I’m not quite sure what you mean by that… Are you suggesting there is a banking system in which it is easy for potential customers to decide which banks are good?
Are you suggesting customers are idiots ?
But banks cant get to be the owner of the money created out of thin air unless that lend it out and the person they lend it to earns enough to pay all of it back plus interest (and then they just get to keep the interest). If the banks were restricted to making real-investment loans only as opposed to real-investment loans + pseudo-investment loans then their income would be drastically reduced.
See, I get what you’re saying. I don’t blame people for wanting their deposits to be secure, I just think that the government solution has unintended consequences.
I’m saying that Joe the plumber and Susan Boyle are not clever enough, which is a long way from saying they are “idiots”.
You mean is it possible? Yes. Consumers have all sorts of ways of choosing between complex products. Intermediaries between the producer and consumer (like walmart, dell) build up trust in the community which they profit from through brand name recognition.
I mean look at paypal: You can deposit cash in paypal, pay most online bills with it, etc etc. It is basically an online bank. It does not make loans or do anything else that state-chartered banks typically do.
You also don’t have problems with fractional reserve banking in things like the stock and commodity markets. In principle, it would be possible to have fractional reserve “warehouses” in these industries, but consumers seem to have successfully chosen a functional set of firms to manage their transactions/assets.
In order for a consumer to care about bank runs and make efforts to avoid them, the consumer has to perceive a risk of one happening. In the Uk there had been no bank runs in a century or so (till RBS). So why would anyone have made any effort whatsoever to ensure their bank was safe?
is this your appeal to Obama to instate you as ‘Loan Czar’ - big chief in deciding which loans are ‘real’ and which are ‘pseudo’ ?
Well in the states, no one cares about their bank because of the FDIC. But even if there aren’t any recent examples of bank failures that doesn’t mean consumers will just pick banks capriciously. I mean personal storage facilities have never had any major problems but that doesn’t mean consumers dont do a quality check
I’m not suggesting that it is critical to eliminate every single pseudo-loan… just reducing them will help. And for many/most of them it pretty damn obvious. If someone come into the bank saying “I want to borrow $2000 to buy a holiday in Bermuda” you don’t have to be Einstein to work out that this is not a productive investment.
Really? Tell me what kinds of things might realistically constitute Joe the plumber’s “quality check” of a personal storage company.
Brand recognition. The fact that he signs a contract wherein the storage company accepts liability for his stuff.
You are saying that they can’t manage their own affairs. See, that’s what 99% of arguments here boil down to. People will die if the natural and wise elites and/or the ‘democratic’ state don’t protect them from their own ‘lack of cleverness’ (not stupidity, mind you…)
So, let’s assume that ordinary people are mentally challenged. Now, what sort of elite would ‘run’ a society of people who are mentally challenged ? Do you think the few clever overlords would be benign altruists ?
Don’t bother with mickanomics. First he says that anyone can start a bank, then he says that the average Joe or Susan can’t distinguish between bank A and bank B. Lol.
Not all “affairs” are equal. Anyone can choose between a beef sandwich and a chicken sandwich. Nothing very bad happens if you get it wrong. But some affairs are inherently very difficult to manage. If something very important to me depends on the internal workings of a private company, then how can I find out about that in a free market. Companies don’t let you come in and examine their workings. You only get to see what they want you to see. If the performance of a company depends critically on an employee X (everyone else is just in sales, or is much less skilled than X) and the company has built up a great reputation because X has been working there a long time then what happens when X suddenly dies of a heart attack without putting a successor in place? Past performance will be no guide to future performance.
“benign” and “altruists” are both a matter of degree. If I had a mentally challenged, grown up, son and I was getting old and may die soon, then I would be far happier letting him be looked after in a socialist democracy than an anarchist state.
Did I have to spell out that perhaps criminals and the mentally retarded can’t start banks?.. please tell me which other people are not allowed to start banks?
Lol to your lol. Your statement is idiotic.
I like you dude, but this is why you fail.
There’s nothing ‘real’ or ‘automatic’ about the level of investment which occurs when government arbitrarily tries to dictate what is and what isn’t pseudo-investment.
And I’m sure they do, but it’s undeniable that a higher market value of a company means more assets which will balance out any liabilities and make it a safer investment. If a bank lends to a company a higher asset value of that company makes it a safer investment, and a higher stock value allows a company to gain more money from selling any given amount of further stock.
What is wrong with magnifying the effect of your market knowledge by borrowing? That’s as arbitrary as saying “I don’t have much of a problem with the idea of investing in your own business with your own money. The problem is with borrowing to invest in your own business. If someone is good at managing their business then they will earn plenty of money to make larger future investment in their business anyway.”
So what? Is the economy to satisfy individual desires or to satisfy your subjective assessment of how many ‘real investments’ should be made?
There’s nothing wrong with that.
I’m sure this is on your blog, but could I just grab a tl;dr for the purposes of this part of the discussion?
Again, I don’t see what’s wrong with this.
This is untimately the problem with your assessment. Instead of simply realising any such problems will be eliminated in a free market, and advocating for such a free market, you’re trying to work out alternate ways of eliminating these things, which ultimately boils down to you making nothing more than guesses and subjective assessments of the situation.
Productive according to who? The people actually involved or you and your subjective views on what ‘productive’ entails?
I don’t understand your use of the word arbitrarily. Its often blindingly obvious when an “investment” is not productive. I don’t know if anyone would claim that borrowing to go on holiday to Bermuda was a productive investment would they?
By what mechanism? If I am a company director and all the shares in the company have already been sold, then how do any further share transactions affect my assets?
Borrowing to invest, combined with fractional reserve banking is akin to creating money in order to invest. That the classic recipe for ABCT. I thought that’s what everyone beleived in on this forum.
“tl;dr”? I think you’ve made a typo…
Er… Daniel doesn’t mean that you forgot retarded people, he means that there’s so many regulations that the common man can’t possibly undertake this venture.
Googled “how to start a bank”: found this kind of junk:
“Expect to be required to raise millions of dollars for your bank’s start up. California, for example, requires charter banks to have between $6 million and $10 million dollars in capital funds before their doors open.”
“This application packet will include a general information sheet, several questionnaires, financial reporting sheets and eligibility checklists. You will also be required to complete supplemental documentation to back up your request to start a bank. You may need to put together a proposal for your bank and you may also need to create a business plan.”
“[Approval] can take between several weeks and several months.”
“The real work is the bank-chartering process, an 18-month endurance test that includes an application rivaling the U.S. tax code for complexity and heft. The Office of Thrift Supervision’s Spokesperson Janet Frank says a large application “might weigh” 25 pounds, but Hudson says he regularly compiles 125-pound applications; he once rented an Econoline van just to transport copies.”
While there are a lot of cases of successful local banks, they never really seem to be rolling on the dough. I think you should make a distinction between massive megabanks like Bank of America and local banks.
I think this allows us to make the point: maybe pete the plumber can start a bank, but he can’t start a megabank.