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Guest Post: Banks Are An Endangered Species

Tyler Durden's picture


Submitted by John Aziz of Azizonomics

Banks Are An Endangered Species

In the long run, all the hullabaloo about the various global banking crises is just hot air.

The old establishment banks — the ones that have been bailed out this week in Spain, and in 2008 in America — are unnecessary middlemen. This is because of the ludicrous spreads from which they profit. They borrow from central banks and from depositors at absurdly low rates of interest (that’s what ZIRP is all about) and lend at vastly higher rates. What useful function does it serve? At one time, banks generated value by being wise lenders, lending to businesses that they determined would add value. Today they prefer gamble up even bigger profits in the zero-sum derivatives casino and shadow banking whorehouse, requiring frequent bailouts when such schemes go awry. They are dinosaurs that offer no real value to their shareholders, their customers, or to society.

And for all their claims of systemic importance, for all the bailouts, all the whining, all the pontification they are gradually being sidelined by other forms of intermediation, specifically peer-to-peer lending wherein lenders and borrowers are matched directly often via the internet. The lender gets interest, the borrower pays interest, but because there is no middleman taking a (huge) cut both rates are more favourable — the borrower pays less interest, the lender receives more interest.

The market for such lending has already grown to £250 million-a-year in the UK alone. The BBC reports:

Lending via three websites that link savers with borrowers – bypassing the banking system – has topped £250m.


The “new age” finance carries no protection for deposits, but is being tipped as a serious threat to traditional banks.


The peer-to-peer sites are led by Zopa, which has lent more than £200m since it started in 2005.


Funding Circle, specialising in business loans, has topped £34m, and RateSetter has reached £24m.


Last month the government said it would lend these sort of firms £100m to help expand their own lending to businesses.

Alas, the government could lend these firms ten times that (that would still be a tiny sliver of what they have channelled to the establishment banks in recent years) and the market would still be rigged in favour of the establishment banks.

That’s because of deposit insurance. Money lent peer-to-peer is not insured by the government, whereas money deposited in banks is. This is a heinous advantage that the dinosaur banks have been given by government fiat, and certainly a huge stumbling block to peer-to-peer lending forcing the dinosaur banking system to either massively cut their spreads, or go out of business.

Governments who want a fair free market banking system with the benefits of real competition should either extend some form of deposit insurance to peer-to-peer lending schemes, or should get rid of deposit insurance altogether. Everyone wins except the banks and large financial corporations — lenders get more interest for their money, borrowers pay lower rates, and the parasitic establishment banking system that has vampirised the taxpayer for trillions must either choose to drastically reform itself to compete against peer-to-peer lending, or go out of business.

In a free market without the unfair advantage of deposit insurance the banking dinosaurs profiting from huge spreads would be an endangered species. They are only surviving and prospering because the government has rigged the rules of the game for their favour. That cannot last forever.


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Tue, 06/12/2012 - 13:41 | 2518636 Colombian Gringo
Colombian Gringo's picture

The function of the banks are to rob the 99.9% in favor of the elitist monsters who really run this world

Tue, 06/12/2012 - 14:03 | 2518702 ZerOhead
ZerOhead's picture

Sure... 0.25% mortgage financing to homeowners might allow the economy to recover and boost property values but how are the politicians and banksters going to cash in?

Banks are not an endangered but a protected species for a reason.

Tue, 06/12/2012 - 18:20 | 2519760 greyghost
greyghost's picture

this is the second time i have read about the failure of the banks as we know them. having worked in the automotive field for thirty five years i remember back in the early 1990's how banks were dead. the hype then was how the auto companies could raise their own capital and lend direct to the car buyer and finance all the auto purchases. damn banks are still around. just another dead theory.

Tue, 06/12/2012 - 14:37 | 2518876 Chaffinch
Chaffinch's picture

We certainly don't need anything like the number of banks which currently exist - possibly we don't need any at all!

Tue, 06/12/2012 - 13:43 | 2518647 LetThemEatRand
LetThemEatRand's picture

The problem is and always will be that the individuals in charge get to keep the profit and are not responsible for the losses.  The corporate form itself is flawed because there is no personal responsibility for the guys at the top.  What do they care if their corporation goes under so long as they get theirs first.  We have all been brainwashed as a society into believing that the corporate form is necessary for the free market.  In fact the corporation is the biggest enemy of the free market.

