5 ms·

Yes but banks do it within a legal framework that moderates the risk(at least in theory) and people know what they are signing into and what are their guarantee

by mrtksn 3y ago

Yes but banks do it within a legal framework that moderates the risk(at least in theory) and people know what they are signing into and what are their guarantees. You don't see too many banks collapsing, don't you? When it happens, its a big deal like with the SVB earlier last year. It's also what Sam Bankman-Fried and others did in exchanges that acted as unregulated banks. The system is not perfect and there are many scandals but if you compare it to what happens in crypto exchanges, its a day and night difference. Running a machine as intended and screwing up is different from pretending doing one thing and actually doing something else and screwing up. This is also why bankers and fund managers don't usually go to jail when they lose clients money. It's not illegal to suck at your job as long as you follow the rules.

lotsofpulp 3y ago
>You don't see too many banks collapsing, don't you? When it happens, its a big deal like with the SVB earlier last year. "Moderating risk" = depending on the US federal government bail you out? There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman.
- mrtksn 3y ago
  Nope. It's about creating a system that attempts to analyse risks and invests within margins that are acceptable for specific products. It impossible for a bank for example to put all their money into Dogecoin because someone got a hunch that Musk will tweet about it. To do that they will need to create some kind of instrument that allows others to bet on Musks tweeting habits. > There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible That's not what banks do. You can do that without being a bank, like PayPal did. Most places will have different and much lightweight regulations than banks for this and you will go to jail if you do anything more than holding and transmitting customer money.
  - lotsofpulp 3y ago
    >That's not what banks do. You can do that without being a bank, like PayPal. Except PayPal has no FDIC protection. The part of the bank (or credit union) that required the US government to provide FDIC protection was due to dealing with cash. Imagine creating a country with just electronic money. What purpose would a bank with a FDIC protection serve if the government can just operate electronic money accounts itself? And if you want to take more risk and earn a higher return, you find a broker or investment fund or investor.
    - mrtksn 3y ago
      >Imagine creating a country with just electronic money. What purpose would a physical bank serve? Investing customers money, create money. Most money in the world is digital already, there are many banks that don't have physical presence and traditional banks are shutting down branches more than the open because branches are just the foot soldiers. There are also countries where cash is almost not used. Banks are not about cash, they are about credit. I don't know what a "physical bank" means though, AFAIk there's no such thing and the buildings that banks own or operate would serve functions like hosting employees/clients/systems but they might choose not to have some of those.
      - lotsofpulp 3y ago
        >Investing customers money, create money. And they can do this without a federal government backstop, just like an SP500 ETF does or a US Treasuries mutual fund, or an REIT, etc. My point is the federal government need not provide a subsidy to these businesses that "invest" customer's money (or simply handle the underwriting of loans in many cases). Right now in the US, via the Fed Funds rate, the federal government pays a business 5.5% just so the business then turns around and pays me 5.05%, all for keeping an entry in a database. And these businesses pay a lot of less discerning depositors a lot less. Surely the federal government can just give all 5.5% to people directly.
        mrtksn 3y ago
- robertlagrant 3y ago
  > Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman. Banks don't store money. They connect money to businesses in a structured way. No banks means businesses won't get created.
  - Retric 3y ago
    Fewer rather than zero businesses. Rich individuals could directly invest. Where banks shine is in making moderate risk investments which aren’t worth much individually but are a significant economic boost in aggregate. Housing may be unaffordable, but people aren’t living in sod houses with dirt floors and no running water either.
