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What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will p

What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they lose? Let it all fail. If you don't let it fail, might as well go full on CDBC and revoke banks privilege and role in managing money. What's even the point of having banks when the banks don't really hold the risk themselves? Why have them as gatekeepers? They don't deserve a single dollar earned from risk that they don't hold.

salawat 4y ago
Because: In the United States, banks can empower the government in such a way as to crack down on 'problematic' things without a direct Constitutional crisis. See Bank of America voluntarily handing the FBI their firearm related transaction dataset. Private industry goves government a plausible deniability proxy in short.
gruez 4y ago
> What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. They're not exactly risking nothing. Capital requirements mean that each dollar of deposits need to be backed by more than a dollar worth of assets. The extra assets serves as a cushion in case something goes wrong. That cushion makes up the equity of the bank, and comes from shareholders. If the bank "fails", the shareholders lose it all, so it's in their interest to prevent that from happening.
- machina_ex_deus 4y ago
  I know how it works. They get 10 to one leverage while the government effectively insures their counterparty risk for free. That's absolutely ridiculous. Where do I sign up. I want to gamble other people money at 10 to one leverage and nobody suing me if I fall. My cushion if I make a margin account at the bank is what, 2 to 1? Do you know the interest rates you pay for these margins? Compare that to interest rates the banks give their customers. They are absolutely privileged, by law. You as an individual or even as a corporation don't get this privilege. Why is it in their interest not to risk it in a ridiculous way? If I had several margin accounts of 10 to 1 that can only go down to zero, the highest return isn't by spending it wisely. It's by spending it in the most risky way, getting that sweet 10x on that risk and the rest can go to zero for all I care. I don't even need a positive expectation value investment to have a positive expectation value from this shenanigan. Even investing in an unfair coin toss of 40% to double, getting free 10 to one margins my expectation value is an absurd 400% return starting from what should be negative expectation value investment. The banks have privileges that are absolutely rigging the game in the most distorted ways possible. The shareholders equity doesn't justify their privileges.
  - deleted 4y ago
    [deleted]
adam_arthur 4y ago
You don’t have to use a bank. Cash is one option, and perhaps someday soon a self managed/federal CBDC. You can also put your cash into money market funds that invest in T-Bills, which is what anybody with some common sense and a large amount of money should do. But in this world entities that offer you a return on your money will still exist, e.g. banks. If I can register my cash and you pay me x% per year, that’s better than getting 0. So banks would form regardless. Banks make loans and create credit which allows the broader economy to grow. Better to have properly regulated private sector entities with skin in the game making lending decisions than having the federal government do it. If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly. Clearly the existing bank regulations aren’t sufficient though.
- water-your-self 4y ago
  >If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly. Similarly, ceasing steroid use will reduce muscle mass.
  - adam_arthur 4y ago
    Imagine trying to buy a house without a loan. Or start a business without cash up front. We can move to a world without credit, but standard of living for people will drop significantly. Look at what happened when they tightened lending standards into a recession in the 1930s. The key is to find the right balance in regulations to make the system robust
    - deleted 4y ago
      [deleted]
    - TheOtherHobbes 4y ago
      Imagine a world where people had enough cash to do those things without needing a loan. No doubt it would be "inflationary" or some other nonsense, but the reality is that banking is a form of deliberate rationing and enforced political hierarchy. The financial industry exists solely for its own benefit, at spectacular cost to everyone else - not just by making significant capital almost cripplingly expensive for most of the population, but also by acting in irresponsible self-serving ways which everyone else has to pay for.
em500 4y ago
> If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they lose? How it usually works is, when a bank fails and is "rescued", the shareholders (owners) who "get to play" with the money get nothing. The ones who are "rescued" are usually some/most of the debt holders. Letting debt holders also shoulder some of the costs is worth considering, but the authorities generally believe it's too risky (the risk being a huge amount of debt holders pulling their money and/or demanding much higher interests which raises general borrowing costs).
