- Part of it is actually a utility. Payments, sending money from one place to another, making sure there's an account at the other end of that number. Everyone needs this, yet being a huge international network there isn't a whole lot that one bank offers that another cannot.
- Part of it is deciding who to lend money to. Makes sense for the bank to decide this with its own money.
- Part of it is regulatory. We don't want money laundering. Have to ask whether this really ought to be up to law enforcement to do, or as it is now a massive burden on the banks, which also have bad incentives.
What if we had the central bank give everyone an account that was interoperable with the rest of the banking system? Then if you want to hand out money, you just do it. If you want to borrow money, find a lender.
This would be fine if it were their own money, but it's not - it's our bank accounts (ie. fractional reserve banking). Unfortunately individuals can't opt out of this because unlike private banks, individuals aren't allowed to open a bank account directly with the government (though these replies show that this is possible in countries like France).
The finance industry does not generate real wealth, it is a wealth extracting industry that profits off the spread between the interest rate decided by the central bank and the interest rates and fees it charges consumers. Banks do not create goods or services, they just decide who gets the money to do so, with money that's not theirs. 80% of bank credit goes to mortgage loans (driving up housing prices and saddling homeowners in debt). Banks have gone from 2% of the U.S. economy in the 1950s to 8% by 2008, and 1.5% of the British economy in 1978 to 15% by 2008.
The first step to fixing this is to give citizens the ability to opt out of private banks and bank directly with the central bank. Private banks should not be the only ones with this privilege.
The great recession after 2008 and the great depression both show what happens when finance stops working. The rest of the economy collapses without it. You can all the way back to medieval Kings to see how important it is.
I don't know where people get this idea finance is not "real". If it wasn't useful, people wouldn't be paying for the services it provides, they're all optional.
Regarding mortgages, auto loans, business loans, the key point is that the money is created out of thin air. 80% of bank credit goes to mortgages, which ultimately drives up prices and fuels housing bubbles.
The Great Recession and Great Depression were caused by the finance sector. The Great Recession was the result of banks fueling a housing bubble by loosening lending standards, driven by the peddling of risky financial securities like CDOs, and leveraged to the tilt by derivatives like credit default swaps. When it all collapsed, they had to be bailed out (while Main St never got one). The Great Depression was preceded by a stock market bubble fueled by speculators trading on margin.
The banking industry does not create wealth. It is a middleman with the monopoly privilege of creating money out of thin air in exchange for dishing out collateral-backed loans of this funny money, and has 1. too much power, and is 2. overcompensated for it's "work" 3. in the long-term will reduce our competitiveness and lead to our relative demise (eg. look at General Electric).
You're failing to envision an alternative where credit is more democratically allocated, where finance isn't so overcompensated and such a brain drain attracting our brightest minds, and where the government can offer $350b in small business loans during a crisis without some middlemen taking a ludicrous 3% fee for shuffling some papers.
The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans and still charge higher rates than home mortgages. Something seems broken there.
Do you have a source for this? I can't confirm it. As an example, this description implies that the guarantee is for 97% of outstanding principal:
Assuming something close to that, the bank is out 3% of the principal, plus any accumulated interest-- which I would guess is usually substantial, because payments are typically deferred while the student is in school, but the bank's been paying the fed interest during that time period.
So I don't have all the numbers, but on the face of it, it doesn't seem totally ridiculous that a secured loan like a mortgage would fetch a better rate than student loans that aren't fully guaranteed.
They explicitly said that if you wanted to get a loan, private Banks should be there to enable you.
The only thing that they wanted was a public bank, so you're not forced to support them if all you need is an online account for transfers.
My point here is that finance is useful.
The view that institutions make too big of a profit off too little risk isn't really relevant to that. Cars are useful no matter what profit Ford makes by making them.
Maybe we need to examine the market to make sure its working? Maybe they're duping the government? Maybe they have some hidden reason to justify those rates. I don't know. But the underlying product is useful wither way. I don't object to any of that. But none of it changes the need for credit.
The original comment I replied to is very clear: finance is not useful, it's a wealth extraction process Etc.
Am I missing your point?
It definitely is a wealth extraction industry. This however doesn't mean that it shouldn't exist.
even in the best case scenario of the bank financing someone who starts producing products which he sells.. the banks job will only be to extract as much money they can get from this person.
As such, they're not producers.. they live off of them.
Nonetheless, there'd be less producers without the banks (at least short term), so they're also enablers. This makes them valuable. But still, they earn their money by extracting the value of someone else's product.
Which is fine if everybody is a willing participant...
> The great recession after 2008 and the great depression both show what happens when finance stops working.
shows the problem with your comment. The "recession after 2008" is not the problem, the previous 30 years of finance capitalism and deregulation (starting with the mortgage interest deduction and securitization in the late 70s) is.
Justifying our horrendously corrupt system this way -- by pointing to the basic utility in banking, lending and financial instruments -- is like saying McDonalds is great because food is good.