    - robertlagrant 3y ago
      Going cap in hand to an angel investor for every £10k loan is not viable. And they don't have the levels of cash needed for this. Why not use banks for this as well?
      - Retric 3y ago
        Get rid of Banks and many different things change. Some wealthy investors would setup a lending operation using their own cash, based on historical examples of such. They would however need to charge higher interest rates than banks because they would be more capital constrained.
  - lotsofpulp 3y ago
    I specified an (FDIC insured) bank's role "in transmitting and keeping an account of money". There would be nothing stopping a lender from lending if the US government gets rid of FDIC insurance and just provides the people of the US electronic money accounts directly.
    - robertlagrant 3y ago
- gruez 3y ago
  >There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman. Banks' job isn't just keeping money safe and doing transactions. It includes maturity transformation as well. [1] https://en.wikipedia.org/wiki/Maturity_transformation https://en.wikipedia.org/wiki/Maturity_transformation
  - lotsofpulp 3y ago
    I should have written "There really is no need for the charade of FDIC insured banks now that electronic databases are very solid technology." I am not seeing the necessity of the federal government backstop to these businesses.
    - gruez 3y ago
      > I should have written "There really is no need for the charade of FDIC insured banks now that electronic databases are very solid technology." What does this have anything to do with maturity transformation? Are you simply trying to say that we don't need banks to do maturity transformation, and they should stick to handling transactions?
      - lotsofpulp 3y ago
        I am saying we don’t need the federal government to backstop businesses just so people do not “lose” money. Money is electronic, the government can handle electronic money accounts directly, and skip paying businesses for no reason. Banks or whatever other financial businesses can continue to sell maturity transformation services, without FDIC insurance.
_heimdall 3y ago
I'm not so sure most people know what they're signing up for when opening a bank account. I also don't think banks particularly hide it, but I'd be surprised if the average person realizes that their checking and savings accounts are only IOUs or that money lent out for a mortgage likely didn't exist until they signed closing documents.
- mrtksn 3y ago
  For all practical purposes for a customer who doesn't do more than putting money in, it's just a storage and they know how much of it is protected if something happens to the bank. From their point of view their money is there, even if the implementation details are much more complicated.
  - _heimdall 3y ago
    But the money literally isn't there, and the FDIC insurance that secures up to a limit is itself poorly funded and incapable of covering the failure of a moderately sized bank. Saying the money appears to be there is very different from the reality of it, and in the context of whether customers consent to how the system works its also feels disingenuous IMO. Can people spend the money as though it were there? Sure. Is the money they deposited there or are they aware that 90-100% of the money was immediately allocated to something else? Almost certainly no.
    - mrtksn 3y ago
      Who cares, the customers aren't exposed to all that and that's why they don't know it. It's like saying that McDonald's doesn't have any hamburgers, it's all buns and meat and lettuce. Yeah, that's how it works. Last year a few banks went tits up, all the deposits were paid.
      - _heimdall 3y ago
        In my opinion a more apt analogy would be McDonalds selling low quality food that includes ingredients known to very likely ve bad for your health without ever making that clear. Sure a customer could technically dig into research and health studies but that's not really the point here. Is it consent if you aren't made aware or given reasonable access to information that the average person could be expected to understand?
ChiperSoft 3y ago
There have been 538 US bank failures since 2008. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/asset-total-in-2023-bank-failures-catching-up-to-2008-74744994 https://www.spglobal.com/marketintelligence/en/news-insights...

