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Feds Rule PayPal Is Not A Bank

Hemos posted more than 12 years ago | from the repercussions dept.

The Almighty Buck 228

dthable writes "CNet has posted an article update describing the Feds latest ruling - PayPal is not considered a bank. The article describes the effects of not being a bank which includes the lack of government regulations."

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228 comments

Feds rule (-1)

Genghis Troll (158585) | more than 12 years ago | (#3163012)

/. is not news, nor is it stuff that matters.

Perhaps what they meant was... (5, Funny)

joshjs (533522) | more than 12 years ago | (#3163015)

PayPal is not a *good* bank. =)

Re:Perhaps what they meant was... (0)

Anonymous Coward | more than 12 years ago | (#3163248)

by "NOT A BANK" I'd have to say I bet they mean that there are certain taxes or something that they are not getting. government = greedy.

Does this mean paypal sucks less? (-1, Flamebait)

Anonymous Coward | more than 12 years ago | (#3163018)

or does it still suck the same?

Re:Does this mean paypal sucks less? (-1)

October_30th (531777) | more than 12 years ago | (#3163243)

Sure, but beer doesn't suck.

"Imported Premium Beer, Brygget utelukkende i Danmark av fineste malt og humle, uten bruk av tilsettningsstoffer."

Post (-1, Offtopic)

Anonymous Coward | more than 12 years ago | (#3163022)

First post im a loser!

No FDIC insurance? (2, Insightful)

awilber (134745) | more than 12 years ago | (#3163030)

Does "not a bank" mean "not insured by FDIC"?

Re:No FDIC insurance? (2, Informative)

Bob(TM) (104510) | more than 12 years ago | (#3163042)

Yes, among other things.

Re:No FDIC insurance? (2, Informative)

j-turkey (187775) | more than 12 years ago | (#3163045)

It doesn't matter -- because with PayPal, users are not depositing money...they're a transfer service. AFAIK, FDIC doesn't necessarily insure money transfers, only deposits.

Re:No FDIC insurance? (1)

rmadmin (532701) | more than 12 years ago | (#3163079)

What about the rumors people have spoke of concerning paypal locking up their accounts? Considering the fact that I live pretty close to a 'paycheck to paycheck' budget, I sure as hell am not going to risk losing the money in my account.

Re:No FDIC insurance? (1)

neuroticia (557805) | more than 12 years ago | (#3163127)

I thought paypal locked up paypal accounts (which only have money in them until the funds are transfered into the 'actual' bank.) I don't think Paypal can actually lock you out of your actual account at the bank. (Unless you spend every penny you have, but that's not paypal, that's you.)

-Sara

Re:No FDIC insurance? (0)

Anonymous Coward | more than 12 years ago | (#3163112)

You don't deposit money in a checking account, it's a transfer service also. But it's still FDIC insured. PayPal is garbage.

Re:No FDIC insurance? (2)

erasmus_ (119185) | more than 12 years ago | (#3163233)

because with PayPal, users are not depositing money

You're incorrect. When you have a PayPal balance on the account when someone paid you, it is essentially a deposit in their system, as it's not in any of your other accounts. In fact, PayPal even wants you to earn an interest on this deposit. So it is not a money transfer in all cases.

Re:No FDIC insurance? (3, Insightful)

ichimunki (194887) | more than 12 years ago | (#3163303)

As I read it you do not have an account with PayPal at this point. They appear to be putting plain funds into a real bank account with some partner bank. They also offer a Money Market securities product.
Who manages the Fund? PayPal partnered with Barclays Global Investors, one of the world's leading institutional money managers, to manage this Fund. With more than $700 billion in assets under management, BGI manages the Master Portfolio in which our Fund invests as well as the money for 1 in 4 Fortune 500 Corporate list companies and 100 of the largest pension funds in the world.
Which looks to me like maybe the SEC should be taking an interest-- even if their disclosures are in order, I have to wonder if they have the appropriate licensing to sell equities. I also note that at least one state consider them to perhaps be operating an unauthorized transfer service. So maybe they'll get stomped on after all. Of course, it does appear that their main problem is convincing regulators they'll fly straight in the future. Obviously when they were small fish, nobody was paying attention. Will they be allowed to keep the gains they've made as a result of running an unlicensed operation?

Re:No FDIC insurance? (1)

j-turkey (187775) | more than 12 years ago | (#3163325)

I see where you're coming from -- but is it a deposit, or an escrow?

You can typically earn intrest on an escrow.

I'm not a banker -- and do not know a whole lot about economics. Is the difference between the two only subjective, or real (legally)?

Re:No FDIC insurance? (3, Informative)

GreyPoopon (411036) | more than 12 years ago | (#3163247)

FDIC doesn't necessarily insure money transfers, only deposits.

This is true, but at the bottom of the article, it states that PayPal inquired about FDIC protection. They have recently begun depositing the money they receive for transactions into accounts in an FDIC-insured bank. The FDIC responded to their inquiry with an advisory letter indicating that the amounts deposited would indeed be insured up to the standard $100,000 per customer per bank. This would mean that as long as PayPal opens a separate account for each customer, they should be insured. Note that it would probably NOT insure money "lost-in-transit."

Re:No FDIC insurance? (5, Informative)

cperciva (102828) | more than 12 years ago | (#3163050)

Does "not a bank" mean "not insured by FDIC"?

From the article:

As of this quarter, PayPal began depositing customer balances into FDIC-insured bank accounts. The company had asked for an opinion from the FDIC on whether it could pass the insurance protection on to its customers. In its advisory letter, the FDIC said the insurance protections--up to $100,000 per customer per bank--would extend to PayPal customers, even when PayPal deposited the funds for them, PayPal said.

Re:No FDIC insurance? (2, Interesting)

Anonymous Coward | more than 12 years ago | (#3163072)

So when I do my taxes next year, I'll just ignore my paypal balance, because it's more or less in limbo, unclassifiable.

That doesn't sound quite right.

Thoughts?

Re:No FDIC insurance? (2, Insightful)

ergo98 (9391) | more than 12 years ago | (#3163135)

When you do your taxes you have to list your assets? This is actually a serious question: Do you not just list income and expenses, and latent assets are irrelevant?

