targeted. And people wonder why Trump won the election.



Matthew Archbold: Keep trying

Article: “Atheism is the Uncoolest Choice Ever, and I Can Prove It

Setting aside for a moment that atheism is hardly a “choice” in the general sense of the word, I’ve typically always ended up rolling my eyes whenever a religious publication talks about atheism. Since they always seem to fuck up on so many levels.

And Matthew Archbold is no different. And I can prove it. Not to mention his article is childish — why the hell is an adult trying to describe something as “cool”? — and a striking example of a superiority complex.

8) Religious people live longer, happier lives, according to numerous scientific studies. I know you atheist types are all about the SCIENCE even though you pretty much get all your scientific information from Huffpo articles with clickbait headlines like “Watch Bill Nye completely own a Creationist!” or “How Rolling Your Eyes is the Greatest Debate Tactic Against Christians!” (Rule of thumb: if the article you’re reading contains exclamation points, it’s probably not a respected scientific publication.) But I guess because you’re an atheist who will live a shorter life maybe you don’t have time to read actual scientific journals. I mean, something’s gotta’ be cut out, right?

But on top of shorter lives, studies indicate you’ll be more miserable too. So while your life won’t be longer, it might just feel that way.

Two words: citation needed. And not Conservapedia. And I highly, highly doubt you’ve been reading science papers.

But granting the proposition for a moment, how is this relevant? At least in being a life-long atheist I haven’t been wasting my life believing something that is demonstrably false.

Here’s the thing about your belief: chances are you were indoctrinated into it when you were young, meaning you defend it through known psychological mechanisms, likely seeking out apologetics every time your belief is challenged as a means of reaffirming it. Shedding that belief is emotionally and psychologically painful. I’ve seen it a number of times. Even considering for a few moments that what you’ve believed all your life is wrong can be painful. Especially when you’re a devout and dedicated believer.

For more passive believers — the “weekend Christians”, if you will — the transition tends to be more benign.

So if Christians are truly happier, it’s for false reasons. Bliss due to ignorance.

On atheist “misery”, I’ll get to that a little later.

7) Michelangelo and Bach (look ’em up kids!) were indisputably awesome Christian artists. But hey, atheists have the kid who plays Harry Potter. Do you really don’t want to be a part of any group that includes the actor formerly known as Harry Potter. Or maybe you do because that’s how uncool you actually are.

Michelangelo was never photographed like that. Ever.

That’s because cameras didn’t exist back in Michaelangelo’s time. What was the content of your history classes at St Joseph’s, out of curiosity?

And Daniel Radcliffe is the best you can do? Okay I’ll raise you Adam Savage and Jamie Hyneman — i.e. the Mythbusters. And Kari Byron for good measure. Among many others I could add.

Got any Christians from today you’d readily reference? I mean if the best you can come up with are Christians who lived centuries ago… Especially since most of today’s youth is unlikely to appreciate Johann Sebastian Bach, or George Frideric Handel (who wrote the famous Hallelujah chorus, so surprised you didn’t bring him up), or, to be realistic, any of the classic composers.

Except perhaps Pyotr Ilyich Tchaikovsky, and that’s only because of his 1812 Overture, or the Trans-Siberian Orchestra’s rock version of The Nutcracker.

6) Typical Atheist gathering:

You’ve apparently never heard of the Reason Rally. Do a search on Google Images for the 2012 Reason Rally, which had upwards of 20,000 in attendance according to city officials. Unfortunately the 2016 Reason Rally wasn’t something to write home about, but there were still a few thousand in attendance. And other atheist gatherings have also drawn crowds a hell of a lot larger than what you’re attempting to represent as “typical”, such as the 2002 Godless March on Washington which also brought a couple thousand.

And several atheist speakers regularly command crowds. For example Seth Andrews, Matt Dillahunty, and AronRa went on a world tour as the Unholy Trinity. Christopher Hitchens routinely commanded large audiences as well. Indeed the crowds atheist speakers can bring has been used as a crutch for creationists to get more exposure. Such as the “debate” between Ken Ham and Bill Nye, which Ken Ham used to get more exposure (and money) to his organization Answers in Genesis.

5) Most of your big time mass killers of the 20th century were atheists. I’m talking Stalin, Mao, and Che among others. These guys had the kind of body counts that there weren’t enough body bags for so bulldozers needed to be employed. And nothing says uncool like being a mass killer of the innocent.

They were COMMUNISTS. Being atheists had nothing to do with it. Show me someone who committed mass atrocities because of their atheism. I highly doubt you’re going to find one.

Plus the history of Christianity is penned heavily in blood, so don’t act like Christianity is somehow immune to that kind of atrocity. Especially since Hitler was a Christian, and no amount of denial will change that.

4) This is an extreme Christian.

Let me introduce you to a few extreme Christians.

Paul Jennings Hill

That is Paul Jennings Hill. He is so far the only anti-abortion activist to be executed. He was executed by the State of Florida in 2003 for the assassination of an abortion provider and his body guard with a 12-gauge shotgun.

That is Scott Phillip Roeder. Hailed by anti-abortion activists for assassinating George Tiller in Wichita, Kansas. He was sentenced to a “hard 50” (possibility of parole after 50 years) at the age of 51, meaning he’ll never again see the outside of a prison unless he by some stroke of luck happens to become a centenarian.

