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Banks aren't scary, they're a-hole dinosaurs. Banks epitomize centralized authority and regulation. Banks borrow money for less than they lend it effectively gu
by oneJob 11y ago
Banks aren't scary, they're a-hole dinosaurs. Banks epitomize centralized authority and regulation. Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed, and yet they have recently and repeatedly failed. In the process they have inflicted enormous harm to our economy and lives, but they have not shared a proportionate share of the costs. The costs they impose hardly justify the veritable monopolies banks are afforded by the laws and regulations which are very effective at preventing competitors from entering the market.
Now consider where the tyical HN reader comes down on these issues. So yeah. Not a lot of love for banks.
- rtpg 11y ago>Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed Sure, in a magical world where 100% of people pay back their loans. 2008 happened for a reason
- deleted 11y ago[deleted]
- lugg 11y agoI'm not sure what you're point is here. There is no magical world 2008 or not, never do you see 100% of people paying back their loans. Conservatively managing loans means minimising lending to people likely to default, and leveraging enough to cover those who do. You do not need 100% of people to pay back their loans to turn a profit, charging interest is what makes this manageable and guarantees a profit.
- meric 11y agoIf you conservatively run a consulting business, you can 'guarantee' a profit too.
- 3pt14159 11y agoWhile I agree that bankers hold too much influence in politics, this line of thinking is obviously incorrect. First, bankers have margins and compete like any other entity. If they are too conservative they will not get enough borrowers to cover the cost of their staff and facilities. Furthermore, to just earn a profit is not enough, a banker needs to earn a profit consummate with its market capitalization. Most banks are publicly traded, after all.
- rtpg 11y agoWell, there's no guarantee of profit. You cannot predict 100% of the time who will pay you back. It's pedantic, but it means there is _no_ guarantee of profit Of course, you can get pretty close to 100%, but it's a balance of risk and reward, like most things.
- bryogenic 11y agoProper and conservative management includes due diligence wrt the borrower's ability to pay.
- rtpg 11y agoright, but GP was implying that profit is guaranteed because of the interest rate differential. If you have any costs at all (even just operating costs), then that profit is not guaranteed I'm not a fan of banks nor of the amount of money they get for their services, but there's no "guaranteed profit"
- MagicWishMonkey 11y ago2008 wouldn't have happened if the banks did their due diligence, they got greedy and the rest of us had to pay for their mistakes.
- foota 11y agoThey got greedy like everyone else, they couldn't have made subprime loans if consumers didn't ask for them.
- RobertoG 11y agoYou are going to find always consumers of cheap money. That's a fact. Specially if you going searching for them actively as the banks did before the crisis. There is a reason because controls have to be in the side of the lender. Banks, and everyone else, are always going to be greedy. The source of the problem was not greed (that is a constant) but deregulation, that have not been properly corrected.
- ekianjo 11y ago> 2008 happened for a reason 2008 happened because some d-heads decided to throw in the same bucket loans with good ratings and loans with junk ratings. And also because borrowing money was cheap, making it easy for a lot of people to borrow money when they should not have been able to in the first place. A pretty good definition of a bubble. Oh, and thanks to the Fed.
- AnthonyMouse 11y agoDon't forget Uncle Sam. "Subprime" means lending money to people with a poor credit history. The government was cheerleading the whole way because it allowed poor people to buy houses... until interest rates went up and they could no longer afford their adjustable rate mortgage payments. The sustainable way to get more lower income people into home ownership is to reduce housing prices (e.g. by increasing the supply of housing). Subsidizing and encouraging mortgages does the opposite of that -- instead of making housing cheaper it makes borrowing money cheaper, which makes housing prices go up. Which means existing home owners love it and new home owners like it... until all the people who couldn't get a loan in a normal market demonstrate why they couldn't get a loan in a normal market.
- Kinnard 11y agoNope, not so. Banks don't borrow money from depositors and lend it to borrowers. They create the money they issue as a loan. Sadly, no one understands this: https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation
- lubos 11y agoEverybody can create new money. Not just banks. Let me give you an example. I'm worth $100. We agree I lend you $1,000,000. Sure, I don't physically have $1,000,000 but I can still make a loan to you and give you some piece of paper telling you you have $1,000,000 deposited with me. My assets have increased by $1,000,000 (loan amount) and my liabilities have increased also by $1,000,000 (what you have deposited with me). I'm still worth $100 but I created $1,000,000 of new money. This is what commercial banks are essentially doing. It's not like they have some superpowers. Everybody can do this. So I don't understand what's your point.
- bottled_poe 11y agoI'm pretty certain what you have described constitutes some form of fraud.
- bduerst 11y agoYou're both wrong. Come on. If you, private Bank Lubos, only have $100 on hand but have a customer who wants a $1,000,000 loan, you don't just write a piece of paper. You would go to the U.S. Fed Reserve (central bank) and take out a loan for $999,900 with interest.. The central bank creates the $999,000, and the private bank charges a premium on the interest rate.
- eru 11y ago> Banks borrow money for less than they lend it effectively guaranteeing a profit if properly [...] Competition should erode that risk free profit pretty quickly..