Honestly, in my opinion this could not be a more misinformed take on the reality of banking. Today there exist no alternatives to commercial money (private bank debt), because our governments' demand taxes in it.
Finance and banking are also different, yet you seem to use the words interchangeably.
Banking = creation of credit.
Finance (today) is about creating overly complex financial products to take part in the game of high volume automated trading, such as with the use of BlackRock's Aladdin - where the same financial products are sold and resold hundreds of times in an hour. Pure speculation/extraction/Rentierism.
As the comment you replied to wrote:
> The first step to fixing this is to give citizens the ability to opt out of private banks and bank directly with the central bank. Private banks should not be the only ones with this privilege.
"The problem is largely in the system of exchange we call “money,” and in the banks that store and distribute it. Rather than allowing the free exchange of labor and materials for production, our system of banking and credit has acted as a tourniquet on production and a parasite draining resources away.
Genuine economic freedom requires that credit flow freely for productive use. But today, a handful of giant banks diverts that flow into an exponentially-growing self-feeding pool of digital profits for themselves. In the wake of the 2008 financial crisis, much of the global economy has been battling economic downturn, with rampant unemployment, government funding problems, and harsh austerity measures imposed on the people. Meanwhile, the banks that caused this devastation have been bailed out at government expense and continue to thrive at the public trough. All this has caused irate citizens to rise up against the banks, particularly the large international banks. But for better or worse, we cannot do without the functions they perform; and one of these is the creation of “money” in the form of credit when banks make loans.
This advance of bank credit has taken the form of “fractional reserve” lending, which has been heavily criticized. Yet historically, it is this sort of credit created out of nothing on the books of banks that has allowed the wheels of industry to turn. Employers need credit at each stage of production before they have finished products that can be sold on the market, and banks need to be able to create credit as needed to respond to this demand. Without the advance of credit, there will be no products or services to sell; and without products to sell, workers and suppliers cannot get paid.
If banks have an unfair edge in this game, it is because they have managed to get private control of the credit spigots. They use this control not to serve business, industry, and society’s needs but for their private advantage. They can turn credit on and off at will, direct it to their cronies, or use it for their own speculative ventures; and they collect the interest as middlemen. This is not just a modest service fee. Interest has been calculated to compose a third of everything we buy."
The strongest alternative I am seeing emerge at this point is a new distributed peer to peer cryptographically secured accounting framework/pattern called Holochain. It allows us to rapidly prototype, and start using, new types of mutually sovereign asset backed Mutual Credit 'currencies'  (wealth-acknowledgement systems), based on productive capacity and measuring this wealth in new ways that isn't possible to integrate with today's money system. This includes the use of reputation currencies (think FairTrade labels, Organic veggie labels etc.). Building on this are projects like http://valueflo.ws.
You for instance (forgive me getting personal) don't have to engage in high volume trading products using Blackrock Aladdin. You can just get a job, get paid, and spend what you earn.
> You for instance (forgive me getting personal) don't have to engage in high volume trading products using Blackrock Aladdin. You can just get a job, get paid, and spend what you earn.
The problem is that because of the monopoly on today's money, I am literally unable to not take part in society (in the way you describe) without at some point being negatively affected by the slippery things Wall Street does. An example is the recent US government bailouts during COVID-19, which means we are basically paying to clean up corporate fuck-ups caused by the effects of the extremely risky and parasitic ‘financial products’ sold by these big financial institutions.
Leilani Farha, a Canadian human rights lawyer working as the UN's special rapporteur on adequate housing, provides an inside look into one of these dark patterns in the 2019 documentary 'Push'. It focuses on the financialization of housing and in it Blackstone's blueprints are laid out in full. They've now started a new fund to buy more 'distressed real estate' in Europe , repeating the same heist they pulled off during the '08 crash. It comes down to buying up housing and becoming landlords en-masse for society's most vulnerable, extracting rents from them, turning neighborhoods (groups of homes) into financial instruments/products, and selling a stake in such a financial product as just another commodity on the market. Yet these are people's lives we're talking about - and they are being systematically destroyed in the pursuit of profit. Profits which are then used to pay for huge corporate bonuses.
In my eyes, the real parasites of today's society are the propertied classes. Not the Precariat class , who faces ever-more unstable labor contracts and precarious working conditions, in the global North as well as the South.
The proprietary protocols of the money system constrain and shape all my actions in the world. Unless I live with an indigenous tribe who live in a gift economy, I cannot escape the rules and constraints imposed by the rules of today’s money. This means I am at the mercy of the Rentier capitalist class, which is growing in power every day.
To be honest, we'd have to go deeper and examine Capitalism's move into digital property, and the government granting state backed monopolies - and thus violence backed, through the criminal justice system - in the form of 'intellectual property', which is what I believe is causing a lot of issues in a world:
"…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. 'Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed.
Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions." 
