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mrbluze writes:
"An interesting blog post by Charles Hugh Smith on Why Banks Are Doomed: Technology and Risk.:
The funny thing about technology is that those threatened by fundamental improvements in technology attempt to harness it to save their industry from extinction. For example, overpriced colleges now charge thousands of dollars for nearly costless massively open online courses (MOOCs) because they retain a monopoly on accreditation (diplomas). Once students are accredited directly--an advancement enabled by technology--colleges' monopoly disappears and so does their raison d'etre.
The same is true of banks. Now that accounting and risk assessment are automated, and borrowers and owners of capital can exchange funds in transparent digital marketplaces, there is no need for banks. But according to banks, only they have the expertise to create riskless debt.
...
One last happy thought: technology cannot be put back in the bottle. The financial/banking sector wants to use technology to increase its middleman skim, but the technology that is already out of the bottle will dismantle the sector as a function of what technology enables: faster, better, cheaper, with greater transparency, fairness and the proper distribution of risk.
There may well be a place for credit unions and community banks in the spectrum of exchanges, but these localized, decentralized enterprises would be unable to amass dangerous concentrations of risk and political influence in a truly transparent and decentralized system of exchanges.
It's still early days, but can new electronic currencies such as Bitcoin become mainstream without the assent of governments?"
(Score: 5, Informative) by tomtomtom on Monday February 24 2014, @12:32PM
This massively understates what it is that banks do (and what the core useful part of their business is). It is not simply the extension of credit (after all, the bond market has done this as well for a very long time and banks still exist), but also the fact that they are engaging in maturity transformation - so that depositors have access to their money on demand whereas borrowers get to pay their mortgage back over e.g. 30 years.
Maturity transformation is not something which peer-to-peer lending can do on its own (you could simulate it to some extent with an easily-tradable and liquid pool of loans but with the obvious downside that prices may go down through normal fluctuations in the market), and it is also what leads in large part to the need for deposit insurance and all sorts of other regulation like solvency and liquidity rules (which ultimately exist to prevent runs on the bank).
(Score: 2, Insightful) by DeathMonkey on Monday February 24 2014, @02:53PM
This massively understates what it is that banks do (and what the core useful part of their business is). It is not simply the extension of credit (after all, the bond market has done this as well for a very long time and banks still exist), but also the fact that they are engaging in maturity transformation - so that depositors have access to their money on demand whereas borrowers get to pay their mortgage back over e.g. 30 years.
Agreed 100%. In addition to that, banks can simply adopt these exact same technologies. Not to avoid withering and dying but just to improve the bottom line. Then people have the choice of doing their banknig with an FDIC insured entity with a name they recognize vs. some guys on the internet. Guess who most sane people are going to keep their money with...
(Score: 1) by Blackmoore on Monday February 24 2014, @05:34PM
Well; no. the banks CAN'T adopt crowdsourcing technologies. Conservative as they are - that would not be something you will ever see.
You MIGHT see a federal Credit union adopt this. And they would work it until the next recession and lose on the deal.
(Score: 1) by WillR on Monday February 24 2014, @06:04PM
(Score: 4, Interesting) by edIII on Monday February 24 2014, @03:46PM
It also seems that it's massively understated just how dangerous the banks are .
Deposit insurance does protect the plebes (who is really going to have more than 250k-especially in a great depression), but that is about the only good regulation that exists for consumers.
The rest of it is a nightmarish cluster$*%$. This great depression is 100% the fault of the banks collusion with Wall Street. So where were all the regulations that should have protected people from the banks, and the banks from themselves ?
Mortgages should have never been securitized, as the inherent greed and shortsightedness with the banks and Wall Street was a recipe for inevitable disaster. There were no other logical outcomes from such an environment. We had legislation that protected us from that - Glass-Steagall.
