[HN Gopher] America will soon see a wave of bank mergers?
___________________________________________________________________
America will soon see a wave of bank mergers?
Author : pseudolus
Score : 156 points
Date : 2023-05-02 09:48 UTC (13 hours ago)
(HTM) web link (www.economist.com)
(TXT) w3m dump (www.economist.com)
| jliptzin wrote:
| It's too late now, but the FDIC should just guarantee all
| deposits with no limit. If they did it with SVB they should do it
| for every other bank too moving forward. It is ridiculous to
| expect the average person to dig into bank balance sheets and try
| to determine whether their bank is managing risk properly.
|
| That would have prevented these runs, which counterintuitively
| means fewer FDIC payouts, not more. Then couple that with
| stricter rules to prevent risky gambles funded by deposits.
| lxgr wrote:
| > It is ridiculous to expect the average person to dig into
| bank balance sheets and try to determine whether their bank is
| managing risk properly.
|
| We don't: The average person does not have $250k sitting in a
| checking or savings account at a single bank.
|
| SVB collapsed because they have highly correlated (due to being
| startups under effective, if not actual, corporate control of a
| few VCs), jumpy depositors. This is something regulatory rules
| have not incorporated into their risk frameworks (at least not
| sufficiently to allow for a margin of safety in times of
| raising interest rates).
| jliptzin wrote:
| Some do though. Having a lot of money in a checking account
| doesn't mean someone is any more sophisticated with respect
| to finances. It could be retirement savings or an
| inheritance.
|
| No one should wake up one day and find out most of their life
| savings or inheritance is gone because of banking
| shenanigans. This is not like a hurricane or catastrophic
| expensive surgery. This is entirely preventable and fixable
| by the government.
|
| Gov't sells low yield bonds to banks during pandemic => gov't
| jacks up interest rates to fight inflation => value of bonds
| previously sold to banks plummet => bank marks bond values to
| market and is now technically insolvent causing a bank run =>
| grandma loses majority of her life savings => government
| refuses to reimburse depositors above FDIC limit even though
| it created the problem to begin with.
|
| That is not a chain of events I am ok with. Bank management
| and equity holders should get wiped out but not depositors.
| CrimsonCape wrote:
| We have a de-facto two class system: the capitalists and
| "everybody else class". The capitalist class, those with
| capital, investments, stake (a la stakeholder), who
| mobilize lobbying on behalf of and to protect their
| capital, who will 99.99% of the time have the ultimate
| impact on legislation; the impact being positive effects on
| themselves at the cost of everyone else in the general
| public.
|
| I'm not sure we can even get a vote on the floor that would
| have detrimental effects on the former class. The
| legislation is preordained.
|
| You are proposing that bank management and equity holders
| get wiped out, not the general public checking account-
| holder; how would that even be possible, since they write
| the rules, pull the strings, lobby, etc. magnitudes more
| than you? They are the rulebook. They do so to such an
| extent that the entire system is predicated on everybody
| agreeing to do the same thing lest the system collapse.
| senectus1 wrote:
| with what money will they guarantee all deposits? Governments
| dont have much money, they have taxes. when they can't tax
| their current voters they tax future voters by printing money.
|
| If you told the banks that you will protect their business
| regardless of what corrupt, stupid or greedy behavior's they
| practice... what do you think they'll do?
|
| this is so very screwed up.
| jliptzin wrote:
| Did you read my last sentence? Make the law such that bank
| failures can only occur in situations of outright
| fraud/criminal behavior. Most failures occur because of bank
| runs or stupid/risky bets, unlimited FDIC takes care of runs
| and stricter rules would stop bad risk management.
| mrep wrote:
| > If you told the banks that you will protect their business
| regardless of what corrupt, stupid or greedy behavior's they
| practice... what do you think they'll do?
|
| That's not what the FED is doing though. They are protecting
| the depositors not the business. The equity holders are
| getting completely wiped out and most of the employees at
| First Republic Bank are probably going to lose their jobs so
| the business is definitely getting screwed.
| CrimsonCape wrote:
| But people don't really understand the nuance between "let
| First Republic fail and let the FDIC step in to protect the
| depositors" versus "let's sell First Republic to Wells
| Fargo under orders of USGov to protect the depositors." Why
| not the former?
|
| I agree that in both of the above cases, First Republic
| shareholders and staffing suffer. But the latter introduces
| the conspiratorial angle and the unjust-ness.
| beiller wrote:
| The government controls the amount of dollars. It's not
| paying back out of coffers, just print the money. But if you
| really want to, you could cover the deposits from FDIC which
| is insurance paid by that bank. Secondly we're not bailing
| out banks. We'd be bailing out the depositors. The banks and
| their stock is free to go to zero, everyone is fired, etc. I
| think you've conflated two different things.
| lxgr wrote:
| So you're suggesting we should let commercial banks run as
| risky a business as they like, pocket the profits if it
| works out, and pay for the deficits using newly printed
| central bank money if it doesn't?
|
| > The banks and their stock is free to go to zero,
|
| Sure, but what about the dividends and bonuses already paid
| out from the times it worked out in the risky banks' favor?
| You're suggesting a government/central bank subsidized
| casino.
| beiller wrote:
| Well maybe we can claw back the bonuses. You're right and
| I did think a bit on that after writing the comment. But
| there should be a clear incentive still to not go
| bankrupt and make their shares they hold worthless. With
| or without making depositors whole via ramping up the
| printer, your scenario still would make sense since even
| without the Fed backing, they could still just walk away
| couldn't they. The depositors would be left to sue to
| return the funds no? I've seen some good arguments to
| cover 100% of the deposits, but actually _regulate_ the
| banks instead of allowing their yolo fest.
| lxgr wrote:
| > But there should be a clear incentive still to not go
| bankrupt and make their shares they hold worthless.
|
| Absolutely. I just can't think of a good mechanism to
| implement it in the current framework. Maybe bonus
| payouts should be held in escrow/be otherwise claw-back-
| able for some time?
|
| The only instance of clawing back dividends that I'm
| aware of is, ironically, Wirecard - I believe there is an
| ongoing lawsuit to claw back dividend payments from
| investors. (The irony is that the German
| government/regulator were actively prosecuting
| journalists and short sellers back when the line was
| trending up, yet now German courts are effectively
| holding long investors liable for Wirecard's fraud.)
| brodouevencode wrote:
| That would almost certainly ensure too-big-to-fail scenarios. I
| agree with the sentiment that bank failures and the resulting
| domino effect are terrible, but I don't think carte blanche
| unlimited depositor insurance is the answer.
| senectus1 wrote:
| These banks are _counting_ on "Too big to fail"... and the
| politicians will back it. To back it they will print money, which
| will devalue the currency and drive up inflation.
|
| this is a sick and twisted collapse of multiple economies. It has
| only one direction. down.
|
| its not too late to stop it, but nobody will, because the cost to
| those in power will be too great.
| IAmGraydon wrote:
| >These banks are counting on "Too big to fail"... and the
| politicians will back it. To back it they will print money,
| which will devalue the currency and drive up inflation.
|
| Bailing out depositors isn't going to increase inflation -
| you're just giving people the same amount of money they already
| have. The big problem with it is that it prevents the natural
| process of wealth destruction from occurring, so it may just
| drag out inflation for longer.
| brodouevencode wrote:
| The only tool the fed has at the moment is the printer, so it
| very much will increase inflation by its very definition.
| rr808 wrote:
| I'm not convinced that USA needs the thousands of banks it does.
| Most countries survive with a small set of national banks. There
| seems to be little downside, and makes sense not to have all the
| duplicated overhead.
| intrasight wrote:
| I agree. It's very inefficient. And as a result, it personally
| costs me money - in the form of higher taxes for that very
| inefficiency. And all banks should be subject to the same
| regulation. Them saying that they "can't afford it" is just
| further evidence that consolidation is necessary.
| jjtheblunt wrote:
| it's sort of a US thing to let alternatives proliferate so they
| compete with one another, or are supposed to do so, rather than
| collude and whatever else goes on.
| __MatrixMan__ wrote:
| I find it's difficult to keep track of. At one point I had
| money of one retirement color or another (traditional, Roth,
| HSA) being held by six different institutions in nine
| different accounts. Navigating the maze of who needs to send
| checks to whom has been a tremendous pain and I'm worried
| that I overlooked something in the consolidation effort.
| Eddy_Viscosity2 wrote:
| What would be so bad about having bank monopolies? Think about
| how much profit they could make, and as a society, isn't that
| what's truly important.
| jmyeet wrote:
| Consider these three pieces of information:
|
| 1. There is not a bank in existence in the US that could survive
| a bank run where 25% or more of the deposits leave. Not even JP
| Morgan Chase; and
|
| 2. There's a lot of evidence to suggest that the bank run on SVB
| was created by the direct actions of relatively few people, most
| notably Peter Thiel; and
|
| 3. The FDIC usually solves such bank runs by seizing the bank and
| selling the bank for parts. The banks all actually have more
| assets than depositor funds. So far at least, all depositor funds
| have been protected through assets and the FDIC (side note: the
| FDIC is funded by banks and receives no appropriations from
| Congress). It's expected that these asset sales are at a
| significant discount (eg CSFB acquiring UBS for a song although
| that's Switzerland not hte US obviously).
|
| So perhaps we should be asking if these bank runs are being
| deliberately created to profit from the collapse of smaller
| banks. In an ideal world, if true, people would end up in prison.
| kirbyfan64sos wrote:
| This falls apart a bit when you consider that several larger
| banks did try to prop up First Republic for a bit, specifically
| because:
|
| > the FDIC is funded by banks and receives no appropriations
| from Congress
|
| So banks going down can certainly cause other banks money, too.
|
| That being said, the "significant discount" is usually because,
| when you acquire the assets, you also acquire the bank's
| liabilities, and AIUI _roughly speaking_ you 're paying the
| difference between what you gain and what you lose in the
| process. More specifically, the FDIC helped fund JP Morgan's
| acquisition of First Republic because, if JP Morgan simply
| acquired the assets & liabilities directly, they would not be
| enough liquidity for it to be safe.
|
| I.e. acquiring a smaller bank has some advantages but also some
| downsides, and it also destroys trust in the system which hurts
| the big banks too...so it's not really something that's
| exclusively beneficial and definitely not worth trying to
| trigger intentionally.
| cyclecount wrote:
| All of the rules put in place after 2008 are being ignored; the
| number of banks in the US pre-2008 financial crisis was about
| 31k. Now there are close to 3000. After this wave of mergers,
| there might be around 1000!
|
| And a few will be so large that they can make insane bets,
| betting on risky and novel new investment vehicles that will
| (maybe initially) pay off handsomely before ultimately failing
| dramatically. This will make "too big to fail" look quaint by
| comparison and the banks will end up owning everything.
| Mistletoe wrote:
| Am I too tinfoil hat to think the big 4 planned it like this
| all along? I guess one could ask why WOULDN'T they have
| meetings trying to engineer exactly what is happening?
| HWR_14 wrote:
| I think you are too tinfoil hat to think they planned it.
| They don't need to engineer what is happening, it was
| obviously going to happen at some point. They could have
| targeted some banks (active, hard), or they simply could have
| realized that a percentage would fail when rates went up, so
| they got in a position to do well picking up the pieces. And
| then they acquire whatever fails.
| 0zemp2c wrote:
| yes, and now they are "attacking" PacWest, whose stock is
| plummeting like First Republic
|
| its an easy cycle - find a bank you want for nothing, feed
| bad press through the usual outlets, watch it fall, then
| watch depositors get spooked, then buy it for nothing
|
| First Republic is probably just one of many banks intended to
| be undermined, trashed, and then sold for nothing
|
| and remember all the times First Republic's CEO came out and
| defended his business as it was collapsing? me
| neither...makes you wonder...
| smeej wrote:
| I'm willing to take my downvotes on this, but as someone who
| works in an industry that has been working for 14 years to
| set up an alternative to this system, and which feels like
| it's under systemic, engineered threat at the very same time
| this is happening, I think your tinfoil hat is stylish, and
| appropriate for the season and weather.
| theseatoms wrote:
| If I had to guess, it's less so "planned" and more so that
| the various institutional and regulatory incentives make this
| sort of outcome extremely likely.
| matt_s wrote:
| I think this hits the nail on the head. I think after 2008
| they setup a system (set of regulations/rules/policies not
| some group of monocle wearing dudes in a room scheming)
| where the BigBanks will eat the SmallBanks, the FDIC will
| insure what they do and some Federal agency will eat the
| SmallBank failures and then BigBank can swoop in as a
| "savior" essentially consuming SmallBank but all that is
| left is the profitable parts at that point.
|
| Use a local credit union instead of a bank.
| DonsDiscountGas wrote:
| That doesn't really explain anything though. Every business
| is always _trying_ to gain marketshare. The question then is
| why they are succeeding now and not before. Nobody forced SVB
| to put all their money into 10-year treasuries, nor did
| anybody engineer the tech-industry recession we 've been
| going through (JPMC is big but Apple, Microsoft and Amazon
| are each bigger), both of which contributed to SVBs demise.
| Also the big banks tried to rescue First Republic a few weeks
| ago; not impossible that was some weird 4-D chess move but
| much more likely it was just a bailout that failed.
|
| See also: https://en.wikipedia.org/wiki/Hanlon%27s_razor
| mandmandam wrote:
| Well, to accomplish something like that, they'd have to have
| hundreds of (past, present, and future) employees, dotted
| over dozens of institutions (media, regulatory and
| political).
|
| They'd need the tacit permission of the other industries
| their owners are invested in.
|
| And, they'd need tremendous amounts of capital. Plus a
| history of grand collusion and unethical behavior. And
| leverage against anyone that might call them out.
|
| So... I've got nothing. I will say that failing to
| investigate this possibility seems naive; as would expecting
| a genuine investigation.
| govolckurself wrote:
| [dead]
| pbhjpbhj wrote:
| Financial speculation is zero sum, isn't it? So the fewer banks
| there are the more each one gets exposed to both sides? Your
| bank provides services for a person who monopolises some
| commodity, you have billions to loan out; but all your millions
| of other customers are hit by the price of that commodity and
| all deposit less, wiping out any increase in deposits.
|
| Doesn't that mean unless they are specialised banks, that they
| necessarily must lose?
|
| Maybe an economist can correct or confirm my instinct here?
| scotty79 wrote:
| > Financial speculation is zero sum, isn't it?
|
| Only if you play fair. If you can be bailed out it's no
| longer zero sum.
| misja111 wrote:
| Some financial speculation is zero sum, other is not. E.g. if
| a bank takes on a lot of clients with risky mortgages, both
| risk and possible gains are only on this bank. (Barring
| possible bail out, contagion risk etc)
| RandomLensman wrote:
| Why would financial speculation be zero sum (or how do you
| define financial speculation here)?