I want us to move to what is commonly referred to as 'Commons based peer production' (Yochai Benckler) - in scholarly circles it would be called ‘Open Access development’. This is literally about connecting the whole world to a hyper-connected network of open source repositories [Ceptr.org], in effect moving us from Platform Capitalism to Protocol/Open Cooperativism. I believe this can start by first evolving or reinventing our wealth acknowledgement systems.
When we also start using Cooperative Open Value Networks instead of enclosed firm-based/Corporate Enterprise Resource Planning systems, we can have transparent supply chains that reveal to us all of the complex information and measurements that are important and which respect humans and planet (say the regenerative capacity of sustainable timber forest, or the productive capacity of a farm during one season).
What happens today is that we reduce everything to one number, it's $dollar value. By doing that we lose a lot of important and vital information about the complex relationships between people, places and resources. Those relationships are obscured. Today's system creates an impoverished one-dimensional view of the physical world where we lose depth by oversimplying things without respecting their complexity and intricacy. Basically the question I am asking is this: how do we fully exploitat the near-zero marginal cost of digital technologies in meeting the promise of a more empowered, less hierarchical, internet?
 https://vimeo.com/ondemand/pushthefilm, or available to watch for free with a VPN at https://www.tvo.org/video/documentaries/push-feature-version
 https://twitter.com/Noordam/status/1248313189332406273, more info here: https://theconversation.com/wall-street-landlords-are-chasin...
Edit: the way you say I could 'just get a job and get paid', shows me that you might not see that money is merely a human creation, and something without inherent worth. It then stops you from knowing about the possibility for locally-stewarded mutual credit community currencies, together with Commons based peer production. This view however is something I am seeing surprisingly often. When I started learning about the money system, it was all a bit of a mindfuck to me. I found this blog post to be an exciting read and it helped me a lot:
Anyway, I think I like the idea of a government-centralized deposit and monetary transfer system. This is the direct electronic equivalent of cash. A single national interest rate seems reasonable since current saving account rates are essentially set by the reserve rate today anyway. But I feel there must be a better privatized lending system than the current one though.
Thanks for your comment. In my experience this is the most misunderstood aspect about money. Your comment explained it really well. I wish this was more widely understood and talked about.
I do not think the original commenter understands the monopolistic as well as parasitical nature of today's money, as they write:
> - Part of it is deciding who to lend money to. Makes sense for the bank to decide this with its own money.
...which is wrong. Banks do not have their 'own money'. They create money out of nothing. They get a license to create debt out of nothing (fiat). Many times today they do not even have to have the fractional reserves for any of it.
If anyone has any doubts please check out Anthropologist David Graeber's book 'Debt: The First 5,000 Years' as well as his explanation of the money system in this article:
"In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity.
What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite."
The post office in France already offer banking. It's mandated by law as a public service and they can't reject customers. It doesn't offer the more complex products or investments though, it ain't their purpose.
Not sure about the UK post office. Seem to offer a lot of banking services and cards, but it says it doesn't do current accounts anymore.
This would be a huge thing in the US, where poor people cannot get bank accounts, and end up needing to use predatory paycheck cashing providers who take huge fees instead.
It's also important to note that the USPS is required to be self-sufficient in its purse strings, but is heavily restricted in what markets it can/can't be in by Congress. I think the "privatize everything" crowd of legislators/lobbyists see the USPS in banking as an existential threat to private banks profit margins and it won't happen without a political black swan (maybe not even in the current black swan environment).
The path to success is straightforward.
EDIT: So I did some digging, and it appears that the US Treasury has partnered with Comerica Bank in Texas to provide this sort of service to Social Security benefit recipients  (because the Treasury requires electronic payment of social security benefits, and you can't leave seniors unbanked). The challenge is going to be to find Congressional reps supportive of bringing this functionality in house, which isn't unreasonable IMHO, to provide this as a utility to all US citizens. I have already fired off a FOIA request to get details on the contract between Treasury and Comerica.
 https://www.usds.gov/ |  https://18f.gsa.gov/ |  https://login.gov/  https://www.usdirectexpress.com/
Is it a space the government wants to compete against Apple and Google? If every mobile phone in the country comes with a free integrated banking service, how do you compete? Would the government better serve by using its resources to regulate interoperability and compatibility, and rule following, than by competing?
I totally get why a free post office bank would do great things to serve the underbanked. But if the government is going to get into banking, id like to see it go a step further, more like Singapore, and be some kind of new HSA type account offering, a forced savings account that can be used to pay rent and more.
Medicare uses the latter model for claims processing -- big insurance companies bid on processing, subrogation, etc.
Are you saying the US is incapable of doing what is already being done in many other countries?
"Incapable" assumes lots of things, but practically speaking the number of things that we (the USA) "are capable of doing" is shrinking and using GDP/Person is an interesting way to illustrate the point.
We are overpaying for services that other countries have managed to solve for reasonable costs. University tuition, healthcare, building infrastructure are all ridiculously expensive in the USA, so our higher GDP/Person is largely wasted compared to most other OECD countries. Our government and the crooked ethical guidelines of our companies/organizations are why this overpricing started and continues to exist.