Re:No FDIC insurance? (1)

Kredal (566494) | more than 12 years ago | (#3163169)

Hmm, could you get out of paying some measure of taxes by placing all of your money in PayPal from Dec 31 to Jan 1? End of year statement would say that you didn't have any money in the bank collecting interest. Of course, PayPal would then (via Murphey's Law) get wiped out by the Y2K+3 bug, and you'd lose all your money in the process, since it's not FDIC insured...

Re:No FDIC insurance? (1)

zbuffered (125292) | more than 12 years ago | (#3163210)

cash.

Re:No FDIC insurance? (0)

Anonymous Coward | more than 12 years ago | (#3163362)

Not a chance. Your taxes aren't calculated by the amount of money you have left at the end of the year, but rather based on the amount of income you had during the year.

If you wanted to reduce your income, say by putting all of your money in non-interest bearing paypal accounts, then your taxes would be reduced as a result (but you'd lose more by foregoing interest than you would by the reduction in your taxes).

Doing taxes? (-1)

October_30th (531777) | more than 12 years ago | (#3163282)

Huh?

You still have to "do your taxes"?

I get a tax proposal from the government once a year. It covers all tax-related information concerning my bank accounts, stocks, loans and deductions. If I am content with the proposal, I'll do nothing. If I am not, I can modify the proposal and resubmit it.

Re:No FDIC insurance? (2, Interesting)

Jinky (565098) | more than 12 years ago | (#3163080)

I believe what he meant was that by the not insured by FDIC was that if PayPal was continuing to hold the funds, it does not seem that it would be insured, as they are not classified as a bank. Now that PayPal is depositing the funds into FDIC insured accounts, those user balances are insured.

Re:No FDIC insurance? (1)

j-turkey (187775) | more than 12 years ago | (#3163268)

I stand corrected.

Re:No FDIC insurance? (4, Insightful)

markmoss (301064) | more than 12 years ago | (#3163286)

So once Paypal has deposited the funds into a bank, they are insured. However, if someone at Paypal takes off to Rio with all the money, leaving Paypal bankrupt, you are scr*wed.

Think that's an impossible scenario? I remember a payroll-processing company where that is almost exactly what happened, almost 30 years ago. The company president disappeared, $5 million was missing, eventually they found his airplane at a remote airstrip in Venezuala, but they never found him.

Re:No FDIC insurance? (0)

Anonymous Coward | more than 12 years ago | (#3163055)

That's what it means. It also probably means they're not bound by bank secret.

Re:No FDIC insurance? (2, Informative)

Ec|ipse (52) | more than 12 years ago | (#3163076)

Correct, in order to be insured by FDIC the way a bank is insured, the company would have to classified as a bank. But, according to the article, if PayPal deposits a users money into an ACTUAL bank, then the money will be insured by FDIC.

now that paypal is not a bank (-1)

IAgreeWithThisPost (550896) | more than 12 years ago | (#3163034)

im afraid i cant trust it to handle my money for ./ subscriptions.

not that i was going to subscribe...especially since my choice of browser makes me a low priority.

Yay! (1)

Evro (18923) | more than 12 years ago | (#3163035)

This makes my life simpler. Since it's not a bank, I see no reason to let them handle my money. c2it [c2it.com] from now on.

Re:Yay! (1)

rhazes (562498) | more than 12 years ago | (#3163163)

C2it? Oh yeah. From the hands of one bunch of crooks into another. Citibank....bad.

Re:Yay! (1)

Evro (18923) | more than 12 years ago | (#3163228)

But... they're a bank. FDIC insured and all that.

Re:Yay! (0)

Anonymous Coward | more than 12 years ago | (#3163196)

Oh yeah, Citibank is just wonderful. I especially love the spam they continously send me. I don't like Paypal, but I like Citibank even less.

FIRST PAYPAL POST! (-1, Offtopic)

Anonymous Coward | more than 12 years ago | (#3163036)

Fist Sport??

PayPal should be considered . . . (4, Interesting)

Anonynnous Coward (557984) | more than 12 years ago | (#3163039)

. . . a bank based on the "duck test." It accepts deposits, it pays interest, it earns money on cash on deposit, it clears transactions, . . . About the only thing it doesn't do is hold itself accountable to the standards that should be expected of a bank.

Also, note that this doesn't get it out from under the couple of states that (correctly) think PayPal should be regulated like a bank.

I don't know what kind of crack this court was on, but it must have been some good stuff.

Re:PayPal should be considered . . . (4, Informative)

Bob(TM) (104510) | more than 12 years ago | (#3163062)

Wasn't a court - it was the FDIC. And all they said was, "it doesn't look like a bank to us, but the states should decide for themselves."

Re:PayPal should be considered . . . (3, Insightful)

Anonynnous Coward (557984) | more than 12 years ago | (#3163071)

Ah, so the FDIC doesn't want to have to insure them. I wouldn't, either!

Damn (1)

sulli (195030) | more than 12 years ago | (#3163259)

I was hoping to see armed FDIC agents march in and take over paypal the next time they are seriously accused of fraud .. which might be very soon indeed.

Re:PayPal should be considered . . . (1)

apg (66778) | more than 12 years ago | (#3163371)

The basis given in the article for the decision seems more than a little questionable, though:

"PayPal does not physically handle or hold funds placed into the PayPal service," the FDIC said in its letter.

ING Direct [ingdirect.com] no more physically handles or holds my funds placed in their service than PayPal does, yet they fall under the FDIC umbrella [fdic.gov] .

Re:PayPal should be considered . . . (-1)

Anonymous Coward | more than 12 years ago | (#3163119)

I don't know what kind of crack the poster who obviously didn't read the linked article was on, but it must have been some good stuff.

First of all, the Fed points out that their ruling is not binding on the states that determine their own banking laws. One state in particular is mentioned in the article as already taking up bank licensing requirements with PayPal, and PayPal by all accounts is complying.

Second, the Fed is not a court. This was a decision by one governing body, of many.

Re:PayPal should be considered . . . (3, Informative)

jerrytcow (66962) | more than 12 years ago | (#3163148)

it earns money on cash on deposit

Actually, it doesn't. I have a few bucks in my paypal account that are not earning interest - mainly because I don't want to become verified and give PP access to my bank account. You can have paypal put your money in a money market account (which may earn or lose $). From the prospectus [paypal.com] : note - you have to login to see this page

Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.

Re:PayPal should be considered . . . (3, Insightful)

zsmooth (12005) | more than 12 years ago | (#3163219)

Just because you're not earning interest on your money in PayPal doesn't mean they aren't.