That is Rachelle Ranae “Shelley” Shannon. She shot George Tiller in 1993, though it’s unclear if she intended to kill him as she shot him in his arms. She is currently in Federal custody for numerous other attacks on abortion clinics and due to be released in 2018.

Fred Phelps 10-29-2002

And this is, of course, Fred Phelps, the late patriarch of the Westboro Baptist Church, arguably the most extreme of the Christian denominations in the United States with regard to tenets.

Arguably the only denomination more extreme than them is the Army of God, since at least the Westboro Baptist Church is largely peaceful, if infuriating.

The Army of God, on the other hand, has been linked to a number of high-profile incidents, including kidnappings, attempted murders, and murders. And as such they are classified as a terrorist organization by the United States Departments of Justice and Homeland Security. Shelley Shannon is connected to them, and Scott Roeder is believed to be connected.

But they’re not the only Christian terrorist group in the world or the United States.

And no list of “extreme Christians” would be complete without…

Hitler portrait crop

Or let me guess, “they’re not real Christians“?

And how nice that you found a picture of Richard Dawkins being a little bit irate… That must’ve been difficult. Surprised you didn’t screenshot him getting annoyed with Ted Haggard. But you’re presenting it as if that’s how he typically is. Talk about disingenuous. But then that’s the Christian and Catholic modus operandi when talking about atheists and atheism.

3) As a Christian, my wife looks at me like I’m a gift from God. Seriously, to her that’s what I am. Your atheist girlfriend (should you ever get one after you move out of your stepdad’s basement) will see you as a gel-haired accident in skinny jeans on a lonely rock orbiting a meaningless sun in a mistake of a universe. See the difference? It’s kind of a big one.

Hopefully your wife doesn’t still have the gift receipt…

And be realistic if you’re gonna generalize about atheists. Better yet, how about learning about who we are. I’ll fill you in on a few things.

Most atheist teenagers in the United States actually live in Christian households. Largely keeping a secret that they know would lead to animosity, if not outright shunning from friends and family. Basically they just go through the motions because they know that keeps the peace. One of the beauties of the Internet is these “closet” atheists can be honest behind a cloak of anonymity in online communities with little fear of being “outed”, so we’ve been able to find a few of them and guide them accordingly.

And even after moving out on their own, they likely still go through the motions and lie about their beliefs to, again, keep the peace with family and friends and avoid losing their livelihoods. Because despite a Federal ban on termination due to religious belief, I’ve read several stories by atheists of how their terminations came not long after they were “outed”, with bullshit narratives spun about the person as a means of skirting by the law. Not to mention the cut-off with the newly-outed atheist by their family and friends when they’re discovered.

You’d also likely be surprised by how many in the clergy are atheists. Keeping their secret until they’re in a better position to resign their ordinations without becoming impoverished as a result and without being defrocked beforehand. There’s even a non-profit organization dedicated to finding and helping atheists in the clergy looking for an out. It’s called the Clergy Project.

I’ve been loosely involved in atheist activism for the last decade, and I’ve read stories from teenagers as well as adults who are secret atheists who hope their family and friends do not find out. Some are spouses to devout Christians keeping that secret from their spouses.

By the way, in the above where you claim Christians are happier than atheists, I know this plays a role in atheists claiming to not be nearly as happy. Imagine living with a secret that, if discovered, will create a rift in your relationships with friends and family that’ll basically mean losing your livelihood as you know it.

Seriously you and a lot of other devout Christians and Catholics have no fucking clue who we really are. Atheists come from all walks of life. Employed and not. Working parents and stay-at-home parents. Married and divorced. In a relationship and single. Young and old. Rich and poor. We are all around you. Some likely even sit in your church every Sunday and holiday merely to keep up appearances. Keep the peace with the family and community.

You have no fucking clue. Because it wouldn’t surprise me if you’d rather shun us than understand us. And that has been the mistake many Christian families have made for decades. Not just with atheists, but also with homosexual and transgender family. It’s one of the reasons I will not out myself as an atheist to the rest of my wife’s family, and why I also don’t mention it at work.

To keep the peace.

At least in the United States I’m privileged in that openly declaring my atheism here at least isn’t, literally, a death sentence. There are atheists, as I write this, who are trying to escape the Middle East, reaching out to other atheist and secular organizations for whatever assistance they can. Because being an atheist in an Islamic country can get you killed.

My wife and I have been married for over 5-1/2 years as of when I write this. Divorce rates are lower among atheists. And our marriages are typically happier, again reflected in the much lower divorce rate. Atheists don’t see ourselves as having married biological accidents on some lonely rock floating around a meaningless sun in an accidental universe. Talk about taking every misconception about atheism and stringing it together in one sentence, along with misconstruing atheists as being basement-dwelling, immature rebels from broken homes.

I’m actually, genuinely surprised you were able to bend over that far to stick your head up your ass! I had no idea anyone was actually that flexible! Congratulations! Your god must be proud of the complete dishonesty you’ve shown, not only in the above-quoted paragraph, but throughout your entire article.

So now that you’ve opened your asshole with your head, how about pulling it back out so you can shove your fist up there and go fuck yourself.

And yes, I’m being deliberately, unapologetically abrasive simply because Archbold’s article isn’t the first time I’ve encountered what he’s said, the misrepresentations he’s made. And I doubt highly this is the first time he’s made such misrepresentations.

