How Does Banks Don't Loan Money, They Purchase Securities (Richard Werner) Work?

Banks don’t give out money like a piggy bank, they buy securities, just like you might trade toys with your friend.

Imagine you have a lemonade stand, and you want to expand it. Instead of asking your mom for more cash, you could sell a piece of your business to someone else in exchange for some coins. That’s kind of what banks do when they purchase securities, instead of lending money, they’re buying a part of something, like a promise to pay back later.

When a bank buys a security, it's like trading toys with a friend who promises to give you more toys in the future. The bank gets a security, which is like a toy that grows or changes value over time, maybe it becomes a bigger, cooler toy!

This way, the bank doesn’t need to pull money out of its own pocket, it just trades one thing for another. It's not magic; it’s smart trading with promises.

So instead of saying “I loan you money,” the bank says, “I buy your promise to pay me back.” And that’s how banks grow their money without pulling from a hidden piggy bank! Banks don’t give out money like a piggy bank, they buy securities, just like you might trade toys with your friend.

Imagine you have a lemonade stand, and you want to expand it. Instead of asking your mom for more cash, you could sell a piece of your business to someone else in exchange for some coins. That’s kind of what banks do when they purchase securities, instead of lending money, they’re buying a part of something, like a promise to pay back later.