ELI5- how exactly do ‘bankers’ become the richest people around(Jp Morgan, Rockefeller, rothschilds etc.), when they don’t really produce anything.

Question

ELI5- how exactly do ‘bankers’ become the richest people around(Jp Morgan, Rockefeller, rothschilds etc.), when they don’t really produce anything.

In: 17100

Answer 1

In addition to the answers about how interest works on legitimate lending, they also generate additional income via a practice called ‘fractional reserve lending’.

Say you deposit 10 dollars in the bank, but that bank’s ‘reserve’ (the fraction of your money they need to have available for you to withdraw) is only 50%. That means the bank can then loan out the other 50% of your funds to someone else, and collect interest on that loan. In this way, they effectively ‘create’ money. There are now $15 in the bank/in circulation (your $10, plus the $5 they loaned out to another of their customers), even though only $10 of that actually ‘exists’.