| thehappypm wrote:
| I have trouble following this logic. Monopolies are obviously
| bad, but, 1000 banks sounds like an extremely diverse
| ecosystem.
| zaphod12 wrote:
| Where did you get these numbers? It's wrong and presents a
| misleading picture of a 10x implosion in 2008. There were never
| even close to 31k banks in the USA. It peaked at about 14k back
| in the '80s and has been going down ever since. It did drop
| precipitously after the 2008 crises, going from around 7K banks
| to today around 4500 banks, but this is a very far cry from 31k
| to 3k.
|
| https://banks.data.fdic.gov/explore/historical?displayFields...
| NikolaNovak wrote:
| As an outsider, can you help me put your post in context - is
| 31k banks posit as good or bad state of things?
|
| (it seems an _insane_ state of things to me, with incredible
| overhead and inefficiency but again, I 'm an outsider. I've
| lived in USA for a while in late 90s and state of banking from
| consumer perspective in USA seemed a decade behind Canada and
| Europe, but that was a long long time ago)
| stefncb wrote:
| I see less banks as being strictly worse. It's the same as
| with any other company. Yes that's less efficient, but it's
| the only way to prevent individuals from having too much
| power. Because almost anyone with that kind of power will
| eventually give in. Just look at tech companies; I, for one,
| am not satisfied with the status quo.
|
| There are two ways to have a functioning society. One is to
| have very few very powerful people, and only choose the right
| leaders. The other is to have very many people with very
| little power. That's less efficient, but it's also much less
| risky.
|
| We currently run on the first. It's not going well. I'm not
| aware of a time when we ran on the second. In my mind that's
| the only way.
| wesapien wrote:
| You guys should be flipping cars when bank execs didn't get
| jail time for the financial crisis
| lp0_on_fire wrote:
| Occupy Wall Street was the beginning of that but the media
| and their allies in the government decided to push for a race
| war in the 2012 election. It's not a coincidence the
| oppression Olympics were turned up to 11 at that time.
|
| That's not to say that there aren't issues with race in
| America but they pale in comparison to the socioeconomic
| ones. A nation obsessed over race and culture has little time
| to confront other issues.
| l3mure wrote:
| Race is the modality by which class is primarily expressed
| in America. There is no way to resolve socioeconomic
| problems without dealing with race at the same time,
| clearly demonstrated multiple times in US history. The
| failure of Reconstruction -- an "Unfinished Revolution" as
| Eric Foner puts it -- was precisely white workers'
| rejection of class solidarity with Black workers in favor
| of post-war white racial reconciliation.
| [deleted]
| wesapien wrote:
| Crab mentality and revenge seeking will keep people from
| true progress. We need to crush the idea of victim hood
| as a privilege.
| l3mure wrote:
| > We need to crush the idea of victim hood as a
| privilege.
|
| "Victim hood as privilege" is a right-wing strawman of
| the idea of intersectionality. You're suggesting throwing
| a punch at an obvious feint.
|
| Intersectionality is simply the idea that certain groups
| experience unique configurations of more general
| problems, and that counteracting those configurations
| contributes to resolving the general case.
|
| Do you think a coal miner with black lung who organizes
| for compensation on that basis is claiming "victim hood
| as privilege"? I hope not. It should also be clear that
| coal miners organizing for their own workplace safety
| helps ALL workers. That's why OSHA exists after all.
|
| The same applies to racial issues.
| 20after4 wrote:
| And most people are oblivious to this simple observation,
| allowing the situation to continue. Feels like the war is
| already lost a long time ago.
| prasadjoglekar wrote:
| That was what Occupy Wall St and Tea Party movements were.
| Remember that? Before each of them got infested with social-
| issue parasites of each pole, both were populist reactions to
| financial injustices.
| kiawe_fire wrote:
| At some point, it starts to feel intentional that every
| time an issue that could bring us together begins to gain
| traction, it's diverted into some media concocted idea
| about how (left wing or right wing group) is out to destroy
| (social thing).
| smolder wrote:
| It's only starting to feel intentional, eh? While it may
| not be a result of coordinated and direct pressure, like
| a secret ban on promoting non-partisan popular causes or
| something... I don't believe for a minute that our
| cultish, deadlocked political landscape is just an
| emergent phenomenon resulting from good faith
| participation in our system. It's the result of powerful
| people and institutions throwing around their weight,
| buying allies and generating propaganda, in order to
| dominate and shape said system.
| JamesLeonis wrote:
| Occupy was suppressed by the entire police state,
| coordinated at the federal level under the FBI and DHS [0].
|
| [0]:
| https://www.theguardian.com/commentisfree/2012/dec/29/fbi-
| co...
| BitwiseFool wrote:
| I feel like the most significant cause of Occupy's
| burnout was the fact that it was so poorly organized and
| had no concrete goal. I don't recall any specific
| legislation or reform that they were calling to enact and
| there was a cacophony of voices each calling for some
| kind of societal revolution. Eventually the local Occupy
| demonstration turned into a homeless encampment with some
| signs propped alongside the roadway. I certainly won't
| deny government meddling but I honestly think the
| movement was doomed from the start.
| brodouevencode wrote:
| https://www.youtube.com/watch?v=ahMGoB01qiA
|
| Peter Schiff did a man on the street with some folks of
| the Occupy movement, and basically proves your point -
| the desired goals were so scattered and sometimes even
| contradictory.
| toast0 wrote:
| I don't know if it was from infiltration, or what, but
| one of the biggest talking points of Occupy was that they
| were a leaderless organization, and they would establish
| rules of order that required near unanimous consensus to
| make decisions. That's a great way to avoid making any
| decisions.
| smolder wrote:
| When there is concerted effort to undermine a populist
| movement, that's how it will end up looking:
| disorganized, chaotic, unproductive, and eventually dead.
| It very well could have failed due to deliberate
| interference where it might have had a substantial impact
| otherwise. How much would you bet that there weren't
| covert agents working to put it down?
| RGamma wrote:
| America does not seem to be a place of collective action
| (anymore?). Instead everybody is blaming themselves and each
| other, fuelling a mental health crisis and social malaise.
| It's not pretty to watch.
| jrs235 wrote:
| Eh. We still have our entertainment and comforts to distract
| us. But with the greater and greater divide between the haves
| and have nots flipping cars might look tame when things
| change.
| hoseja wrote:
| It was called Occupy and it got shut down _with extreme
| prejudice_ and we 're still living in the psyop environment
| that is a response to it.
| mtlmtlmtlmtl wrote:
| Well America has plenty of outrage, but they're utterly
| divided and most that outrage just goes into poopooing the
| other side, instead of something productive like real
| demonstrations and protests with a real purpose. Instead we
| get outrage protests mainly designed for extremist groups to
| waste their time fighting eachother and playing at civil war.
| newswasboring wrote:
| America needs a leader who can inspire people to work with
| each other even when they don't agree on everything. I am
| quite sure you can build a significant coalition around
| financial issues, maybe even bigger than a super majority.
| But somehow people are not willing to work with each other
| unless they pass each other's purity tests. Thus, nothing
| changes and the status quo wins every time.
| gorbachev wrote:
| That will never happen in our lifetime.
|
| Democrats can't do it, because Republicans will never
| cooperate with a Democratic Party president.
|
| Republicans can't do it, because they will continue to
| nominate a culture warrior whose only job is to fight
| wokeness, so they aren't even interested in it.
|
| This thing will keep escalating, relatively slowly, until
| it finally crosses the line and even the Republicans will
| figure out that maybe they ought to have some
| accountability.
|
| My guess it will take minimum of two generations.
| piva00 wrote:
| My guess is that it will take a lot more than that, the
| USA needs to have a political system less reliant on
| boatloads of cash. Campaigns are spectacles, not
| political debate, spectacles are great entertainment but
| are very poor to foster any discussion around hard topics
| and solutions.
|
| America's love of a good show made even politics like a
| big sport, team red and team blue against each other,
| fighting tooth and nail for turf (aka districts,
| electoral votes by States, etc.) and the team that is
| better funded usually will have a leg up. Just like
| sports.
|
| The cultural change required to move politics away from
| this culture of spectacle and entertainment is way harder
| than what can be achieved in two generations.
| 20after4 wrote:
| And we aren't even moving away from this, we're moving
| farther and farther into it.
| newswasboring wrote:
| I agree, if this was to happen it will have to happen
| with a third party. But America seems to be allergic to
| any third parties.
|
| For the longest time I used to think that the two party
| system is like a law in America or something. Like China
| has a one party system. When I learned that it isn't, i
| spent a considerable amount of time confused as to why
| then in all political discourse is the two party system
| so... enshrined. Some say if you listen to me closely,
| I'm still confused about this. I come from a country
| which routinely has 20 parties in different levels of
| government each with significantly different agendas (or
| at least we used to, sigh...). Why is this not the case
| in America? It seems to me that everyone is dissatisfied
| with their party, yet they don't want to support anything
| else. For a country which prides itself in its
| entrepreneurship and startup culture, the reluctance in
| supporting innovation in politics is so surprising.
|
| Edit: btw, i disagree with you that Republicans will
| "start" to hold their leaders accountable. From an
| outsider perspective, the Republican party seems to be
| achieving their targets and GoP members are more active
| than Democratic party members. I may disagree with most
| of their social and financial goals, but I will
| acknowledge they are effective and there are severe
| consequences on failure.
| nicoburns wrote:
| It's the First Past The Post voting system that leads to
| two parties.
| newswasboring wrote:
| My country also has a first past the post system. We
| still had several parties. In fact till about 15 years
| ago all states had their major parties which had
| significant presence in the federal parliament too. I
| don't think this is a valid explanation
| mtlmtlmtlmtl wrote:
| And what's the situation now?
|
| Your country could gradually he heading towards a two
| party system.
| newswasboring wrote:
| No we are heading to a one party system. But that has
| nothing to do with first past the post. There are several
| historical and social reasons for that.
| digging wrote:
| > But that has nothing to do with first past the post.
|
| You could be right, but how do we know the polarizing
| effect of FPTP isn't contributing to this change?
| mtlmtlmtlmtl wrote:
| I'm sorry to hear that. No one wants to live under a one-
| party system.
| owenmarshall wrote:
| > For the longest time I used to think that the two party
| system is like a law in America or something.
|
| Not a law of the state, but a law nonetheless:
| https://en.m.wikipedia.org/wiki/Duverger%27s_law
| gorbachev wrote:
| The event that will trigger Republicans to realize
| they've gone too far has to be something very drastic.
| January 6th apparently wasn't it for Republicans, so I'm
| thinking it has to be something like armed conflict.
| Without that happening, things will continue to get more
| polarized.
|
| Another alternative is China (or another power block)
| completely eclipsing the US due to the America's
| continued political decline. All it takes is another
| Trump or two to come and decimate all of the alliances
| and causing former allies to align with other world
| powers.
| mensetmanusman wrote:
| Every empire inevitably drowns in its wealth.
| JohnFen wrote:
| I don't think destroying the property of innocent others
| would help.
| wesapien wrote:
| We're talking about sins so great that it defines the lives
| of every younger generation after 2008. It's just as
| unconscionable as the Iraq war and long term occupation of
| Afghanistan. Our lives are short and a lot of people have
| been robbed of time.
| govolckurself wrote:
| [dead]
| stcroixx wrote:
| That's hardly effective and those cars belong to other
| citizens, who would just then hate you and never support your
| 'cause'. Tantrums don't get rewarded.
| brodouevencode wrote:
| The American banking system is highly regulated in spite of
| some of the things you'll read here and other places. It's
| very hard to start a bank, and banks only allow some products
| because of regulation. The problem comes when the politicians
| slide into the back pocket of the bank execs who are all too
| happy to keep the status quo. In that respect the politicians
| are just as guilty as the bank execs.
| alberth wrote:
| Your numbers are wrong.
|
| 1974: ~14,000 banks
|
| 2008: ~7,000 banks
|
| 2023: ~4,000 banks
|
| This has been a steady decline since 1974 (not 2008) in the US.
|
| https://banks.data.fdic.gov/explore/historical?displayFields...
|
| As a comparison, Canada only has 34 banks.
|
| https://en.m.wikipedia.org/wiki/List_of_banks_and_credit_uni...
| .
|
| EDIT:
|
| In case anyone is curious, these are the credit union numbers.
|
| 1981: ~7,000 credit unions
|
| 2010: ~7,000 credit unions
|
| 2023: ~5,000 credit unions
|
| https://ncua.gov/about/historical-timeline
| Naga wrote:
| More importantly, there are really only five major banks in
| Canada - RBC, TD, Scotiabank, BMO and CIBC. National Bank is
| a close #6, but is really only big in Quebec. Those five are
| the lion's share of the banking industry, especially when you
| consider that they own a number of the other banks
| (Scotiabank owns Tangerine, for example). The other banks are
| niche regional banks or for specific purposes (i.e. Home Bank
| business is largely selling GICs and lending mortgages,
| without much else).
| smnrchrds wrote:
| The list only includes "bank"s, that are federally-
| regulated entities. The biggest provider of banking
| services in Quebec is Desjardins, but it doesn't appear in
| the list because technically it's not a bank and it is
| regulated provincially not federally. Also depending on how
| you want to count it, Desjardins is either one entity or an
| ensemble of 210 credit unions. Similarly, ATB gets an
| honourable mention, but other non-bank providers of banking
| services such as First Calgary Financial or Vancity (both
| credit unions) are not shown in the list.
|
| It's interesting that in the US, even small banking service
| provides are banks. But in Canada, small ones tend to be
| provincially regulated entities such as credit unions. It's
| not that small entities don't exist. They just belong to a
| different list.
| 0xDEF wrote:
| The claim/lie that there were "over 30,000 US banks just
| 10-15 years ago, it's now less than 3000, and they are all
| about to fail" is disinfo that is being pushed hard on
| twitter and reddit. On reddit it seems to be r/Sino regulars
| brigading financial subreddits but on twitter it seems to be
| accounts that are very supportive of a former US president.
| tastyfreeze wrote:
| It goes back farther than that. In 1911 there were 29,000
| banks. The Federal Reserve Act passed in December of 1913. By
| 1915 there were 19,000 banks. The expansion of credit in the
| 1920s cause a surge in new banks reaching more than 29,000
| again. When the credit fueled stock market crashed in 1929
| many banks closed. By 1933 there were about 14,000 banks.
| Each business/credit cycle the number of banks grows when
| credit is easy and collapse and consolidate as loans default.
| Each cycle results in more consolidated banks. Nation wide
| credit cycles would not be possible without the Federal
| Reserve pulling the interest rate lever.