Tue, 06/12/2012 - 13:49 | 2518671 GeneMarchbanks
GeneMarchbanks's picture

You're on point here. Evasion of responsibility is easy when you're part of a collective even if you're a CEO. Additionally, the apathy and general impotence of the population allows for enormous abuses.

Tue, 06/12/2012 - 14:09 | 2518751 Roger O. Thornhill
Roger O. Thornhill's picture

Corporations (the behemoth ones) used to be responsible until they got into bed with this post WWII bloated government which writes regulations that favor the 'behemoths' specifically - think General Electric. Now the government makes sweetheart deals with Bloat, Inc. and gives them money - and in return these TBTF corps back politicians (buy them) or hire them later as a reward for the corruption.

It is the centralized government monstrosity that has allowed this sick "mating" to occur. Without the centralized government to support the fat, bloated, 'corp'ses, these monsters would collapse from their own weight and smaller, better run corporations would have a chance.

The reality is, if the big banks had failed in 2008, smaller, wiser banks would have rushed in and taken their place - instead of 7 banks, there would be 200 or more smaller entities that would not be 'too big to fail'. The crooks would've lost their jobs and bonuses, and the smarter, leaner, smaller guys would have been rewarded. And we wouldn't be lurching toward an endgame, as we now are.

Tue, 06/12/2012 - 14:50 | 2518946 aerojet
aerojet's picture

I don't think the 19th century was any better when it came to robber barons robbing everyone.  At least they don't show up at protests with machine guns anymore.

Tue, 06/12/2012 - 14:53 | 2518964 kridkrid
kridkrid's picture

Chicken or the egg.  Sometimes people have an emotional tie to pinning the blame on "big government"... and as someone who would prefer there to be "no government"... I'm not opposed to an anti-big government take.  But it many ways, our government has been co-opted by big business... mostly big finance, which favors big business.

This didn't happen overnight.  I say this because the "divide and conquer" nature of our one party system with two fictitious sides keeps people at odds with each other's POV... the left tends to blame big business and the right tends to blame big government as if these are two separate entities.  They are not... they are a unified front that represents our corporatist state.

Tue, 06/12/2012 - 15:00 | 2519002 blunderdog
blunderdog's picture

     Corporations (the behemoth ones) used to be responsible...

This myth is SO pervasive I'm really curious where it comes from.  Marketing departments?  Early PR firms?  I've read the Rand books, so I guess if your understanding of history comes from fiction, maybe that'd be a decent explanation.  But that's just a bunch of bullshit. 

Corporations have *always* existed solely to concentrate wealth in the hands of the owners.  They've used many tactics over the centuries to do this, and from time to time, certain people may have been convinced that the owners of some company (like GE, in the case of the quoted poster, apparently) are interested in "doing their part" in a healthy society.

That's never been a corporate priority.  They have ALWAYS dumped poisons in the rivers, worked slaves and/or paid-employees into early graves, and denied accountability for the outcomes of any of their business practices.  This is necessary to produce the greatest possible profits, which is the only reason they exist in the first place.

This is what they do--it's their FUNCTION.

Tue, 06/12/2012 - 15:21 | 2519076 Roger O. Thornhill
Roger O. Thornhill's picture

I stand corrected - you make a good point. Monster corps weren't responsible because they wanted to be. It was forced on them by the market, by lawsuits against them, by many levers. In the past the behemoths could at least be driven out of business more easily and not be propped up by their 'friends' in government (it was much harder to be as corrupt as it is now - at least it was easier to expose it). Remember Adam Smith. The 'invisible hand' does have a real effect - at least it does when it is not marginalised by cronyism.

Also, for an alternate example - think Soviet Union, which was all government and caused vast pollution and ecological damage (not to mention genocidal murders of the population under their boot) - full on government causes incredible damage - they make corporate atrocities pale in comparison.

There is no perfect system. no 'philosopher king' to look for or save us. People will always be corrupt and take advantage, it is our nature, but letting it become entrenched and enabled by government (which uses brute force) makes it much harder to stop.

Tue, 06/12/2012 - 15:28 | 2519101 LetThemEatRand
LetThemEatRand's picture

Accountability is the key to everything.  As it stands now, we have zero accountability for corporate CEO's such as those who run the banks.   They can crash the system and their own companies and walk away with hundreds of millions or billions (think Fuld and Mozilo).  We have almost zero accountability for our elected national government because the big corporations control the media and thus the message (the sheep are asleep largely because of the role of the corporate owned media).   The government of the Soviet Union had no accountability.  The solution is a transparent system with accountability.  The corporate form is inherently wrong because its entire purpose is to shield the individuals in charge from personal accountability.  Government -- properly controlled and implemented -- can have accountability.