2) Many of your college professors agree with your atheist beliefs. How’s that for the uncoolest choice ever? Hey, look at you siding with all the gray-haired tweedy authoritarian types at your school. Note: If your best friend at college is the “Diversity Awareness Coordinator” you’re colleging wrong. And if you think your professors are cool, I think they call that being a brown-noser. And brown-nosers are even less cool than gender studies majors.

Y’know when the whole 60’s thing happened, young people would say not to trust anyone over 40. But now, you guys go off to college wanting nothing more than to adopt the beliefs of your old boring professors. What could be less cool than wanting to be like your teacher? (Except if your teacher is Tony Esolen. Then it’s ok.)

And what’s this got to do with anything? Yes a lot of academics are atheists. And there are plenty who are not.

And you obviously have no idea what a brown-noser actually is. A brown-noser is sucking up to someone else, in a rather obsequious and sycophantic manner, with the intent of seeking favors. Liking your instructors isn’t the same as kissing their ass.

At this point, you’re just reaching for anything you think will give you a one-up over atheists.

1) Atheists have less children and that probably means…well you probably know what that means since you’re all about SCIENCE! Once again, to sum up, you’ll be miserable, have a shorter life, and quite likely less sex than your religious counterparts. And you thought atheism was cool? Reconsider and repent ye’ fools. Jesus said he is the way, the truth, and the life. Left unsaid, is that He’s totally cooler than Richard Dawkins!

Wait, that’s your #1? Yikes…

First, the percentage of the population that is religiously unaffiliated or atheist is GROWING! It was about 1 in 10 about a decade ago, and now it’s under 1 in 5 to approaching 1 in 4 depending on the survey. So we don’t have to worry about birth rates among current atheists when we know more atheists will come through deconversions. Seriously if you honestly think you can just outlast us, you’d be fighting a losing battle.

Especially since the birth rate among atheist families is actually only slightly lower than among religious families in the United States. Yes, we’re all about SCIENCE, but you apparently didn’t do any READING to determine the validity of your claim before making it.

And I know The God Delusion still has a lot of Christian panties in one hell of a bind, and I know you love having all kinds of strawman misconceptions of atheists in your head, but at least understand that Richard Dawkins is not atheist Jesus. For one, Jesus never existed as he’s described in the Bible, whereas Richard Dawkins is a real man. And second, a lot of atheists actually don’t like Dawkins for various reasons. And if you actually knew anything about atheists and our community, you’d already know that.

So enough with the misconceptions. Again I’ve been at this for about a decade, and it’s been a long time since I’ve heard something that hasn’t been refuted a thousand times. And you’re no different, Mr Archbold.

Before you write any more articles on atheists, and this actually goes to all Christians, get to know a few of us as people first. I think you’ll be genuinely surprised as to who we really are compared to the strawmen you’ve built in your mind.


Almost have it

I always welcome it when someone tries to learn or understand something new, especially if I’ve been a source of that inspiration. Previously I responded to another blogger when they “thought out loud” regarding how banking works, taking some inspiration from my article on fractional reserve banking. The author in question rewrote part of their original article, adding some details and correcting others. So how did he do?

Let’s just say some additional study is needed. And the place I’d ask him to start is with double-entry accounting. I think having a pretty good understanding of that will aid him quite well in better understanding how banking largely works.

For now, let’s get into his revisions, and poke at some other parts of the article I may have overlooked last time.

In normal banking I would have to use part of my income (payments on loans I had already made to other people) and put that back into my cash. In mortgage banking I could do something called “selling the loan.” Basically, the loan turns into a security (essentially a document that can be bought and sold) that I can sell to a company that buys those types of securities.

I should really have made this clear in my previous article: there is no such thing as “normal banking” and “mortgage banking”. There is just banking and lending. In actuality, there is just accounting, and what you do with the money in question and how it is accounted on the books.

The loan is an asset to the lender. Unless the agreement prevents such, the loan can be assigned to someone else by selling off the asset. Exceptions to this include payday lending and pawnbroking, but I’m not going to delve into that here.

[Central banks] regulate banks, and they buy debt (or make loans, however you want to look at it). The Central Banks deal mostly with the large commercial banks, which are all international corporations. Smaller local institutions deal mostly with the big banks.

The central bank deals with all banks that participate in the banking system. In the United States, that means all banks participate in the Federal Reserve System. It’s pretty much a basic requirement of being a competitive financial institution. Even the United States Treasury is a member, as are the individual State Departments of Revenue.

As I pointed out in my previous article, this also includes credit unions, as well as the small banks and the largest banks like Wells Fargo and Bank of America. But smaller banks don’t “deal mostly with the big bangs”. My bank doesn’t hold accounts with Wells Fargo, for example. They again deal directly with the Federal Reserve.

Before my recent studies, I hadn’t really heard about this practice of “selling debt.” But debt is a receivable on the bank’s books, so it is worth something. It never occurred to me that you could somehow sell that to another company to get more cash (stay liquid, as the financial people call it). But this is really just another way of saying that the bank borrowed some cash.

Not quite. As I mentioned previously, if a lender sells a loan to another party, they relinquish all right to it. With secured loans, such as mortgages, they relinquish the lien as well. In other words, they completely wash their hands of the loan and all their rights to it.