Re:PayPal should be considered . . . (0)

Anonymous Coward | more than 12 years ago | (#3163164)

Like you said "If it walks, talks, and quacks like a duck..."

I work for a state regulatory agency that regulates credit unions. I do the I.T. examinations. In my mind, they need to be regulated like any other financial institution.

1) Either they are acting like a financial institution (in which case they need to be regulated) which will need to be determined by examining applicable state law,

2) or they are borrowing your money and investing it then giving you back a small percentage.

Luckily, most states have informal agreements in that they recognize the decision of the home state in the matter of a financial institution. State regulatory agencies tend to be very conservative in this regard. However, as mentioned before, if it is not subject to the law, then there is nothing the state agency can do about it, however much they want to.

Sounds like Paypal's home state regulatory agency (California?) needs to be contacted and regulatory action urged by residents of that state.

Re:PayPal should be considered . . . (5, Insightful)

dhogaza (64507) | more than 12 years ago | (#3163222)

Banks loan money and that's where they primarily make their money. PayPal's business model isn't at all like a banks and it is reasonable that they're not treated like a bank.

Re:PayPal should be considered . . . (0)

Anonymous Coward | more than 12 years ago | (#3163409)

I would disagree. Banks are not regulated simply because they make loans. Rather, banks are regulated for the principal purpose of protecting depositors -- for example to make sure there are appropriate controls in place to keep the bank from walking away with your money or spending it on candy.

I don't use paypal principally because I don't really know what they do with the money they are holding for others. If indeed it is now being deposited in an FDIC-insured bank, that helps. But for the times when the funds are not in an insured bank account -- watch out.

Re:PayPal should be considered . . . (2)

Logic Bomb (122875) | more than 12 years ago | (#3163321)

I think you may have taken the implications of the ruling a bit too broadly. The court is only declaring that since PayPal is not a registered bank, its customers should not expect and do not inherently have the legal protections and procedures afforded to bank customers. If you ask me, it's a good thing, because it points directly to the next step that government regulators and legislators need to take: define the type of instituation PayPal is and write consumer-protection laws. Not to mention possibly doing what Louisiana did and put them out of business until consumers are protected.

Re:PayPal should be considered . . . (2)

GooberToo (74388) | more than 12 years ago | (#3163386)

. . . a bank based on the "duck test." It accepts deposits, it pays interest, it earns money on cash on deposit, it clears transactions, . . . About the only thing it doesn't do is hold itself accountable to the standards that should be expected of a bank.

Which PayPal really doesn't do...

They are what is known as a clearing house. Basically they do in proxy for other institutions. This is what I said last time this came up. Seems, while the Fed's didn't state it as such per se, they seem to feel the same way.

Now then, are they a "wire" service...sounds like...and as such, some states are going to make them become licensed money transfer services...which is more or less what they are doing.

Not a bank means (0)

Anonymous Coward | more than 12 years ago | (#3163051)

They can use your money as wallpaper if they want.
Paypal seemed to be a great idea, and still is better for small items and auctions. Until transaction costs come down for debit cards, we'll still have to use it.

Re:Not a bank means (3, Interesting)

ackthpt (218170) | more than 12 years ago | (#3163130)

Also means that banks are probably at this very moment lobbying for a new set of controls to shackle PayPal in the "public interest." Banks have been trying to screw credit unions for decades, since they are in competition. PayPal if not already in competition, probably represents future competition for banks, and you know how seriously they take that.

Uh oh... (1)

JoeLinux (20366) | more than 12 years ago | (#3163057)

Ok...this means they can go belly up at any time. Bad timing. Never trusted someone who wants to make a universal pay system for the entire internet. Single point of faliure and all that.

Only had to use them once for E-Bay. But I got my Morpheus Glasses, and I'm happy. Yanked my card from my account as soon as I had them. :)

JoeLinux

I don't like their attitude... (5, Insightful)

SkyLeach (188871) | more than 12 years ago | (#3163058)

"'As long as we continue doing what we are doing today, we won't be subject to Federal banking laws,' said PayPal Chief Executive Peter Thiel."

These guys really need to back down and start telling people how they will fix the numerous [slashdot.org] complaints [slashdot.org] about their service [paypalsucks.com] instead of acting so arrogant, IMHO.

Re:I don't like their attitude... (1)

FortKnox (169099) | more than 12 years ago | (#3163118)

"'As long as we continue doing what we are doing today, we won't be subject to Federal banking laws,' said PayPal Chief Executive Peter Thiel."

I think they never meant to be a bank, but a mediator for money exchange over the internet.

Re:I don't like their attitude... (0)

Anonymous Coward | more than 12 years ago | (#3163399)

Well, except that they have what they believe to be pretty good reason to be arrogant. Sure, it'd be nice if they took it down a peg, but it'd also be difficult -- not least because several of the senior team simply are arrogant and don't know any other way to be.

Paypal of course (2, Interesting)

littlerubberfeet (453565) | more than 12 years ago | (#3163063)

what are they then? a Credit card compny? Perhpas, for our safty, they should regulate, or at least clearly define paypal. Is e-gold considered a bank www.e-gold.com? they have online pay services, but they also have hard currency. I guess so. Anyways, what is Paypal??

Re:Paypal of course (1)

RocketJeff (46275) | more than 12 years ago | (#3163143)

"what are they then? a Credit card compny?"

Credit Card companies are banks. A lot are banks set up to just do credit cards, but they are banks.

Does this mean (1)

docstrange (161931) | more than 12 years ago | (#3163070)

Both Blender, and My Paypal accounts are frozen,

AMISH VIRUS!!! (-1, Offtopic)

Alan_Thicke (553655) | more than 12 years ago | (#3163078)

You have just received the Amish Virus!
Since we do not have electricity or computers,
you are on the HONOR SYSTEM!
Please delete ALL of your files....




Thank Thee./

inCorrect link (1, Informative)

Merik (172436) | more than 12 years ago | (#3163083)

Hemos: I know its minor, but did you check the submission links?

Cnet = www.news.com [news.com] not www.news.com.com

Re:inCorrect link (1, Informative)

BacOs (33082) | more than 12 years ago | (#3163106)

com.com is owned by CNET:

$ whois com.com

Whois Server Version 1.3

Domain names in the .com, .net, and .org domains can now be registered
with many different competing registrars. Go to http://www.internic.net
for detailed information.

