
The Banks Win, Again - cs702
http://www.nytimes.com/2012/03/18/opinion/sunday/the-banks-win-again.html
======
lukifer
The bailouts simply prove that the banks have more negotiating power than
either the government or We The People: the banks were willing to let the
economy tank, we weren't, and so they won. It's why I think the right kind of
social safety net would be a boon for the free market: _We need things to be
able to fail._

As progress marches forward, products need to be made obsolete, whole
industries need to vanish, and government institutions need to be voted out of
existence, to make room for new growth. And we have very poor means for doing
so gracefully; no one wants to start over, go back to school, and learn a new
career, all on their own dime. So we get bureaucrats, unions, corporations,
and citizens themselves protecting obsolete institutions which are a drain on
real economic activity.

If we don't have mechanisms for absorbing failure on a vast scale, to re-
inject capital and redirect human talent to productive output, we're going to
continue incentivizing people to put up with broken systems, whether it's BofA
or TSA. I frankly don't care whether it comes from top-down or bottom-up: our
society needs to feel comfortable with regularly firing organizations and
finding other ways for its employees to feed their families.

It's easy to focus on the rich assholes who pulled the strings and robbed the
public treasury. But there will always be jerks who game the system; what
really matters is identifying what they hold over us that allows them to get
away with it.

------
haberman
Capitalism can't work properly if risk-takers are insulated from the
consequences of bad bets. The #1 priority should be making sure that no
institution is "too big to fail" next time we get what is effectively a global
margin call.

~~~
martythemaniak
And yet, that'll get you labeled a "socialist" in most parts of the country.

~~~
hnal943
Only if you misunderstand who is insulating the banks from risk and advocate
for more governmental restriction.

The capitalist would advocate for the government to stop unconditionally
underwriting mortgages under the guise of promoting home ownership.

~~~
jeffool
haberman said "The #1 priority should be making sure that no institution is
"too big to fail"". That is what martythemaniak was saying was oft called
socialism.

If you have means other than government interaction to control the size of
business, I'd love to hear it. (Unless you're saying that huge, pivotal
companies failing and damaging the lives of all those around it should be
encouraged and welcomed. But that's what these two are saying needs to be
avoided.)

------
alpad
The banks made unqualified loans to people and made money. The banks sliced
and diced these toxic loans (derivatives) and sold them as Triple A
investments... and made money. The banks then bet against those toxic
investments and made money. The banks had their clients invest in these toxic
instruments, and made money. The banks were then bailed out by the taxpayers
and made money. The banks now own all the foreclosed property.

~~~
eli_gottlieb
Tell us something we're not already #Occupying about, please.

~~~
lwat
no u

------
thinkcomp
They only win because we let them. If the majority of people weren't so
politically indifferent, there would be a higher probability of change. The
highest vote count on PlainSite (<http://www.plainsite.org>) under Banking &
Finance is...20.

~~~
palish
It seems like there's no way for the majority of people _to_ care.

I wish I could explain this better, but... I've been living in the Midwest
area for the past few years. The day-to-day lives of the people here are just
so incredibly different from the vibrant and politically-active crowd in NY,
or the tech scene in SF.

My wife's father is in a desperate struggle to prevent his family from going
bankrupt. He owned a business that designed and built pole barns and other
buildings (in fact, he built a restaurant for one of his clients). Just before
2008, it was doing so well that he actually quit his day job. Then the economy
tanked, and all of his signed contracts became meaningless. The clients
literally just bailed. Anyway, he suddenly found that he had a lot of business
debt (which unfortunately was personal debt) and no way to pay it off since no
income was coming in. Needless to say, he and his family have been in a rather
poor situation for the past few years.

What's my point? Well, here's what I've noticed: everyone around here seems to
be dealing with a "disaster situation". Not necessarily due to 2008; just in
general. The people here seem to mostly be in "oh-crap" situations. Most of
them have more debt than they can handle. The students barely care about doing
well in school (and have a massive amount of debt from it). Most people have
poor credit.

What I'm saying is... There just seem to be so many _problems_ that people
have to deal with nowadays. Average people. I don't know why; the problems
certainly aren't due to any single reason. It's a combination of globalization
and the current economic situation, I think. But regardless, people just can't
seem to spare the time to care about anything except survival and drowning
their concerns via alcohol or pot.

Not everyone is like this. I'm just saying _most_ people _seem_ like this, to
me, from my point of view here in St Louis Missouri (and previously Michigan).
I realize that this is hardly a statistically significant viewpoint. I'm just
trying to understand why our government is so focused on the rest of the
world, when there are so many crisis-level issues that face the day-to-day
lives of average American citizens.

It's not that these people are lazy, either. My wife's father is one of the
hardest workers I've had the pleasure of knowing. Though... people do seem to
make bad decisions without realizing it (e.g. taking on personal debt to
support business operations). So I know they're not blameless -- and in fact,
when the situations are examined with a critical eye, most would conclude that
it was entirely their fault that they are in these "oh-crap" situations.
Nevertheless, the fact is that they _are_ in terrible personal situations, and
we must study the implications of that.

I look around and see that so many average people around here seem to be
spending most of their lives simply surviving: dealing with some sort of
personal disaster, or paying off student debt, or... etc. Yes, they messed up.
But it's unreasonable to expect them to care about nebulous long-term issues
when every day is a constant struggle simply to keep their head above water.