For those tasks which require regulatory/legal changes, the USA is swimming in peanut butter. What we "are capable of doing" largely has to do with our Legislature+Executive branches ability to find ways to make productive changes (rare) without sabotaging those same efforts (even rarer). But half of those people are rowing in one direction (team red) and the other half in another (team blue). The USA's primary policy tool is "make the most visible spectacle of brinksmanship" and has been for 10+ years.
The people/companies in the USA are capable of feature parity with just about any other country's people/companies, but that assumes that our government either doesn't get in the way or their government doesn't assist them.
Above examples are just passbook (personal) savings and misc services. Super simple.
Though I'd be open minded towards some overlap with credit unions.
1990 Postbank is created from Duetsche Post breaking up.
1999 Deutsche Post takes back Postbank.
2004 Deutsche Bank sells it's transaction bank to Postbank.
2012 Deutsche Bank acquires Postbank.
Why we sent guaranteed money to be held up in banks and did information and credit checks, on already known information from the IRS, well we know why, to pilfer it.
Had they ran it a better way, using the actual market, directly to businesses/individuals, that is lots of money out there for banks to go get and the market knows it is out there as well. Markets like knowing hundreds of billions and trillions are out there to go get. Make them earn the fees if they must.
Instead, it was a direct transfer from the Fed and treasury to QE that was pilfered by the usual suspects: hedge funds, market makers, foreign funds, oligarchs, wealth/value extraction ops, naked short selling, short and distort and more. The SBA money was pilfered by banks and large companies. The 'stimulus' for the economy, routed around the entire actual economy, never reaching individuals or true small business.
How can this be true if innumerable number of individuals received $1200 checks and many small businesses also received varying amounts in the four and five digits?
While they make sense for consumers, our banking system is tightly coupled with another: mortgages. The money that you deposit is loaned out. Could the federal government do the too? Sure, and the government (talking about the US here) does end up owning a large chunk of mortgages via Fannie Mae and Freddie Mac.
But the expertise and the manpower around vetting the mortgages is a _lot_ of work. Work that the federal government couldn’t decide to take on tomorrow, might not even want to, and if they announced that they were going to try would shake the core of the stock markets. (And yes, stock markets matter for more than just making rich people richer.)
On the other hand you suggest de-coupling: “Find a lender.” If you take away the deposits, who has that much money to lend out without being dangerously leveraged?
If you were to design an economic system, this might be the one you’d design. Given the one we have, narrow banks are difficult to allow without some significant “turbulence”.
A narrow bank does not require lending to service deposit accounts. It doesn't even need to pay interest to account holders. It simply needs to accept, store, and distribute fiat on the behalf of its customers via ACH, debit, and credit processing networks. Think prepaid card with no fees and no overdraft capability.
The Federal Reserve is culpable in that it will not approve banking licenses for narrow banks , as it challenges the business model of existing entrenched banking organizations. Can you build a narrow bank without getting the Fed to sign off? That is a conversation I would be interested in having over a cup of coffee.
"Narrow banking is impossible."
'What if you did it this way?'
"I'm not talking about that, I'm talking about the impossible ways."
If your point was merely to cite some non-blocking barrier to narrow banking, than I don't really see why you brought it up. If you want to apologize, apologize for being technically correct at the expense of providing insight.
mortgages don't have to go through retail banks, and there are plenty of other transaction fees to support banks of all sorts.
in fact, there's no reason we should have allowed the consolidation of banking other than to allow rent-seekers to amalgamate more sources of relatively risk-free cash flows under the control of fewer and greedier hands. we could have maintained lots of small banks that serve the community and region, enriching those communities, rather than a few behemoths that strip-mine them.
a lot of the "work" of mortgages is really mindless paper-shuffling by other rent-seekers taking their little slice of the large transaction price. none of those service providers go away if the government decided to take over (not that i'm advocating such a takeover).
Not to be snarky, but the Great Recession didn't give me a lot of confidence in the expertise involved in vetting mortgages.
Many economists and others have been calling for this , and seeing the replies it looks like many countries already implement this.
If this existed, then we wouldn't need to funnel 3% of these emergency loans into the private banking industry, a pretty outrageous loss of money for what amounts to some modest paperwork.
and which nowdays is probably done by a computer system without any paper being involved
Universal trickle up.
Counter argument: Won't this just encourage fuckery from the citizenry? Won't they just be encouraged to game the system (have more kids, take care of people to intercept their checks, etc)?
- More kids? OK that's probably good for an aging society, but do we even dole out money based on dependents? Should the government be in the position of subsidizing people having kids in the first place? Since it's adults who are directly impacted (losing income from a job) that's who we target. We can always address dependents through another program if needed, but that'll require a whole other level of complexity.