Domain Name: COM.COM
Registrar: NETWORK SOLUTIONS, INC.
Whois Server: whois.networksolutions.com
Referral URL: http://www.networksolutions.com
Name Server: NS.CNET.COM
Name Server: NS2.CNET.COM
Updated Date: 04-dec-2001

>>> Last update of whois database: Thu, 14 Mar 2002 05:13:25 EST

The Registry database contains ONLY .COM, .NET, .ORG, .EDU domains and
Registrars.

Found InterNIC referral to whois.networksolutions.com.

The Data in the VeriSign Registrar WHOIS database is provided by VeriSign for
information purposes only, and to assist persons in obtaining information about
or related to a domain name registration record. VeriSign does not guarantee
its accuracy. Additionally, the data may not reflect updates to billing contactinformation. By submitting a WHOIS query, you agree to use this Data only
for lawful purposes and that under no circumstances will you use this Data to:
(1) allow, enable, or otherwise support the transmission of mass unsolicited,
commercial advertising or solicitations via e-mail, telephone, or facsimile; or
(2) enable high volume, automated, electronic processes that apply to VeriSign
(or its computer systems). The compilation, repackaging, dissemination or
other use of this Data is expressly prohibited without the prior written
consent of VeriSign. VeriSign reserves the right to terminate your access to
the VeriSign Registrar WHOIS database in its sole discretion, including
without limitation, for excessive querying of the WHOIS database or for failure
to otherwise abide by this policy. VeriSign reserves the right to modify these
terms at any time. By submitting this query, you agree to abide by this policy.

Registrant:
CNET Networks, Inc (COM2994-DOM)
235 2nd Street
San Francisco, CA 94104
US

Domain Name: COM.COM

Administrative Contact:
Domain Contact, CNET Administrative (AD417) domain-admin@CNET.COM
CNET: The Computer Network
150 Chestnut Street
San Francisco, California 94111
(415) 364-8900
Technical Contact:
Hostmaster, CNET (HC165) hostmaster@CNET.COM
CNET: The Computer Network
150 Chestnut Street
San Francisco, California 94111
(415) 364-8900
Billing Contact:
idNames, Accounting (IA90-ORG) accounting@IDNAMES.COM
idNames from Network Solutions, Inc
440 Benmar
Suite #3325
Houston, TX 77060
US
703-742-4777
Fax- - 281-447-1160

Record last updated on 04-Dec-2001.
Record expires on 04-Dec-2003.
Record created on 04-Dec-2001.
Database last updated on 13-Mar-2002 21:08:00 EST.

Domain servers in listed order:

NS.CNET.COM 64.124.237.71
NS2.CNET.COM 128.11.40.194

Re:inCorrect link (2)

erasmus_ (119185) | more than 12 years ago | (#3163256)

Cnet = www.news.com [news.com] not www.news.com.com

CNet owns the domain news.com.com and the link in the article works, but yeah, the CNet link does not. Who clicks on the "top site" links anyway, we just want to see the article :)

Who cares? Regulations don't help us anyway. (0, Interesting)

dada21 (163177) | more than 12 years ago | (#3163089)

I don't use an FDIC-insured bank. I use a credit union. They pay me better interest, I am insured up to $325,000 (by 3 seperate insurance companies internationally), and they loan money to the kind of people I want to see that money going to.

Banking regulations hurt consumers, not help. The red tape costs are VERY high, the government passes more and more laws requiring disclosure of deposits and transactions (snooping), and our wonderful federal reserve buys and sells gold and messes with interest rates making it more and more difficult to get value out of the fiat dollar.

I say give us more non-bank banks. If I could find an unregulated money-holder for me, I'd use it immediately IF they had good third party insurers, better interest, and less government big brother intrusion into my transactions.

Egold.com (2, Informative)

Unknown Poltroon (31628) | more than 12 years ago | (#3163149)

They hold it as a physical asset. No interest, but money is insulated from inflation, but not from price fluctuations in the price of gold.

Re:Egold.com (0, Troll)

dada21 (163177) | more than 12 years ago | (#3163188)

Great comment, mod this guy up.

I use e-gold. The problem is (as told by the greatest Congressman in U.S. history) that the U.S. Government messes [lewrockwell.com] with fiat money as well as buys and sells [house.gov] gold in order to hide the terrible inflation (20%+) we're experiencing right now.

We're in a terrible recession but because of the government's holdings in gold, you can't tell because they prevent the price of gold from skyrocketing as it does in an inflation. This is the government you want regulating the banking industry?

Too Few Regulations Even Worse Than Too Many (2, Insightful)

FreeUser (11483) | more than 12 years ago | (#3163177)

I say give us more non-bank banks. If I could find an unregulated money-holder for me, I'd use it immediately IF they had good third party insurers, better interest, and less government big brother intrusion into my transactions.

Do what Osama does ... use the cash-n-carry, fully trust-based money changers of the middle east. No regulations, no snooping, and the only requirement is trust ...

Personally, I'm not fond of banking, or of banks, or of excessive regulation (and sometimes corrupt regulation that facilitates, for example, the "legitimate" seizure of an accounts assets for simply remaining idle for a few years), but what you propose is a recipe for another 1929 followed by a decade or more of depression. Not the soft-market, oh-no-I-can't-by-a-new-BMW-and-my-condo-didn't-dou ble-in-price-in-just-three-months recessions we experience from time to time, but a real you-are-likely-to-starve-along-with-the-rest-of-us and armed-revolution-really-might-happen depression like our grandparents used to go on about for hours on end to anyone who would listen.

Thaks, but with as annoying as I find regulated banks, I'll take that "disease" any day over your proposed "cure."

(Having said all that, I would like to see regulations eased and brought into line with those that a credit union has to obey ... which isn't the same as no regulation and no accountability at all, which is what you get with pay-pal.)

Re:Too Few Regulations Even Worse Than Too Many (0, Troll)

swb (14022) | more than 12 years ago | (#3163212)

a real...armed-revolution-really-might-happen depression...

I want to have one of those. Burning, looting, anarachy. It'd be good for us all, kind of like Outward Bound, but for the country's social fabric.

I want to have one of those. Burning, looting,... (0, Redundant)

dpilot (134227) | more than 12 years ago | (#3163242)

Do you *really*? I suspect that most people thinking of that imagine themselves on the 'fun' (whatta sense of fun) end of the scale.