- kevinventullo 4y ago
  But isn’t resetting the shareholders to zero exactly the problem? If we’re keeping score, the shareholders should owe the government exactly how much money was used to make the debt holders whole, right?
  - em500 4y ago
    We're not keeping negative scores, that's the whole point of the invention of limited liability corporations. It's has large upsides (democratization of capitalism, ability to participate in larger and riskier ventures). Like most powerful tools, it can be abused, but it's such a powerful force multiplier that giving it up is just too costly.
    - TheOtherHobbes 4y ago
      No need to give it up. Just narrow its application to banks. Or even just certain bank transactions. If elements in the finance industry keep acting irresponsibly - clearly true - why should they get a pass on personal consequences?
    - machina_ex_deus 4y ago
      Normally if I have contract with somebody of borrowing money, and I don't pay, the other side lost money. Because it was my responsibility who I do business with. So we both get to play until we reach zero. That's fair game. Now we're saying, actually, banks effectively don't impose counterparty risk on their clients. So the government is actually who's taking the counterparty risk. If that's the government and not the customers, why did they get that privilege? Why is the government only there when the risk is fulfilled? Limited liability is fine. It's not fine when who's really liable is the government, while the original deal was between the bank and its customer. Student loans are also not fine either, since you don't get to set them to zero. Revoke Banks privilege of handling money. Let them play the game like the rest. Even the government itself needs to raise money using Treasury bonds. I want a fair game. This game is rigged. One player has the privilege of effectively using the government as an insurer for it's counterparty risk. It has repeatedly blown and abused that privilege. Revoke it. Let me hold my account at the Fed if I have positive balance, just like the rest of the banks. Call it CDBC or whatever. Let me get the Fed interest rates just like banks do. The banks are free to do business as they have always done, to loan money. They are free to deal with the trench of people who need loans. Not with my money. My money is only there because they forced me to. That's not a fair system. I don't approve their usage of it for their margins but I literally don't have a choice. Which is why they also get to give me zero interest rates while the Fed gives them much higher rates.
WastingMyTime89 4y ago
You have the right sentiment but the wrong conclusion. It was clear after the large bailouts of 2008 that left to their own demise banks would do anything for a bit more money and were not trustworthy actors. That’s an old conclusion by the way. The same one was reached in the 1930s. The logical conclusion to these bailouts was that the regulatory environment surrounding banking was plain bad which was unsurprising because successive neoliberal governments had torn down most of it. The conclusion to this one is that it still is and what was done in 2010 (Dodd-Frank) is a joke and clearly insuffisant. Something everyone knew. You want to be mad at someone? Start with your government.
- JumpCrisscross 4y ago
  > conclusion to this one is that it still is and what was done in 2010 (Dodd-Frank) is a joke and clearly insuffisant SVB was exempted from much of Dodd-Frank and Basel III.
- machina_ex_deus 4y ago
  You can't regulate away bad incentives which come from the privileges that other regulations grant. We're only in this mess because banks have excessive privileges. These privileges lead to misaligned incentives. No amount of regulation can realign the incentives back. Only revoking their privileges. Their privileges include being the only entities able to deal with the Fed and hold deposits . Let people bank directly at the Fed. Or with crypto. But banks don't deserve a special privilege of being the only way people can hold money. Furthermore, loans should not be transferable. Now banks will actually have to price loans correctly. And putting your money in a bank would be a choice they will have to tempt you with, by actually giving real interest rates. And you won't have misaligned incentives, because there is no captive audience. Giving your money to the bank would be a risk you're doing willingly. A risk they will pay you for taking instead of robbing from you by their regulatory privileges.
  - WastingMyTime89 4y ago
    You are confusing different things. I also agree that banks shouldn’t be the sole intermediating agents for money creation but this has absolutely nothing to do with retail banking. Who exactly is the captive audience in retail banking? Last time I checked there was plenty of choice there. Anyway, SVB clearly is a failure of risk management which is a failure of the regulatory environment.

