Passing The Baton: Your Place in The Economy

Passing the Baton features a series of “letters” sent from Terry Corman, outgoing CEO of Firehouse Image Center (Indianapolis, Indiana) to his son, Ted Corman, who will be leading the business into its future. This series of communiques offers thoughtful views of a business undergoing generational transition, glimpses of the company’s history, and strong views of the realities of leadership. 

Once you have taken over complete control of Firehouse, you will be approached by several banks wanting to loan you money. I know you have plans for a new wide-format press.

Once you sign those loan documents, and the money transfers to that press manufacturer, you will then become a part of a process that few people understand.

First of all, the money you borrow is not the bank’s money. It is, in fact, an accounting entry. The process is called ‘fractional reserve banking’. Banks used to keep money in reserve when they lent out deposits. That changed on March 26^th 2020, so the fractional reserve portion is gone. Confused?

In effect, son, new money will be created in that loan you take from the bank. But here’s the next step in the process. You are going to pay them back with the money you haven’t earned yet. Quite a transaction, right? The bank says, “We will give you some money we just made up if you give us your promise to pay it back with money you don’t have yet”.

The bank makes a promise to the Federal Reserve to keep their act together, and they take your word that you would keep your act together.

It’s all an act of faith, in the integrity of the businesspeople in America.

It takes intelligent, trustworthy, women and men to make these transactions work, to keep the world’s largest economy running.

You belong in the game, son. Take Firehouse to a great future.