But are you willing to take the chance of being dead? How about your wife, parents, kids, siblings, etc? When you talk of burning, you may be the one in flames, with someone else holding the match. You may be looted, and someone else doing the looting.

Watch what you wish for.

Re:I want to have one of those. Burning, looting,. (1)

Kintanon (65528) | more than 12 years ago | (#3163331)

Bah! take a little risk! So what if you get maimed or killed or your pants get set on fire! A little revolution would do us all good! Oddly enough I think I would gladly accept the risk that I would be one of the first against the wall just to know that the american people stopped sitting on their fat asses long enough to put me there. A little hardship would do a lot of these people good.

Kintanon

Re:Too Few Regulations Even Worse Than Too Many (0, Insightful)

Anonymous Coward | more than 12 years ago | (#3163290)

Oops - a Trotskyite just put a bullet in your head after reading your Slashdot comment history. Fun while it lasted!

Re:Too Few Regulations Even Worse Than Too Many (0, Troll)

dada21 (163177) | more than 12 years ago | (#3163213)

The depression was caused directly by the Federal Reserve playing with money and interest rates. It was not caused by underregulated banks, in fact, banks had a wonderful history in America of handling the dollar properly.

Our government plays many games with the dollar. They brought us to 20% inflation last year, but hid it by buying and selling gold. They abuse their powers and look into accounts of people they don't like. They freeze accounts of people they don't like. Look at the problems happening in Japan - 0% overnight loan rates. Not caused by the free market, caused by governments trying to stop the free market from stablizing to where the market SHOULD be. For better or for worse.

Whoops forgot the source(s) (2, Insightful)

dada21 (163177) | more than 12 years ago | (#3163244)

Read these for more info on why the Federal Reserve caused the Great Depression. Eye-opening...

First [fff.org]

Second [fff.org]

The Depression was caused by... (2)

dpilot (134227) | more than 12 years ago | (#3163262)

financial finagling like Enron, that can give the appearance of good times when the truth is rotten to the core. Eventually it catches up. This past year, Enron was doing it. In 1929, enough more people were doing it to cause the run on the banks.

In that light, it's probably a good thing that Enron happened. It's the canary that died, and told us all to ventilate the mines and clean up business accounting practices. This type of thing *was* on the way to becoming more widespread.

Re:The Depression was caused by... (2)

dada21 (163177) | more than 12 years ago | (#3163299)

Check my sources in my own response, and you'll see it wasn't capitalism or even corporations that caused the Great Depression. People put trust in government, and government played with their money and their insurance plans and the value of the dollar, and the prices of goods. In the end, it all backfired.

Enron is TOTALLY different. Enron committed fraud (alledgely) against their investors. The investors are probably due some money, but nowhere near what they lost, because all investments are a gamble, including even being lied to by the company. Don't put all your eggs in one basket.

Re:Too Few Regulations Even Worse Than Too Many (3, Informative)

schtoo (119802) | more than 12 years ago | (#3163300)

FYI:
Banks cannot and are not required to seize an account if it is just dormant for a few years. They are first required to contact you. If they successfully contact you (be it by phone, mail, whatever) they cannot do anything with your accounts. If, however, they cannot find you they are required by law to give your money and account information to the state government. The state government is then required by law to again try to find you. Sometimes you may even see classified ads put in the paper by your state government saying they have accounts/property and are looking for owners. The state will hold your money indefinitely and you are able to claim it anytime.

In my mind, this is a good regulation because without it the banks would just keep your money and not bother to try to find you. I'd rather my money go back to the state government which is a.) more accountable and b.) if the money is never claimed they can use the money for the good of the state instead of the bank.

ps. Most states have online databases with this information that you can freely search through. Just go to google and search for "unclaimed property" plus your statename.

Re:Who cares? Regulations don't help us anyway. (2)

the_2nd_coming (444906) | more than 12 years ago | (#3163293)

ummm....credit unions have a thing called CUIC or somthing like that.....it is a federal program that isures your money up to $100,000.

Re:Who cares? Regulations don't help us anyway. (2)

dada21 (163177) | more than 12 years ago | (#3163317)

And many credit unions also enhance their insured values beyond that with private insurance companies that cost less and aren't tied to the good faith of the U.S. Government.

Re:Who cares? Regulations don't help us anyway. (2)

geekoid (135745) | more than 12 years ago | (#3163423)

Could you be more ignorant of the US financial system?
Banking regualations help consumers.
They put many measures into place that protect consumers from a great many lending practices that would hurt consumers.
ow would you like to have a 0 day default? check got lost in the mail, too bad give me your home. even thought we got your home, you still owe us the money which we're going to garner from your wages, at an additional fee, and oyur now going to pay the "defaulters" interest rate of 50%.
or
we decided to take your money and not give it back, thanks for playing.

If a bank closes up, and is backed by a private insurance company, there is a point where the insurance company will just fold instead of pay. ask people in California about the large and trusted insurance companies that carried their earthquake insurance.

thats the kind of crap that goes on in non-regulated banking countries.

And if you think a non-regualted banking industry would have less reporting to the feds, you are wrong. There are very specific guidlines that the feds play by, unlike non-regulated countries.

I've scene how various banking industry work in many countries, its scary.

The Big Brother reference clearly shows the fact that you did not understand 1984.

WTF? (2, Insightful)

Lxy (80823) | more than 12 years ago | (#3163090)

I've seen the complaints on /. and all the other sites out there. Where does this notion come from that they ever WERE a bank? I use Paypal to send and receive credit card payments. As soon as the money hits my account, I take it out. Why would I expect Paypal to FDIC insure it? Or to give me interest? or any of these other services?

That being said, I think Paypal has some shady stuff going on so I will discontinue the use of their service.

Re:WTF? (3, Interesting)

TheAwfulTruth (325623) | more than 12 years ago | (#3163110)

You just answered your own question didn't you? If they never touched the money, they wouldn' be a bank. But they DO hold the transaction in their own acounts for weeks and sometimes months before transferring to your account. That's banking (Or at least Escrow) and in either case, since they are dealing with money they do not own, they should be regulated. Or otherwise "shadey" stuff is perfectly ok as long as most people don't find out about it.

Hmm (1)

headchimp (524692) | more than 12 years ago | (#3163098)

Wonder if this will add fuel to the fire on all those claims that Pay Pal stole their money (ex: www.paypalsucks.com)

Re:Hmm (0)

Anonymous Coward | more than 12 years ago | (#3163209)

I dunno.... but after spamming every newsgroup (literally) with advertisements for their paypalsucks.com site, I don't have much trust in anything that site says.