- Intercepting cheques? Are we talking about a subset of elderly or disabled who can't cash their own cheques? How do we handle social security cheques today? Maybe we would need more measures to handle this issue due to scale?
- Illegal immigrants? This one is a political quagmire. In my opinion they deserve the same benefits, but that's a very controversial opinion, and not something I'd want bogging down immediate assistance to everyone else. Ideally this is something the entire country would get to vote on, understanding that it will have a huge impact on a lot of industries.
Your alternative conception is far outside the norm.
I oftentimes find that good debates are more often disrupted by the person who insists on this mythic ideal of "unemotional" & civic & rational debate than the person who feels strongly about the issue.
Where can more information be found about "theories of the good"? What about this thing we call money - how much are we entitled to and from who?
Can anyone explain what the benefit is of living an existence feeling entitled to something tangible such as money?
The benefit of shaping society in a way that you think is good is that you end up with a better society.
I don't really think you're discussing in good faith, so I'll end it here - but I think this is a very interesting line of discussion.
Meanwhile I am failing to grasp how feeling (worse yet acting) entitled to something (in this case money) from someone else or society at large is beneficial. Anyone I've ever met or interacted with IRL with this disposition is perpetually unfulfilled and extremely ungrateful for very gift of life they have been given.
Have you ever met a successful, happy, healthy and/or otherwise admirable individual who feels or acts entitled?
So if you accept the above statement we can discuss what people are entitled to coming from the same place. If you don't accept the above (many don't, not judging) then we we'll be stuck on that and won't get any further discussing entitlement.
It's not about doling out money to lazy people. That's become a bit of a trope. The American dream is dead. If you are born into poverty then the odds of you getting out of poverty, regardless of how hard you work, is vanishingly low. Sure there are lazy people but I would argue that it's impractical to try and figure out a system that weeds them out at scale, and then you're stuck with half assed policy that does nothing or benefits a bunch of smart greedy pricks instead.
Single point of failure. Single point of power seizure. Single point of abuse for policy/NSA/FBI/DEA/BATF/CIA.
As an alternative: Each bank must speak a common language for transactions as part of their charter, aka "ACH". The task to accomplish what you wish simply becomes "Improve ACH to realtime, rather than batch" and a bunch of our problems go away. Furthermore, give banks more freedom as to how they want to interchange money so competition is created to force fees and middlemen down. The nice thing about this approach is there's a fast default path via ACH, but banks are free to innovate elsewhere, improving services.
Private banks already get a bank account with the government (the Central Bank), why shouldn't individuals have that same option?
The reason to reject having a central bank having direct tentacles into your life is the same reason you don't have the FBI run your email and wireless phone provider. Once you give them that sort of power, they'll start telling you exactly what you can spend your money on, under the auspices of "stimulating the economy". It's a central planning draconian nightmare.
I want to transfer big sum of money, essentially my life savings to someone.
Who do I choose for the job:
- local post office
- some crypto mumbo-jumbo that a lot of criminals use
- huge institution with daily income five orders of magnitude more than the sum I am talking about, regulated up to a dollar with 100 years of history of earning international trust
- some other option
Now the trick is to manage it in a way that a prosecutor couldn't convince a jury of structuring. Have an accountant fabricate records and mix it with legitimate purchases and expenses. It's essentially a front...but what corporation isnt one?
End drug prohibition.
Also, the Fed doesn't 'give out money' really.
If the Government wants to 'give out money' it can write a cheque - or - use some kind of IBN/SWIFT style coding to direct deposit.
The government needs: better identity management so you can 'login' an 'prove' who you are, where you live. And banks need better routing/transfer.
FYI there is 'paperwork' and 'process' involved in doling out money, it might have been better not to use the banks.
Except nobody knows if PPP money is a loan or a handout yet. The criteria for determining that is in the future, and central banks are as equally incapable of time travel as anyone else. That's why they're administered as forgivable loans. All PPP money is a loan right now.
Can you explain this? It's never made any sense, at all.
1. If you earn excess unreported income, eventually the IRS will figure it out and come get their cut.
2. If you earn it through criminal means, you're already committing a crime for which, if caught, you will be punished.
Why is the act of obfuscating the source of income a crime? Who gets harmed by this, that isn't already harmed by either the potential crime committed or taxes evaded?
If drug dealers in the 80s could have started hedge funds (or even deposit funds legally) with their shoeboxes of cash, it would’ve been an even crazier ball game.
a series of legislations right around the time of declaration of war against drugs (91st USA congress) pretty much made 'money laundering' a thing
prior to that, during the prohibition era it wasn't called money laundering yet it was simple tax evasion.
It's no different for a financial institution holding onto a bag of cash.
there's nothing inherently wrong with obfuscating a source of income, although it's hard to do this without committing some sort of fraud along the way. it's a (somewhat distasteful, imo) administrative convenience. people who run criminal enterprises have a variety of methods for distancing themselves from the actual crimes they are making money from. it turns out to be a lot easier to catch them doing funny stuff with money than it is to pin any of the original crimes on them.