- Kinnard 11y agoBanks don't actually borrow the money. They create it. The fact that people don't understand and are completely unaware of this is THE problem with the banking system: http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity http://www.theguardian.com/commentisfree/2014/mar/18/truth-m...
- bduerst 11y agoYou're confusing private banks with central banks. I don't think anyone is surprised that the U.S. Fed reserve regulates the money supply in part by creating it.
- Kinnard 11y agoNope. This is how money is created by both central and commercial banks. When commercial banks do it it's a loan. When the Federal Reserve for example does it they are buying a government bond. Same process. Alas, if only people knew.
- bduerst 11y agoBuying assets (e.g. bonds) is one of the channels the Fed reserve uses to put new cash into circulation. Another channel is loaning the new money out, with interest, to private banks. Private banks aren't creating money, the central bank is. You've confused the two.
- nhaehnle 11y agoThe money that the central bank creates is central bank money/high-powered money/M0. The money that private banks create is the money in general circulation, i.e. M2. M2 is much bigger than M0.
- bduerst 11y agoM2 is derived from M0, which is created by the central banks. The person was clearly under the impression that private banks were creating M0.
- stephenr 11y ago> In the process they have inflicted enormous harm to our economy and lives, but they have not shared a proportionate share of the costs. The costs they impose hardly justify the veritable monopolies banks are afforded by the laws and regulations which are very effective at preventing competitors from entering the market. I'll just guess you're American. America's obsession with "free market" is why you have terrible banks, terrible health care, terrible conditions for low income workers. Governments are intended to serve the whole of society. If you elect a government that decides society is best served by private enterprises which are solely interested in making a profit and aren't bound by laws saying they have to serve the entire community responsibly, what do you expect? And here's a tip for you: "disrupting" banks isn't going to work out well either. If banks are taxi's, what will the bank equivalent of Uber look like? A company that hires thieves to run it's operations, and every 100th customer has their funds stolen by a member of staff. Banks don't need more competition to be better. They need to be legally required to operate in a way that is financially reliable, and held accountable when they don't.
- dsfsdfd 11y agoI disagree, the structure is inherently centralised. What you are describing is more centralised control as the fix for too much centralisation. Centralisation concentrates power, that power is always going to be manipulated and perverted by those in the right places. You can't fix this with extra layers. You need an entirely new system, tear it down and start again - all of it - it's not fit for purpose. In it's place you need a decentralised systems whose intrinsic dynamics give rise to the properties we desire. Which is exactly what human social structure provides - when operating on the small scale - a balance between selfishness and altruism. Scale it up to it's current size and degrade the role of altruism and you end up in this catastrophic fuck up.
- humanrebar 11y ago> America's obsession with "free market" is why you have terrible banks, terrible health care, terrible conditions for low income workers. America's lack of free markets more like. Between the bailouts and increased regulations, bad behavior has been rewarded and good actors (including small community banks) have been hit pretty hard. > If you elect a government that decides... The problem with thinking government is the solution is that popular opinion is cyclical: https://en.wikipedia.org/wiki/List_of_Presidents_of_the_United_States#Timeline https://en.wikipedia.org/wiki/List_of_Presidents_of_the_Unit... So whatever power you give to government to "set things right" and "ensure fairness" will be used (in probably less than 10 years) by someone else do do something "unfair" and "corrupt". > They need to be legally required to operate in a way that is financially reliable, and held accountable when they don't. I reject that the dichotomy is government on one side and corporations on the other. Most of the time, they are on the same side. Corporations campaign and get regulations and handouts friendly to their business models and push out competition. On a local level, sure, you have taxi lobbies getting strict rules that eliminate competition. On the federal level, we have laws on the books that allow jail time for violating copyright, which is basically violating a business model. I could see civil penalties, but jail time?
- golergka 11y ago> Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed Is like saying that every salesman or shop in the world "buys things for less than he sells it" — it paints a picture of "free money" while completely forgetting all the work and service to society that goes into that process. In case of salesmen and shops, it's logistics; in terms of banks, it's risk management. Modern financial system is one of the most important achievements of our society: it's overwhelmingly effective in managing risks and enabling creation of countless big and/or high-risk projects while maintaining stability. It may seem counter-intuitive when you're faced with recession, but when you look how things rolled out in countries that tried to follow planned economy, communist systems, or, on the other hand, full of corruption "capitalism" that is China, you see how good is the western, first-world capitalism is in comparison.
- Asbostos 11y agoIf banks weren't run by people but were some kind of natural phenomenon, like say a mineral you can find in the ground, then we wouldn't be able to blame them. Instead we'd blame ourselves for being foolish enough to risk our money with them. That's what we've done, we've trusted banks with our retirement savings and what-not but didn't do our due diligence. If they also provide some good that we really want, then probably governments would regulate our use of them. Just as is done with oil, certain controlled plant species, etc. The problem is that governments don't all regulate bank use well enough to prevent chain reaction problems and customers aren't competent to make those risk assessments themselves.