I’ve heard of companies borrowing to make payrolls, or buy new equipment. I’d just never heard of banks borrowing so they could make more loans.

Because that this happens is largely behind the scenes. But banks do this all the time. They sells securities, such as certificates of deposit, to get more cash on hand to cover their banking practices. Paying an agreed-upon interest rate to their creditors. Whether that is to shore up reserves or write more loans, so long as they don’t get over-extended.

Rich people buying CDs and having their own bank accounts is why banks have money to write mortgages. The whole business regarding “collateralized debt obligations” and “mortgage backed securities” also came about because of this.

The idea of “Central Banks” was pushed into place after it seemed that unregulated banks had an inclination to dig too deep into their cash.

Central banking isn’t about controlling “unregulated banks”, but more establishing a central means of regulating the monetary system. In the United States, banks are generally a member of the Federal Reserve System, so must agree to a certain degree of regulation as part of their membership.

Prior to central banking, and even for a time thereafter, banks issued their own bank notes. In the United States, State legislatures authorized chartered banks to issue bank notes in the State’s name. In 1863 the United States passed the National Banking Act, which authorized nationally chartered banks to issue a national currency, with oversight by the Comptroller of the Currency. This continued until the 1930s when the United States transferred issuing authority of the currency to the Federal Reserve, thereby centralizing the regulation and management of the currency of the United States. The Comptroller of the Currency still has oversight authority.

Paper money was initially backed by a bank’s reserves in gold or silver, be it bars or coins. In the United States and much of the world, this is no longer the case. Instead of being backed by physical assets, it’s backed by the full faith and credit of the controlling government.

The single most important role of a central bank is as “lender of last resort”.

Basically if there is a crisis in the banking system such that banks are no longer able to meet the demands of their customers, the banks can appeal to the central bank for liquidity. In the United States, the Federal Reserve is empowered to provide short-term loans to banks secured by allowable collateral as defined by the Federal Reserve Act. This along with the overnight lending market allows a bank to get through any higher-than-typical demand.

Additionally the Federal Reserve will periodically buy bonds from its member banks at the “prime rate”, allowing banks to obtain additional liquidity, whether for new loans, covering other expenses, or shoring up reserves.

There’s a lot involved here, but I’m not going to delve any deeper at this time.

No one likes “reserves” because they just sit there and don’t do anything.

Banks don’t like reserves sitting idle for the same reason businesses don’t like their employees sitting idle. Idle money, just like idle employees, means you’re not making money. So banks loan out the money to get it moving in the economy. The interest they charge on the loans is then used to cover expenses, and some of that interest is paid back to customers.

Early bankers realized that loaning out their deposits allowed the economy around them to prosper more than if the money sat idle. And a prosperous community, in turn, means a prosperous bank. At least that’s how it used to be.

Banks also didn’t just loan out the deposits. Sometimes they’d invest them in various securities exchanges as well, earning money for the bank and its customers.  Whatever got the money moving rather than just sitting idle. Though this largely won’t happen today unless you put the money into a “money market” account.

The bank has my $100. I thought this meant it could loan out $1000. That’s not exactly right. It is only allowed to loan, maybe, $90. Except, that loaned money is going to end up in another bank account, and then about $80 of that could be loaned back out. That whole cycle can be imagined to repeat maybe 5 or ten times. Now a lot more than my $100 has been loaned – deposited – and re-loaned. That’s what people call “creating money.” I discuss this more below.

Nice to see the author re-checked their information and corrected it accordingly. He’s right on how this works as well, but let’s show this visually, starting with an initial $100 deposit, a reserve requirement of 10%, and assume the bank loans out up to that reserve requirement.

Create a spreadsheet (Google Docs or Office Online will work) with two columns. In cell A1, put 100. In cell B1, put the formula =A1*.9. In cell A2 put the formula =B1. In cell B2, repeat the formula from cell B1. Then copy and paste the second row down to row 3 onward.

What you’ll notice is the amount that is loaned out gets steadily smaller. And if you were to continue the progression far enough, you’d find that the amount of money loaned out in total approaches $900 from the original $100 deposit. This means that original $100 deposit was able to “create” about $1,000 in deposits through fractional reserve banking.

It did not, however, create $900 in new liquidity that didn’t previously exist. What was created is an additional $900 in liabilities against the original $100 deposit. And the bank that took the original deposit has $100 in liabilities attached to $10 in reserves. This is what makes fractional reserve banking problematic, which is why it’s a delicate balancing act between the bank’s lending activities and the demands of the depositors for their money.

This possibly provides more opportunity to “fiddle” the system. If you have to provide a borrower with real currency to complete a loan, then if you run out of currency, you can’t make any more loans. If you only have to credit an account on a computer, then you don’t need the currency. So, who’s to stop you from just pumping out loans?

Much of the same could be said about the move away from hard money like gold and silver toward paper money. It’s a matter of convenience more than anything else. Paper is much easier to lug around than gold and silver. And a card linked to an electronic database is much easier than cash.

This doesn’t then mean that lenders can just “pump out loans”.

The author mentioned early in the article about “balancing the books”. What balances the books is the double-entry accounting that has been the governor of accounting practices for the last couple centuries. Double-entry accounting provides for a lot of checks and balances and instance audits of the system by requiring that every debit be balanced by one or more credits meeting the sum total, and every credit be balanced by one or more debits meeting the sum total, thereby keeping everything in “balance”.