Banks with deeds of trust were then able to steal billions worth of residential homes (in use at the time) as nothing stops a deed of trust except a judge that is willing to put his/her foot down. Even if you can prove mortgage fraud, the foreclosure process is 'not the proper venue' for disputing it. Untold amounts of property were stolen in Nevada due to this little regulation, so wholly toxic to the welfare of our country, that it's amazing it took years for judges in Nevada to have had enough of it.
How many games do banks play?
Wells Fargo will only accept a transfer to a savings account to eliminate fees *only* if it is an automatic transfer. Doing it yourself doesn't work. As a software engineer, that means the rule essentially comes down to the source of the API request. Was it from a cron job or manual activity on the website?
The law that attempts to eliminate egregious and unreasonable overage fees. $35 is an absolute insanity. Wells Fargo doesn't suffer $35 for what amounts now to electronic transactions. Bankers (which are the epitome of laziness anyways) are not working overtime to balance books anymore. They're nothing but monkeys on a keyboard now. Skillsets have been reduced to routine operations of CRMs and other backend information systems. There is a law that says you can opt-out of the 'courtesy' of them allowing your bank account to go negative, with no consequences to you. However, they found a loophole with that. Any debit/credit transactions bypass those laws.
So I'm at a complete loss when you say regulations keep banks in line and they are the only ones that can service our needs.
No. They've been so toxic I don't even care about 'maturity transformation'.
If we can bypass the banks and go with technology that will be infinitely better. I would rather deal with a market and transaction system that fluctuates and is highly chaotic than a system that actively works against the best interests of all Americans, and may have tanked the entire economy, and put millions upon millions out of their homes with their retirements effectively obliterated .
Banks don't have any rules. There is only one rule. We do want we want, we screw who we want, we don't suffer consequences, and if you have a problem, screw you, if we have a problem, what's that phone number for the Senator again?
As soon as I can ditch the dollar and use this new technology the better. Banks are a pox on the world.
(Score: 1) by Wootery on Monday February 24 2014, @07:09PM
I would rather deal with a market and transaction system that fluctuates and is highly chaotic than a system that actively works against the best interests of all Americans, and may have tanked the entire economy
Could this be a Tragedy of the Commons?
It's possible that each individual is better off using a bank (for stability), despite that overall, society is worse off for using them.
(Score: 0) by Anonymous Coward on Tuesday February 25 2014, @11:45PM
No, banks can work fine for society. It's the deregulation and changes in laws some years back that allowed the banks to do all that bad stuff. Backed up by support from the people at the top - given the verdicts in many cases were to let the culprits go free with the money still in their hands, I'd say it was intentional theft by the 1% from the 99%.
Who did the Federal Reserve really help when they loaned trillions of US dollars from thin air?
Go see how favored people in banks are treated when they launder money compare with what happens when others do it. No jail vs jail.
Go count how many people went to jail for this: https://en.wikipedia.org/wiki/MF_Global#October_20 11:_MF_Global_transfers_client_account_funds_to_it s_own_account [wikipedia.org]
( If I transferred someone else's money into my account without their permission, it's considered theft even if I give it back in full - I'd still get in big trouble, but these people go free).
As the Iceland example shows - you don't have to bail out the banks, bail out the depositors and let the banks die (and jail those who commit crimes). The finance bunch may scream about it, but once you recover and do well, they'd be back because they can make lots of money again (just like they did when times were good).
(Score: 5, Insightful) by ikanreed on Monday February 24 2014, @03:52PM
And they have the means and experience to enforce their debts. If some random stranger you micro-loaned $100 just stopped paying, you'd be hard pressed to find a solution cheaper than ignoring it.
(Score: 0) by Anonymous Coward on Monday February 24 2014, @10:35PM
As the creditor, it would be your responsibility to assess the trustworthiness of potential borrowers, or use an escrow service.
(Score: 1) by sjames on Tuesday February 25 2014, @08:21PM
Agreed.
What banks should fear is the far more common day to day activities of transferring small amounts of money through debit cards and checks plus the somewhat larger direct deposits and monthly bills.