Because we don't trust the central bank enough (edit: to not arbitrarily give their friends money directly - still happens though). And they don't want to be politicized by giving up autonomy. So the current compromise is that by law they can't lend directly except by Congressional statute, such as the CARES Act stipulates.
What does this actually mean? "Trust" isn't a one-dimensional version. What don't you trust them to do or not do? Do people really "trust" Wells Fargo, opener of fraudulent accounts, more than the Federal Reserve? Why?
Besides, the agency responsible for shipping huge amounts of cash to random people in total secrecy is the DOD. All those pallets of dollars that went missing in Iraq.
The central bank is not a regular bank, it’s a “reserve” bank. Very different function.
That being said, the central bank (at least in the US) is structured much more like a think tank and policy center than anything close to a customer-facing organization.
Personally, I'm not a fan of that idea, but I completely agree that banking policies/regulations need to be overhauled.
Uh, I agree that the central bank isn't consumer facing - but this is a bit of a stretch. Think tanks don't loan trillions of dollars.
The Federal Reserve
1 conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
2 promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;
3 promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;
4 fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and
5 promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.
Other than #4 (which as you say is clearly is nothing like a think tank), all the rest have significant policy or regulatory actions.
 - https://www.federalreserve.gov/aboutthefed/structure-federal...
Today's banking, tomorrow is Telcos, the day after...
What if the problem is the lobbying?
Statements like this require proof.
What do you think a lender is? Why do you think they can lend money?
More seriously, compare the UK's former state-run consumer bank: https://en.wikipedia.org/wiki/Girobank
> The organisation chalked up notable firsts. It was the first bank designed with computerised operations in mind; the first bank in Europe to adopt OCR (optical character recognition) technology; the first bank to offer interest-bearing current accounts, and the first bank in Europe to offer telephone banking, operating several years prior to the start of Midland Bank's First Direct service. It is widely credited for shaking up the UK banking market, forcing competitors to innovate and respond to the needs of the mass market.
It was literally by the socialist government to give cheap and effective banking to the unbanked working class in the 1960s.
Another issue for the US: the EU has an explicit remit for a single market. The US does not, and in some areas it's much less harmonised. Banking is one of them. The US would benefit from a central organisation coordinating things like Faster Payments. Everybody should have the opportunity to do fast, secure, free interbank payments.
The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds.
Banks are basically being compensated for doing paperwork.
"the civil liberties lobby"
I am not a banker, so this is all second hand information I have read on r/smallbusiness and other forums while trying to figure out my own stuff.
Don't get me wrong, I think they are getting paid a ton, probably too much, but it is not zero risk.
They're really being compensated for having the network to do what the government wanted to. No one else has the capacity to give money to small (and some large) businesses in a record amount of time.
I'd pay 5% to get the stimulus cash a few days after the bill is passed...and I guess the same for the government /taxpayers. Corona loans that go out in October are no good, so you pay a fee for performance. Call that $10B a Bank Stimulus Act
For companies with employees, that is IRS Forms 940 and 941.
For Sole Props that is your IRS Form 1040 and Schedule-C.
The IRS likely has the banking information for your company (or your payroll processor) and if they don't they have your business address, and could cut checks like they do EVERY YEAR.
Claiming that a bank has to be there to process the paperwork is just plain ignorant of the amount of information the IRS already requires from companies on a quarterly and yearly basis.
But even the banks who blatantly processed the applications in an unfair or discriminatory manner probably aren’t losing much sleep. The clients with the resources & connections to make a stink are the clients who got approved. Funny how that works.
I also agree that a lot of banks probably aren't losing much sleep, but that's different than saying this whole thing is risk free to the banks.
In the future, we'll have better systems for this kind of thing but we don't have them today. The bank plan was the most expedient one.
Actually a major issue with the stimulus is that the government does not have this ability, which is why it will takes months for some people to get their checks. Many people don't have to file income taxes, so the government doesn't have their info.
the problems relate to unemployement systems (completely different system) or our administration holding things up (trump demanding his name be on the checks)
$10B seems like a pretty low number for this risk plus the cost of servicing the loans over time.
Anyone who works in the financial industry knows that client onboarding is painful.
Most banks are only working with existing customers, so the DD is 99% complete. Few are reviewing applications from brand new clients.
From Matt Levine:
> Big banks that paid billions of dollars in sanctions after the 2008 financial crisis for flaws or omissions in loan applications -- in that case, mortgages -- assumed paperwork submitted to the SBA would need to meet high standards, or they would risk getting in trouble again. Wells Fargo has been under particular pressure to show that it overhauled its internal controls.
Now that wasn't in the end the case as:
> Some were floored when the SBA posted a notice on its website on Tuesday, confirming that’s necessary but saying that “lenders who did not understand that these steps are required” didn’t need to withdraw applications already submitted. That essentially gave an edge to lenders that had skipped that time-intensive step to get their customers’ applications in first.