|
| https://www.fdic.gov/about/history/timeline/1900-1919.html
| https://www.bis.org/publ/work137.pdf
| Waterluvian wrote:
| Canada has like 40 banks and strong regulation has kept them
| out of crises like in 2008.
|
| What's the right number of banks per capita?
| tormeh wrote:
| Easy to keep banks out of crises during good times.
| digging wrote:
| That seems a bit backward when banks can so easily be the
| cause of bad times.
| 015a wrote:
| All numbers approximate:
|
| - Number of banks in the US: 4,844 (69,500 people / bank)
|
| - Number of banks in the UK: 365 (184,000 people / bank)
|
| - Number of banks in Australia: 95 (272,000 people / bank)
|
| - Number of banks in Japan: 199 (628,000 people / bank)
|
| Let's cool it with the doomsday talk. Every major economy
| (except maybe China, but they're weird so not counting them)
| has 2.5x+ the number of people per bank than the US. The US is
| the weird one.
|
| If you want to look at this from a "return to fundamentals"
| perspective: the US is only a few hundred years old, and was
| built on some of the most virgin, rich, plentiful, resourceful
| land on the entire planet. That fueled 300 years of economic
| development the likes of which the world has never seen; and
| the nice thing about growth is that it really helps cover-up
| bets that were far too risky for any reasonable risk-taker.
|
| We're not going to see big banks take on increasingly higher
| risk over the next decade. In fact, we'll see the opposite.
| Fewer banks, more regulation, and less risk taking, as the US
| begins to regress more to the worldwide economic growth rate.
| renewiltord wrote:
| Before you read any of the comments, you would be better served
| learning what a GSIB is and the constraints on them, the role of
| the FDIC, bond pricing, and what regional banks can bring to the
| table.
|
| GPT-4 answered quite well, but Google is a good supplement. This
| comment thread appears to be software engineers saying things
| about stuff they don't understand.
| rqtwteye wrote:
| I think this is just a continuation of a trend that has been
| going on for a long time. The money people (banks, private
| equity, VC) will play an ever larger role in the economy and
| industry mainly exists to serve the money people.
| Invictus0 wrote:
| I'm fine with mergers in times of crisis, but in times of
| stability, the TBTF banks need to be broken into smaller pieces.
| drumhead wrote:
| Banks are a terrible investment. To get above average rate of
| growth they have to do something risky like lending too much to
| people they shouldnt be lending to or playing timing games with
| assets and liabilites. With the bonuses to their staff exceeding
| returns to shareholders its seems that banks are configured for
| their senior staffs benefit rather than their owners.
| fredgrott wrote:
| We are still ignoring the original problem....
|
| The original problem behind these regional bank failures is that
| there is not enough diversity in those having extra cash in
| accounts and so when a FED rate change comes along that is big
| enough, those excess funds seek higher rates of interest thus
| leaving said bank with a problem of legacy assets tied to the old
| FED rate. We see the same pattern with Apple getting $! Billion
| in new savings account, yes that is Billion with a b due to their
| interest rate offering.
|
| In short words a product problem with on one side products tied
| to the old FED rate and not being nimble enough to offer a
| product for the excess cash customers have that offers the higher
| interest rate. Or in short a virtual replay of the S&L crisis in
| the 1980s without all the corruption behind it.
|
| And one should note that MMA products were suppose to fix this
| issue.
| DueDilligence wrote:
| [dead]
| scoobydoobydrew wrote:
| [flagged]
| RadixDLT wrote:
| of course, the same as in 2009.
| lvl102 wrote:
| People simply got used to not getting paid interest for their
| deposits. Bank business model needs to change or there will be
| new business models where deposits are fully guaranteed. That's
| probably what the crypto people should have done but sadly they
| are too stupid (and greedy/scammy) to take on the traditional
| model.
| allie1 wrote:
| There are exceptions.
|
| Ally bank has been paying reasonable yields on deposits, being
| a digital bank with lower operating costs.
|
| The bank model works, it's the "too big to fail" model that is
| broke.
|
| The one upside of TBTF banks is you forfeit any deposit
| earnings to get "insurance" on the full amount.
| depingus wrote:
| Someone correct me if I'm wrong, but the reason banks like
| Ally are able to offer high-yeild savings account is because
| they are using your money to invest in (something like) a
| government money market fund. Take SPAXX, it currently has a
| 4.5% yield. Ally is only giving you 3.75% and keeping the
| rest.
| jldugger wrote:
| This is how every bank works though.
|
| The trick is in modelling and mitigating risk, of which
| there are many:
|
| 1. Duration risk. With demand deposits, banks borrow short
| and lend long. Demand deposits come and go daily, but the
| banks use them to make mortgages and other loans. Some stay
| on the books, others sell and either make more loans or
| hold other assets. The risk is that depositors may all ask
| for their money back, but you cant recall the loans you
| made.
|
| 2. Interest rate risk. Interlinked with duration, rate risk
| is the risk that the rates you loan at now are less
| favorable than rates later. A loan earning 1 percent is
| less valuable than one earning 2 percent. The strength of
| this relationship is tied to duration; losing out on 1
| percent for 1 year is less bad than losing out for the next
| 30 years. The rule of thumb is that for every 1 percent
| rate hike your asset loses 1 percent of its value times the
| years until it matures -- so that 1 percent underperformer
| with a 30 year duration loses 30 percent of its value!
|
| 3. Default risk. Loans may go into default, and then
| instead of getting your money back in 10 years you get
| less, maybe even nothing. You try to price that into your
| underwriting, but the error term here might be called
| "underwriting risk" -- the risk that your risk estimate is
| wrong.
|
| Theres more ive likely forgotten as a layman, but I'm sure
| you get the idea.
| lvl102 wrote:
| What we need is a "boring" banking model where deposits are
| fully guaranteed by a bank. No lending. In digital age, that
| should be ridiculously easy to do.
| no_wizard wrote:
| how do you propose they make money to keep the bank open?
| Charge for accounts? I don't think such a draconian rule is
| needed here. Free checking is nice.
|
| There's nothing wrong with being a low risk lender. Thats
| not the central problem with the banking system in the US.
| Its that bigger banks take riskier and riskier bets with
| money that they really shouldn't be, and when bad times hit
| they often don't have proper risk management in place to
| cover it, or its unpredictably catastrophic.
|
| It used to be that these activities were separated,
| limiting risk to the average person significantly as a
| result. Simply forcing that separation again would be more
| than enough to get some stability back into the banking
| system.
| 0zemp2c wrote:
| this is how the Apple bank accounts can work
|
| Apple makes money selling phones, not mortgages
|
| the funds deposited can be reinvested in Apple stock
|
| as long as Apple is not loaning at interest, they could
| pull it off
|
| I think people are underestimating the blast radius of
| these accounts...imagine an entity engaged in "fair"
| banking (and only banking) that is too big and powerful
| to be undermined by JPM, BofA etc
| no_wizard wrote:
| Its all actually backed by Goldman Sachs and their
| underwriting partner. Apple isn't suddenly a bank or even
| financial institution, they are in partnership with one,
| and through that able to exert some leverage around
| deposits, which is cool, but they still had to get a bank
| involved for it all to work.
| timcavel wrote:
| [dead]
| jadbox wrote:
| Please visit your local credit union, post haste
| DonsDiscountGas wrote:
| https://archive.ph/ctmG4
| ricardobayes wrote:
| I wonder if there are any anti-trust measures controlling
| unlimited mergers.
| omgomgomgomg wrote:
| Why exactly should banks be private companies at all?
|
| Theyre just skimming middle man between the government and end
| consumer.
|
| Sure, the government would know your bank balance and spendings,
| but that could be worked around
|
| If youre in trouble with the irs or the law, the government will
| have all the insight they request.
|
| Sounds crazy? We the people had to bail them out and never get
| anything of their profits.
|
| Too big to fail? As in systemic risk?
|
| Well, only the state should be too big to fail.
|
| And if they fail, the fdic needs to cover, also tax payer funded.
|
| Any input is appreciated. I know the interest rate should be set
| by banks and not the politicians, but yeah, is that really it?
|
| Addendum, this post has triggered an interesting discussion, it
| appears I am not alone with my thoughts.
|
| So far, I do not see any ovewhelmingly convincing argument on why
| the banks shouldnt be run by the government. It doesnt have to be
| senate, it can be something relatively neutral like the irs.
| kornhole wrote:
| Yes banks should be better regulated to avoid letting them make
| risky moves. That aside, many regional banks rather than a
| centralized government controlled bank is critical to our
| freedom. Government controlled banks or CBDC will give
| government total surveillance and control over us since you
| cannot do much without money.
| lcnPylGDnU4H9OF wrote:
| In the US, a government-controlled bank would have stronger
| privacy because privacy is enshrined in law. Specifically my
| _government_ cannot snoop on certain things.
|
| If the government kept all of my banking records, they
| wouldn't be able to legally access them. Currently, they can
| just use taxpayer money to purchase these records from the
| corporations who gather them.
| tastyfreeze wrote:
| Sorry, you must not be paying attention or this is sarcasm.
| Giving the government the keys to your banking data and
| expecting them to respect rights is naive. Government
| ownership of data means they don't have to respect privacy
| because they already own the data.
|
| The US government is wholesale spying on the entirety of
| electronic communications and working with social media
| sites to make some voices less prominent. Private business
| should be able to tell the government to pound sand when
| banking data is requested without a warrant or subpoena.
| Banks are not able to do that. Banks exist as long as they
| are in the good graces of regulators.
|
| Laws prohibiting the sale of personal information
| (location, purchases, banking) closes the loophole.
|
| The solution is less government, not more.
| lcnPylGDnU4H9OF wrote:
| So these statements seem to contradict each other:
|
| > Government ownership of data means they don't have to
| respect privacy because they already own the data.
|
| > Banks exist as long as they are in the good graces of
| regulators.
|
| So we have this problem that the government doesn't want
| to respect our privacy and the problem that the
| government doesn't need to respect our privacy and
| somehow removing the bank in the middle will mean that
| the government isn't respecting our privacy.
|
| If the government is in control of the banks it will make
| it more obvious to the average citizen that the
| government has the ability to snoop on transaction
| information and it might be that such citizens decide to
| demand stricter privacy measures.
|
| Back to this statement:
|
| > Banks exist as long as they are in the good graces of
| regulators.
|
| That's kinda my point. The governments run the banks in
| practice, just not in theory. Changing that "not in
| theory" part brings the understanding to the citizenry
| that they can demand certain things from their bank.
| tastyfreeze wrote:
| I do not agree that giving government more power over
| banks is the solution. It may make it obvious to
| everybody what reality is but you just handed the keys to
| the entity that is abusing their powers already. Giving
| the government more power only reduces ours.
| vharuck wrote:
| >The US government is wholesale spying on the entirety of
| electronic communications and working with social media
| sites to make some voices less prominent. Private
| business should be able to tell the government to pound
| sand when banking data is requested without a warrant or
| subpoena.
|
| Do they actually tell the government to pound sand,
| though? In the end, if I can only rely on the moral codes
| of for-profit companies who are weighing the value of a
| good relationship with me versus one with the US
| government, then I can't rely on much. But the government
| can and regularly does tell itself to go pound sand. Like
| the IRS, Census, or any agency with confidential medical
| records.
|
| Also, your examples are of private companies selling
| data. The government is the buyer in those scenarios, not
| the guardian.
|
| IMO, data is less likely to be shared between government
| agencies because rarely do both parties benefit. For a
| company, the database team wins when sales wins, as long
| as they get to present their success together. Government
| workers follow strict pay scales, get no bonuses, and
| have nearly guaranteed job security. They also have
| notoriously few ambitious ladder-climbers. It's hard
| enough to get them to share data with each other when
| it's legal and ethical. If there's any possibility
| sharing data would break rules, government will refuse to
| risk it.
| tastyfreeze wrote:
| You're dancing around a point.
|
| > for-profit companies who are weighing the value of a
| good relationship with me versus one with the US
| government
|
| For-profit companies shouldn't need or care about a
| relationship with the US government beyond selling the
| same product they do to everybody else. That is my ideal.
| How to get there is the contention. You would like to
| give the for-profit company to the US government and thus
| removing the relationship. I would like to see the power
| the US government has over for-profit businesses reduced
| and preferably eliminated. Giving banks to the US
| government results in less private sector and a larger
| government. A larger government makes more people
| dependent on the success and benevolence of the
| government. History has proven unequivocally that
| governments cannot be trusted to remain neither
| benevolent nor successful. Concentrating power makes the
| temptation for government malevolence too great. Power
| will be abused by someone eventually. That is human
| nature. Concentrating power is just creating a ticking
| bomb. The way for more people to succeed is to reduce
| dependence on government and distribute power among
| businesses that serve only their customers. Business that
| are reliant on the trust of their customers will think
| twice about betraying that trust. If their customers ever
| learn of their betrayal it means the death of their
| business in competitive markets.
| quest88 wrote:
| Apply your logic about laws to private banks. Make it so
| private banks have to adhere to some new law. Same outcome.
| [deleted]
| lcnPylGDnU4H9OF wrote:
| > Apply your logic about laws to private banks.
|
| I'm pretty sure that's actually a more ambitious endeavor
| than insisting on a government-run solution. I otherwise
| still see the same issue in OP's comment: there is no
| reason for the private bank to exist.
| [deleted]
| lockhouse wrote:
| I'm sure all the spooks in the three letter agencies will
| totally keep their hands out of that cookie jar.
|
| All the commenters here that think the federal government
| should directly provide their banking services are going to
| be in for a rude awakening if it ever actually happens.
| lcnPylGDnU4H9OF wrote:
| At least it would give a private citizen recourse if
| snooping did happen; it _would become_ private by law. It
| is currently not.
|
| Maybe it all goes south and people are worse off with
| their privacy than now but I can't even imagine what
| "worse off" would be. The particular example you gave
| ("spooks in three letter agencies") currently happens and
| I can't exactly expect it to stop. How could it be worse?
| lockhouse wrote:
| I'm curious, what recourse do you or anyone else have
| against the CIA, FBI, or any other Department of Justice
| or Intelligence agency that you wouldn't also have with a
| commercial bank?
| lcnPylGDnU4H9OF wrote:
| The commercial bank has something called a "privacy
| policy" in which they explain that they will choose not
| to respect my privacy. A government entity isn't allowed
| to do that. There are actually stricter laws for
| government invasions of privacy than corporate.
|
| To your concern that these three-letter spooks will spy
| on you: what would they do that they're not already
| doing? That isn't to excuse the spying; I'm just pointing
| out that these are separate issues. Tackle the fact that
| the NSA compiles all unencrypted HTTP traffic separately
| from the fact that JP Morgan Chase knows my financial
| history and doesn't have to care about keeping it private
| per my idea of private.