Paypal doesn't have the laws on its side (2, Insightful)

Steveftoth (78419) | more than 12 years ago | (#3163116)

Because until the internet, there was no way you could build paypal. (Well maybe over the phone, but that would be much more difficult) Because the internet allows paypal to have virtual presence wherever there is net access, and has no physical presence. You cannot goto the paypal headquarters and deposit your money into your paypal account. The laws are just not setup to deal with this kind of business yet. A bank without a physical point of presence is not covered by any of todays laws (correctly). It'll probably be awhile before the lawyers figure out what Paypal and services like it really are.

Re:Paypal doesn't have the laws on its side (2)

mccalli (323026) | more than 12 years ago | (#3163365)

virtual presence wherever there is net access, and has no physical presence. ...The laws are just not setup to deal with this kind of business

Nonsense. Paypal doesn't exit in the ether, it exists at 6201 15th Avenue, Third Floor, Brooklyn, NY 11219.

Egg [egg.com] are an online or telephone-only set up too, but they are governed by laws. So are Smile [smile.co.uk] and IF [if.com] . PayPal aren't in a unique situation.

Cheers,br Ia

Re:Paypal doesn't have the laws on its side (1)

Steveftoth (78419) | more than 12 years ago | (#3163387)

Those other examples claim that they are banks on their front page. Paypal makes no such claim to being any sort of normal 'bank'. They do claim to produce intrest on your account ( not always positive). And their most significant claim is that they allow you to send money from person to person. They are more like a virtual western union (or at least their advertising would have you believe).

It's not that they don't exist, it's just that they don't exist like a normal bank.

More of This Story at Nando Times (4, Informative)

LuxuryYacht (229372) | more than 12 years ago | (#3163123)

More about this story at:

NandoTimes [nandotimes.com]

Paypal's own fault... (2, Insightful)

LordKariya (195696) | more than 12 years ago | (#3163144)

Paypal has no one to blame but themselves for the current investigation.

It wasn't until PayPalSucks [www.paypalsucks] and PayPal Warning [paypalwarning.com] became well-known and the horror stories became more abundant that Paypal found itself in the sights.

News for nerds? (1)

Codex The Sloth (93427) | more than 12 years ago | (#3163151)

News is by definition New. This story is two days old and was on all of the news linking sights then. No doubt a bunch of people submitted the story when it happened so why does it take 2 days for it to show up on slashdot?

GEN-DEX Bank (4, Interesting)

rnd() (118781) | more than 12 years ago | (#3163173)

Anyone ever hear of Daniel Lexington? He originally sought programmers [monkey.org] to build a personal electronic organizer. Along with the plan to build the organizer was the need to create an offshore bank, dubbed GenDex Bank.

Before long, he was sought after [monkey.org] for other reasons.

Daniel has also created some articles of government [gen-dex.com] and a logo [gen-dex.com] .

It is interesting to see how fate chose PayPal over GenDex, at least thusfar.

Re:GEN-DEX Bank (1, Insightful)

Anonymous Coward | more than 12 years ago | (#3163288)

People who have encountered him have reported that his style and affect quickly made them uncomfortable.

And that distinguishes him from the rest of slashdot how?

Paypal Warning! (5, Informative)

LuxuryYacht (229372) | more than 12 years ago | (#3163231)

WARNING:

Your Paypal account can be frozen at any time, without advance notice leaving you without your money for weeks (if not forever), and there isn't much you can do about it.

Paypal Warning [paypalwarning.com]

Re:Paypal Warning! (2)

Kintanon (65528) | more than 12 years ago | (#3163368)

As an anecdote relating to this:
My little brother was doing a lot of business on Ebay and using Paypal for a lot of it. He sold some stuff, and got paid 600$ for it, directly into his Paypal account, he then took the 600$ out to pay for other stuff. A few weeks later Paypal sends him an e-mail saying that the 600$ he got might have originated from a fraudulent source, as a result they claimed he owed them $600. Luckily he had already taken the money out, and he immediately notified his bank not to let them take any action against his bank account and blew them off. But if he had been a few days slower taking his money out he would have been out $600!

Kintanon

paipal (-1, Troll)

Anonymous Coward | more than 12 years ago | (#3163239)

i tride payapl last weak & i wantd to sai that paepal is NT TOO GAY i htought it was preti OK EVN THO IT"S NT A BANC!!! i thnk it isa good wai to transfr monie and stuf to poeple for instanc i boght thngs on EBAY!!! [eaby.com] adn it had a buttn tht sad "PAI EASLY WITH PAIPAL" so i did hehehe :)

i dnt caer if paipal is a banc or knot becaus paipal is GRAET AND I THNK IT IS A GOOD SERFVICE! just liek EBAI and SLAHSDOT and OTHER STUFF LIEK THAT! ok by thnx for listning. :) :) :)

Re:paipal (-1, Offtopic)

Anonymous Coward | more than 12 years ago | (#3163287)

stop ripping off jeffk

infomation (-1, Redundant)

peripatetic_bum (211859) | more than 12 years ago | (#3163245)

Go to http:://www.paypalwarning.com

for more info paypal badness

Moving away... (2)

pinkpineapple (173261) | more than 12 years ago | (#3163264)

I went from putting the sentence: "Paypal preferred" in my auctions on eBay when they used to offer a free service to individuals to the sentence: "I won't accept Paypal." And I know that I am not the only one out there moving away from these thieves. The fact that I get charged outrageous fees by these guys who lured me with there $5 coupon at the beginning is just intolerable. I understand the fact that they need to charge something to exist, but there are limits to what they can do.
Unfortunately, refusing paypal puts the burden on the buyers who have to wait for their check to clear up or take the time to send a money order. What are the other companies I could use beside paypal for my auctions?

PPA, the girl next door who says "Screw Paypal"

Re:Moving away... (2)

the_2nd_coming (444906) | more than 12 years ago | (#3163314)

you could always get a lawyer ad an escrow account.

but...that might be a wee bit expencive.

I wonder if PayPal picked these offices themselves (4, Funny)

carlhirsch (87880) | more than 12 years ago | (#3163298)

From PayPalWarning.com...

