The internet is
bringing serious competition to the banking sector and this describes just how
deep it is. The first three items listed
as services are competitively supplied by easily established competitive services
best done through the internet. Even
reserve lending is operated purely on the basis of credit scores and verified
appraisals with minimum levels of confidence.
It is usually handled by loans officers having more in common with the
tellers than anything requiring decision making.
Beyond all that we
enter the world of far more sophisticated skills but also the world of businessmen
and investment banking as such. These
always needed to be separated from the rest.
The advent of micro finance has even established a successful management
protocol for lending below an economic threshold. This can also be tossed on to the internet
and the banks need only pay the underlying paper to make good money.
The changes are systemic
and will take time to work through the system.
It could well take the total collapse of the Eurodollar market to drive
this into been.
Banks Are Obsolete: The
Entire Parasitic Sector Can Be Eliminated
(February
20, 2014)
What
else can we do with the $1.25 trillion we'll save by eliminating these obsolete
financial middleman parasites? A lot.
Technology
has leapfrogged the banking sector, rendering it as obsolete as buggy whips. So
why are we devoting 9% of our economy to an obsolete parasite?Financial sector
profits now total a staggering 4.5% of GDP (gross domestic product), while the
expenses generated by financial churning account for another 4.5% of the
economy.
Software and existing non-Wall Street/too-big-to-fail institutions could replace the entire Wall Street/banking sector and drop costs to .5% of GDP, saving us 8+% of our GDP ($1.25 trillion) that is currently siphoned off by parasitic middlemen. The banking sector is Exhibit A in the Middleman-Skimming Economy (February 11, 2014).
The
pull of habit and propaganda is so strong that most people haven't even
recognized that software and the Web can replace the entire financial/banking
sector for a fraction of the cost of the current parasitic system, a
system that (as we all know) has captured the regulatory and governance
machinery of the central state, making a mockery of democracy.
The
benefits of eliminating the financial/banking sector are immense and
far-reaching.
What
exactly do banks do? Banks perform these basic functions:
1.
They hold depositors' money.
2.
They act as a clearing house for payments, transferring funds from payor to
payee.
3.
They issue loans on a fractional reserve basis, i.e. a few dollars in cash
deposits supports $100 in loans.
4.
They originate and trade derivatives, run high-speed trading desks, operate
various money-laundering and embezzlement schemes, influence elected officials
with lobbying and campaign contributions and subvert both free market capitalism
and democracy at every turn.
This
entire parasitic middleman sector could be replaced with automated digital
clearing houses and crowd funded or non-bank loans. Why do we need banks
to pay bills online? We don't; any clearing house could charge a small fee for
the transaction.
Why
do we need banks when loans can be crowdfunded? If we can invest money in
start-ups via Kickstarter, Indiegogo, RocketHub, AngelList, etc., why can't we
own a piece of someone's auto loan or home mortgage?
The
web and software now enable the elimination of the entire middleman skimming
operation of banking. Those with capital can invest that capital directly
in loans that the investors choose. Risk is distributed throughout the system,
and the process of verifying credit scores, income, valuations, assets, and so
on--the building blocks of risk assessment and a market for debt and cash--can
also be automated.
The
entire notion that 100 savers put their money in a bank which then buys a
mortgage with their savings and sells it as a security that supports a pyramid
of derivatives is obsolete. Each saver can directly own (and sell on a
transparent market) a piece of a mortgage, auto loan, business loan, etc. There
is no need for a middleman banking sector at all--no skim, no concentration of
risk, no opportunities for selling derivatives to unwary investors. All
that goes away with the banking sector.
But
what about holding deposits? We already have two institutions that could serve
this role: credit unions and the post office. If those holding depositors'
cash do not issue loans, they have no source of income to defray operating
expenses. The solution is obvious: charge fees for holding deposits and
payor-payee transactions.
If
the fee structures are transparent, those who charge too much will disappear as
customers go elsewhere. That's the purpose of transparent competition in an
open marketplace.
Many
other advanced nations have long combined postal and simple banking
services: France and Japan come to mind. Here we have a postal service
that is struggling to fund its operations in the era of email, and here we have
millions of people who prefer to (or have to) do simple banking in person.
There is no technical or administrative reason that the post office could not
operate as it does in Japan, as a place to deposit funds (including
auto-deposit of Social Security checks), take out cash, etc.
Please
note that what I am suggesting is a transparent open market for these services
provided by a range of enterprises and institutions. Assemble a
marketplace of local credit unions, the post office, enterprises that handle
payor-payee transactions such as Dwolla and PayPal, and you have a wide
spectrum of choices to suit every need.
As
for business loans: you can get small-business loans on PayPal right
now. It's called Working Capital, and the borrower is given the total
amount due right up front.
As
for the commercial paper market: there is no technical reason why a
transparent exchange couldn't enable borrowers and owners of capital to set
short-term loan rates via transparent bidding with automated software.
The
obsolescence of banking includes the Federal Reserve--the ultimate middleman
skimming operation. But what about providing liquidity in credit panics?
Well, to start with, once the banking sector is gone then the concentrations of
risk and the obscuring of risk that go hand in hand with banking also
disappear-- the forces that generate panics will have been dispersed. Those
forces will have vanished along with the middleman financial sector that
created all the risks, speculative excesses and panics. If there were a
liquidity crisis, the Treasury could create and lend whatever funds were
needed.<="" b="">
But
what about manipulating interest rates and other forms of financial repression?
Interest rates would be set by millions of borrowers and owners of capital in
transparent transactions.
What
about all those great investing services offered by big banks and Wall
Street? As many have observed, automated index funds outperform 99% of
fund managers over 10 year time frames. So Wall Street is also obsolete.
Once
we get rid of these obsolete middleman parasites--Wall Street, the banking
sector and the Federal Reserve--we have a delightful question to
answer: what else can we do with the $1.25 trillion we'll save every
year by eliminating these obsolete financial middleman parasites? A
lot.
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Need a few more details to fully understand process.
Need a few more details.
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