| omgomgomgomg wrote:
| So are ypu saying the constitution and its privacy
| protections are totally useless?
| lcnPylGDnU4H9OF wrote:
| I'm intending to say the opposite. My point is exactly
| that a government-run bank affords citizens this
| constitution-protected privacy because the bank would
| explicitly be a government entity.
|
| (Unless you're asking whether the protections are useless
| against corporations. Then yes, they're useless.)
| Laaas wrote:
| Technically, the CBDC could be a privacy coin, albeit very
| unlikely.
| imtringued wrote:
| GNU Taler works fine. People have an anti CBDC bias that
| they project onto GNU Taler regardless of the privacy
| benefits of it.
|
| It is already hard enough for the GNU Taler Team to get
| their technology adopted. When you see comments on HN you
| get the impression that it is very unpopular hence it won't
| be implemented and the expectation is that any CBDC won't
| be privacy friendly.
| golergka wrote:
| There's no "should" because there's no high authority in
| humanity which decides what should and shouldn't exist. Banks
| exist because some people want to found banks and then other
| people want to use their services. The only way to prevent this
| from happening is to threaten violence or threat of violence to
| either of these people.
|
| The better question would be, why would anyone use violence to
| force his opinion on other people.
| jjav wrote:
| > Banks exist because some people want to found banks and
| then other people want to use their services.
|
| That's not quite true. Take a look a the various narrow banks
| which have been founded and people want to use their
| services, but the government won't approve them to operate.
| citizenkeen wrote:
| > The only way to prevent this from happening is to threaten
| violence or threat of violence to either of these people.
|
| That's a weird view.
|
| We could also just, you know, vote away banks. I'm not sure
| why a centralized bank would result in violence.
| beisner wrote:
| OP is making a dumb libertarian argument basically saying
| "there's nothing stopping people from doing what they want
| except the threat of force/violence" (which is trivially
| true, and the mechanism by which any group of people - even
| democratic societies - imposes their will on insiders or
| outsiders), and "do you really want to use THE THREAT OF
| VIOLENCE to prevent me from STARTING A BANK???" as if it's
| different from the enforcement of any law. OP questions the
| use of "should" uncharitably, because the original
| comment's unstated assumption is clear - society "should"
| be set up to tradeoff freedom and minimizing collective
| harm. Violence is not the only form of harm; unregulated
| banking can obviously cause harm in the society (starvation
| was pretty harmful in the US during the Great Depression),
| and so it's valid to question whether or not society should
| consider how the benefits of private banking (with any
| amount of regulation) trade off with a public alternative.
| mhluongo wrote:
| How are laws and the will of the people enforced? Typically
| via fines or jail time... both of which are backed by
| violence.
| SllX wrote:
| The enforcement of this vote (or law) would be violence
| against others. Majoritarian tyranny is still just tyranny.
| fowtowmowcow wrote:
| Who should set the rate on interest for loans?
|
| Just one entity without any other consumer options?
|
| What happens if the government makes a ton of bad loans that
| never get paid?
| manojlds wrote:
| Why can't that be the central bank? We don't have private
| courts?
| fowtowmowcow wrote:
| I ask again: What happens if the government makes a ton of
| bad loans that never get paid?
| danaris wrote:
| The government would seem to have every recourse to
| collect.
| willcipriano wrote:
| In a manner of speaking.
|
| Take a look at student loans, how have they been
| intending to collect on those lately?
| 0zemp2c wrote:
| those loans are being repaid
|
| with votes
|
| Democrats dangled loan forgiveness at the midterms,
| bought enough votes to blunt a Republican
| trouncing...never followed through to reward the voters
| but no worries, the promise can be re-made for the
| Presidential election
|
| all Biden has to do is offer full loan forgiveness and
| the election is his
|
| DeSantis will counter with auto loan forgiveness (just as
| big of a problem now), and it will be a battle to see who
| can buy more votes
| fowtowmowcow wrote:
| Hard to collect money on unemployed and dead.
| diordiderot wrote:
| Your thinking is too fine grained. Missing forest through
| the trees.
|
| For a nation state with it's own currency, money is the
| sum of the production capacity / natural resources of
| that nation state.
|
| You don't need Joe and Sue to pay you back.
| fowtowmowcow wrote:
| Okay Joe and Sue don't pay back their loan.
|
| Either Beth now has to borrow for her house or business
| at a higher rate of interest OR we deflate the value of
| the currency (by increasing the money supply) to make up
| for the loss on the balance sheet.
|
| Congratulations your civilization just discovered run
| away inflation.
| akira2501 wrote:
| > Theyre just skimming middle man between the government and
| end consumer.
|
| You're thinking of the "federal reserve" as "the government."
| This is a tempting but extremely flawed point of view.
|
| > If youre in trouble with the irs or the law, the government
| will have all the insight they request.
|
| These institutions make mistakes. They're also not immune to
| corruption or politics themselves. Government agents have
| qualified immunity. Do you really want to bank with someone you
| essentially cannot sue?
|
| > I know the interest rate should be set by banks and not the
| politicians, but yeah, is that really it?
|
| Rates should be set by the _market_. Which would be easier if
| currency were backed by anything other than _fiat_. You are in
| a tarpit, going further down is not the secret way out.
|
| > neutral like the irs
|
| What makes you think the IRS is "neutral?" Or presuming that's
| true, given this new responsibility, how are they capable of
| maintaining it?
|
| Finally.. wouldn't something simpler, like just reimplementing
| Glass Steagall be the better idea? Let's make "consumer banks"
| and "investment banks" different and separately regulated
| again.
| userabchn wrote:
| I am certain that the people who make comments like this have
| never lived in a country where they had to deal with something
| like a government-owned bank.
| opportune wrote:
| The thing that private banks are supposed to do is compete on
| accurately assessing and pricing risk (for lending). The better
| they do at this, the lower the rates they can offer on loans -
| more demand for loans - and higher returns they can offer to
| depositors - more supply for lending - with higher profits for
| themselves. They compete on this spread in a market.
|
| I do not think the government would be good at doing this at
| all. Assessing risk is very hard, and the competition is
| necessary for it to benefit consumers. Politicians could pass
| extremely harmful or stupid policies for populist purposes.
|
| That said, because banks have an oligopoly on "give me a place
| to digitally hold money" and in practice more money than they
| could ever really productively lend (why do you think interest
| rates have been trending down so low historically?), they're
| not doing a great job at either side.
|
| That's why I think the government should implement only _narrow
| banking_ where they don't lend, just manage the table of
| accounts and amounts, and let banks compete against that for
| deposits. You would still move money to a bank for yield,
| provided it's good enough, and banks would still be able to
| lend and stimulate the economy. Yes they'd have less capital
| and be able to lend less, which may require structurally higher
| rates (which may actually be a good thing in the long run- a
| lot of lending and low rates are just going towards bidding up
| fixed assets like land or leveraged stocks, and not actual
| economic activity) but that would balance out with higher
| yields on deposits.
| SllX wrote:
| Banks do more than hold deposits; they also loan money. This is
| not a business you want the government in; nor do you want to
| eliminate private sector loans.
| syntaxing wrote:
| State owned banks are usually a bad idea for one reason,
| corruption. Historically, having the government control money
| supply is usually a recipe for prolific corruption. A good
| modern example is Turkey.
| brightstep wrote:
| The same kind of behavior happens in the private sector.
| Since it's not government, we don't call it corruption.
| SllX wrote:
| While corruption is never good, I'll take private-sector
| corruption over government corruption every day of the week
| if I'm forced to choose. Governments are sovereign.
| tastyfreeze wrote:
| Would you rather have one bank of thousands fail due to
| corruption or have the one state owned bank fail and the
| entire economy grind to a halt?
| WeylandYutani wrote:
| Small banks constantly falling like dominoes won't do
| much to instill confidence in the US.
|
| Besides people aren't stupid. If small banks are not too
| big to fail everyone will switch to a bank that is too
| big to fail.
| syntaxing wrote:
| Corruption comes in sorts of form, is unavoidable, and is a
| very grey subject. It's a tough balance between growth and
| exploitation. But historically, government rooted
| corruption tends to be harder to remove than "buying"
| politicians" which the rich and banks do nowadays. Stanford
| has a really well explained thought process on this on
| their online philosophy library.
| differentView wrote:
| >And if they fail, the fdic needs to cover, also tax payer
| funded.
|
| The FDIC is funded by the banks. It's backed by the US
| government in case it fails.
| HissingMachine wrote:
| Governments are even worse than banks with money, if they were
| private companies every government would be bankrupt ages ago.
| imtringued wrote:
| The house hold sector wants to save net. The corporate sector
| wants to save net. The government wants to save net. Tell me,
| where is the money supposed to come from? Will you drop it
| with a helicopter?
|
| At some point some people have to spend off their money.
| alexfromapex wrote:
| Just what we need? Centralize the banks even more?
| steve76 wrote:
| [dead]
| theK wrote:
| > In a gravitational system you have to make heavy things explode
| with grand force. Otherwise you just end up with a big lump of
| matter floating in oblivion.
|
| Don't know where I read this but it changed my view of economics
| and capitalism.
| lmpdev wrote:
| I know there are regulatory rules which partially explain the
| fragmented banking sector in the US compared to other nations:
| four example in Australia we only really have 4-5 proper banks
|
| Are there other reasons that small banks have seemed to thrive in
| the United States but no where else?
| Mistletoe wrote:
| SQUIRE: When America was in its earlier days, we had a - kind
| of a populist suspicion about big banks.
|
| SMITH: So states looked for ways to support and protect local
| banks.
|
| SQUIRE: A lot of states passed what were called branch banking
| laws, which made it illegal to operate a bank out of more than
| one building. It's hard to imagine it now. And so every little
| town in America had its own local bank.
|
| https://www.npr.org/2023/04/30/1172957377/small-banks-are-de...
| lotsofpulp wrote:
| I feel like they could bring back that law and it would not
| make a difference because there is not much reason to go
| inside a bank.
| mensetmanusman wrote:
| If they did pass this law, hyper loop would definitely be
| built so that banks across the states could still be the
| same building.
| toast0 wrote:
| I live on an island with 25k people. And we've got 13 bank
| branches, and had one credit union branch (they close this
| branch, but their outdoor ATM remains). One branch is
| closing soon, because two banks merged and they don't need
| to keep both their branches.
| pbhjpbhj wrote:
| Is the idea that 'one building' means banks in other states
| won't open a branch in your state, and so you keep all the
| taxes?
| Finnucane wrote:
| There used to be rules, at both the state and federal
| level, restricting interstate banking. Some of those rules
| were loosened in the 1980s, which allowed big banks to
| expand and started a wave of consolidation.
| chrisco255 wrote:
| this doesn't really explain it at all. The diversity in the
| banking system both pre-dated and post-dated those laws, and
| is present in states that don't have those laws and never
| did.
| nirimda wrote:
| I think the first sentence can carry a lot more of the
| weight of explanation than you grant. There was a suspicion
| of big banks, which result in one particular law. But it
| also probably related in other rules and other behaviors.
| imtringued wrote:
| It probably has to do with the fact that nowadays a bank
| needs 10 million euros of equity to get started in europe.
| also, the founders/CEO need to prove three years of
| academic and three years of practical experience,
| essentially shrinking down the people that are allowed to
| start new banks to existing bankers who most likely have no
| incentive to leave the large bank. This means the
| regulators are implicitly encouraging the formation of an
| oligopoly because they have enacted heavy regulation in
| response to large bank failures. It is kind of ironic.
| quickthrower2 wrote:
| There are 95 banks in Australia. [1]
|
| That is 3.6 microbanks per person
|
| The US has 9 microbanks per person, but based on the prediction
| of 1000 banks would be similar to Australia.
|
| [1] https://www.ausbanking.org.au/insight/banking-by-numbers
| frankfrankfrank wrote:
| I would say the fact that banking is not something that is
| legally the authority of the federal government; even though
| states have seemingly acquiesced to their role and right
| eroding and being taken from them as the federal government
| persistently oversteps its bound and becomes ever more
| authoritarian.
|
| It's something even most Americans don't even understand
| anymore, let alone foreigners or immigrants; that the USA is
| technically by design 50 countries, in an economic and
| organizational block for limited purposes.
|
| The core, supreme law of the land, the Constitution is explicit
| that anything not explicitly delegated to the Federal
| government is the right of the state and the people. The vast
| majority of what the federal government claims rights over is
| not mentioned at all, let alone explicitly delegates to the
| federal government. Included in that, banks and regulation of
| banks.
|
| Unfortunately, the founders of America were not positively
| explicit enough about the sovereignty of the states, probably
| because they had no understanding of the consolidating forces
| that would be introduced through things like automobiles,
| planes, roads, electricity, telecommunications, and computers
| and the internet.
|
| The small banks thrived and why America's banking sector was so
| "fragmented", was by design, in hopes of preventing the very
| consolidation of power and control that the founders were so
| concerned about and threatens everything now. American banks
| were community scale, community oriented, community based, and
| had community accountability; all factors that restrain
| psychopathic tendencies of banks and bankers.
|
| If these forces of evil that are trying to consolidate
| everything are not able to be stopped, by all measures things
| will only get worse for all of humanity from here. Just as
| banking has become stale and uniform and conformist without any
| real diversity, so will those pressures continue destroying
| real diversity in the world by trying to force everyone and
| everything into templated, repeatable objects for global
| uniformity.
|
| There has been no time in human history where consolidation of
| power was a good thing. Monolithic things fail spectacularly. I
| would argue that the degree of global consolidation of power
| lusted after by globalists even represents an existential
| threat to humanity, if not all life on this planet. It creates
| a single point of failure and also snuffs out what makes us
| human, actual, real diversity of people doing different things
| in different places and environments, under the guise of
| fraudulent diversity and diversification.
| technothrasher wrote:
| > the founders of America were not positively explicit enough
| about the sovereignty of the states
|
| The sovereignty of the states drastically changed after the
| civil war and the reconstruction amendments.
| jillesvangurp wrote:
| When banks collapse, it definitely is a federal emergency.
| That's the whole problem. The 2008 crisis was basically a lot
| of banks needing to be bailed out and people demanding that
| something should be done (by the powers that be, i.e. the
| feds). The current banking crisis is relatively minor in
| comparison but a nice wake-up call that banks can and do
| collapse if you don't regulate them and that they can do a
| lot of damage when they do.