salawat 4y ago

Because: In the United States, banks can empower the government in such a way as to crack down on 'problematic' things without a direct Constitutional crisis. See Bank of America voluntarily handing the FBI their firearm related transaction dataset. Private industry goves government a plausible deniability proxy in short.

gruez 4y ago

> What's the point in having banks anyway. Why let the people in the bank earn anything if they are risking money that isn't theirs and that the government will pay back anyway if they fail. They're not exactly risking nothing. Capital requirements mean that each dollar of deposits need to be backed by more than a dollar worth of assets. The extra assets serves as a cushion in case something goes wrong. That cushion makes up the equity of the bank, and comes from shareholders. If the bank "fails", the shareholders lose it all, so it's in their interest to prevent that from happening.

machina_ex_deus 4y ago
I know how it works. They get 10 to one leverage while the government effectively insures their counterparty risk for free. That's absolutely ridiculous. Where do I sign up. I want to gamble other people money at 10 to one leverage and nobody suing me if I fall. My cushion if I make a margin account at the bank is what, 2 to 1? Do you know the interest rates you pay for these margins? Compare that to interest rates the banks give their customers. They are absolutely privileged, by law. You as an individual or even as a corporation don't get this privilege. Why is it in their interest not to risk it in a ridiculous way? If I had several margin accounts of 10 to 1 that can only go down to zero, the highest return isn't by spending it wisely. It's by spending it in the most risky way, getting that sweet 10x on that risk and the rest can go to zero for all I care. I don't even need a positive expectation value investment to have a positive expectation value from this shenanigan. Even investing in an unfair coin toss of 40% to double, getting free 10 to one margins my expectation value is an absurd 400% return starting from what should be negative expectation value investment. The banks have privileges that are absolutely rigging the game in the most distorted ways possible. The shareholders equity doesn't justify their privileges.
- deleted 4y ago
  [deleted]

adam_arthur 4y ago

You don’t have to use a bank. Cash is one option, and perhaps someday soon a self managed/federal CBDC. You can also put your cash into money market funds that invest in T-Bills, which is what anybody with some common sense and a large amount of money should do. But in this world entities that offer you a return on your money will still exist, e.g. banks. If I can register my cash and you pay me x% per year, that’s better than getting 0. So banks would form regardless. Banks make loans and create credit which allows the broader economy to grow. Better to have properly regulated private sector entities with skin in the game making lending decisions than having the federal government do it. If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly. Clearly the existing bank regulations aren’t sufficient though.

water-your-self 4y ago
>If you take a big chunk of credit creation and issuance out of service, the economy is likely to regress fairly significantly. Similarly, ceasing steroid use will reduce muscle mass.
- adam_arthur 4y ago
  Imagine trying to buy a house without a loan. Or start a business without cash up front. We can move to a world without credit, but standard of living for people will drop significantly. Look at what happened when they tightened lending standards into a recession in the 1930s. The key is to find the right balance in regulations to make the system robust
  - deleted 4y ago
    [deleted]
  - TheOtherHobbes 4y ago
    Imagine a world where people had enough cash to do those things without needing a loan. No doubt it would be "inflationary" or some other nonsense, but the reality is that banking is a form of deliberate rationing and enforced political hierarchy. The financial industry exists solely for its own benefit, at spectacular cost to everyone else - not just by making significant capital almost cripplingly expensive for most of the population, but also by acting in irresponsible self-serving ways which everyone else has to pay for.

em500 4y ago

> If banks are rescued from this, the only logical conclusion is that all banks should just cease to exist. Why should they get to play with what is effectively taxpayer's money, since that is where the risk will be paid from if they lose? How it usually works is, when a bank fails and is "rescued", the shareholders (owners) who "get to play" with the money get nothing. The ones who are "rescued" are usually some/most of the debt holders. Letting debt holders also shoulder some of the costs is worth considering, but the authorities generally believe it's too risky (the risk being a huge amount of debt holders pulling their money and/or demanding much higher interests which raises general borrowing costs).

