I have a limited understanding of this but I have read both articles. Playing devils advocate, it's easy to say we have a problem and reference where the problems have occurred but its harder to present a solution.
If we do think they need to stop Banks investing our savings deposits, a couple of questions come to mind, how would the Bank realistically have enough capital to then provide loans if it can't use the funds deposited to balance risk?
It could be either they need to stop investing the money being deposited, or banking regulations need to increase the capital that Banks hold outside of their investments.
If they're unable to invest the deposits, how would they provide an interest payment for having your funds if everyone's funds are sitting there not making any money through their investments? If we all deposited our money and they couldn't use it to invest or provide loans with interest, how will they afford to pay back interest on your savings deposits? You would have to forgo those.
My point being, what does the bank get out of holding our savings if they can't do anything with it?
Ultimately I could have a poor understanding and I'm just testing my thoughts.
The article is really vague on its criticism - I think it shows a fundamental lack of understanding of how the finance industry works. Most banks don’t like to hold risk so even when they create these exotic products for institutional clients they typically get sold off to investors who would the risk. Most risk averse banks prefer to be the broker rather than the dealer.
Not to say there isn’t anything wrong with the current permutation of banks, but I just don’t think there is a strong argument in TFA.
Also credit unions are a thing for those worried about big banks.
Used to work for a big bank. They make most of their money charging 10 to 25 interest on credit cards. Banks were profitable when Glass Stegall was in effect. That was passed in the 1930s.
>To put it simply, the problem with banks is that they do too much. They provide an essential administrative service to the public, while simultaneously also engaged in a completely different service: gambling this money on speculative investments.
Unfortunately, I believe the GOP is busy undoing the protections that try to keep the consumer banking area safe....
Unfortunately, the problem doesn't originate with banks, and in reality classical banking doesn't really exist anymore.
Fiat money printing has debased and saturated a number of things to the point where there is no real market anymore and what exists is actually just money-printing funded state apparatus which will fail just like Mises predicted of non-market socialism.
The issues originate with the Federal Reserve Act, and the corrupt politicians who used the Fed as a vehicle to nationalize the economy, silently and gradually over time, sieving wealth into the hands of the few while funneling off that stream silently to fund their own interests as well.
So do you think something like how it worked during the Wildcat banking era or not having a fiat currency would be an improvement? Because neither of those periods were as stable economically as today is.
The Wildcat banking era was still fiat currency, and you are right that era wasn't an improvement.
Having no fiat currency would be an improvement compared to the economic instability we've had today. Fiat currency forces a boom bust bailout cycle with no visibility, and a long lag time between cause and outcome. One could argue we are in the biggest everything bubble starting from the 1970s moving forward and its just waiting to pop, and the resulting debasement of economic capital formation which is based in purchasing power has led to fewer children, a population bomb where the limits of growth and the dynamics force a mass die off from deflation or socio-economic collapse.
Bankers are entrusted with great responsibility, and there have been crises on average every 8-10 years going back to the 1970s when the peg to gold was removed. There have been crises before that time, but they were largely the result of poor interventions or no intervention at all (i.e. Coolidge failed to regulate the rural banks leading to the Great Depression).
There have been many crises, even with non-fiat currency, but the non-fiat currency scandals were recovered from often much more quickly. The recovery for the most recent crises weren't really recovery, the currency was straight out debased which dramatically widened the wealth gap as the banks were bailed out. Now they don't even need to keep a fractional reserve (0% @ the Fed).
Unrestricted printing of money throughout history shows one thing repeatedly, the nation that does it falls to ruin because the same structure printing the money cannot regulate itself, and corruption between such groups (leadership and banking), inevitably place that control in the same wheelhouse. It can be thought of as a limited visibility n-body astrophysics problem with isles of regularity but chaos. When you print money, the orbits (of value) are moved in comparison and either escape, or they collapse chaotically with time, and its otherwise immeasurable since the forces are distributed and lagging.
You might find these analysis interesting. There is also the book, "The Creature of Jekyll Island".
Dunno - I think there's a reason that pretty much every country on earth switched to fiat currency. The world wasn't really a financial paradise back on the gold standard.
Conservatively managed fiat currency seems to work basically fine. The trouble is when the system is corrupted.
The short term benefits and ramp up time for production for an industrialized nation are quite substantial given an external threat and limited time. It also removes the funding concerns that would normally inhibit perpetual war, and its well known that those who attach closest to the origin of the flow of money get the most purchasing power before everyone else allowing them to enrich themselves.
The world on the gold standard didn't have one country almost bring down every industrialized economy on the planet (and fiat still might do that). Brittle structures break under load.
> Conservatively managed fiat currency seems to work basically fine. The trouble is when the system is corrupted.
Yes, but this perspective "is" the problem. It is taking parts of the cycle in isolation and extrapolating from those parts while ignoring/dismissing the other parts. This is fallacy called cherry-picking, its a natural bias we have if we don't take pains to avoid it.
To be accurate and objective you have to look at the entire lifecycle as a whole.
When you print money you have a boom bust cycle, eventually that turns into a boom bust bailout cycles in fiat through non-reserve money-printing. The boom can't be sustained which causes a bust cycle, each time this happens there is an exponential need for liquidity that must be pumped in through debasement to get back to normal, and it doesn't stop at normal but creates the next boom cycle because its based on lagging indicators. This then goes to the next bust cycle, to bailout again, to boom etc. Chaotic whipsaws that cannot be predicted in specificity but can be predicted as recurring patterns (like dam collapses/avalanches).
The bust cycle in crisis without money printing leads potentially to deflationary collapse, so they always print more. Eventually though you cannot print more. The monetary property of a stable store of value is lost first, then people stop transacting losing the second property which is a medium of exchange. The resources aren't available to raise children leading to a birth rate crisis which further worsens as "dead men ruling" continue the cycle neglecting the generational contract, and the unrepresented generation ends up just letting it rot and not contributing or being unable to contribute in any meaningful way. Opportunity costs of things becomes so distorted that there is no opportunity aside from businesses directly tied to money printing, and business outside the system (crime).
As a whole, it is a hyperbolic system requiring an external and exponentially increasing impulse to keep going each time and this is paid with IOUs. When you don't have those dynamics, you don't have the resulting outcomes that cause potential societal collapse events of that magnitude happen.
Eventually independent production ceases because there is no profit to be made. From that point you get creeping ruin, everything falling apart, corruption causing shortage that sustains, then famine and death. Socio-economic collapse beyond the limits to growth which is just business as usual.
In the lifetime of the entire cycle, given it happening at least several times in history, you have to assume the flaw is one of structure, the system will always be corrupted, because the incentives make it so without any counteraction possible.
It leads to a world of rapid recoveries, less concentration of wealth in few hands, higher production and competition, and a strong disincentive towards moral hazard, financial fraud, and corruption.
If we do think they need to stop Banks investing our savings deposits, a couple of questions come to mind, how would the Bank realistically have enough capital to then provide loans if it can't use the funds deposited to balance risk?
It could be either they need to stop investing the money being deposited, or banking regulations need to increase the capital that Banks hold outside of their investments.
If they're unable to invest the deposits, how would they provide an interest payment for having your funds if everyone's funds are sitting there not making any money through their investments? If we all deposited our money and they couldn't use it to invest or provide loans with interest, how will they afford to pay back interest on your savings deposits? You would have to forgo those.
My point being, what does the bank get out of holding our savings if they can't do anything with it?
Ultimately I could have a poor understanding and I'm just testing my thoughts.