Tue, 06/12/2012 - 15:41 | 2519147 kridkrid
kridkrid's picture

Government -- properly controlled and implemented -- can have accountability. Why?  Why can't I make the same blanket statement about corporations?  In fact, those sorts of protections were in place when our "state" first accepted the role of a corporation in American life.  Corporation were to serve the public good and charters could easily be revoked.  

Government can't be properly controlled, I don't believe.

Tue, 06/12/2012 - 15:51 | 2519195 Zero Govt
Zero Govt's picture

Kridkrid -  Govt is a monopoly, it is designed from birth to be arrogant, out of control, insensitive and completely deaf to end-users needs 

nothing good ever came out of a monopoly ...Govt's entire history if resounding (and final) proof of this maxim

Tue, 06/12/2012 - 16:37 | 2519446 kridkrid
kridkrid's picture

We agree.

Tue, 06/12/2012 - 16:08 | 2519289 LetThemEatRand
LetThemEatRand's picture

The whole concept of the corporation is to protect the owners and executives from personal liability for anything.  Our government at least is elected.   Checks and balances etc.

Tue, 06/12/2012 - 16:36 | 2519437 kridkrid
kridkrid's picture

oh... I think in a free society, checks and balances exist with corporation as well.  don't buy sh-t from them, for example.  A bit simplistic, but mostly true.  There is a ton of mis-information out there about the need to reign in corporations.  Standard oil is/was the perfect example.  They were losing market share and prices were decreasing when the gov't won its case to break it up.  the gov't wasn't needed there.  The case for regulation has created the opportunity to exploit regulatory capture.... ultimately the marriage of corporations and government.  

Tue, 06/12/2012 - 16:45 | 2519478 jonan
jonan's picture

i thought the president was "elected" by the electoral college...

all your votes are belong to us

Tue, 06/12/2012 - 16:00 | 2519242 Roger O. Thornhill
Roger O. Thornhill's picture

We agree (maybe all of us really do on some level). We would like a sound, sane system.

The question is how to have that accountability - a consequence for actions. I feel large centralized government becomes horribly disconnected from the people. Whereas locally I can go have a meeting with the town mayor, and at least that mayor has to face the people in the streets - he/she/it isn't hidden behind layers of security. So I am against 'bigger and more centralized' as it appears to cause the bad players to have a place to hide while excercising their ghastly power.

The thing the founders understood were checks and balances. These checks and balances have been bypassed over time. Look up "stare decisis" if you want to know how it was done. The imperial presidency, the layers of bureacracy all act as enablers of corruption and unaccountability. These are backed up by egregious legal precedent (ie the distortion of the commerce clause).

One thing that was different in the past - there was a belief in honor on some level - your honor meant something. Dueling was not just make believe - it really did occur (bless you Aaron Burr!). We have lost the concept of honor - I personally blame relativism as a philosophy for its murder. When all is relative you have nothing to navigate by, it is a fast track to solipsism, and when you have enough people who have no honorable core it doesn't matter what you do - the next step for society is off a cliff.


Tue, 06/12/2012 - 16:18 | 2519333 Zero Govt
Zero Govt's picture

R.O. Thornhill -  you need to be specific where your local town Major represents you, on what issue? ..what that you couldn't go get for yourself?

if you want a kiddies playground on a patch of land and i want a car park how does the Major fairly represent us both??

that is the failure of representation at local and national level, it is an impossibility and a nonsense (buck pass) to suggest someone should do something for you/us

there is an alternative: freedom  ...freedom from the nonsense theory/idealogy that is we can be represented by someone else, a paid public servant. It doesnpt take long for them to think they're King for the Day and start ordering people about, cushy in their job and sorrounding themselves with doting crones

Freedom allows me to buy a piece of land and develop a car park and you to work and save up and buy some land for a kiddies playground. You earn your way by being productive in society to give back if you're feeling alturistic

nobody can represent us. the entire representation idea is a washed-up antiquated sham spread by charlatans wanting an easy job living off the backs of others (politicians)

Tue, 06/12/2012 - 18:08 | 2519729 Roger O. Thornhill
Roger O. Thornhill's picture

You are correct - freedom is the key. When I talk to my Mayor and get him to do what I wanted, I effectively corrupt him at that moment. Government is mostly always captured by the crooks. Corrupt types, the power hungry, are always drawn to government, and over time it becomes more oppressive in relation to the power it wields.