I don't know what to do about this; I'm not even sure anything can be done. I,
too, wish more people cared. But we'd be foolish to not try to examine the
reasons why people aren't caring, and to ask ourselves, "Why is this so? Are
people merely lazy? Is it because they feel powerless? Or is it due to their
day-to-day situation? How can we change this? _Can_ it be changed?"

~~~
jeffool
"school (and have a massive amount of debt from it). Most people have poor
credit."

And there's me. I think you're right to an extent. One mistake, or stroke of
bad luck, and you're almost under water. At the very least, you are almost
sure to feel like you have absolutely no opportunity to better your situation.
(Me also, and my argument of what "Occupy" is about, the lack of
opportunity...)

The greater argument of "socialism for the rich, capitalism for the poor" also
fits the student loans scenario. You can't go bankrupt on them. Period. I've
paid what I borrowed and still owe more than I borrowed, and now I've lost my
job.

I'm hoping I do well and can pay what I owe. But damn, what's this going to
actually cost me?

------
espeed
Is there a service where you can deposit money that doesn't increase a bank's
power to lend?

For example, a non-bank service where you pay a monthly fee to get the the
convenience of a debit card and checking, but your deposit doesn't contribute
to a bank's reserves, which enables banks to lend and thus empowers the
banking system. A service like this wouldn't have the overhead of banks
because it wouldn't have to support lending or investment divisions.

Simple (<https://simple.com>) comes close in that it provides a debit card,
but it uses banking partners to store deposits and makes money off the
deposits rather than from a monthly fee.

~~~
slapshot
> Is there a service where you can deposit money that doesn't increase a
> bank's power to lend?

That's the most significant way banks make money. It costs money to have
branches, tellers, and armed guards (let alone websites, security teams,
forensic-level accounting, marketing, ATMs everywhere, electricity, etc). The
way that banks cover all this overhead is to take your deposit at 0% or 1%,
then lend it out at 5% (mortgages) to 15% (personal loans). The difference
between 0% and 15% gets split between covering bad loans that don't get paid
back, and keeping the lights on.

It's not that the deposit department supports a loss-making lending division;
it's that the two are inseparable.

If you wanted a bank that didn't lend out deposits, you'd have to pay a hefty
monthly fee for the privilege. It'd be more like a safety deposit box than a
"bank" in the way we know of them today.

That said, check out credit unions if you prefer a more local banking option
that is less likely to make extremely leveraged bets. There are good and bad
sides of credit unions, but many people who dislike traditional banks prefer
credit unions.

~~~
espeed
_It's not that the deposit department supports a loss-making lending division;
it's that the two are inseparable._

That's the way things have been done, but I don't believe the two are
inseparable.

You can eliminate much of the overhead you mention by not having branches and
thus no need for tellers or armed guards. For ATMs, you could partner with
something like the Allpoint ATM network (<http://www.allpointnetwork.com>) --
I believe Simple does this.

Because you are not lending money or making investments, you reduce your
overall risk and requirements.

You're right though, it would be like a safety deposit box -- a digital safety
deposit box that's linked to your debit card. A service like this would be
disruptive.

~~~
slapshot
So far, I don't see the value proposition. People who don't like big banks use
credit unions. Credit union deposits are insured to $250,000, so any risk
created by lending is not borne by the consumer. There are plenty of credit
unions that still offer free checking with no (or a very small) minimum
balance. [1]

The only way you could possibly make money to cover your still-not-
insignificant costs (you still need all the accounting, marketing, etc, plus
paying Allpoint's access fees---they charge a fee to institutions for the
privilege of access, there's no free lunch here) is to charge a monthly fee.
[2] You're competing against free, and the "we're not a big bank" marketing
card has already been played by the credit unions (there is an ongoing radio
campaign that plays on just that point).

[1] E.g., [https://www.navyfederal.org/products-services/checking-
savin...](https://www.navyfederal.org/products-services/checking-
savings/checking.php)

[2] You could also sell data about your consumers or do other questionable
things, but that won't help your "better than a bank" cause.

~~~
espeed
Banks, and the financial industry in general, exert an enormous amount of
influence over the government -- the Occupy Movement and articles like these
are indicators of the disgust that has been brewing against the current
system, but most feel powerless to do anything about it.

Much of a bank's power comes from people depositing their paychecks -- take
away the deposits, and you take away the power
(<http://en.wikipedia.org/wiki/Bank_run>).

More people don't do this because banks are so convenient and there are few
good alternatives. Even credit unions partner with banks so using them doesn't
really help.

A digital safety deposit box that's linked to your debit card could provide
the convenience of a bank, without empowering the banks.

------
runeks
The problem isn't really the banks, it's our current monetary system which
gives tremendous power to the banks. We created this mess ourselves.

First we create a monetary system in which private banks are instrumental in
both distributing and creating new currency, making it possible for them to
reap huge gains and grow abnormally large. Then we get angry at the banks when
they use this power for financial gain. How about not giving them this power
in the first place?

I'm reading a very interesting book on monetary systems called "Paper Money
Collapse" by a German named Detlev Schlichter who worked in the financial
sector for 20 years. We're used to the system working this way, but a thorough
explanation of the system - like the one in this book - really shows what a
strange and cumbersome system it is we've created. It's as if on the area of
the production of goods and services we've come to the conclusion that it's
best to let private companies produce these, as the state is simply too
inefficient to accomplish anything the market is able to. But in the area of
money production we still advocate a state monopoly.

