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 “Too Big to Fail” (TBTF) banks? Thanks to
fast-advancing technology, the answer is a resounding no.Not only
do we not need a banking sector, we would be immensely better off
were the banking sector to wither and 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 is to grasp the implications of computing
power, self-organizing networks and crowdsourcing. Banks
came into existence to manage the accumulation of capital (savings)
and distribute the capital to borrowers in a prudent manner that
minimized risk and still yielded a return 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 bureaucracy and a concentration of
accounting skills and lending experience. The costs of operating this
record-keeping and risk management bureaucracy was high, and these
costs justified the bank’s fees and interest rate spread. In an
idealized scenario, a bank might pay depositors 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 these functions with minimal human oversight and at very
low cost. The tracking and recording of millions of
transactions and accounts no longer requires thousands of clerks and
a large institutional bureaucracy; a relative handful of software
engineers are all that’s needed to maintain these services, which
are in effect a low-cost utility.
Risk management and lending are also
computerized; the human interface 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 is already automated. Is there a
role for regulation? Absolutely: such a system requires transparency
that can be trusted. Those who violate this trust with cooked-books,
lies, misinformation, etc. must suffer negative, long-lasting
consequences, starting with being banned from the system.
It is an abiding irony that the present banking
system’s secret portfolios and processes (shadow banking,
derivatives designed to fail and trigger profitable defaults, etc.)
are considered core competitive advantages: in other
words, eliminating transparency generates the highest-return
bank profits.
And let’s not overlook the political
consequences of these immense profits: a political and regulatory
order that is easily captured to serve the interests of big
banks. The number one agenda item is of course to arrange
Central State protection of the most profitable (i.e. the least
transparent) parts of the banking sector’s operations.
This lack of transparency distorts the
financial market, rendering it systemically vulnerable to
malinvestments and risky speculations and the financial crashes that
result from these systemic distortions.
The other top agenda item for bank lobbyists
is to arrange Central State/Federal Reserve subsidies of bank
profits. These subsidies are also known as financial
repression, as the Central State/Bank rigs interest 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 by the State. This is why I call
our system State-Cartel capitalism, as the State and cartels rule in
a mutually beneficial marriage at the expense of the real economy,
the citizenry and especially what’s left of the dwindling middle
class.
Since the core functions of banks can now be
performed by cheap processors and software, we can get rid of the
entire parasitic banking sector, once and for all. But what
about investment banking? That too can be automated. What about
wealth management? In a world where index funds beat 96% of money
managers over a long time-frame, that too can be automated.
But what about the tens of millions of
dollars in campaign contributions politicos skim from the
bankers? Now we finally reach the 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 or politicos or indeed, a central bank. The only
legitimate regulatory function of the state is to enforce
transparency; beyond that, its actions are all subsidies of one sort
or another of politically powerful constituencies at the expense of
the real economy’s productive people, communities and enterprises.
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