by mrtksn 3y ago

lotsofpulp 3y ago

>You don't see too many banks collapsing, don't you? When it happens, its a big deal like with the SVB earlier last year. "Moderating risk" = depending on the US federal government bail you out? There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman.

mrtksn 3y ago
Nope. It's about creating a system that attempts to analyse risks and invests within margins that are acceptable for specific products. It impossible for a bank for example to put all their money into Dogecoin because someone got a hunch that Musk will tweet about it. To do that they will need to create some kind of instrument that allows others to bet on Musks tweeting habits. > There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible That's not what banks do. You can do that without being a bank, like PayPal did. Most places will have different and much lightweight regulations than banks for this and you will go to jail if you do anything more than holding and transmitting customer money.
- lotsofpulp 3y ago
  >That's not what banks do. You can do that without being a bank, like PayPal. Except PayPal has no FDIC protection. The part of the bank (or credit union) that required the US government to provide FDIC protection was due to dealing with cash. Imagine creating a country with just electronic money. What purpose would a bank with a FDIC protection serve if the government can just operate electronic money accounts itself? And if you want to take more risk and earn a higher return, you find a broker or investment fund or investor.
  - mrtksn 3y ago
    >Imagine creating a country with just electronic money. What purpose would a physical bank serve? Investing customers money, create money. Most money in the world is digital already, there are many banks that don't have physical presence and traditional banks are shutting down branches more than the open because branches are just the foot soldiers. There are also countries where cash is almost not used. Banks are not about cash, they are about credit. I don't know what a "physical bank" means though, AFAIk there's no such thing and the buildings that banks own or operate would serve functions like hosting employees/clients/systems but they might choose not to have some of those.
    - lotsofpulp 3y ago
      >Investing customers money, create money. And they can do this without a federal government backstop, just like an SP500 ETF does or a US Treasuries mutual fund, or an REIT, etc. My point is the federal government need not provide a subsidy to these businesses that "invest" customer's money (or simply handle the underwriting of loans in many cases). Right now in the US, via the Fed Funds rate, the federal government pays a business 5.5% just so the business then turns around and pays me 5.05%, all for keeping an entry in a database. And these businesses pay a lot of less discerning depositors a lot less. Surely the federal government can just give all 5.5% to people directly.
      - mrtksn 3y ago
robertlagrant 3y ago
> Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman. Banks don't store money. They connect money to businesses in a structured way. No banks means businesses won't get created.
- Retric 3y ago
  Fewer rather than zero businesses. Rich individuals could directly invest. Where banks shine is in making moderate risk investments which aren’t worth much individually but are a significant economic boost in aggregate. Housing may be unaffordable, but people aren’t living in sod houses with dirt floors and no running water either.
  - robertlagrant 3y ago
    Going cap in hand to an angel investor for every £10k loan is not viable. And they don't have the levels of cash needed for this. Why not use banks for this as well?
    - Retric 3y ago
      Get rid of Banks and many different things change. Some wealthy investors would setup a lending operation using their own cash, based on historical examples of such. They would however need to charge higher interest rates than banks because they would be more capital constrained.
- lotsofpulp 3y ago
  I specified an (FDIC insured) bank's role "in transmitting and keeping an account of money". There would be nothing stopping a lender from lending if the US government gets rid of FDIC insurance and just provides the people of the US electronic money accounts directly.
  - robertlagrant 3y ago
gruez 3y ago
>There really is no need for the charade of banks now that electronic databases are very solid technology. Their whole role in transmitting and keeping an account of money is surely reproducible by the federal government at very little cost (maybe even lower cost due to not needing FDIC and all that infrastructure) without having to pay a middleman. Banks' job isn't just keeping money safe and doing transactions. It includes maturity transformation as well. [1] https://en.wikipedia.org/wiki/Maturity_transformation https://en.wikipedia.org/wiki/Maturity_transformation
- lotsofpulp 3y ago
  I should have written "There really is no need for the charade of FDIC insured banks now that electronic databases are very solid technology." I am not seeing the necessity of the federal government backstop to these businesses.
  - gruez 3y ago
    > I should have written "There really is no need for the charade of FDIC insured banks now that electronic databases are very solid technology." What does this have anything to do with maturity transformation? Are you simply trying to say that we don't need banks to do maturity transformation, and they should stick to handling transactions?
    - lotsofpulp 3y ago
      I am saying we don’t need the federal government to backstop businesses just so people do not “lose” money. Money is electronic, the government can handle electronic money accounts directly, and skip paying businesses for no reason. Banks or whatever other financial businesses can continue to sell maturity transformation services, without FDIC insurance.

_heimdall 3y ago

I'm not so sure most people know what they're signing up for when opening a bank account. I also don't think banks particularly hide it, but I'd be surprised if the average person realizes that their checking and savings accounts are only IOUs or that money lent out for a mortgage likely didn't exist until they signed closing documents.

mrtksn 3y ago
For all practical purposes for a customer who doesn't do more than putting money in, it's just a storage and they know how much of it is protected if something happens to the bank. From their point of view their money is there, even if the implementation details are much more complicated.
- _heimdall 3y ago
  But the money literally isn't there, and the FDIC insurance that secures up to a limit is itself poorly funded and incapable of covering the failure of a moderately sized bank. Saying the money appears to be there is very different from the reality of it, and in the context of whether customers consent to how the system works its also feels disingenuous IMO. Can people spend the money as though it were there? Sure. Is the money they deposited there or are they aware that 90-100% of the money was immediately allocated to something else? Almost certainly no.
  - mrtksn 3y ago
    Who cares, the customers aren't exposed to all that and that's why they don't know it. It's like saying that McDonald's doesn't have any hamburgers, it's all buns and meat and lettuce. Yeah, that's how it works. Last year a few banks went tits up, all the deposits were paid.
    - _heimdall 3y ago
      In my opinion a more apt analogy would be McDonalds selling low quality food that includes ingredients known to very likely ve bad for your health without ever making that clear. Sure a customer could technically dig into research and health studies but that's not really the point here. Is it consent if you aren't made aware or given reasonable access to information that the average person could be expected to understand?

ChiperSoft 3y ago

There have been 538 US bank failures since 2008. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/asset-total-in-2023-bank-failures-catching-up-to-2008-74744994 https://www.spglobal.com/marketintelligence/en/news-insights...