The problem is that our culture now which believes in utopian idealism - we think we can make it all perfect. Truly the road to our hell is paved with these good (misguided) intentions. I don't think people believe that if we were truly free it would be better. They are afraid and feel someone has to 'be in charge.' That's the cultural cancer. I know we would all be better off with less government - certainly the ability to commit mass genocide would be severely hampered! I do think more and more people are waking up to liberty as the old media (which spews authoritarianism) slowly crumbles.

Tue, 06/12/2012 - 20:52 | 2520071 Zero Govt
Zero Govt's picture

i agree people are scared of the thought of not having a Govt

maybe this time Govt causes socio-economic chaos we'll be able to get the point across that Govt caused the problems and is not the solution

the key battleground as i've mentioned many times here is small business, about 1% of the population, who do the vast majority of real emplyment and most tax raising for Govt

if small business people can be converted away from the rotten belief in Govt then the game is up for the parasite class

Tue, 06/12/2012 - 15:43 | 2519156 Zero Govt
Zero Govt's picture

Big Govt is the enabler and protector of Big Corpse (and Big Banks)

without Big Govt there would be considerably fewer Big Corpse, maybe none of the size of GE which is a vast array of industries. Nuclear for starters wouldnpt exist for GE without massive Govt subsidies. Trains and wind turbines for Siemens would not exist without the same huge Govt subsidies for these vastly inefficient and uncompetitive industries

From the Govt tree all the rotten fruits hang ...we'd be absolutely staggered just how stagnant our econimy is if we were able to compare it to a free (from Govt) market economy, the vibrancy, wealth and progress we're missing is simply immense 

we need to kill the ultimate diseased dinosaur: Govt 

Stop Paying Your Taxes ...starve the sucker

Tue, 06/12/2012 - 20:02 | 2519986 FreeNewEnergy
FreeNewEnergy's picture

I take great umbrage to the comment above for the line:

People will always be corrupt and take advantage, it is our nature...


Maybe it's your nature, and maybe it's the nature of many, but it's certainly not mine. I've been through the corporate and government ringer, and want no part of it, nor do I wish to emulate it.

Let people do as they please. Corporations and governments are nothing but extortionist murderers of the human spirit. Would people be allowed to do as they wish, to make simple lives, mostly, without interferences of the elitists, the world would be far better.

I left the paycheck game many years ago. Haven't had a "job" since the 70s and am better for it. Anyone who thinks allowing Big Brother to skim 20-30-40% of your wages is OK is nothing more than a slave.

Human nature is not to conquer and dominate, but to live in harmony and peace.

Time for the world awaken to a new, better reality.

Tue, 06/12/2012 - 13:50 | 2518672 batterycharged
batterycharged's picture

I'm confused, is the author suggesting getting rid of the FDIC?

I guess repealling Glass-Steagel wasn't enough, now let's endorse bank runs by removing any guarantee depositors will not have their money stolen by Jamie Dimon.

So far this Aziz guy is 0-2, IMHO.

Free market people are as wacko as communists. Oh, the holy land....the mirage of something that does not exist, never has existed and never will exist.


The free market and Jesus....WILL SET YOU FREE!

Tue, 06/12/2012 - 14:02 | 2518715 kridkrid
kridkrid's picture

The illusion that the government can keep you protected from the sociopaths like Jamie Dimon was created to protect sociopaths like Jamie Dimon.  That may not have been the intent, but that is the result.  Fractional reserve banking is the ultimate ponzi scheme.  The FDIC helps to first sanction it and then perpetuate it.  Nothing more, nothing less.  Someday, this war is going to end...

Tue, 06/12/2012 - 14:07 | 2518738 Manthong
Manthong's picture

The free market,  with a little help from Divine Providence will help this rev of the U.S.A. once again break free of the (central) bank.

Most of the bad debt today is the fault of the lenders and should be repudiated.

From that perspective, Mr Aziz is correct in his assertion regarding the fate of the banks.

Tue, 06/12/2012 - 14:15 | 2518783 kridkrid
kridkrid's picture

I agree, I think.  It's the fault of lenders... and the lenders co-opted the government in order to make that apparatus that much larger.  It's a cancer.

