4 ms·

Don’t forget the glossy towers full of VPs downtown. How we know banking is so lucrative.

lotsofpulp 3y ago
That is lending/investment banking that is lucrative, not the “banking” that most people associate with a typical bank with tellers. Technically, there is no reason why the Fed has to give the banks 5.25% interest, and then the bank gives the general public 20 basis points less. They could just give it directly to the public.
- SllX 3y ago
  The extra layers of abstraction and buy-in from private banks is how we keep politics from completely dominating the value of money. The politics isn’t absent, but it is much more difficult to coerce the value of money in one direction or another without participation from the market.
  - lotsofpulp 3y ago
    I don’t know what that means. The value of money has moved in one direction, for a very, very long time. It is basically government policy, to target 2% reduction every year.
    - SllX 3y ago
      No, it is Federal Reserve policy, which is very different from government policy, and the way they achieve it is by taking action in the market rather than putting a pen to paper and willing it so (like Congress does) so that you can rest easy that the value of your dollars are (through market forces, once all information has been consolidated down to a price) of reasonable value to the market and not something to be avoided. Other currencies haven't always had it so easy because maintaining a currency's value with only a slight year-over-year increase in inflation (and inflation has not been slight for a bit now) is not easy. It's also a policy that has buy-in from private banks, given that they are literally bought in to the Federal Reserve.
      - lotsofpulp 3y ago
        Suppose you do separate the Federal Reserve from the US federal government, what role does a bank serve? Surely the federal reserve should be able to maintain the same database of accounts that Chase and BoA and Wells Fargo maintain. Although, I would argue the federal government and the federal reserve have the same mandate, which is maintaining a steady increase in asset prices. They might say they have other priorities, but their first will always be maintaining the social order, and politically, that requires sacrificing the currency’s purchasing power to maintain a minimum ROI.
        SllX 3y ago
        Could? Yes. Do we want it to? Not really. We already have private banks, and a lot of them with which to choose to take our business who are all bought into ensuring the stability of the Federal Reserve system through their ownership of the 12 system banks. Undermining either the Federal Government or the private banks would undermine the entire system.
        lotsofpulp 3y ago
        What does undermine mean? I still do not understand the purpose or utility of the bank for electronic funds transfers. And the federal government is explicitly the one guaranteeing that the numbers in your account at a private bank mean something, so how could the federal government be undermined? Surely my money being at Chase account # x or US government account # y is the same thing for me, except with Chase, there's a middleman in play who is taking a cut of interest from the Federal Reserve.
      - dragonwriter 3y ago
        > No, it is Federal Reserve policy, which is very different from government policy The Federal Reserve Board of Governors, the things that sets the policy in question, is an executive branch agency, situated similarly to ones like the FCC. Fed policy is not "very different from government policy", it is government policy.
  - onetokeoverthe 3y ago
    [dead]
- dageshi 3y ago
  There is a very good reason why this is not done. In a financial crisis the fed would be safer than any other investment, which would have catastrophic consequences.
  - lotsofpulp 3y ago
    What consequences? What is the purpose of an intermediary (the bank) if money in a bank account is guaranteed by the federal government anyways? See the recent bank failures of SVB and the couple others. How did having the money at a bank help, rather than say an electronic money account in a ledger operated by the federal government?
    - dageshi 3y ago
      The consequence is, in the financial system nowhere you can put your money is safer than US government debt. If you can deposit your money directly with the FED then that IS safer than government debt. During a financial crisis such as 2008 money would go straight to the FED for safety forgoing everything else. This causes interest rates to spike everywhere including gov debt at precisely the time the government needs to borrow heavily to fix whatever went wrong. That is why there will never ever be direct deposit with the FED because it circumvents one of the most important safety features in the modern economy, which is in the event of a crisis the government can borrow cheaply to fix things.
      - lotsofpulp 3y ago
        What is depositing money if it is all electronic? And why would numbers in a database at the Fed be more safe than numbers in a database at some other US federal government organization? With electronic funds, all you are doing is subtracting it from one legal entity’s database entry and adding it to another’s. If people want to invest their money in US federal government debt, then the government has to pay interest. I do not see where thesafety” factor comes from, surely that is ensured by a functioning court system that ensures the numbers in the database cannot be altered.