kevinventullo 4y ago
But isn’t resetting the shareholders to zero exactly the problem? If we’re keeping score, the shareholders should owe the government exactly how much money was used to make the debt holders whole, right?
- em500 4y ago
  We're not keeping negative scores, that's the whole point of the invention of limited liability corporations. It's has large upsides (democratization of capitalism, ability to participate in larger and riskier ventures). Like most powerful tools, it can be abused, but it's such a powerful force multiplier that giving it up is just too costly.
  - TheOtherHobbes 4y ago
    No need to give it up. Just narrow its application to banks. Or even just certain bank transactions. If elements in the finance industry keep acting irresponsibly - clearly true - why should they get a pass on personal consequences?
  - machina_ex_deus 4y ago
    Normally if I have contract with somebody of borrowing money, and I don't pay, the other side lost money. Because it was my responsibility who I do business with. So we both get to play until we reach zero. That's fair game. Now we're saying, actually, banks effectively don't impose counterparty risk on their clients. So the government is actually who's taking the counterparty risk. If that's the government and not the customers, why did they get that privilege? Why is the government only there when the risk is fulfilled? Limited liability is fine. It's not fine when who's really liable is the government, while the original deal was between the bank and its customer. Student loans are also not fine either, since you don't get to set them to zero. Revoke Banks privilege of handling money. Let them play the game like the rest. Even the government itself needs to raise money using Treasury bonds. I want a fair game. This game is rigged. One player has the privilege of effectively using the government as an insurer for it's counterparty risk. It has repeatedly blown and abused that privilege. Revoke it. Let me hold my account at the Fed if I have positive balance, just like the rest of the banks. Call it CDBC or whatever. Let me get the Fed interest rates just like banks do. The banks are free to do business as they have always done, to loan money. They are free to deal with the trench of people who need loans. Not with my money. My money is only there because they forced me to. That's not a fair system. I don't approve their usage of it for their margins but I literally don't have a choice. Which is why they also get to give me zero interest rates while the Fed gives them much higher rates.

WastingMyTime89 4y ago

You have the right sentiment but the wrong conclusion. It was clear after the large bailouts of 2008 that left to their own demise banks would do anything for a bit more money and were not trustworthy actors. That’s an old conclusion by the way. The same one was reached in the 1930s. The logical conclusion to these bailouts was that the regulatory environment surrounding banking was plain bad which was unsurprising because successive neoliberal governments had torn down most of it. The conclusion to this one is that it still is and what was done in 2010 (Dodd-Frank) is a joke and clearly insuffisant. Something everyone knew. You want to be mad at someone? Start with your government.

JumpCrisscross 4y ago
> conclusion to this one is that it still is and what was done in 2010 (Dodd-Frank) is a joke and clearly insuffisant SVB was exempted from much of Dodd-Frank and Basel III.
machina_ex_deus 4y ago
You can't regulate away bad incentives which come from the privileges that other regulations grant. We're only in this mess because banks have excessive privileges. These privileges lead to misaligned incentives. No amount of regulation can realign the incentives back. Only revoking their privileges. Their privileges include being the only entities able to deal with the Fed and hold deposits . Let people bank directly at the Fed. Or with crypto. But banks don't deserve a special privilege of being the only way people can hold money. Furthermore, loans should not be transferable. Now banks will actually have to price loans correctly. And putting your money in a bank would be a choice they will have to tempt you with, by actually giving real interest rates. And you won't have misaligned incentives, because there is no captive audience. Giving your money to the bank would be a risk you're doing willingly. A risk they will pay you for taking instead of robbing from you by their regulatory privileges.
- WastingMyTime89 4y ago
  You are confusing different things. I also agree that banks shouldn’t be the sole intermediating agents for money creation but this has absolutely nothing to do with retail banking. Who exactly is the captive audience in retail banking? Last time I checked there was plenty of choice there. Anyway, SVB clearly is a failure of risk management which is a failure of the regulatory environment.