|
| What you are stating isn't that black and white. The US
| constitution is only worth as much as governments and judges
| are willing to enforce. And where it isn't very explicit,
| that's mostly a very political thing. In the case of banks
| means that a lot of power has actually been granted to
| federal authorities over time. All without changing a line of
| text in the constitution. There's been a bit of a cycle of
| de-regulation followed by crisis induced new regulations
| happening of course historically. And you might argue things
| are currently leaning towards more regulation rather than
| less given the apparent failure of the sector to self
| regulate and sort things out themselves.
| 4RealFreedom wrote:
| Just because people say something is an emergency, doesn't
| mean it's constitutional to do anything about it.
| HWR_14 wrote:
| For checks to work, banks need to cooperate in interstate
| check clearing houses, which brings them well within
| "interstate commerce". This is one of many examples.
|
| But, IIRC, you can set up a bank absent checking services,
| wires, FDIC protection, etc. and operate entirely within one
| state. Good luck attracting customers.
| Semaphor wrote:
| > but no where else
|
| AFAIK we are also an outlier, but Germany has quite a few
| banks:
|
| > As of December 2022, there were 1,389 credit institutions in
| [Germany]
|
| -- https://www.statista.com/statistics/350502/eurozone-
| germany-...
|
| edit:
|
| US (FDIC insured only) 1 bank per 78,680 people, Germany 1 bank
| per 60,670 people (afaik every bank is essentially FDIC insured
| here), rough numbers from 2020-2023 wikipedia and statista.
| allendoerfer wrote:
| Germany is different, because of those 1,389 credit
| institutions, 359 are Sparkassen [0], which are county- and
| state-owned. Sparkassen are for profit, but are also supposed
| to provide basic financial services to small businesses in
| every county of Germany, which is why their number is so
| inflated. They are consolidating, closing branches and buying
| each other, but in a sense can already be counted as 1 bank.
|
| There are another 737 Volksbanken & Raiffeisenbanken [1],
| which I think you would call credit unions in the US, and are
| owned by their members.
|
| Both Sparkassen and Volksbanken have a complicated associated
| with bigger banks and service providers like asset managers
| (Landesbanken, DZ-Bank, LBS, Deutsche Leasing, Union
| Investment, etc.). It is just, that the number inflates,
| because of their upside-down ownership structure. The
| branches own the parents.
|
| [0]: https://www.dsgv.de/sparkassen-
| finanzgruppe/organisation/ver...
|
| [1]: https://www.bvr.de/Presse/Zahlen_Daten_Fakten
| passwordoops wrote:
| I've said it before, I'll say it again - "too big to fail" should
| be recast as "too big to exist"
|
| I'm not sure what the best solution is here, but making the big
| banks even bigger is not it. This is just going to make the
| banking system more concentrated and no concentrated market is
| good for anyone. Least of all because the past decade+ has set
| the precedent that the banks will be bailed out... If they're big
| enough
| nonethewiser wrote:
| > This is just going to make the banking system more
| concentrated
|
| More concentrated.
|
| More highly regulated.
|
| Closer to being absorbed by the state.
|
| I'm not saying that's necessarily going to happen someday. But
| that is the direction it is (and has been) moving.
| brianmcc wrote:
| Also closer to _absorbing_ the state.
|
| I'm not a tin foil hat person, but corporations growing
| larger than nation states just doesn't seem remotely far
| fetched. Which corporation will be first to sit at the UN
| table?
| nonethewiser wrote:
| But who is creating the regulation?
|
| The answer to that is funny. It is literally the state,
| which is to my point, but it is also shaped by the banks,
| which is to your point.
| metajon wrote:
| Or there is a new term that subsumes them both: the
| "regime." And with this small substitution, and a slight
| modification to the source material we see that the
| "absorption" may already be complete.
| digging wrote:
| When corporations write the laws that regulate them, and
| they buy the politicians who will enact those laws, the
| line around what defines "the state" is a bit fuzzy. (And
| that's not speculative, it happens all the time.)
| jjk166 wrote:
| https://en.wikipedia.org/wiki/Regulatory_capture
| RestlessMind wrote:
| > But who is creating the regulation?
|
| You know who writes our laws? Lobbyists. Politicians are
| not the ones drafting the bill. They merely take the
| drafts produced by lobbyists and then pass them.
|
| Do you also know who runs various government agencies
| tasked with regulating different sectors? Again, it is a
| revolving door for private sector execs.
|
| > It is literally the state
|
| True, but the state is, to a large extent, influenced by
| corporations.
| nilptr wrote:
| A corporation and a monarchy aren't all that different. I
| dunno why people think the idea of a corporation being the
| state is so wild.
| kneebonian wrote:
| Obviously either ComStar or the Spacing Guild. But don't
| worry that doesn't happen until after we have a butlerian
| jihad.
| wheelerof4te wrote:
| Ever heard the term "CorpoNation"?
|
| I did, in a old RTS game called Metal Fatigue. Was pretty
| fun for a while.
| [deleted]
| capableweb wrote:
| > Closer to being absorbed by the state.
|
| Or the opposite.
| chiefalchemist wrote:
| Remember circa 2008 how "leader" after "leader" said that eight
| big banks was too few and that seven was a step in the wrong
| direction?
|
| Remember that? Apparently, no one remembers. Or it was simply
| more political / leadership theatre of tell the proles one
| thing while doing the opposite. Perhaps both.
|
| People complain about "the democracy" and they often falsely
| name names. It easy to blame a symptom when you don't
| understand the problem. And yet those same people are silent
| about the banks, power, cronie capitalism, etc.
|
| Many are in denial. Others are able to control the narrative.
| In either case you can't solve root problems when you're not
| even willing to address them.
| [deleted]
| mjburgess wrote:
| Well, I think we've discovered banking is a "public utility" --
| things which are too big to fail.
| jghn wrote:
| that's fine, but if we're going that way then people
| shouldn't be getting rich running them by socializing the
| risk and not the profits
| SllX wrote:
| Or we can just not socialize the risks to lenders. I mean
| that's always an option.
| landoftheice wrote:
| [dead]
| WillAdams wrote:
| Fine, then they should be non-profit credit unions.
| sclarisse wrote:
| No, they'll be replaced by something like The People's
| Ledger, as proposed by Comptroller of the Currency nominee,
| Saule Omarova, in her paper of the same name. (She was
| nominated by President Biden in 2021. Not just a random
| kook!)
|
| Under such a regime all banks will put customer funds at
| the Fed, which will be the sole entity to allocate credit,
| with banks as mere customer service frontends. It will use
| that power to allocate credit to advance nakedly political
| goals, with much less attention paid to minutae like risk,
| ability to repay, and other pesky economic concerns the
| free market would elevate. We're already forgiving student
| loans; watch the People's Ledger forgive mortgages!!
|
| And when _that_ bank fails it will just fall back on
| moneyprinting.
| [deleted]
| throwway120385 wrote:
| I would actually be fine with this if the mandate is
| simply to hold deposits and lend deposits with
| appropriate risk controls. But if the goal is to use that
| control to accomplish political ends like suppressing
| wage growth or providing stimulus then I don't think it's
| a good idea. If the Treasury wants a loan from the Fed to
| do these things that should be how it's done.
|
| Student Loan forgiveness is another thing entirely
| because those loans are held in public corporations, and
| if congress wants to use tax money to forgive them they
| can. You can already get some or all of your loans
| forgiven in very limited circumstances such as paying
| them for 20 years without paying them off, or if you
| teach at a public school for more than 5 years.
|
| 20 years of repayment at 300-600 a month is pretty
| crippling. That's like buying a new car on a loan every
| 3-5 years. Even income-based repayment has limits on how
| small your payments can be.
|
| Student loans are also statutorily impossible to
| discharge in bankruptcy, unlike every other form of debt.
|
| So I think we need to do something, and it seems like the
| simplest thing to do is make them the same as other
| loans. We should allow you to declare bankruptcy and
| discharge your student loans. This won't fix a lot of the
| knock-on effects but it will get people out from under
| the loans.
| vgatherps wrote:
| > lend deposits with appropriate risk controls
|
| Forget stimulus/inflation political goals, can you
| imagine how horribly this would get weaponised against
| "people the current administration doesn't like"? I don't
| have faith that this exceptionally powerful tool would
| not go unused.
|
| Putting that aside, what risk controls are and aren't
| appropriate? An advantage of having a variety banks is
| that there's much less of a 'one size fits all' approach
| to banking services. I also don't have faith that a
| federally-run bank would be very flexible to anybody
| outside of the box. I've been in a situation where some
| bulge-brackets institutions wouldn't provide certain
| products since I didn't fit exactly in some pre-ordained
| image of what a customer would look like (and it wasn't
| even something you'd think a bank would have issue
| with.....)
| ChadNauseam wrote:
| > Student loans are also statutorily impossible to
| discharge in bankruptcy, unlike every other form of debt.
|
| If this weren't the case, student loans would just not be
| offered to anyone not deemed creditworthy. (Or they would
| only be offered by the government, who would offer them
| expecting to lose their money.)
|
| I think this would probably be a good thing, since easy
| access to student loans is probably related to why
| college has gotten so expensive, but the first-order
| implications of changing this policy are pretty
| detrimental to poor people.
| germinalphrase wrote:
| " if you teach at a public school for more than 5 years"
|
| That's fairly misleading. It's only a relatively small
| sub-set of public school teachers who are eligible.
|
| The TCLI Directory can be found here:
| https://studentaid.gov/tcli/directory-search
| no_wizard wrote:
| This is _not at all_ how I understood the paper. It was
| to allocate consumer funds directly with the Fed to
| prevent bank runs from restricting access to cash on hand
| for consumers. They just move spigots to different
| institutions this way. Nominally, this is what the
| proposal is all about. I didn 't see _anything_ about the
| Federal Reserve or the Government being able to access
| that money on a 1:10 basis or any other reserve basis. It
| does however outline how this would stream line
| government policies and operations, such as Tax Refunds,
| Social Security Disbursements, or any other qualifying
| disbursements.
|
| Additionally, the idea that is also present in the paper
| is expanding low risk (demonstrably historically "safe"
| loans such as SBA Loans, FHA loans, traditional mortgages
| etc) through the Fed directly, but explicitly bans things
| like margin loans, PE bridges and other risky behavior.
|
| Which, as anyone who has gotten these kinds of loans,
| knows the government already does this, just with extra
| steps. _The People 's Ledger_ paper (proposal?) simply
| outlines removing extra steps and barriers for the
| citizenry to have a better banking baseline, all told.
|
| In essence, it makes the Central Bank, more....bank like.
| With some privileges, being a whole arm of the
| Government, its less focused on collecting fees and more
| interested in streamlining banking for the average
| citizen.
|
| It has nothing in the paper about forgiving mortgages (or
| student loans, for that matter)
|
| The paper is here, for anyone interested in this: https:/
| /scholarship.law.vanderbilt.edu/cgi/viewcontent.cgi?a...
| sclarisse wrote:
| Specific phrases many people will read as political
| allocation of capital:
|
| "Most objections to allowing significant quantitative
| growth of central bank balance sheets, in fact, reflect
| the underlying concerns about the qualitative,
| compositional aspects of such growth. Ultimately,
| however, these concerns are rarely substantiated by
| reference to anything more specific than deeply
| internalized skepticism toward the government as an
| economic actor. By contrast, this Article views the
| proposed change in the Fed's liabilities as an
| opportunity to augment both (1) its ability to modulate
| credit-money supply more effectively, and (2) its
| potential to facilitate the more efficient allocation of
| that supply to productive enterprise."
|
| "the NIA would transact directly in private financial
| markets, proactively channeling public and private
| financial resources into large-scale, transformative
| public infrastructure projects. Importantly, however, it
| would reverse the familiar pattern of "public capital,
| private management" typical of most modern "public-
| private partnerships" in favor of the "public management,
| mixed public-and-private capital" model."
|
| Transformative infrastructure projects!! Are there any of
| those we've embarked on recently where the government's
| proven more skilled at identifying investment
| opportunities than the market? Like, say, California high
| speed rail? What kind of returns is that investment
| earning? ... oh.
|
| It's true they didn't get all the way to mortgage
| forgiveness in the paper, but, well, it doesn't seem much
| of a stretch, particularly when Housing Is A Human Right
| (tm). We could call it infrastructure, in the same sense
| that "elder care is infrastructure" -- I seem to recall
| recent legislative campaigns about that and other social
| spending.
| no_wizard wrote:
| In context, they're talking about removing inefficiencies
| and increasing transparency by transacting directly
| through the theoretical _Public Ledger_ system. _We
| already do all of this_ with extra steps currently. There
| is nothing new here. A big thing this brings is
| transparency, because its a lot harder to hide where tax
| dollars get spent when you also have introspection into
| how the money gets allocated, rather than just cutting
| checks, for instance, to maintain / build highways, this
| would allow for the government to have better oversight
| with how public highway funds are being spent. Thats one
| example. Another is more efficient handling of farming
| subsidies (this is to the tune of hundreds of billions of
| dollars). This is plainly spelled out in the paper when
| read as a whole.
|
| These aren't bad things, and they already exist. There is
| _nothing new_ here, other than streamlining operations to
| make them more auditable, transparent, and efficient. It
| cuts out the "extra steps" part, which more often than
| not, is where most of the waste is.
| wheelerof4te wrote:
| As if the entire end goal of capitalism wasn't monopolization
| of every single product and service.
|
| Welcome to reality where "competition" and "free market" are
| just buzz words meant to fool the naive populace.
| aqme28 wrote:
| Yeah it seems obviously risky. A small bank gets a little
| insolvent and so it gets absorbed by a larger bank. This system
| works fine when there's a larger bank to absorb them, but it's
| obviously untenable. What happens when the largest bank needs
| saving?
| ant6n wrote:
| But if theres only one bank left and theres a bank run, where
| would people panic-transfer their money? It cannot go
| anywhere else!
|
| ...see, the one big bank cannot fail.
| __MatrixMan__ wrote:
| People stop accepting dollars. It's about time for something
| new anyway.
| worldsayshi wrote:
| It gets absorbed by the government?
| ImHereToVote wrote:
| Robin Williams had a fairly accurate depiction of what
| happens.
|
| https://www.youtube.com/watch?v=etQeFJ2lbbo
| aqme28 wrote:
| Feels more like this Futurama bit:
| https://youtu.be/0SYpUSjSgFg?t=66
| bullfightonmars wrote:
| > Just like daddy puts in his drink every morning ... and
| then he gets mad.
| lobochrome wrote:
| Fed accounts for everyone.
| singleshot_ wrote:
| So many people in this thread want a narrow bank and so few
| of them have treasurydirect accounts. It makes me wonder if
| maybe I'm the one who is missing something?
| gonzo41 wrote:
| Kinda makes sense for the government open a commonwealth bank
| of sorts and allow people to hold deposits against the
| government directly. Cut's out a layer of rent seeking markets.