Tue, 06/12/2012 - 14:05 | 2518730 disabledvet
disabledvet's picture

I didn't see any mention of "bank bailouts" nor QE either. Simply put "there is no way having gotten trillions the Government gets rid of the FDIC." same goes for increasing taxes I might add. Doubtful that North Dakota folks will win but they've put eliminating property taxes on their ballot. Talk about "good for hiring." total long shot from what I hear tho.

Tue, 06/12/2012 - 14:58 | 2518987 aerojet
aerojet's picture

As a former libertarian, I understand what you are saying.  The free market as it has come to be understood is a place where any business can dine on you and your family with zero accountability.  It would be a level playing field for about five minutes, then after the massive slash and burn land grab, you would end up with something like the former USSR has with absolute out-and-out criminals and gangsters running everything important.  We almost have that now, anyways.  But the idea that a free market would somehow bring the sociopaths to heel is pretty flawed if you ask me.  Instead, it would just allow polluters to pollute, killers to kill, and place the middle class at the mercy of anyone who didn't care to act civilized.  Think of melamine in baby formula in China and that's the free market--you're free to die whenever someone decides they don't give a shit about doing things right.  Again, we almost have that right now. 

Tue, 06/12/2012 - 15:18 | 2519067 kridkrid
kridkrid's picture

I think you hit on something important as we think through how best to organize society.... how do we best limit the damage that can be done by sociopaths? - Interesting debate between an anarchist and minarchist.  I listened to it a few weeks back on a relatively long drive.  good food for thought... they certainly address the challenged posed by sociopaths.

Tue, 06/12/2012 - 16:02 | 2519255 Zero Govt
Zero Govt's picture

aerojet  -  is is Big Govt that brings you Big out-of-control Corpse you think Goldmans, Morgan, Haliburton, Exon-Mobile are competitive animals of the free market or Big Govt?

the free market works in exactly the same as a forest. Some trees push their way to the top of the jungle (through merit, by pleasing consumers: productivity) but there are always small and medium sized trees snapping at their heels. Eventually the big trees through attrition or age give way to younger aggressive competitors

the forest is very much like our own lifespans and economic productivity. Watch the music market as big bands become usurped by new bands. This is the cycle of all life

it is only where freedom is perverted, by that most perverse monopoly, Govt, where the big bad dinosaurs are propped up forever and a day (see Goldmans, Morgan and GE now)

the free market provides the ultimate refresher course and mechanism for change: competition

it is Govt intervention that perverts freedom with rules and laws and legislation which perverts the competition mechanism working (see reems of rules for utilities, planning laws to stop oil, coal and gas development)

it is Govt that leads to gigantic rotten dinosaurs, not the forever refreshing (competing) free market

Tue, 06/12/2012 - 16:26 | 2519399 Zero Govt
Zero Govt's picture

batterycharged  -  gee there i was thinking it was the Govt and Govt propped up, Govt guaranteed, Govt (mis)managed, Govt regulated, Govt Depts (like law) that was failing all around us

thank fuck for the FDIC, no moral hazard there, and no they've not made more promises than their arse can cash Sireee, all is well, another (worthless) political guarantee will save us all

Tue, 06/12/2012 - 16:35 | 2519432 Colonial Intent
Colonial Intent's picture

The free market is corrupted.

The government is corrupted.

Don't let yourself become corrupt.

Best of luck to you all.

Tue, 06/12/2012 - 13:53 | 2518681 Dr. Engali
Dr. Engali's picture

Wow  Rand you and I agree on something.

Tue, 06/12/2012 - 14:56 | 2518985 BigJim
BigJim's picture

Yes, bit of a shock to the system, isn't it...

Tue, 06/12/2012 - 15:24 | 2519090 LetThemEatRand
LetThemEatRand's picture

But we still disagree about the role of government.  At least we can agree that the corporate form is a common enemy.

Tue, 06/12/2012 - 13:54 | 2518682 kridkrid
kridkrid's picture

Well said.  The brainwashing is so pervasive that most don't realize that it's happening.  Kind of how if you live near a dairy farm, after a while you don't even notice the smell. 

Wed, 06/13/2012 - 05:08 | 2520681 StychoKiller
StychoKiller's picture

Yet, Govt regulation (in the form of Sorbanes-Oxley), your favorite solution, was supposed to fix this!  Perhaps you should go home and re-think your life...