Combine that with the accounting equation, and you largely have a pretty good check on everything out of the gate. It’s why I use double-entry accounting for my personal financial management.

Electronic systems remove a lot of the guesswork in managing the books, thereby also lowering significantly the chance of error, especially the chance of costly errors. Add on internal and external audits, and the chance of error is all but eliminated.

Look at interest rates on savings accounts, for instance. It used to be recognized that the depositor was actually making the bank a loan, and should earn interest on his unused balance. But depositors had no way to enforce that idea on bankers, so gradually interest payments on savings accounts have reduced to almost nothing.

Depositors have always had the way of enforcing that idea by moving their money to another bank. The reason interest rates on saving accounts are pitiful right now is due to the extremely low interest rates on loans. When the bank is charging only 4% interest on a 30-year mortgage, they’re not going to give their depositors much in the way of interest on their savings, especially in demand deposit accounts like a saving account.

The interest the bank pays you is a cost of banking. Their revenue comes from the interest on loans and fees on services. So if they’re not making much revenue from interest, they’re not going to offer good interest rates to depositors.

If you want interest rates on saving accounts to go up, the cost of borrowing — the interest rates on loans — also need to go up, and borrowers need to be borrowing at those higher rates.

The abandonment of the use of interest rates to control inflation in certain markets, and the subsequent increase in the supply of money in those markets, are bits of history not totally explained by the factors discussed above.

Regulating inflation is one of the roles of the Federal Reserve. And it does this through the “prime rate”, which is the rate at which the Federal Reserve lends money to its member banks. Since the prime rate plays heavily into the interest rates for lending by banks to customers, a low prime rate typically means low interest rates on loans.

Lower interest rates on loans also means more liquidity flowing through the system, and a higher chance of inflation. The Federal Reserve monitors this and will raise interest rates to curb inflation if they think it’ll escape what they feel is reasonable. Currently the Federal Reserve aims for an inflation rate of around 2%.



And that is not banking

Article: “And That Is Banking

Recently this article came in as a trackback to my article on fractional reserve banking. Now the author classifies the article as “thinking out loud”. He gave me a credit as “to get an explanation of how banks account for the loans they make”. And he really should’ve read beyond that, given some of what he says contradicts what I demonstrated.

Not much of his article needs to be corrected or clarified, so I’ll only focus on those sections that do.

Now, say I’m a bank, and I loan someone some money. This decreases my Cash, or the asset pool I make loans from. How do I get more “cash” so I can make another loan? In normal banking I would have to take payments on loans I had already made to other people and put some of them back into my Cash. In mortgage banking I could do something called “selling the loan.” Basically, the loan turns into a security (essentially a document that can be bought and sold) that I can sell to a company that buys those types of securities.

As I demonstrated in my article on fractional reserve banking, lenders, be it a bank or not, get their money from investors. For banks this comes in the form of certificates of deposit, bonds, or other financial instruments. As I also demonstrated, banks loan out the money that is deposited by their customers.

Non-bank lenders, however, still need investors. They can either borrow the money from other lenders and loan out that money at a slightly higher interest rate to turn a profit, or they can sell stocks or bonds against the equity in their business.

And once a lender has written a loan, they can sell that loan to another lender to recuperate some of the loaned value — they’re unlikely likely to recuperate the entire loaned amount. And this is unlikely to occur unless the lender is in need of the cash and needs to sell off assets to get it, knowing they’re likely to also have to write off a loss in doing so. Which is why they’d be more likely to do this on loans that have already generated enough interest revenue to make it worthwhile.

Central Banks have also promoted the practice of fractional reserve banking. This means essentially that the pool of funds available for lending is larger than the bank’s cash on hand. This is possible accounting-wise because the bank can count the loaned money as an asset, as there is a promise to pay it back. They can then loan more money based on a combination of their actual cash and the promises to pay – up to a certain limit set by the Central Bank.

And this is where the author starts to misunderstand what I wrote.

The practice of fractional reserve banking predates central banks by centuries if not millennia. And fractional reserve banking is possible due to the fact customers rarely directly withdraw the funds they deposit with a bank. This is especially true today when liquidity is able to move through the system virtually instantly. Basically in however much time it takes for one bank register a transaction originating from another bank.

But they can’t loan more money “based on a combination of their actual cash and [receivables]”. They can only loan from their reserves, up to a predetermined reserve requirement.

For example, if the reserve requirement is 10% — the general standard in the United States, as far as I’m aware — the bank must maintain reserves equal to 10% of their total demand deposit liabilities. This means they need to have at least $1 on hand for every $9 loaned out. Few banks will loan out to that degree, though, simply because of the risk involved.

They can then juggle their real cash against their loaned amount by selling securities to get more cash or buying some other bank’s debt if that bank needs more cash.

This is a rather crude way of describing the overnight lending market.

You have $100. But you are allowed to loan out $1000.

The author describes this as his “original concept of how this scam works”. And if that’s the original concept, he still hasn’t corrected it. And it only gets worse. Before proceeding, recall from above how I said that banks must have at least $1 on hand for every $9 they loan out. This means that if a bank takes in $100, they can only loan out $90 from that original $100. Not $1000. Not anywhere near that. Since they don’t have the assets to cover it.