PayPal, Inc.
11128 John Galt Blvd
Omaha, NE 68137

Subdivision planners reading Ayn Rand, apparently...

-carl

Banks (4, Informative)

joss (1346) | more than 12 years ago | (#3163304)

The main point of being a bank, is that banks are allowed to invent money.

Everyone knows about bank notes and coins, they are minted by the government. However, this is only a small fraction of the money in circulation - around 4% in most big economies. Most money is in bank accounts of one sort or another and circulates through cheques, debit cards etc. Cash is a minor part of the money supply and becoming less important by the day. So, where does most money really come from ? The answer is very simple: money is invented by banks when people take out loans.

This is not a secret, it's just not widely known. Most people think that banks lend you other people's money and charge more interest to borrowers than the lenders receive, but this picture is fundamentally wrong. If you borrow £5000 from the bank, nobody is sent a letter saying that their money is temporarily unavailable because they have lent it to someone else. A more accurate picture is that this £5000 didn't exist until the bank lent it to you.

This is hard to believe, so let me show you how it works. It simplifies matters to imagine that there is only 1 bank, or if that strains your imagination, just imagine that A,B and C all bank with Wells Fargo.

Let us start with people A,B,C and a bank and keep track of how much money they have. The bank keeps separate accounts for A,B,C and itself

1. We'll start everybody off with no money, and nothing in their bank account
except for C who has $5000
External funds A: 0, B: 0, C 5000
Bank a:0 b:0 c:0 bank:0

2. C pays his money into his bank account
External A: 0 B: 0 C: 0
Bank a:0 b:0 c:5000 bank:0

3. A asks to borrow from bank so it breaks A's account of 0
into $5000 of money for his current account and a debt of -$5000
External A: 0, B: 0, C: 0
Bank a:(5000,-5000) b:0 c:5000 bank:0

4. The bank transfers the money to A
External: A: 5000, B: 0, C: 0
Bank a:-5000 b:0 c:5000 bank:0

5. A pays this money to B
Exernal A: 0, B: 5000, C: 0
Bank a:-5000 b:0 c:5000 bank:0

6. B pays the money into his account
External A: 0, B: 0, C: 0
Bank a:-5000 b:5000 c:5000 bank:0

7. A obtains money from elsewhere (easier said than done)
External A: 5500, B: 0, C: 0
Bank a:-5000 b:5000 c:5000 bank:0

8. A repays 5000 to bank, plus interest of 500
External A 0, B 0, C 0
Bank a:0 b:5000 c:5000 bank:500

9. The bank pays some interest to C
External A: 0, B: 0, C: 0
Bank a:0 b:5000 c:5300 bank:200

So far, the bank has done nothing strange, and this actually corresponds to the understanding that most people have about the way banks work. One thing to notice is that when A received $5000, nothing happened to C's account. Theoretically C could withdraw his money at any time.

The clever bit is that step 4 never needs to actually happen. A doesn't remove $5000 in cash from his bank - he just writes a check out to B, who never takes out the money either - he just pays it into his account. So in order to "lend money" to A, all that the bank needs to do is change it's accounts from saying:

Bank a:0 b:0 c:5000 bank:0

to saying:

Bank a:5000,-5000 b:0 c:5000 bank:0

Which means: A has $5000 in his current account and also has a debt of $5000 in a separate account.

and as far as A is concerned he has borrowed $5000 from the bank.

But there is nothing to stop the bank from "lending" lots of people money in this way. Why not lend D $5000 too, just change the accounts to say:

Bank a:5000,-5000 b:0 c:5000 d:5000,-5000 bank:0

The money that it lends out does not have to exist before it lends it out - the bank invents the money. In fact, almost all the money in circulation has been invented in this way.

Are banks allowed to do this - isn't there a law against this ? No, not at all, banks are expected to do this - in fact without the banks providing credit, the money supply drys up and the economy goes into recession. There used to be laws specifying a limit - banks could only lend out X times as much money as they received, but these laws have been scrapped in most modern economies. The only constraint is market confidence. If people start to lose confidence in the bank, too many people demand to physically get their hands on their money at the same time, then the whole facade comes tumbling down.

The central misunderstanding is that banks charge interest because they themselves are borrowing money from somewhere, as in fact they are if the money actually leaves their control. Banks compete with one another to lend you money because it is their principle source of revenue. They compete by charging less interest. If they charge too little, lend too much to people who have trouble paying it back then people lose confidence, and move their funds to another bank, the bank goes bust. They lend as much as they dare though, because it's immensly profitable: they are inventing the money they lend you.

So, money is created by banks in the form of debt. Now, lets think about this a moment. What would happen if everybody tried to pay off their debts to the banks, and nobody took out new loans. Well, the money supply would dry up, there would be far less money in circulation. Money's primary function is a to facilitate trade, if nobody has any money then nobody would be able to trade, the economy would grind to a halt.

More fundamentally, it is absolutely impossible that all debt could be paid off. THERE IS MORE DEBT THAN MONEY. It's easy to understand this when you think about where money comes from. Every time a bank lends people money it increases the gap between the amount of money in the world and the amount of debt. The bank lends you $5000, and demands you repay $5500. $5000 is temporarily added to the amount of money in circulation, but it must eventually return to the bank - plus an additional $500 that must go back to the bank too. When the debt is finally paid off, $500 more must have been extracted from the system than went into it. The only way to keep the system going is with increasing debt. Of course, banks spends money too - they have employees and shareholders who buy cars and houses, yachts etc, this pumps money back into the system, which slows down the debt spiral. (A very fat, and almost entirely parasitical segment of the economy that creates nothing real, but that's not my point). Even if the bank spends all the money it receives in interest, there is still a discrepency, because the money must be returned to the bank before it can spend it - at any one time there has to be more debt than money.

The value of our assets (in money terms) is proportional to the amount of money existing. Our debts to the banks are in terms of money. As credit collapses, the amount of money goes down, the "value" that people put on real items goes down (nobody can pay much if they don't have much money). If banks suddenely refused any further loans the banks would end up owning everything. (In fact - I strongly suspect that one or two of the biggest banks would end up owning everything, including all smaller banks). Nobody would have money to pay off their debts and the money they could obtain from selling their assets wouldn't cover it - not enough money would exist. The banks would own all the money AND all the property. This is not just a theoretical problem, it's an exaggeration of what happens during recession. Extending it to the logical conclusion highlights how much power lies with banks in the current system.