Tue, 06/12/2012 - 13:42 | 2518650 GeneMarchbanks
GeneMarchbanks's picture

For the millionth time, banks can:

1) Match savers and borrowers

2) Provide a safe payment mechanism

3) Some basic* risk management

* Subjective, I know, but regardless it is necessary and can never ever have a 'scientific' basis

Aside from that, there nothing else they can offer.

Tue, 06/12/2012 - 14:02 | 2518717 CrazyCooter
CrazyCooter's picture

Well, that is what these sites do, right?

I am not disagreeing, but I feel like I missed something in your comment.

I am going to take a look at all three sites when I get home. I find the whole notion rather curiuos. I mean, it seems that without the CB, this is what banking was over 100 years ago (i.e. before the central bank/fed).



Tue, 06/12/2012 - 14:10 | 2518726 ThisIsBob
ThisIsBob's picture

You missed the most important one: They can  make political contributions.

Tue, 06/12/2012 - 13:44 | 2518656 MacGruber
MacGruber's picture

Saw a great documentary on the financial system and there was a great line, "back 30 years ago banking used to be boring. Bankers made an average wage for an average day's work". I'd like to go back to that time. In my mind banks and insurance companies should be non-profits, anyone trading futures should have a proven interest in the underlying asset, derivatives should have 100% reserves (if its a casino then you should be backed like a casino player), loans 50%... oh, and and the Fed.

Tue, 06/12/2012 - 14:05 | 2518727 Peter Pan
Peter Pan's picture

Reminds me of the bank manager I had years ago. He was in the office at 7.30am and gone by 1.00pm so he could play golf with his clients. Took on the local branch with 3 loans officers and left it with 17. As he once said to me: "I make two decisions. One is about the character of the borrower and the other is about the value of the security."  Many years ago when interest rates had gone well north of 15% here in Australia, he even sourced cheaper private money for my business. The man was a gem and deserves his happy retirement. More like him are needed.

Tue, 06/12/2012 - 15:01 | 2519009 aerojet
aerojet's picture

If he was so conservative, how did they go from three loan officers up to 17?  Did the population of Australia go up by the equivalent multiplier?  Or were they making riskier loans like, oh I don't know, every single other bank on the planet was?

Tue, 06/12/2012 - 15:09 | 2519036 Peter Pan
Peter Pan's picture

He just didn't ask for copies of 5000 tax returns, budget forecasts, bring me this bring me that type of attitude. On more than one occasion when time when was of the essence he would give me both an approval and the write to draw down even before the paperwork was done. As I said, he would make a measured judgment based on character and security.

Tue, 06/12/2012 - 13:44 | 2518659 Tirpitz
Tirpitz's picture

That peer to peer lending is on the upswing, throughout the world. Could just be that the taxpayers will lend to their governments peer to peer style just one way, via heavy taxation.

Without them banks, who's doing all the money printing, the multiplying of fiat, the apparent financing of wars and conquests?

Tue, 06/12/2012 - 14:10 | 2518755 kridkrid
kridkrid's picture

Peer to peer lending is interesting, but your second paragraph is even more telling.  Money and markets are created by states to finance and perpetuate wars.  Peer to peer money would be would be a logical step in our evolution to a stateless society, I think.

Tue, 06/12/2012 - 15:02 | 2519015 aerojet
aerojet's picture

It's only interesting if I can send out my thugs to break legs when the fuckers don't pay on time.

Tue, 06/12/2012 - 13:47 | 2518664 tgatliff
tgatliff's picture

This article must be an advertisement, because it completely ignores why traditional banks are so powerful and connected.   It is because they buy (and heavily leverage) its corresponding Treasury bonds.   This is its true source of power.   In better times when there were actual savers, it made sense, but in todays world of funny money land, paying interest to middle men makes no sense whatsoever.

Tue, 06/12/2012 - 14:02 | 2518695 hedgeless_horseman
hedgeless_horseman's picture



...they buy (and heavily leverage) its corresponding Treasury bonds.

Yes, I agree, laundering a nation's debt financing through the inflation tax, and bribing the political class through campaign contributions is no different from any other organized crime racket.* free, or die a debt slave.



* My apologies to traditional organized crime for the negative association.

Thu, 06/21/2012 - 16:41 | 2518965 ZerOhead
ZerOhead's picture

Apology accepted.

