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8/13/2019 Do We Even Need a Banking Sector? by Charles Hugh
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Guest Post: Do We Even Need aBanking Sector? Not Any MoreBy
Tyler DurdenCreated 12/19/2013 - 18:02
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Submitted by Tyler Durden [1] on 12/19/2013 18:02 -0500
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Submitted b
y Charles Hugh Smith from Of Two Minds
Do We Even Need a Banking Sector? Not Any More
An automated banking utility has no need for parasitic bankers
or politicos or indeed, a central bank.
Do we need a banking sector dominated by politically untouchable
"TooBig to Fail" (TBTF) banks? Thanks to fast-advancing technology,
theanswer is a resounding no . Not only do we not need a banking
sector,we would be immensely better off were the banking sector to
witherand vanish from the face of the Earth, along with its
parasitic class of political enablers, toadies and Federal Reserve
apparatchiks.
The key to understanding why big banks have outlived their
purpose isto grasp the implications of computing power,
self-organizingnetworks and crowdsourcing . Banks came into
existence to managethe accumulation of capital (savings) and
distribute the capital toborrowers in a prudent manner that
minimized risk and still yielded areturn for savers and the bank's
investors/owners.
Back in the pre-computer era, the record-keeping and risk
management
processes of these two core functions required a complex
bureaucracyand a concentration of accounting skills and lending
experience. Thecosts of operating this record-keeping and risk
managementbureaucracy was high, and these costs justified the
bank's fees and
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8/13/2019 Do We Even Need a Banking Sector? by Charles Hugh
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interest rate spread. In an idealized scenario, a bank might
paydepositors 3% annual yield on their savings and charge borrowers
5%.The 2% spread was the bank's to keep for performing the
accounting,collection and risk management functions.
Today, computers running scripts/programs can perform
thesefunctions with minimal human oversight and at very low cost.
Thetracking and recording of millions of transactions and accounts
nolonger requires thousands of clerks and a large
institutionalbureaucracy; a relative handful of software engineers
are all that'sneeded to maintain these services, which are in
effect a low-cost utility.
Risk management and lending are also computerized; the
humaninterface of a banker is a bow to tradition, not necessity.
Crowdsourced
funding is entirely computerized: those with money/capital
choose to join a pool of lenders who accept the risk of lending to
an individual,household, project or enterprise for a specified
return.
This process of aligning excess capital (savings) with borrowers
isalready automated. Is there a role for regulation? Absolutely:
such asystem requires transparency that can be trusted. Those who
violatethis trust with cooked-books, lies, misinformation, etc.
must suffernegative, long-lasting consequences, starting with being
banned from
the system.It is an abiding irony that the present banking
system's secret portfoliosand processes (shadow banking,
derivatives designed to fail and triggerprofitable defaults, etc.)
are considered core competitive advantages: inother words,
eliminating transparency generates the highest-returnbank
profits.
And let's not overlook the political consequences of these
immenseprofits: a political and regulatory order that is easily
captured to servethe interests of big banks . The number one agenda
item is of course toarrange Central State protection of the most
profitable (i.e. the leasttransparent) parts of the banking
sector's operations.
This lack of transparency distorts the financial market,
rendering itsystemically vulnerable to malinvestments and risky
speculations andthe financial crashes that result from these
systemic distortions.
The other top agenda item for bank lobbyists is to arrange
CentralState/Federal Reserve subsidies of bank profits . These
subsidies arealso known as financial repression, as the Central
State/Bank rigsinterest rates and regulations to favor bank profits
at the expense of both savers and borrowers.
Thanks to the Federal Reserve's Zero Interest Rate Policy
(ZIRP),savers have been robbed of hundreds of billions of dollars
in
income--money that has been effectively transferred to the banks
bythe State . This is why I call our system State-Cartel
capitalism, as theState and cartels rule in a mutually beneficial
marriage at the expenseof the real economy, the citizenry and
especially what's left of the
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8/13/2019 Do We Even Need a Banking Sector? by Charles Hugh
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dwindling middle class.
Since the core functions of banks can now be performed by
cheapprocessors and software, we can get rid of the entire
parasitic bankingsector, once and for all. But what about
investment banking? That toocan be automated. What about wealth
management? In a world whereindex funds beat 96% of money managers
over a long time-frame, thattoo can be automated.
But what about the tens of millions of dollars in
campaigncontributions politicos skim from the bankers? Now we
finally reachthe real reason why the parasitic banking sector is
allowed to exist,even though it has outlived its purpose and value:
the political class of parasites benefits immensely from the
banking sector's giant state-
rigged skimming machine.An automated banking utility has no need
for parasitic bankers orpoliticos or indeed, a central bank. The
only legitimate regulatoryfunction of the state is to enforce
transparency; beyond that, its actionsare all subsidies of one sort
or another of politically powerfulconstituencies at the expense of
the real economy's productive people,communities and
enterprises.
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