When banks lend people money, they increase the amount of money in circulation. This changes the balance between the amount of money in the world and the amount of stuff in the world. This slightly decreases the value of all money - it is the root cause of inflation. Effectively banks steal money off everybody else by lending out more money than they have. It's just a form of legalized forgery. A private individual would have exactly the same effect on the economy if he produced perfectly forged money that he was allowed to add to the system on the condition that he removed and destroyed the same amount at a later date.

An expanding economy needs an ever increasing amount of money. The more stuff in the world, the more money is needed. This money is invented by private banks in the form of debt. Even governments borrow their money from private banks. So we have this paradoxical situation where the most successful countries have the largest amounts of debt. Amazingly the USA has recently been able to start decreasing it's national debt, but this has been achieved by a massively expanded amount of private sector debt. People are more confident, they believe their shares are worth more, they borrow more money and invest more. More is collected in taxes due to increased wages, and for a short time the government debt can decrease, but overall debt always increases.

During boom times - the credit supply increases. The system keeps afloat by ever increasing amounts of debt. In order to service this debt, the economy *must* expand - it is completely impossible for the monetary system to stay afloat with a stable economy, because the only way the debts can be serviced is by creating new debts.

Obviously this debt cycle cannot quite go on forever. At some stage people lose confidence, and it becomes harder to get credit. Then businesses go bankrupt, banks foreclose on the assets, and we go into recession or depression. Then gradually things improve and we start over again - the only difference being that now more of the actual assets in the world (rather than just the money), are then owned by the banks.

So the boom/bust cycle is inevitable when all money is created in the form of debt. The system is inherently unstable. We end up with rather large debts. For instance, the national debt of USA is $5,673,018,308,921 (last time I checked). The estimated population of the United States is 276,004,098 so each citizen's share of this debt is $20,554.11. The money to service this debt is extracted (taxed) with menaces by the government and paid to the banks. If you wanted to be alarmist about it, you could say we are selling our children into slavery (or at the very least indentured servitude) to the owners of the private institutions that invent our money.

Whose idea was this wonderful mechanism for inventing money ? Amazingly enough, it was the bankers. In 1694, Britain's King William was having trouble with money and probably did not understand it too well. At the time governments were scratching their heads over how to pitch the speed of money supply to the economy so as to avoid periods of inflation and at the same time finance their wars, build their palaces and even, from time to time, make life bearable for their people. The bankers convinced King William that the bankers were the "experts" who understood money and that the job of issuing currency should be handed to them.

As the amount of stuff in the world increases, the amount of money needs to increase. An artist paints a picture and wants to sell it - the amount of stuff in the world has just increased. Either: more money has to be created everything; the price of everything needs to reduce slightly; or we have a world where their is plenty of stuff, but nobody can buy it. In fact, this is pretty much the situation we live in: there is plenty of stuff, but everyone is short of money.

Letting the banks invent all money in the form of debt is not the only possible system. For instance, the government could invent money and give everybody a certain amount each year. This scheme was advocated by Douglas in the 30s and was making progress before war broke out. The introduction of more debt free money into the economy would reduce the need for loans and gradually eliminate the boom and bust cycle. Of course if the government invents too much we end up with inflation. But we have inflation already because the banks are inventing money all the time. If people were given money, they would borrow less from the banks so we wouldn't need inflation. A lot of inflationary pressure comes from the need to make interest payments. This scheme is far less inflationary than you might think.

The reason that the current system (where money is invented by banks) has become dominant is that the current monetary system is pretty good at creating a vibrant thriving economy where enterprise is encouraged and financed - it undeniably encourages growth, in fact, it can't live without it. A stable economy is absolutely impossible in the current system, people must be perpetually taking out loans and investing. Without constant investment and new loans the money dissappears and we sink into recession. That's why the idea has spread so wide - it's the most competitive model so far seen.

It's not exactly perfect though. The tendancy to enslave populations into the service of bank owners is one flaw. An insatiable need to expand economies until the whole planet is covered in concrete is another. The necessity for people to work like mules their whole lives, scraping a living amongst plenty when automation should provide us with leisure is another. The maintenance of a huge parasitical segment of the economy that creates virtually nothing of value is another... I could go on, but I think you see my point - the current system is not ideal.

One good thing about the current system is that the wastefulness of private institutions is bounded by the fact that if they become too bloated, corrupt and stupid then they go bankrupt. Governments don't have the same market-place correction. Elections change the spokesmen, but the permanent institution that grows up behind our "elected representitives" is much harder to displace. It can reach far greater levels of stupidity and incompetence than is possible for private organisations. But the market place competition between banks doesn't help us much. When banks fold they get taken over by other banks. Banks have an even greater motivation to merge than other businesses - the larger they are, the less likely that money ever leaves their control, so the larger their possible debt/credit ratio. What this means is that larger banks can invent more money than smaller banks, thus stealing more from the rest of the world. The fact that stupid banks get taken over by clever banks doesn't help. It just makes the resulting mega banks more powerful than ever.

You can't really blame banks - they are just making the most of a preposterous situation. It should be the responsibility of government to create the money we need and distribute it amongst us. Counter-intuitively this would make governments less powerful. The present system gives them the power to do whatever they like, or more accurately the power to not do whatever they like. They control the
rate of the economy by controlling interest rates. They can obtain as much money as they want by increasing the national debt, and they can avoid doing things that people want by just saying they can't afford it.

An intelligent and informative book that explains this stuff and related ideas quite thoroughly is "Grip of Death" by Mike Rowbotham, Jon Carpenter Publishing; ISBN: 1897766408

Hurts paypal (3, Insightful)

bluGill (862) | more than 12 years ago | (#3163339)

I think this hurts paypal. the Feds basicly said "Paypal is not a bank, because they do not have a bank charter." States can now say to paypal "You are not a bank, quit acting like a bank."

In other words, they are either a bank or not. If they are a bank, then they can handle money for other people. If they are not a bank, then they cannot.

Now bank regulations vary from state to state. There are banks in the US that I cannot legally get a loan with, because they are not licensed in my state. (It gets complex in ways I don't know when I want a loan from something that isn't in my state)

Wrapper (3, Insightful)

sporty (27564) | more than 12 years ago | (#3163361)

So what are they.. a wrapper for a bank? They don't hold any cash per se. But they hold money, sorta.. and allow you to withdraw.. sorta..

Lord knows.
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