| lockhouse wrote:
| Hard disagree, the federal government already has too much
| power. Giving them that sort of access and direct control
| over personal financial assets would be widely abused.
|
| The government and those who work for them are not your
| friends. The power you give them can and will be abused and
| will never be returned to the people without great difficulty
| and probably bloodshed.
| passwordoops wrote:
| Thing is neither are the oligarchs who run the financial
| system. Take a look at the labor struggles of the early
| 1900s in the US - that wasn't people struggling against a
| government using their army, it was people struggling
| against private ownership turning hired militias against
| their employees.
|
| The problem is concentrated power. Whether it's government
| or private, concentrated power in anything is bad
| lockhouse wrote:
| Yes but in theory the banks are under the pressure of
| competition. Anything that is moved under the umbrella of
| the federal government essentially becomes a monopoly.
|
| I can switch banks in less than an hour, it takes months
| to years to switch countries.
| danaris wrote:
| How does that theory outweigh the theory that government
| is under the pressure to bow to the will of the people?
|
| Particularly when even with healthy competition, the only
| thing that incentivizes a given bank to do is be slightly
| better than their nearest competitor in some way--whereas
| while your specific vote may be one among many to the
| government, it _must_ follow the will of the people when
| enough of them agree that something needs to change.
|
| I can switch banks until my face turns blue, but if
| they've all decided that the thing I want isn't worth
| their money, and are happy to ignore the option to
| compete by offering it because they've achieved a local
| maximum of profit-to-effort, it's not going to do me any
| good.
| passwordoops wrote:
| Like in theory Google and Microsoft are competing? Or CVS
| and Walgreens? Or Boeing and Lockheed? Or Visa and
| MasterCard?
|
| Oligopolies are arranged monopolies with the further
| disadvantage of not being subject to the freedoms and
| rights set out by the constitution. Unless they are
| broken up, we'll eventually be in a place where things
| are worse than under government control
| lockhouse wrote:
| All of those businesses you mentioned do largely compete
| with each other, in addition to other smaller players in
| their respective spaces.
|
| Could you give an example of them not competing?
|
| A government run bank seems particularly scary in this
| highly polarized political climate. What if this
| administration decided not to give out loans to buy ICE
| cars, but the next administration swings to the right and
| decides to not give out loans to buy EVs?
|
| The federal government having direct access to your
| checking account is scary as well. What if they had the
| ability to freeze the bank accounts of those who refused
| to get the COVID vaccine or asked the wrong questions on
| social media?
|
| The government running our entire banking system directly
| is one of the most dystopian things I can imagine.
| JohnFen wrote:
| > The government and those who work for them are not your
| friends.
|
| Neither are corporations. Both will abuse you. The
| difference between the two is that you have at least a
| chance of altering how government works, but you have no
| chance with a corporation.
| kiawe_fire wrote:
| They both have highly imperfect avenues with which we can
| exert influence, but one has more power to compel you to
| support them legally "or else".
| JohnFen wrote:
| > one has more power to compel you to support them
| legally "or else".
|
| I think that they both have approximately equal power to
| do that.
| anigbrowl wrote:
| That same one also has far more mechanisms and legal
| avenues for accountability, vs the other that tries to
| shuffle people off into arbitration and the like, while
| at the same time spending money to lobby against
| legislation that might impact its business model.
| Vervious wrote:
| No no no no no it'll run it to the ground like the USPS, or,
| gasp, the Israeli postal service (which, coincidentally, also
| lets you open bank accounts). (We actually have it super good
| in the states with door to door package delivery. It could
| get so much worse.)
| [deleted]
| JumpCrisscross wrote:
| > _" too big to fail" should be recast as "too big to exist"_
|
| Was SVB too big to fail? Signature? Apparently!
|
| TBTF is now a popular concept more than a legal one. We need
| explicit universal deposit insurance along with the rules that
| make that guarantee tenable. I also think experiments in narrow
| banking, _e.g._ permitting each state to charter a narrow bank
| open to its residents and guaranteed against losses ( _e.g._
| due to fraud) by its own treasury to access a special type of
| reserve account, need to commence.
| ChadNauseam wrote:
| SVB did fail, with basically no repercussions to the economy
| as a whole. Under what interpretation was it too big to fail?
| evancox100 wrote:
| Ya but the uninsured depositors were still bailed out, so I
| think it's a little more complicated than that.
|
| The FDIC insurance fund is predicated on any one bank (and
| their customers) being small enough that if you wipe out
| the uninsured deposits, the system as a whole will be ok.
| That was arguably not the case, or at least regulators
| didn't want to take that risk for SVB or Signature.
| krunck wrote:
| If banks are going to be private then the regulation of them
| needs to be the inverse of what it is now. Regulation now is:
| You can do anything you want except X,Y, and Z.
|
| It should really be: You can only do A, B, and C and in the
| ways we tell you.
| mbesto wrote:
| The solution is simple, the implications are not:
|
| Eliminate the Fed.
|
| Banks eliminate inherent risk by being backstopped by the fed.
| A simple example of how this works is FDIC insurance. If a bank
| had all of its depositors holding $250k or less, it could
| essentially lend out all of that money with very little risk of
| getting sued by their depositors.
| anigbrowl wrote:
| End the Fed people seem to think a catchy bumper sticker is
| an argument. Why was the Fed established in the first place?
| Because people were sick of bank runs and periodic financial
| panics.
|
| Do incumbents in such a system leverage their status, leading
| to new kinds of abuses? Arguably yes. That said, SVB was a
| member bank of the Federal Reserve and it didn't help their
| shareholders when the market decided that they were over-
| exposed.
|
| Looking at your assertion from the opposite direction, if you
| don't trust the Federal Reserve, why would you trust a
| smaller bank to do a better job? Sure, it's in their long-
| term interest to self-regulate and operate prudently, but
| history is full of people acting irrationally because of
| greed, myopia, confirmation bias etc. The fed at least
| exhibits moderate transparency of structure and operation -
| risk is distributed across a set of reserve banks, and the
| membership and balance sheets of the regional reserve banks
| are open to scrutiny.
| vkou wrote:
| ... Except that the too-big-to-fail banks are under more
| stricter capitalization rules than the banks that are failing
| right now, which is why the small-medium capitalization banks
| are going through a bloodbath.
| WeylandYutani wrote:
| I listened to an interview with an expert who explained that
| the US specifically lobbied that small banks are exempt from
| Basel 3 regulations.
|
| Europe doesn't have 5000 banks they all merged decades ago.
| RandomLensman wrote:
| EU has about 5000 banks as well, I think
| bradleyjg wrote:
| Banking is fundamentally broken. People want zero risk, demand
| deposits that pay interest. There's no business model that can
| provide that.
|
| It would be perfectly possible for a business to provide zero
| risk demand deposits---but the business would have to charge
| customers for its custodial operations rather than making money
| by writing loans.
|
| Of course because we live in times where no one can tell the
| people that what they want is impossible and ridiculous, we
| instead have a house of cards with various parts of the
| government (including parts we pretend aren't the government)
| eating the risks.
| oarsinsync wrote:
| > People want zero risk, demand deposits that pay interest.
| There's no business model that can provide that.
|
| > It would be perfectly possible for a business to provide
| zero risk demand deposits---but the business would have to
| charge customers for its custodial operations rather than
| making money by writing loans
|
| That was true when we lived with 0% interest rates. Now,
| there's no reason why a narrow bank couldn't take deposits,
| stick them in with the fed providing 4% interest, and keep
| 25% of that for itself to cover its costs, passing 3% onto
| the customer.
|
| Except they wont get a banking license issued if they state
| thats what they intend to do, because the system depends on
| people depositing money with banks that make risky loans, so
| that the risk is spread across lots of people.
| elwebmaster wrote:
| That's not how the Fed interest rate works. Yo can't just
| "deposit" your money with the Fed and have it pay you
| interest. What you can do is buy bonds. These bonds have a
| price and maturity date. When the interest rates keep
| increasing the bonds which pay less interest become
| cheaper. So you can't just "withdraw" what you deposited.
| You have to sell what you "bought" but for much less than
| you paid, so you go under.
| bombcar wrote:
| You can't. Banks can.
|
| https://www.newyorkfed.org/markets/reference-rates/obfr
| and things like that.
| JumpCrisscross wrote:
| The OBFR is the rate banks pay to borrow reserves _from
| each other_. You're thinking of interest on reserves
| (IORB) [1], which is interest the Fed pays to interfere
| in that market.
|
| [1]
| https://www.federalreserve.gov/monetarypolicy/reserve-
| balanc...
| ptero wrote:
| > there's no reason why a narrow bank couldn't take
| deposits, stick them in with the fed providing 4% interest,
| and keep 25% of that for itself to cover its costs, passing
| 3% onto the customer.
|
| The problem with this business model is that this 4%
| interest either (A) requires a certain hold period or (B)
| allows on-demand withdrawal.
|
| (A) is exactly the model used today. It did not stop the
| collapse SVB and FRC. Assets that require a certain hold,
| such as Treasuries held by SVB and mortgages held by FRC,
| fluctuate in price. If those assets drop in price (as
| recently) and bank's customers withdraw money, the bank is
| in a pickle.
|
| (B) moves banking into one real bank -- the government.
| This can be done (e.g. in the Soviet Union), but comes with
| a lot of limitations and challenges. It is also not
| something you can morph the current system into; this is a
| "break, then rebuild" path and is very painful. I would
| personally move money away if I see a whiff of this in the
| air. My 2c.
| imtringued wrote:
| The 100% reserve bank people will at some point discover
| why Silvio Gesell imagined the concept of demurrage
| currencies.
|
| Because at some point the market interest rate is 0% and
| the cash rate is 0%. There is no reason to lend money via
| longer term deposits. The amount of deposits available to
| banks dries up. The circulation of money stagnates and
| ultimately causes a recession with high unemployment.
|
| The demurrage fee doesn't change the market interest
| rate, it just moves the guaranteed interest rate into the
| negative range so that the market interest rate can be
| negative, if it has to be, instead of being stuck at 0%.
| alexb_ wrote:
| You are exactly describing what all of these banks did.
|
| What happens to the value of 4% bonds if interest rates go
| to 6%? What about if people want their money back before
| the bond duration is up, so you have to sell the 4% bonds
| in a 6% environment?
| throw2awaymay wrote:
| [dead]
| jgilias wrote:
| Note that in this interest rate environment banks don't
| need to buy bonds in order to get 4%. Currently the Fed's
| reverse repo facility provides more than that.
| lazide wrote:
| The issue is it takes years (decades) to stand up a new
| bank due to the extensive regulations, processes, etc.
| that need to happen - and who knows what is going to
| happen next year - let alone in that timeframe.
|
| The reason why we have such consolidation is that _merely
| existing_ in the Byzantine world of banking regulations
| is nearly impossible, and only the largest entities can
| afford the legal, IT, trading /financial mojo, capital,
| etc. resources necessary for it to occur.
|
| The big 5 have not only such resources, but enough
| economic impact if they fail that they can force
| regulators to stop doing a regulation that would kill
| them.
|
| Which is ultimately where this is all going. Either
| nationalization (unlikely) or the big banks writing their
| own regs (in practice).
| seanhunter wrote:
| The answer to your question is prices would go down until
| the yield on the bonds equals the market rate.
|
| Separate nerd note: I think you mean maturity not
| duration.
|
| The maturity of a bond is the point in the future when
| holders get back the principal.
|
| The duration of a bond is pretty much the first
| derivative of price with respect to rates expressed in
| years. Intuitively it's the number of years (on average)
| an investor in that bond would need to remain invested
| for the future value of cashflows from the bond to be
| equal to their investment in the bond.
|
| https://www.investopedia.com/terms/m/macaulayduration.asp
| SilasX wrote:
| We have that, that's called a (federal) money market mutual
| fund.
|
| Edit: sorry, you said the Fed, which MMMFs don't put money
| in. But they buy short-term Treasurys at comparable or
| better yields, which is ultimately what you want, modulo
| the risk of US government default, which is minimal.
| bradleyjg wrote:
| > stick them in with the fed providing 4% interest
|
| Where is this risk free return coming from? You are just
| saying in more words that the government should give the
| people what they want.
| toomuchtodo wrote:
| https://www.brookings.edu/blog/ben-
| bernanke/2016/02/16/the-f...
| JumpCrisscross wrote:
| > _stick them in with the fed providing 4% interest_
|
| The Fed pays interest on those reserves to keep them from
| being lent. A narrow bank wouldn't be able to lend its
| reserves. As such, it makes no sense for the Fed to pay
| interest on them.
| bradleyjg wrote:
| Increasingly banks are only lending to a different parts
| of the federal government anyway---deploying their cash
| on treasuries and agency debt. They are being driven to
| this by the risk weighted capital adequacy requirements.
|
| The whole thing resembles an ever more intricate Rube
| Goldberg machine.
| JumpCrisscross wrote:
| > _increasingly banks are only lending to a different
| parts of the federal government anyway---deploying their
| cash on treasuries and agency debt_
|
| This is incorrect. In 2022, the largest increases were in
| credit cards (+17.4%), commercial and industrial loans
| (+14.5%), consumer loans (+11.6%), commercial real estate
| loans (+11.3%) and real estate loans (+10.1%) [1].
| Treasury and agency security holdings across American
| banks were majorly added between 2019 and 2021, and then
| spent down as balance sheets swapped. (They remain, of
| course, a commanding fraction of bank assets for obvious
| reasons.)
|
| [1] https://www.federalreserve.gov/releases/h8/current/
| bradleyjg wrote:
| What's the decade by decade trend?
| bootwoot wrote:
| That's exactly what Silicon Valley Bank did. While federal
| bonds are nearly risk free in terms of default, they still
| suffer from interest rate risk -- that is, they may lose
| significant value if interest rates rise. In the case of
| SVB, US treasury bonds lost enough value to make the bank
| insolvent.
| samtho wrote:
| Money market accounts use the same vehicle (treasuries)
| and still manage to be ostensibly safer than smaller
| banks at the moment. These funds manage their investments
| by continuously buying new bonds and selling off old thus
| limiting the risk exposure to all but the most sudden
| interest hikes.
| Scoundreller wrote:
| I think money market accounts don't sell off old, but
| rather they hold short dated stuff _to maturity_. And
| constantly reset the rate they pay holders.
|
| Of course, they can have counterparty risks. The
| counterparty is usually unprepared to actually pay up and
| expects to rollover its debt.
|
| Sometimes that melts down and doesn't happen:
|
| https://globalnews.ca/news/160176/coventree-executives-
| faile...
|
| (Scroll down to Canada in 08-09 here):
|
| https://en.m.wikipedia.org/wiki/Asset-
| backed_commercial_pape...