If you don’t have to fork over real cash to make these loans, then all you have to do is add $100 to the electronic accounts of the ten people you loaned it to. If they all pay you back, you have $1000. Did you make a $900 gross profit? That’s what it seems like to me.

No bank could do this and stay in business. They’d become insolvent in a heartbeat. Provided the regulators didn’t catch wind of this and shut them down before insolvency took then under.

To make a loan, the bank must first have the reserves to back it. If they don’t have the reserves, they can’t make the loan. Because the principal of the loan has to come from somewhere. If a bank only took in $1 million in deposits and turned around and wrote $10 million in loans, what is the bank to do when the borrowers attempted to withdraw the $10 million? This was the central question I used to support my arguments in the aforementioned article on fractional reserve banking.

The overnight lending market won’t help in that instance either. Since if all banks did that, there wouldn’t be enough liquidity in the system to cover all the outstanding liabilities. The entire banking system would basically collapse as a result.

Do you need to charge interest? No, you don’t! Interest is just the cream on the coffee. You made your profit using fractional reserve banking, not interest-based banking. And if that’s true, it’s something I never fully realized before.

Except it isn’t true since you start off on a very faulty premise.

Interest is how banks make money from their lending practices. That along with any fees they charge on safe deposit boxes and other services they offer. The principal of the loans actually belongs to their customers, since the banks are basically borrowing that money from their customers to make the loans.

Again fractional reserve banking means only that banks need not have $1 for every $1 on deposit with them. But it doesn’t mean they manufacture $10, or any amount, for every $1 on hand. And given some of what I’ve seen written about fractional reserve banking, this misunderstanding of how it works is not uncommon, and fueled likely by a significant ignorance of the accounting underneath the covers.

Fractional reserve banking means that, presuming a reserve requirement of 10%, a bank may loan out $9 of every $10 deposited with them. They can’t use that $10 to then write $100 in loans. Where would that money come from? Yet time and again I see the idea that banks “create money through loans”.

And, by the way, credit unions are no different from banks in how the accounting works. Credit unions still operate on fractional reserve banking principles. Keep that in mind when the author says:

Credit unions don’t have investors so don’t have to make a profit.

Credit unions are not-for-profit financial institutions by definition. They also have investors. Like banks, their primary investors are their customers, but they also sell other financial instruments such as certificates of deposit. Unlike banks, demand deposit account owners are granted an ownership stake in the credit union as a privilege of being a depositor. As such, like banks and other for-profit organizations, credit unions still operate on maximizing shareholder value.

And credit unions have dividend payouts as well, where they return some of their profit to their customers as deposits to their accounts.

In general, though, the not-for-profit focus of credit unions allows them to offer lower rates on loans and higher rates on deposits. Their general exemption from most taxation under the IRS code also allows this. Whereas banks are subject to general taxation on their net revenue, an expense they factor into their interest rates and fee schedules.

But they still operate through fractional reserve banking, and participate in the Federal Reserve System in the United States. This means they also participate in the overnight lending market, but also have a reserve requirement. The only difference between a bank and a credit union is who gets the banking profit.

And I’ve considered moving my finances to a credit union for that reason, as there are several credit union options in my area. Merely because I’d like to earn more than 15 to 20 cents per year on my deposit account. Plus we’re planning to buy a house within the next couple years, and credit unions tend to have more favorable rates on mortgages and other loans, but you generally need to be a member to take advantage. And given my credit score and income, they’d probably love to have me.


After the election

Note: I originally wrote this back in November 2004 following the 2004 election, and I just decided to share it after finding it on a backup drive. It’s an opinion piece I initially wrote for the student newspaper in college, but withdrew when it was handed to a student editor in a journalism class and butchered.

* * * * *

In several States, this was a close election. Analysts agreed that it came down to Ohio. But, as numbers kept rolling in, it became clear to Kerry and his camp that they were not going to pull it out.

Watching the election progress, flipping through the many channels, I was pleased to see that the networks had learned the lessons the 2000 election taught. Better statistical models, plus their willingness to hold off on declaring winners was a good sign.

Prior to the election, there was a lot of talk about the Congressional campaigns, as it was the prediction of analysts that the Presidential election would end up tied in the Electoral College. If that were the case, the House of Representatives would elect the President by a simple majority with each State having one vote.1

The Republicans managed to increase their lead in both the Senate and House. Probably the most surprising of the Senate elections was Tom Daschle’s loss in South Dakota by a narrow margin of little more than 4,500 votes.

Michael Moore recently announced as well that he is making a sequel to his controversial documentary “Fahrenheit 9/11“. Reuters quoted him as saying, “Fifty-one percent of the American people lacked information (in this election), and we want to educate and enlighten them. They weren’t told the truth.” The documentary is expected for release in two to three years.

Much of Moore’s film has already been refuted. Citizen’s United has put out a movie to refute the main points of “Fahrenheit 9/11” called “Celsius 41.11: The Temperature at Which the Brain Begins to Die“. It is available on DVD at

On his web site, in a message dated November 4, 2004, he listed the names of every fatality from the war in Iraq as his “first thoughts after the election”. “May they rest in peace,” he said. “And may they forgive us someday.”