But that was (some of the) banks' view.
Seems you're extolling their ability to perform quickly, while also excusing away their inability to perform quickly.
Quick read looks like 2.8% off the top, for 0 risk (10/349).
Total businesses receiving loans was 1.6M
Average money a bank made per loan was 10,000,000,000/1,600,000 (assuming all banks made an equal distribution of loans)
Or $6250 per loan. Given that all loans ran out about 1 week after the program was started.
I imagine the person effort per loan was pretty variable, but that's some pretty crazy capture by the banks.
(Banking sector employs almost 1.5M people), So even if every employee working at all banks, was allocated to work on one loan each for a week. (HINT THIS DIDN'T HAPPEN) the annualized salary for each of these people would have to be 6250*52, or 325K, which it's not).
I guess my question, is how was the decision made to offer banks such a big kicker for administrating loans with nonzero, but practically 0 risk?
(of note, theoretically banks are going to need to do some serving of the loan over it's lifetime, and deal with this loan forgiveness program, etc.. so if that's the case and it's more like 2-3 weeks of person work per loan, you still get some pretty big numbers, but they feel a bit more sane)
I’ve seen stories of small business owners talking about how difficult it was to get the loan through due to having to go back and forth with documents etc. although I’m sure it varied per bank.
2.8% doesn’t seem like that much for me, especially considering the goal was to get the money out the door as fast as possible due to the emergency, and setting up and hiring a government bureaucracy to administer and give the loans would have cost far more in time than the solution of giving it through the banks.
Stuff like the 9/11 compensation fund was on a much longer timeline and was also much smaller - the 9/11 fund was open ended, but ended up being about $7 billion, compared to the $349 billion PPP.
Remember the PPP is intended to give out money to the entire country and that is a huge scale. There was no available mechanism to give out the money, the SBA administers a EIDL grant/loan program but lawmakers on both sides of congress didn’t believe the SBA could give the money out fast enough, so this system of having the banks get money from the SBA was created.
From what I read a number of national banks (eg. BofA, Chase, etc) only offered to loan to customers with previous/existing loans (banks reducing risk). I think they were wary of underwriting risk (even though the USA government made assurances to banks) and risk of perception / reputation risk if any companies they applied on behalf of turned out to defraud the PPP program (possible future reputation damage).
That makes it sounds like bank is taking on some form of risk, but they're not.
Sure, bankers are paid more and there's labor involved.
But $10 billion is 1 year salary for 100,000 people making $100,000 / year.
It's obscene amount of money.
They did take on some risk -- they need to ensure the loans they make conform to the law passed mere days ago in order to get the government guarantee. Beyond the massive overtime put in by bank lawyers to understand the rapidly passed law, there are apparently ambiguities and contradictions in the law that are not resolved, and losing the guarantee is a huge risk considering how many businesses on the brink are applying for free money. It's not clear where the line between risk premium and profit is, but it's not zero.
The problems are pretty simple. Big banks prioritized big customers, especially those with debt to the banks. If your monthly payroll is $2.5M, are you really a mom and pop shop? Big banks then collected ridiculously high fees for a simpler process than they normally conduct. I'm guessing they literally had a team that estimated the highest fee they could charge without being punished by the government.
We submitted our application the day it became available. We received a link to upload documents a few days later. We provided the documentation almost immediately. Other than the automated emails (which threaten delays if you reply) we received a very sketchy call from someone claiming to be a banker with BOA.
To date, we've heard nothing. Whatever they used to prioritize who received funds will probably come out in the class action lawsuit. I look forward to receiving my $18 check.
I don’t think they deserve undue sympathy, but they are far from unaffected.
Look at any global bank's stock price throughout this crisis. Being a lender to the businesses of a shut down economy is not very profitable.
If a big bank goes under due to coronavirus then I will of course apologize for being wrong, but I doubt that will happen. Too big to fail remember. So we bailed them out now they could be a little more civic minded. And as I said, do it at cost, pay your staff, but don't be thinking about the next dividend payments to shareholders or bonus remuneration to the CEO
I am not defending bailouts, I'm saying you should get your facts straight.
That said this crisis should have hit banks.
With "people" you mean private businesses in this context I suppose?
If so you could call these incentives "regulations".
I suspect that is not the case here.
Retailers have been forced to invested in 2 meter rule things and, perspex everywhere.
Why can't the Banks of all institutions be expected to, you know, give something back? You'd almost think that money is their core business so they always know how to come out ahead.
Why would you assume that?
You sound like the PR department of a bank.
Alternately, what do you think the pay per man-hour ended up being?
Now suddenly everyone is questioning if a bank should charge such huge fees, if I should be allowed to markup N-95 masks, etc.
When Nike make a pair of shoes for $4 and sell it for $400 nobody seems to care. By now it's illegal and banned in many places to mark up toilet paper and hand sanitizer.