| lumb63 wrote:
| They also, AFAIK, don't make loans like mortgages, auto
| loans, credit card lines, etc. All those loans are
| subject to the same interest rate risk. They're not
| nearly as liquid, either.
| basicecon101 wrote:
| Yes, but because this poster thought this arbitrage was
| obvious and would solve all our problems, the political
| issue of banking regulation remains. It is a Dunning
| Kruger trap.
| graeme wrote:
| You left out "zero risk"
|
| Banks have always been able to fail, then you lose the
| deposits. What people are now asking for is unlimited
| insurance, which encourages risk takings amongst banks
| vkou wrote:
| > What people are now asking for is unlimited insurance,
| which encourages risk takings amongst banks
|
| Except that when a bank is liquidated, _the shareholders
| get zeroed out_ , and the executives get their money
| clawed back, which encourages banks to _not_ risk-take.
|
| As a depositor, this sounds fine to me. I don't benefit
| from banks doing stupid, risky things, and I shouldn't
| suffer from it either. Raise the capital requirements.
| Zero out the shareholders when things go pear-shaped.
| ptero wrote:
| The problem is not what happens to the shareholders (they
| get zeroed out the same way that shareholders of other
| failing companies would be), but what happens to the
| _depositors_. The rules, as written, say that deposits
| above $250k can be wiped out. The rules, as the
| government applied to the SVB, made large depositors
| whole.
|
| So we have the worst of both worlds: no depositor
| guarantee de jure (so depositors bailed and brought SVB
| down), but a de facto bailout which has significant
| actual costs and encourages risky depositor behavior. My
| 2c.
| samtho wrote:
| I think the priority at the federal level is still in at
| least maintaining a facade of banking system stability.
| It's very rare that the bank not only becomes insolvent
| but also loses all its value. Risky investments to a bank
| are not really considered super risky elsewhere and the
| investments still hold value, albeit less if they are
| trying to liquidate. The problem is when banks are unable
| to maintain enough cash which happens when they over-
| invest or when their returns just barely keep up with
| inflation. There is usually plenty of money that is
| recoverable, with time, to make depositors whole. The
| "bail out" concern is a red herring for the actual
| problem: market consolidation. Larger banks effectively
| write IOUs to each other depending on who owns who after
| each day of ACH, wires, deposits, and withdrawals, while
| smaller banks pay in cash. There is additional burden on,
| usually, medium-sized banks who need to both maintain
| large cash reserves but also cover the cost of
| operations.
| bradleyjg wrote:
| You're conflating liquidity with solvency. The problem
| isn't a lack of cash on hand, it's assets that have
| fallen in value. Saying that they money will be there, it
| just takes a bunch of time, denies the reality of the
| time value of money. A stream of payments of $10/year for
| ten years is not worth $100. Never has been.
| kasey_junk wrote:
| Shareholders are routinely zero'd out in bank failures.
| Are you proposing some other mechanism?
| vkou wrote:
| No, because the mechanism we currently have seems to be
| working. SMBs are currently scared shitless that they
| will be reaping the consequences of their actions.
| Depositors are not.
| abm53 wrote:
| The problem is that bank lending is the main form of money
| creation in the economy.
|
| If retail banks switched en mass to backing deposits 1-to-1
| with Fed reserves then the Fed would quickly take strong
| action to disincentivise this strongly contractionary
| effect.
|
| They have plenty of legal tools to do this (e.g. IORB
| rate). They don't need to resort to not giving out
| licenses.
| akira2501 wrote:
| > There's no business model that can provide that.
|
| They used to. So.. what changed?
| bradleyjg wrote:
| They never did. Since we've had banks, we've had banking
| crises. Either people need to accept that there's risk or
| we need to scrap the model.
| 0x457 wrote:
| > Banking is fundamentally broken. People want zero risk,
| demand deposits that pay interest. There's no business model
| that can provide that.
|
| Given that many people bank at gigantic banks that pay
| 0.00001% interest...I don't think that's true.
| WeylandYutani wrote:
| Many people barely have savings so it doesn't really matter
| if interest is 1% or 6%.
|
| Personally I judge banks on their app and IT reliability.
| lr4444lr wrote:
| Like Richard Pryor said as Montgomery Brewster in Brewster's
| Millions[0]:
|
| "I don't want the interest. It's your vault. I should be
| paying YOU rent!"
|
| [0] https://www.imdb.com/title/tt0088850/
| runnerup wrote:
| People aren't demanding deposit accounts that pay interest.
| The banks with the most deposits are providing 0.01%
| interest. People are still sticking their money there more
| than they put in banks which are offering >3% APR.
| bradleyjg wrote:
| That's still positive. If they want no risk, that number
| needs to be negative to cover the costs of holding and
| moving money around.
| lesuorac wrote:
| Eh, this really seems like moving the goal posts.
|
| The problem with SVB &other is not that they
| fundamentally were losing money. They just weren't making
| _enough_ money so they took on additional risk. If SVB
| hedged the IRR they wouldn't have gone bankrupt; they
| just would've had less profit.
|
| The banks people want are technically feasible.
| bradleyjg wrote:
| There's no way to provide risk free returns on demand
| deposits, other than the government just deciding to give
| away money. Hedging doesn't magically eliminate risk at
| zero cost.
| lesuorac wrote:
| Sure, in the technically true way.
|
| However, in practical terms banks have done a great job
| of making loans that get repaid more often than not.
| People are ok with having a bank that pays 0% interest
| and uses the difference between loan's rate and the real
| rate to operate successfully; bankers are not ok with
| leaving money on the table.
| runnerup wrote:
| It really doesn't. They charge plenty of fees to plenty
| of customers. They also use daily banking as a loss-
| leader for profitable services like loans.
|
| Chase collected $1.25 billion in overdraft fees alone
| last year. My "Chase College" account currently gets
| charged $6/month for some reason I haven't bothered
| figuring out, maybe a newly instated minimum balance or
| direct deposit requirement that wasn't there years ago.
| bradleyjg wrote:
| Great, so if it really doesn't already, let's just get
| rid of the pretense. Make it illegal to offer demand
| deposits while taking risks with depositors' funds. No
| more need to worry about bank runs.
| winkeltripel wrote:
| It's almost like the glass-steagal act had a good
| approach for the average person.
| ajmurmann wrote:
| This! I want my bank to be a place where I can place money
| to use for transactions. For returns I have my Vanguard
| account where I can pick investments for the risk/reward
| profile I want
| skeeter2020 wrote:
| and they're not even making that fractional interest after
| they pay fees and buy addons.
| femiagbabiaka wrote:
| Exactly right. People want reliability and stability from
| "household names" and they're go to banks that are offering
| fundamentally worse products[1] in order to get it.
|
| 1: At least in savings. The larger companies have insane
| credit card deals.
| Invictus0 wrote:
| That's because high yield bank accounts are a phenomenon of
| the last 6 months and retail by and large hasn't got the
| message yet. 0.01 is not likely to last forever, and the
| TBTF banks are losing deposits.
| mint2 wrote:
| Walked by a chase branch, they had some advertisement for
| a 4% cd.
|
| So Apparently the big banks are starting to feel the
| account drain.
|
| Also brokered cds from the likes of Wells Fargo and
| similar can be 5%.
|
| Big banks definitely are starting to feel it
| kevinventullo wrote:
| CD's are not the same thing as demand deposit accounts.
| They're less liquid than treasuries.
| bombcar wrote:
| My credit onion is offering 3.1% on the savings act which
| is lower but isn't insane.
| Invictus0 wrote:
| That's the problem, you need to open an account with a
| credit shallot instead.
| carlosjobim wrote:
| High yield bank accounts was also something that suddenly
| appeared before the 2008 financial melt down. Now that
| they are appearing again I can be completely confident
| that we will see a huge economic depression. All man made
| of course - this could go away if it wasn't for the evil
| side of human nature.
| 2OEH8eoCRo0 wrote:
| It's a fuzzy boundary. I agree in theory but where is the line
| where something is too big? We encourage companies to grow as
| large as possible and hope that competition will provide the
| counter friction. The only fail-safe is the government trust
| busting on a case by case basis which might not be optimal.
|
| Are there any regulations that could provide economic
| incentives to small businesses and make it increasingly
| difficult for large companies to grow larger? Wealth going in
| one direction is not a very stable system.
| passwordoops wrote:
| The regulations already exist - don't buy the competition and
| don't use your market power to undercut the competition.
| Simple and worked excellently in the post-WW2 boom years.
|
| But regulators stopped enforcing those regulations in the
| 1980s because of "efficiency" and each administration after
| Reagan doubled down. Luckily some politicians are starting to
| see the error of their ways and listening to thinkers like
| Matt Stoller:
|
| https://mattstoller.substack.com/
| [deleted]
| 2OEH8eoCRo0 wrote:
| That's my point. The govt can choose to not do anything
| which is how we got here which makes it not a great fail-
| safe. Perhaps strengthen the laws we have and make it more
| imperative and easy for the government to act?
| danaris wrote:
| While I fully support this, I think it's important to
| bear in mind that
|
| a) what constitutes anticompetitive activity or otherwise
| warrants antitrust action is likely to always be at least
| somewhat subjective, and require human judgement, meaning
| that motivated humans can choose not to do it in many
| cases, and
|
| b) depending on the degree to which the government is
| captured by a party that actively works against antitrust
| laws and believes that bigger[0] is always better, and on
| how long said capture lasts, it doesn't matter what laws
| we put in place now. Laws can be changed _by_ the
| government.
|
| We're not going to be able to make a foolproof system
| just by making better laws on this one issue. If we
| believe strongly in antitrust with teeth, we also need to
| be committed to supporting politicians who favor it, and
| political and governmental systems that prevent a vocal
| minority from seizing control of the engines of power,
| consistently for the rest of our lives.
|
| [0] Bigger payouts for their friends, that is, which
| means bigger kickbacks now and bigger paychecks later
| when they go to work for said friends
| skeeter2020 wrote:
| Well you now have JP Morgan Chase with almost 2.5 TRILLION
| dollars in deposits, and the current regulators have
| essentially punted on this issue to the next administration. If
| they have a liquidity crisis the western world will essentially
| end.
| ehvatum wrote:
| > If they have a liquidity crisis the western world will
| essentially end.
|
| Already had one in 2008. Thankfully, our currency's value is
| notional and the fed can print more until such time as the
| bank run ends.
| akira2501 wrote:
| > Thankfully, our currency's value is notional and the fed
| can print more until such time as the bank run ends.
|
| It's value is not notional. If you make more currency then
| all currency in circulation now has less value.
| "Quantitative Easing" is simply a way of taxing you after
| the fact.
|
| Worse still if bonds are involved. Now it's a way of taxing
| your children before they're even born.
| User23 wrote:
| > It's value is not notional. If you make more currency
| then all currency in circulation now has less value.
|
| That's not how pricing works. It's easy to see. Consider
| the following. Treasury could mint a 10^33 dollar
| platinum coin[1], stick it in a vault at Fort Knox, and
| forget about it. At that point the money supply would
| nominally be almost all in that vault. Yet prices not
| only wouldn't go asymptotic, they wouldn't even budge.
| But wait, you say, that's not in circulation. Treasury
| could easily swap that coin with the Fed for an equal
| number of reserves. Now Treasury's reserve account is
| flush, which is surely circulating money. And yet prices
| still wouldn't budge. Not until Congress appropriated
| that money to be spent would we start seeing it moving
| prices, and even then only if Congress designed their
| spending to do so[2]. It's pretty easy to imagine ways
| that could be done, so I won't belabor the obvious unless
| asked to.
|
| The point of all this is that price inflation is
| everywhere and always caused by an increase of the ratio
| of money-being-spent:things-being-bought. This is why
| hyperinflation is always kicked off not by money
| printing, but rather by a productivity collapse. The
| money printing only comes afterwards, because it's an
| effect not a cause. This is also true for wage inflation,
| which is why US wages have remained flat in real terms
| since the mid 60s immigration reforms: the labor supply
| has been grown as fast as the demand for labor.
|
| [1] This authority exists under current law.
|
| [2] For a counter-example, if Congress passed a law
| appropriating 10^33 dollars for the Social Security
| Administration to buy gold from citizens in any amount
| they desired at a price of $20 per ounce, the price of
| gold wouldn't budge a cent on account of it, despite an
| absurd amount of money on the buy side of the gold order
| book.
| akira2501 wrote:
| > The point of all this is that price inflation is
| everywhere and always caused by an increase of the ratio
| of money-being-spent:things-being-bought.
|
| Yes.. and if you increase the amount of money in
| circulation this impacts the amount of money being spent.
| You can imagine all sorts of ways that money can be
| minted without being circulated, but as soon as you do,
| this becomes a factor in this ratio, does it not?
|
| > This is why hyperinflation is always kicked off not by
| money printing, but rather by a productivity collapse.
|
| Has this occured in the US before? Are the examples you
| are using to draw this inference something that applies
| to the US?
|
| > This is also true for wage inflation, which is why US
| wages have remained flat in real terms since the mid 60s
| immigration reforms: the labor supply has been grown as
| fast as the demand for labor.
|
| The labor market has changed _drastically_ in this time.
| You're really willing to assume such a simplistic
| explanation for these facts?
| User23 wrote:
| > You can imagine all sorts of ways that money can be
| minted without being circulated, but as soon as you do,
| this becomes a factor in this ratio, does it not?
|
| Yes, I think you're starting to get the point. It's not
| the money stock that causes inflation, but rather the
| money flow. Back to the original point that started this
| thread, increasing the money stock alone, that is to say
| growing the notional money supply, doesn't move prices.
| What moves prices is changes in the money flow, for which
| growing the money stock is neither necessary nor
| sufficient.
|
| > Has this occured in the US before?
|
| No, the USA has never experienced hyperinflation.
| Thankfully the principles involved are not specific to
| the USA. They apply generally. The operational
| particulars do change depending on whether or not the
| foreign exchange rate is floating or not. That's not
| really relevant here though. It all adds up to a collapse
| in the value of a currency being caused by a collapse in
| the goods and services that can be bought in that
| currency. That's why back when the world was more or less
| on the gold standard a single economy's collapse couldn't
| cause hyperinflation. However if, somehow, there were a
| collapse in global productivity then even gold would see
| hyperinflation, because you can't eat it and there'd be
| too much gold chasing too little food, fuel, and other
| essentials.
|
| > The labor market has changed _drastically_ in this
| time. You're really willing to assume such a simplistic
| explanation for these facts?
|
| At the aggregate level? Yes absolutely the law of supply
| and demand holds. It's the same as how I'm willing to
| apply the laws of thermodynamics to monstrously complex
| systems that I don't fully understand. I might not know
| how the parts all add up, but I do know that the
| equations will hold.