Prior to the election, Moore was telling college students that if Bush were re-elected, the draft would be re-instated. There has already been a Congressional attempt to re-instate the draft: H.R. 163, introduced by New York Democrat Charles Rangel. It was struck down in October. The Department of Defense has stated that there is no need for a draft.

Surveys agree that this election came down to the war on terrorism. And one thing that I clearly noticed about the campaigns was this: Republicans were talking about preventing future attacks, Democrats were talking about reacting to future attacks. Proactive solutions versus reactive solutions.

Personally I would prefer to see future attacks prevented instead of just reacting to them. Reaction would cost much more time and money than prevention. We did enough reaction during the course of the Clinton administration and the first part of Bush’s administration in regard to September 11. To ensure the security of this country, we must do so proactively.

National security does not bow to the wills of the people, for without national security the will of the people no longer matters.

So in a clean election in the wake of dirty campaigns from both sides, the country has once again chosen its President. The Electoral College will make the decision official later this month, and everyone can look ahead to the future.

There was a lot of fire before the election, and there is still a lot of fire afterward. Hopefully that fire will dissipate as we move further into the new century. Four more years with Bush, and hopefully they will be four years free from attacks on the homeland.

To me, only one question remains: how long will it take Kerry to pay off that $800,000 mortgage he took out for his campaign earlier this year?

  1. Constitution of the United States at Article II, Section 1 []

Crisis – another build for another friend

More like a response to a crisis, that being a friend for whom I’ve already told I’d build a new system. So let’s get into this, starting with the parts, a build configuration similar to White Lightning, only different chassis, so different cooling options.

  • CPU: AMD Athlon X4 860k with Cooler Master Hyper TX3
  • Mainboard: Gigabyte F2A88XM-D3HP
  • RAM: 8GB DDR3-1866 running at XMP
  • Graphics: ASUS GTX 1050 Ti
  • Chassis: Silverstone GD09
  • Storage: Seagate 500GB SSHD
  • Power supply: EVGA 650 G2

Many I’m sure will complain about the pairing of the 1050 Ti with the Athlon X4.

I originally considered the GTX 1050, but opted for the GTX 1050 Ti when I saw that card as an open box at Micro Center for slightly less than the GTX 1050. Plus it has 4GB compared to 2GB with the GTX 1050. I initially leaned on the GTX 1050 as it doesn’t need an additional power connector.

I wouldn’t consider putting a GTX 1070 or GTX 1080 with this processor. I wouldn’t even consider it for any build into this chassis due to the limited space.

Since I used the EVGA 650 G2 in White Lightning, I considered it a good fit here as well. With its gold rating and quite fan profile, plus smaller overall size, it fits perfectly in the Silverstone GD09, and would be a great selection for any build. Plus it has a 10 year warranty.

If you’re building a budget system from the ground up, I’ve said numerous times in various venues that you should include in that budget a quality power supply before selecting other parts. A quality power supply will set you up well for the future. And at only around 100 USD with a 10 year warranty, you can’t go wrong with this one.

The Cooler Master Hyper TX3 does a pretty good job of keeping the X4 cool as well. It has a lower profile than the famous and popular Hyper 212 EVO, allowing it to fit into the Silverstone GD09 with a few millimeters to spare. And the fan is pretty silent as well, but still had no problem keeping up with the CPU, especially since it has a 120mm intake fan right next to it, and two 80mm exhaust fans behind it.

The GD09 chassis is a great option for building an HTPC or desktop system. Just be sure to select a power supply that allows you to have a 120mm fan on the power supply side of the chassis. And definitely stick with a microATX or miniITX board for this. Full ATX will fit, but it’ll be tight quarters. This is definitely not a chassis for high-end hardware, and there is no room for an AIO. You definitely need to get creative with cable management as well.

In building the system, I picked up a Kingwin KW-PCI2H25, a bracket for mounting 2.5″ drives (SSD or laptop drives) to an expansion slot. Initially I planned to use a 500GB 3.5″ drive as the storage in this system, but couldn’t figure out a way to mount it. In checking prices for 2.5″ drives at Micro Center, I discovered the SSHD for a very good price. But I still needed a way to adequately mount it.

I considered using a 2.5″ to 3.5″ adapter tray and taping it to the top of the power supply. Then I happened to see the Kingwin bracket. So if you’re considering a small form-factor build, keep an eye out for that to see if it might work well for you.

Use case

This system is for light duty and mid-tier gaming. The client is a friend who plays World of Warcraft along with  few lighter-end titles. And her current system is on its last legs, not to mention painful when trying to play World of Warcraft.

Her current system is an AMD E-300 APU, using it’s integrated Radeon HD 6310 graphics, I think 4GB RAM, and a 500GB HDD. It’s about identical to the system that White Lightning replaced, the laptop board that HP adapted to make cheap, low-power desktop systems powered by a laptop power brick and no room for expansion beyond swapping out the HDD for an SSD or adding memory.


Silence has been one of my main obsessions lately with building systems, especially with Mira and a quiet cabinet I have in progress, and this was no different. And I’m also glad to see that it’s been a target focus of much of the market for cooling solutions.

The only noticeable noise is on boot when one of the fans is noticeably loud — I want to say it’s the fan on the Hyper TX3. Beyond that there is barely any noise unless you hold your ear next to the chassis. Without the power light or staring at the fans to make sure they’re spinning, there’d be virtually no indicator the system was actually on.