To be lent trillions at 0.25% by the Fed only to reinvest it in treasuries for a premium even raises our eyebrows!

Tue, 06/12/2012 - 13:49 | 2518669 zerotohero
zerotohero's picture

This is news how ?

Tue, 06/12/2012 - 13:55 | 2518686 Malachi Constant
Malachi Constant's picture

[banks] are gradually being sidelined by other forms of intermediation

As long as "other forms of intermediation" rely on and measure themselves in bank-managed pieces of paper, banks are not only not going anywhere, but actually getting stronger with every transaction.

If you want banks to go, stop thinking in terms of their so-called money. If you insist on measuring, introduce new units of measurement.

Tue, 06/12/2012 - 13:55 | 2518688 Hober Mallow
Hober Mallow's picture

Reminds me of some banks:
"There's no place you can really go but down, down, down"
"no one wants to chit or chat or even know your name"
"Your manager has ripped you off and gone somewhere"

Tue, 06/12/2012 - 13:56 | 2518690 malikai
malikai's picture

Bitcoin has its own p2p loan market, options market, and others..

Tue, 06/12/2012 - 13:56 | 2518693 Peter Pan
Peter Pan's picture

My next door neighbour is a switched on 86 year old retired real estate agent and property investor. He lends out 90% of his funds directly to borrowers after he himself has viewed the property offered as security. Makes a top rate and makes quick decisions. By the way he will not lend more than 70% of the property's value.

Tue, 06/12/2012 - 15:16 | 2519054 aerojet
aerojet's picture

How does he hedge against non-payers?  It seems like he could be wiped out if he is loaning out 90% of his money and there's a downturn.  He would get skull-fucked unless he can enforce payment.  Is he Italian by chance?

Tue, 06/12/2012 - 16:02 | 2519253 hedgeless_horseman
hedgeless_horseman's picture



He'd do better as a landlord.

Tue, 06/12/2012 - 14:00 | 2518704 Fix It Again Timmy
Fix It Again Timmy's picture

Since losses are socialized, there is no risk since there is no downside.  Money comes in regardless - this is a great gig!


Tue, 06/12/2012 - 14:01 | 2518711 carbonmutant
carbonmutant's picture

The only endangered species on the horizon is Sovereign Power.

Tue, 06/12/2012 - 14:30 | 2518844 ThirdWorldDude
ThirdWorldDude's picture

I completely agree with you. Sovereignty has already been degraded to the extent where we find ourselves living in a system of technocratic corporativism and it is the political class who is the "middleman" between the plutocrats and the masses.

Tue, 06/12/2012 - 15:17 | 2519064 aerojet
aerojet's picture

Pretty much every dystopian sci-fi novel nailed it.  That's why I no longer bother to vote or worry about elections.

Tue, 06/12/2012 - 15:04 | 2519021 blunderdog
blunderdog's picture

Right on.  This is precisely why it's so silly to get bogged down in political (ie: the entertainment branch of the MIC) argument.

Tue, 06/12/2012 - 14:01 | 2518714 icanhasbailout
icanhasbailout's picture

deposit insurance is inherently hostile to the free market


The only legitimate role of the government is to enforce laws against fraud - the one thing they adamantly refuse to do.

Tue, 06/12/2012 - 14:10 | 2518756 disabledvet
disabledvet's picture

Hence "deposit insurance." are you arguing interest rates are the higher for it? If so please say where...

Tue, 06/12/2012 - 20:51 | 2520069 Umh
Umh's picture

Interest paid is slightly lower because the bank has to pay the "premium". I don't mind the FDIC insurance cut it's the TBTF insurance which didn't even have a "premium" that gets my goat.

Tue, 06/12/2012 - 14:03 | 2518720 malek
malek's picture

Nobody recognizes that would be the bankers' dream?

No friggin' regulation, let's rip them off one at a time over the internet!

Tue, 06/12/2012 - 15:01 | 2519014 paint it red ca...
paint it red call it hell's picture

a few of us realize it. instruments to "rip us off over the net" are being introduced all the time.

introducing, the latest nationally advertised:

how hard is it to imagine this little card reader integrated into every iphone, required for use in all daily transactions, service fees paid on every transaction and taxes instantly remitted on every transaction? when money is redefined as electronic debits and credits, not only if and when you can make transactions could be controlled, the where and on what could also be restricted. i leave questions concerning abuse or incident, technical or otherwise, unasked.

