Lawmakers Debate Patent Immunity For Banks

I Don't Believe in Imaginary Property writes "Now that a small Texas company has a patent on scanning and archiving checks — something every bank does — that has survived a USPTO challenge, lawmakers feel they have to do something about it. Rather than reform patent law, they seem to think it wiser to protect the banks from having to pay billions in royalties by using eminent domain to buy the patent for an estimated $1 billion in taxpayer money, immunizing the banks. The bill is sponsored by Sen. Jeff Sessions (R-AL)."

Comments

I Dont Get It...

[vajrabum]

I saw equipment at Recognition Equipment Inc. in 1982 or 1983 ago that did exactly that--scan checks and store the images. How can they have issued a patent on this.

If you RTFA you would see

[WillRobinson]

While I despise patent trolls, if you read the article this guy had a business with 150 people developing and selling this technology. SOME not all banks ripped him off, several of the large banks did license the technology. Others just ripped him off. To stay in business in 2001 he had to lay most of his people off, and sell most of the company.

Now after a proper legal vetting the banks that just ripped him off are crying and asking the government to save them. Piss on them. They knew exactly what they were doing. This is not a submarine patent. What about the companies that did play the license fee?

What will the guy who actually developed this get? 2% of the money, less all the legal fees. Just remember, it could have been yhou that developed this.

Re:Bank Patent #3

[Copid]

So, if i understand correctly, they haven't LOST a trillion dollars, so much as they won't be PAID a trillion dollars-- but the reciprocal part of the loan (the "money" they loan) was invented. Someone with an econ degree plz explain to me haha..

Not exactly. Let's take a look at this and pretend that there's only one big bank to keep things simple: you. You get $10. Some nice guy comes out and borrows $10 from you. He spends it at 10 different retailers, each of whom deposits a dollar with one of your branches. You've traded $10 in money for $10 in assets (the debt the first guy owes you), and now you have an "additional" $10 that has been put back in your bank. Absent any regulation, you can loan that $10 out again. The problem, of course, is that you won't have that money to give to your depositors if they come and ask for it, and additionally, it also has the minor side effect of allowing you to create an infinite amount of money. Not good.

In come the regulators. They say, "You can loan the money back out, but you have to keep 10% of it on hand." So you get your $10 in deposits and loan out $9 to another person. He spends the $9 and it trickles back to you. Of that $9, you can loan out another $8.10. Eventually, you asymptotically approach zero dollars loaned out (and you've loaned out $100 for your original 10). At the end of it all, you have a balance sheet that looks like this:

Assets: $100 (Loans: People owe you $100, so that's an asset.)
Liabilities: $90 (Savings accounts: *You* owe your depositors $100, which they could choose to withdraw at any time.)
Equity: $10 (You're holding $10 in a drawer somewhere.)

Here's where your thought experiment goes wrong: Let's say people decide not to pay $50 worth of loans back to you. Where are you now?

Assets: $50 (Loans: People owe you $100, but you'll only ever see $50 of it.)
Liabilities: $90 (Savings accounts: *You* owe your depositors $100, which they could choose to withdraw at any time.)
Equity: $-40 (You're in some serious shit if people decide to pull their money out. Your business is worthless now.)

In the real world, odds are good that your depositors aren't going to eat it because the government will bail them out, but you can bet that you're going to get shut down. You see, the banks didn't "create" the money so much as they borrowed it. Even if borrowers don't pay back their debt to the banks, you can bet that demand deposit account holders are going to want the banks to pay them back. This is why the banking industry is regulated. It's a huge leverage machine. There's nothing wrong with that in general, but it's inherently risky. That's why there's all manner of risk pooling and rules about what banks can and can't do with the money they control.

The real world, obviously, is more complicated, but this is a rough illustration of the money multiplier effect. In the US, normal banks don't "create" money as much as they multiply it. For every $1 that the Fed creates, banks multiply the effect in the real economy. It's not any sort of a trick. It's just how the system works.