Posted: Apr 04, 2013 4:04 am
Yes a bank could do that. However deliberately running an institution into bankruptcy would expose its directors and senior management to potential criminal charges. The point you are making isn't so crazy though. In the last ten years many banks took on all kinds of assets which turned out to be virtually worthless. This was fundamentally what caused the banking crisis. I would call that reckless negligence on a monumental scale. But that's another topic.
pretty close
But I think they thought the party would continue do "deliberate" might be an overstatement ins terms of bankrupting but did the traders over rule the risk stop division?? you bet.
In reality there are not many banks that do not remain underwater if there was a hard nosed examination of the underlying asset base and the loans - there was a good program on the role of the quants in the horrid risk assessment and the US Gov is suing one of the rating agencies that provided positive ratings on the odiferous assets.
To answer the OP tho - I don't know the term Positive money but fractional lending is reasonable approach to dealing with matching the supply of money to real wealth building.
It has been abused in a world altering way when financial regulation was just about eliminated in the US and ignored or gamed elsewhere.