That is lending/investment banking that is lucrative, not the “banking” that most people associate with a typical bank with tellers. Technically, there is no reason why the Fed has to give the banks 5.25% interest, and then the bank gives the general public 20 basis points less. They could just give it directly to the public.

SllX 3y ago
The extra layers of abstraction and buy-in from private banks is how we keep politics from completely dominating the value of money. The politics isn’t absent, but it is much more difficult to coerce the value of money in one direction or another without participation from the market.
- lotsofpulp 3y ago
  I don’t know what that means. The value of money has moved in one direction, for a very, very long time. It is basically government policy, to target 2% reduction every year.
  - SllX 3y ago
    No, it is Federal Reserve policy, which is very different from government policy, and the way they achieve it is by taking action in the market rather than putting a pen to paper and willing it so (like Congress does) so that you can rest easy that the value of your dollars are (through market forces, once all information has been consolidated down to a price) of reasonable value to the market and not something to be avoided. Other currencies haven't always had it so easy because maintaining a currency's value with only a slight year-over-year increase in inflation (and inflation has not been slight for a bit now) is not easy. It's also a policy that has buy-in from private banks, given that they are literally bought in to the Federal Reserve.
    - lotsofpulp 3y ago
      Suppose you do separate the Federal Reserve from the US federal government, what role does a bank serve? Surely the federal reserve should be able to maintain the same database of accounts that Chase and BoA and Wells Fargo maintain. Although, I would argue the federal government and the federal reserve have the same mandate, which is maintaining a steady increase in asset prices. They might say they have other priorities, but their first will always be maintaining the social order, and politically, that requires sacrificing the currency’s purchasing power to maintain a minimum ROI.
      - SllX 3y ago
        Could? Yes. Do we want it to? Not really. We already have private banks, and a lot of them with which to choose to take our business who are all bought into ensuring the stability of the Federal Reserve system through their ownership of the 12 system banks. Undermining either the Federal Government or the private banks would undermine the entire system.
        lotsofpulp 3y ago
        What does undermine mean? I still do not understand the purpose or utility of the bank for electronic funds transfers. And the federal government is explicitly the one guaranteeing that the numbers in your account at a private bank mean something, so how could the federal government be undermined? Surely my money being at Chase account # x or US government account # y is the same thing for me, except with Chase, there's a middleman in play who is taking a cut of interest from the Federal Reserve.
    - dragonwriter 3y ago
      > No, it is Federal Reserve policy, which is very different from government policy The Federal Reserve Board of Governors, the things that sets the policy in question, is an executive branch agency, situated similarly to ones like the FCC. Fed policy is not "very different from government policy", it is government policy.
- onetokeoverthe 3y ago
  [dead]
dageshi 3y ago
There is a very good reason why this is not done. In a financial crisis the fed would be safer than any other investment, which would have catastrophic consequences.
- lotsofpulp 3y ago
  What consequences? What is the purpose of an intermediary (the bank) if money in a bank account is guaranteed by the federal government anyways? See the recent bank failures of SVB and the couple others. How did having the money at a bank help, rather than say an electronic money account in a ledger operated by the federal government?
  - dageshi 3y ago
    The consequence is, in the financial system nowhere you can put your money is safer than US government debt. If you can deposit your money directly with the FED then that IS safer than government debt. During a financial crisis such as 2008 money would go straight to the FED for safety forgoing everything else. This causes interest rates to spike everywhere including gov debt at precisely the time the government needs to borrow heavily to fix whatever went wrong. That is why there will never ever be direct deposit with the FED because it circumvents one of the most important safety features in the modern economy, which is in the event of a crisis the government can borrow cheaply to fix things.
    - lotsofpulp 3y ago
      What is depositing money if it is all electronic? And why would numbers in a database at the Fed be more safe than numbers in a database at some other US federal government organization? With electronic funds, all you are doing is subtracting it from one legal entity’s database entry and adding it to another’s. If people want to invest their money in US federal government debt, then the government has to pay interest. I do not see where thesafety” factor comes from, surely that is ensured by a functioning court system that ensures the numbers in the database cannot be altered.