Under load, things are a little different, and the system does start to become noticeable with the CPU fan. I don’t recall noticing any noise from the graphics card fan during stress testing and benchmarks.

Along with the stock 120mm fan that comes with the GD09 and the 92mm fan on the Hyper TX3, I added three (3) Enermax T.B. Silence 80mm fans (product no. UCTB8) and a Bitfenix Spectre Pro 120mm. The Spectre Pro is adjacent to the power supply blowing in. Two of the 80mm fans are behind the CPU, and the remaining is hanging above the expansion cards on an expansion slot fan bracket, all blowing out.


Let’s get into some benchmarks to see how well this system performs. Scores for Mira are in [red]. During benchmarks on its stock cooler with its stock profiles, the graphics card boosted to over 1759 MHz on the core. The CPU boosted to 4.0 GHz.

  • Unigine Heaven (everything maxed, 1080p): 920 [2428]
  • Unigine Valley (Extreme HD preset, 1080p): 1643 [3909]

Since the GTX 1050 Ti is nowhere near as powerful as the GTX 1070 or 1080, these scores aren’t that surprising.

Heaven is usually pretty good about isolating the GPU. I’ve noted such when I upgraded my personal system, Mira, from an AMD FX-8350 to an Intel i7-5820k while keeping my GTX 770 SLI pair for the initial upgrade. In that upgrade the Heaven scores didn’t budge much — only a few percentage points higher. And a video I found on YouTube showing a Heaven benchmark for the GTX 1050 Ti paired with an i5-6400, the score comes in only about 30 points higher than this score with similar settings.

Valley is a little more CPU involved, as I’ve also noticed with Mira. Yet this score isn’t far off what others are producing with the GTX 1050 Ti and newer processors. One video I found which paired the GTX 1050 Ti with the Intel G4560 produced a score shy of 40 points better than this one. And that’s with the card appearing to be clocked better on core and memory as well. And another video with the i5-6400 paired with the GTX 1050 Ti also produced a score shy of 40 points better.

So at least with regard to Valley and Heaven benchmarks, there isn’t much of a problem pairing the GTX 1050 Ti with the Athlon X4 860k. But to get a better idea of whether this is a decent pairing or not, let’s turn to 3DMark.

  • 3DMark Time Spy: 2162 [6143] – Graphics: 2260 [6154], Combined : 1738
  • 3DMark Firestrike: 5650 [15780] – Graphics: 7667 [18942], Combined : 2216

To say this system struggled with these benchmarks would be an understatement. The graphics tests for Time Spy averaged at 15 FPS for the first test, shy of 13 FPS for the second. And the CPU test was shy of 6 FPS.

Fire Strike fared better, but there was still some noticeable stutter from the demo. Both graphics tests averaged above 30 FPS, with the first test averaging better than the second. The Physics test averaged at 14 FPS and the CPU test averaged at a little over 10 FPS.

  • 3DMark Sky Diver: 14402 [38362] – Graphics: 25176 [63835], CPU: 11252
  • 3DMark Cloud Gate: 11427 [33322] – Graphics: 50344 [121253], Physics: 3084

These benchmarks were much nicer to the system, and the system had no problem keeping up with either.

And in comparing these benchmarks with systems with comparable processors, from what I could find, the performance, as represented by benchmark numbers and frame rate comparisons, is very similar when comparing to an i5 or i3 processor.

As such it’s reasonable to pair a GTX 1050 or GTX 1050 Ti with an Athlon X4 860k. Regardless of what you use with the GTX 1050 or 1050 Ti, you’re not getting stellar performance unless you turn down the settings. And pairing it with newer processors (Skylake, Kaby Lake, Haswell-E) doesn’t appear to provide significantly better performance unless it has a higher thread count.


During all of the benchmarks, the GPU never hit 70C, leveling out in the mid-60sC. In part because I took advantage of the horizontal expansion slot at the top of the chassis to mount a fan using an expansion slot mount bracket. It’s just an 80mm fan, but it helps clear hot air away from the graphics card. Additionally there is a 120mm fan adjacent to the power supply to bring air in for the GPU.

With the Hyper TX3 and the fans around it, the CPU never went into the 50sC. Even when running Prime95. So there’s clearly room for overclocking the CPU, but I’m not worrying on that. And this is in part due to the 120mm fan immediately near the CPU and the dual 80mm exhaust fans behind the CPU. The X4 was also boosting to 4.0GHz from its base clock of 3.7GHz during these tests.

So I will almost certainly be using the Hyper TX3 in future builds, where it’ll fit.


Compared to her existing system, this is a significant improvement. She’s getting a processor that supports dual-channel memory, has twice as many cores and a significantly higher clock speed. And the graphics performance is like night and day.

Crisis should be able to power anything she does without difficulty. Unless she opens a bazillion tabs in Firefox or Chrome. The GTX 1050 Ti goes well here, too, and it’ll provide very good performance for World of Warcraft.

This system could likely handle some modern titles as well with the settings turned well down, since even with higher-end processors the GTX 1050 Ti is still not able to perform nearly as well as even the GTX 1070. From what I could find it does outpace the RX 460 while comparing to the RX 470 on performance, but having much lesser power requirements. So I might trade the RX 470 in White Lightning for a GTX 1050 Ti. But since I’m planning to set up White Lightning as a Ryzen system later this year, that’ll likely wait.