Not only should we be asking if banks should be making $10B in fees during this time, we should be asking if every company should be doing what they were doing just a few months ago.
An uncharitable reading might assume a spurious correlation.
With these kinds of insane numbers ($350B!) even tiny percentages are huge.
Boggles my mind that anyone jumps to defend the banks in this scenario for what effectively amounts to a racket.
From this NPR article:
> We funded more than twice as many loans for smaller businesses than the rest of the firm's clients combined," the bank said in a statement to clients. "Each business worked separately on loans for its customers. Business Banking, Chase's bank for our smaller business customers, processed loan applications generally sequentially"
Note "Each business worked separately on loans" and "processed loan applications generally sequentially". They divide their consumers up into large business and small business groups, assigning dedicated staff to each group. There are far more small businesses, making the queue for small businesses much deeper. Even though there were more workers (staff) pulling from the small business queue, there weren't enough to make up for the discrepancy in queue depth.
From the Bloomberg article:
> More than 300,000 customers of JPMorgan’s business banking unit, which serves smaller firms, applied for loans through the Paycheck Protection Program
> By comparison, about 5,500 larger, and sometimes more sophisticated, customers of the commercial banking business applied for funding.
> The data reveal that, in the race to get a loan in the first-come, first-served program, larger businesses had a leg up over smaller ones -- even when applying through the same bank.
> its commercial bank, with fewer clients, was able to process applications faster, said a person familiar with the matter.
On a $350k loan, the fee was 5%, or $17.5k.
On a larger loan, the fee as a % goes down, but the total value goes up. These larger loans, to my knowledge, carry no more risk, nor any more work by the bank.
Yes, the banks should earn a minimal (and probably fixed) filing fee. No, they should not receive 3% of the amount set aside for small-business assistance.
This program made them 1/3 of 1 month's normal revenue
They've lost far more even with the fees they collected from this program.
As someone said above - doctors are not working for free, why should bank employees?
Are rank-and-file bank employees getting a big chunk of those increased earnings? Seems like both doctors and bank employees are simply continuing to earn their regular paychecks, as they should. It's the banks' shareholders that are making way more money for basically zero risk. And execs, who get paid mostly in stock. That's the problem here.
There is no increased earnings there is in fact very big losses. Which is another thing people tend to forget when discussing exec pay. The execs take a hit when business is bad, but the majority of employees continue getting paid.
Exec pay is high but you can't forget that much of the risk / responsibility should the business do poorly is on their heads not the majority of the workforce.
The worst outcome for any employee, exec or lowly serf, is the loss of their job. But it's far more devastating for a rank-and-filer to lose their job than for a highly-paid exec to lose theirs. So...no the majority of the workforce also takes on most of the risk should the business do poorly.
And the minority that is let go get 3-6 months of severance and unemployment benefits until they inevitably find a new job - which btw is far easier to do when you are not an executive of a floundering business.
A minority end up fired but all of them potentially can be.
> And the minority that is let go get 3-6 months of severance
This is not written into any employment contract. 3-6 months sounds absurdly generous.
> unemployment benefits until they inevitably find a new job
UI benefits only offer partial wage replacement.
> which btw is far easier to do when you are not an executive of a floundering business.
Part of the reason execs get paid highly is to take on that risk. They have no excuse for not building up a healthy nest egg to get through periods of unemployment. Execs don't live paycheck-to-paycheck, or if they do, surely they should know better about managing money wisely. Otherwise why did they even have their jobs?
Execs also have way better personal networks for finding new jobs. Their friends are other execs in other companies. So it's not at all obvious that they'll be unemployed for longer than average Joe Pink Slip.
Doctors are not working for free, no, but they also didn't just vacuum up 10B of cash meant for patients either. Only the banking system has the tenacity and lack of shame to do such a thing.
> why should bank employees
I don't think anyone in this thread is talking about bank employees.
In this situation the banks are simply a truck driver and small businesses are your local grocery store.
Im not going to fault the truck driver for asking to be paid to do work.
The 10B they collected was not from the government - it was paid by businesses applying for loans.
If you are only talking about 2008 then yes - that bailout was fucking dumb
Maybe someone else can describe technical blockers as to why the government couldn’t have done this. It seems mostly political.
The best the government could do was send a paltry check to pretty much EVERY american. I'm sure you'd object if they decided to send 1 million dollars to EVERY small business.
That's the best a fed government run program could accomplish with only a couple of weeks.
Seems to me that the government has a comparable relationship with business. Companies report to the IRS same as individuals, and corporations are required to file annual reports with their state. You’re telling me they cant maybe slice up the market due to higher or lower risk (restaurants probably taking a way bigger hit than tech, for instance) and qualify companies according to trends in their tax filings and other data points?
Banks have thousands if not millions of employees capable of performing basic due diligence before sending out money. A fed task force tasked with processing applications from millions of businesses would be capable of handing out money maybe summer 2021
Seems quite a small number, and easy to do from the tax-collecting databases.