| candiddevmike wrote:
| Are we still waiting for the 2008 bank run to end then?
| epolanski wrote:
| Ain't that too dramatic?
|
| Yes, I can imagine such a huge bank to cause deep troubles in
| financial markets and real economy and this impacting the
| livelihood of people all around the globe.
|
| But saying that "western world" will essentially end when it
| didn't in face of world wars, grave epidemics and plagues,
| etc seems definitely too dramatic.
| [deleted]
| debacle wrote:
| > I'm not sure what the best solution is here
|
| Stop letting banks write the regulations?
| mensetmanusman wrote:
| It's funny how the laws related to fixing "too big to fail" just
| meant that small banks go away in practice.
| gms wrote:
| This is always the case with regulation. It cements established
| entities at the expense of smaller/new players.
| red_trumpet wrote:
| Except when it prevents merging companies.
| dahwolf wrote:
| Same with regulating big tech: only big tech can afford to
| comply.
| HWR_14 wrote:
| Remember when SVB lobbied to not be hamstrung by the "too big
| to fail" fixing laws because they weren't that big?
| KWxIUElW8Xt0tD9 wrote:
| go read "The Creature From Jekyll Island" -- great book with lots
| of information about how we got where we are with American
| "banking"
| yalogin wrote:
| How does one decide whether 1 bank for every 77k people is a good
| thing or bad? What metrics go into such an evaluation? It feels
| to me that banks can be a bit bigger to reduce risk given the
| global nature of markets these days.
| kwere wrote:
| ROA in the banking sector average 1.21% now, a lot of
| smaller/scantier operation will feel the heat
|
| https://www.fdic.gov/news/press-releases/2022/pr22082.html
| dehrmann wrote:
| > At the end of 2022 more than 400 banks with nearly $4trn in
| combined assets had unrealised losses on their securities
| portfolios worth at least half of their core equity capital.
|
| Anything where a large amount of its assets aren't marked to
| market should be seen as a risk. For things like VC, this isn't
| such a big deal because it's the nature of the game. For banks,
| it leaves a lot of room for shenanigans,
| siliconc0w wrote:
| The big banks are terrible if you fall outside their algorithmic
| expectation. My partner and I were trying to get a mortgage and
| despite near perfect credit, large incomes, etc our apps were
| auto-denied because I never opened multiple open loan lines.
| Never needed them, just used CCs I immediately paid off for
| points as I always had a job/savings and bought cheap used cars
| for cash. We eventually got one but it took far too much time,
| effort, and spraying our personal info to providers. Once you get
| an algorithmic denial or even cant access your money because
| their garbage site isn't working and you can't even get someone
| on the phone who can tell you why much less fix anything, you
| immediately see the need for breaking these banks up.
| TexanFeller wrote:
| Credit scores make more sense if you think of them not as
| scores of your ability to pay back debt, but as scores of
| likely profitability for the creditor. Someone who never
| carries a balance and never will pay the occasional late fee is
| less profitable and thus has a lower score.
| tester756 wrote:
| Is this why some people recommend to take loan for something
| that you have money?
|
| Like - you wanna spend 30K on a car and you have it in cash?
| take loan
|
| you'll lose a some $$, but you'll be building your history.
| now__what wrote:
| You also want to consider whether it's more valuable to you
| personally to have that cash in hand. Are you going to roll
| it into another investment? Then maybe a low enough interest
| rate on the loan will put you out ahead despite paying
| interest.
| nicholasjarnold wrote:
| Reasons other than "it helps me build a credit history":
|
| * you think you can make more money by investing your 30k and
| letting it grow and compound
|
| * you are very prudent with your cash on hand and would
| rather have immediate access to liquid cash than save a
| little bit on interest which you pay down over the course of
| <term>
|
| Some of the dynamics here are a bit different when market
| returns are not looking great/steady and money isn't cheap
| anymore.
| chickenpotpie wrote:
| > you think you can make more money by investing your 30k
| and letting it grow and compound
|
| Mortgages especially. Mortgage interest is tax deductible
| and makes it easier for high tax bracket individuals to
| outperform their loan by investing.
| supportengineer wrote:
| > Mortgage interest is tax deductible
|
| Since 2017, not really, due to tax law changes. Cap of
| $10k but that includes state taxes paid also.
| toast0 wrote:
| I was under the impression that the $10k cap is for SALT
| and mortgage interest is separate? The mortgage interest
| deduction was reduced, interest on new loans is only
| deductable for the first $750k of debt, instead of $1M,
| and mortgage rates were really low in 2017; capped SALT +
| a relatively low interest rate on $750k might not combine
| to more than the standard deduction if you're married
| filing jointly. Certainly on my ~ $350k mortgage @ 3.15%,
| I stopped itemizing after the tax changes.
| andirk wrote:
| No. You need 2+ credit cards and ~2 bank accounts all that
| have existed for several years. "Carry a balance" of ~15% of
| your total credit limit BUT you need only _for the owed money
| to show up on the paper statement_. It's weird but if you pay
| off the thing you bought immediately that day, it's as if it
| never happened. It needs to be recorded on a statement, then
| pay 100% off before due date and don't owe anybody shit!
|
| Curious how the parent commenter had great credit with no
| seasoned lines of credit. It's one of the biggest factors in
| the score.
|
| Months before seeking a mortgage loan, learn the score's
| equation and appease it.
| JohnFen wrote:
| I think that the usual rationale for taking a loan out to pay
| for something you can afford without a loan is that you can
| take the money you have and invest it in something that pays
| more than what the interest on the loan is.
|
| It's a kind of arbitrage. If you're losing money overall,
| you're doing it wrong.
| drivebyhooting wrote:
| There's no free lunch. You will be taking additional risk
| by doing this even if the downside seems unlikely or
| remote.
| ericpauley wrote:
| If the loan % is lower than a savings account then there
| is no/0/zero risk, so long as you stay under FDIC limits.
| Your deposit earns money and is backed by the _full faith
| and credit of the United States government_.
| [deleted]
| stanleydrew wrote:
| The loan will usually be at a fixed-rate, while the
| interest paid on your deposits will fluctuate. So there
| is still risk that your net interest margin will go
| negative at some point.
| ericpauley wrote:
| Get a CD or buy treasuries with a matched maturity date.
| Or if you don't want that and the savings rate goes below
| you can pay off any time (check your terms).
| imtringued wrote:
| Yes, this is just a roundabout way to invest into stocks
| with borrowed money. There is probably an optimal
| portfolio for this strategy to minimize the risk but then
| it is no longer the obvious win that so many people think
| it is.
|
| If we assume 8% returns and you only put 50% in the stock
| market and your loan costs 2% interest then your total
| benefit is only 4%. Putting all of it might get you 6%
| but you are now taking a significant amount of risk.
| HWR_14 wrote:
| The last few times I remember, the interest charged on
| the loan was less than that generated by T-bonds of the
| same length.
| toast0 wrote:
| I don't know what factory car loans look like now, but for my
| last new car, they offered me a 5-year 0% loan vs a $500
| incentive if I paid in cash. Safe interest rate paid for the
| missed incentive. It's a smidge less convenient to have a
| loan, but no big deal.
| tiedieconderoga wrote:
| Nah, you can easily get a residential mortgage from smaller
| lenders with just proof of income/savings, and the sort of
| light credit usage you get from monthly CC payments, rent,
| utilities. That will net you a solid credit score, too.
|
| The issue is with very large banks. They have rigid
| underwriting deparments and poor CS, so if you approach them
| as a first-time buyer who isn't already leveraged to the
| hilt, they will make it a long and painful process. Mortgage
| agents are a prime target for AI replacements, because all
| they do is relay information between you and the underwriting
| departments that make the real decisions.
|
| Other people have pointed out that when you take a loan for
| something you can afford, you can use the money you would
| have spent on other things in the meantime. (As long as
| you're confident that you'll keep making enough money to make
| your payments for the life of the loan.)
| HWR_14 wrote:
| Rent and utilities rarely report to credit scores.
| nickjj wrote:
| That's such a strange system if common routine things
| aren't counted towards your score. Is this a ploy to get
| you to buy things you don't need just to prove you can
| pay it back?
|
| Personally I've never owned a credit card, I always pay
| with a debit card or cash. 20 years ago I refused to
| participate in the credit scoring system and still stand
| by it.
| no_wizard wrote:
| There's been normalization around using rent as
| additional inputs into a credit score:
| https://www.cnbc.com/select/your-rent-payments-can-raise-
| you...
|
| I'm not sure they're all that available or popular
| (they're highly dependent on your landlord having the
| correct paperwork and such) but the place I rented an
| apartment last year had this available and it did get
| reported
| HWR_14 wrote:
| Yes, that's been a push for a while. I'm glad to see it's
| becoming more popular. But it doesn't work if unless the
| landlord opted into their payment system.
| toast0 wrote:
| > The big banks are terrible
|
| Fixed that for you. The big banks have one thing going for
| them, they're big. That means they will have a wide network and
| a large service organization, but most feel no need to
| meaningfully compete for your business. You're going to use
| them because they're big. You're not going to get meaningful
| interest on your deposits at a big bank, because they don't
| need your deposits; bankrate shows me rates up to 4.75%, with
| banks I've heard of at 4.3%, Ally at 3.75%, my credit union at
| 2.5% (at least it's moving up, although the pace of increases
| is a lot slower than the decreases were :/), and Chase is at
| the national average of big banks: 0.02%. Certainly, 0.02% was
| understandable in the zero-rate environment, but I'm pretty
| sure it's been Chase's interest rate for the last 30 years (no
| data, just a hunch). Mortgage rates float in and out of
| competitiveness, especially if you jump through the hoops for a
| relationship discount; that's a good business where volume
| means profit at origination, and it's easy to sell the loans if
| they want to (that's part of why their underwriting is so
| cookie cutter; gotta make it easy to resell).
|
| If you're in the SF Bay Area, you should really check out the
| local credit unions; some of them are pretty decent. Co-
| op/shared branch banking takes care of most of the access
| issues, but you might want to be aware that after hours
| telephone service is directed to a shared branch call center.
| My credit union holds and services the mortgages they
| originate, which means you don't have to deal with the
| servicing changed dance, and also they're able to do limited
| paperwork rate adjustments for a reasonable fee; much simpler
| than a refinance.
| HWR_14 wrote:
| > despite near perfect credit
|
| Your credit wasn't near-perfect. You hadn't defaulted, but
| that's far from proving that you can manage your credit/money
| and make payments on time. A hobo who lived in the woods would
| also have never missed a payment.
| SeriousGamesKit wrote:
| Interestingly, this expectation isn't universal in the
| Western world outside of the US. In Australia, the banks
| don't expect to see previous credit card management, and in
| fact the presence of an open credit card will significantly
| reduce your calculated borrowing power for a mortgage.
|
| The myth of US-style 'credit score' requiring a history of
| card use does persist here though, and I've known several
| people who have had to close one or more credit cards in
| order to get their mortgage approved.
| stephen_g wrote:
| Weird thing is that when I got my mortgage, I had two
| credit cards (for airline points) and the broker was like
| "oh if you're happy to close them you'll be able to borrow
| more", so we did the application based on that, but then
| the bank just didn't ask me to... I still have them, years
| later...
| IvyMike wrote:
| Would that hobo have used a CC that he immediately paid off?
| That needs to count for _something_.
| HWR_14 wrote:
| It counts for _something_ , it's just not enough by itself
| normally.
| llsf wrote:
| But he said that he used credit cards and never missed a
| payment. That should count, right ?
|
| I can relate, as I came in US from Europe. I arrived, opened
| a bank account in a big bank, I could only get a debit card,
| because I had not credit history. After few months I could
| get a credit card, but with a $500.00 limit! I needed a car,
| so I bought one cash.
|
| When came the time to buy a home, I was asked to open more
| credit cards (one was not sufficient) and come back in a year
| or so later, to see how my score would improve.
| HWR_14 wrote:
| You never proved you could handle more than $500 in debt.
| You then asked for maybe three-orders of magnitude more
| debt. Surely you can appreciate that difference.
| Spivak wrote:
| There's no difference at all for someone who works a
| dayjob. The only thing that matters is that you have you
| demonstrated that you can make a fixed monthly payment
| reliably. Paying your bills, paying your rent, paying
| your CC all demonstrate that. If you rent a $1500/mo
| apartment you actually have managed $18k of debt.
|
| Doing the same thing but this time with interest proves
| nothing the others don't. Borrowing history makes sense
| for businesses or people who with complicated cash-flows.
| But if you're stably gainfully employed the only things
| that matter is how you manage your external financial
| risks (which banks don't check for) and your ability to
| not over spend (which banks also don't check for).
|
| Combine this with the your typical mortgage is
| overcollateralized means the magnitude of the loan is
| essentially meaningless outside of "is the monthly
| payment something you can afford."
| inconceivable wrote:
| never buy a mortgage through an app. use a human broker or if
| you're rich enough, a bank salesman.
|
| and for those of you who refuse to talk to people when spending
| multiple hundreds of thousands or even millions of dollars,
| well... this is what you get to deal with.
| nitwit005 wrote:
| The human will type your information into the same system.
| inconceivable wrote:
| okay, sure and probably half a dozen other systems you
| don't have access to. this is wholesale debt brokering,
| it's not available on a public website that you found on
| google with creative out-of-the-box keywords like "best
| mortgage rate <zipcode>"
|
| the first step to not being a mark is understanding what
| you don't know, and working with people who do. you may
| still get marked to a certain degree, but at least you'll
| end up with a 2.x% interest rate like i did and no messages
| from the computer saying "you're too poor to buy this
| product, so run along now little man" when it clearly isn't
| true.
| mauvehaus wrote:
| The human can likely also pick up the phone and talk to
| another human if the system is spitting back something
| obviously stupid. You don't need the human for the typical
| case; you need the human for the atypical case.
| s1artibartfast wrote:
| They also usually have a monetary incentive to make the
| deal work, which you cant get from a app.
| Rebuff5007 wrote:
| > you immediately see the need for breaking these banks up.
|
| Why exactly is this the conclusion, as opposed to suggesting
| the big banks need better evaluation of borrowers (whether
| thats with better metrics or humans in the loop)?
|
| All the problems being brought up seem like they could happen
| to banks of any sizes...
| shredprez wrote:
| Something something "free market" something something
| "competition" something something "creative destruction"...
|
| It's nice to believe throwing more greedy people at a problem
| will fix it, and hey, sometimes it works.
| lowkey wrote:
| I feel it is important to call out the one's credit score is
| not a measure of creditworthiness. It is a measure of an
| individual's potential profitability to a creditor.
|
| These two are not the same thing.
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