Tue, 06/12/2012 - 15:09 | 2519034 blunderdog
blunderdog's picture

It's just another product.  Like ketchup or manicures or cable teevee.  People WANT that.

Yeah, it'll be a bad deal price-wise, and there'll be horror stories and abuses, but if people WANT their cellphone to become a credit-card, what's it to the rest of us?

Tue, 06/12/2012 - 14:06 | 2518733 Jesse
Jesse's picture

I have read some specious arguments and this one is right up there in presenting a false 'either/or'

There was a tradeoff to accepting insured consumer deposits once upon a time, named Glass-Steagall and restrictions on the types and levels of risks one was able to take.  Those restrictions were removed, largely at the behest of Alan Greenspan, Robert Rubin, and a well organized bank lobbying campaign led by Sandy Weil.

The solution is not to extend the government guarantees even further, but to go back to the segregation and control of risks while continuing to protect the savings of the public, and creating penalities for bank failures involving the breaking of rules and fraud.

Extending the guarantees would create a moveable feast of fraud and the mispricing of risk.

Tue, 06/12/2012 - 14:17 | 2518795 disabledvet
disabledvet's picture

I would argue the Sandy Wile(y) campaign was far simpler: control the derivatives market and start recreating the "monopoly days of yore." in short "too much competition" was the problem and the solution was a "true paternal Capitalism." also known as a "no growth capitalism" however and failed to take into account apparently "the problem of the Fed" which sees inflation hiding under every point of sale purchase. Now only competition will get us out of this financial "Iron Maiden" that has been created. Simply put "paternal finance" has completely failed.

Tue, 06/12/2012 - 14:07 | 2518743 j0nx
j0nx's picture

The only service banks provide is the ability not to have to store all of your money in your home worrying about fire or theft and the inconvenience of having to go to the 7-11 to get money orders for every bill that you have. If you don't care about those things then there is no real reason to use a bank. It is strictly a convenience for Americans but in no way is it worth what they charge for it.

Tue, 06/12/2012 - 14:13 | 2518773 farmboy
farmboy's picture

This remark makes a lot of sense and is clearly one of the best short cut analysis for our current problems.  Banks now they have no idea to who they lend the money and guess what then you collect also the best rates from those clients.

Tue, 06/12/2012 - 14:28 | 2518837 earleflorida
Tue, 06/12/2012 - 14:38 | 2518889 sunny
sunny's picture

I suppose it is irrelevant that financials are well up today, huh.


Tue, 06/12/2012 - 14:52 | 2518955 skipjack
skipjack's picture

There's only one way to stop the ponzi - stop using the banks...use a community bank or credit union...think a one/wo branch bank.


Pay cash, buy local with cash, don't take out a mortgage or other loan, don't use credit/debit cards.  And stop playing in the markets, cause you're the bagholder.  If you're underwater on your existing mortgage or car loan, then default if you're in a no-recourse state.  If you're in a recourse state, put your assets into PMs that subsequently sink in a boating accident, default, then declare BK.  If you owe credit card debt, stop paying.  Buy a basic used car for $3k for wheels, and stiff each and every bank.  Do not take out student loans.


If everyone were to do this, we could have the banks on their knees within the year.  C'mon folks, it isn't hard.  They've skimmed off your productivity each and every year since 1913, so take it back.  Credit is a contract; default and be done with it.

Tue, 06/12/2012 - 15:40 | 2519141 Racer
Racer's picture

yes done that, and am not allowing companies to direct debit my account either unless I am completely at ease with it

Tue, 06/12/2012 - 17:25 | 2519609 Augustus
Augustus's picture


You have revealed why peer to peer lending won't work.

"If you're underwater on your existing mortgage or car loan, then default if you're in a no-recourse state. If you're in a recourse state, put your assets into PMs that subsequently sink in a boating accident, default, then declare BK. If you owe credit card debt, stop paying."

Now, if you had some money outstanding on loans in peer to peer lending, would you write that nonsense?  Midnight Jacque would have you throttled before you could blink twice.

Banks charge more than the cost of funds because of people who follow your line of advice.  Is it enjoyable to steal in the form of borrowing?

Tue, 06/12/2012 - 14:58 | 2518993 kevinearick
kevinearick's picture

Peer Ttyranny vs Individual Initiative

Each iteration begins with ignition of the remaining black hole, which in this case is the virtual reservation system on the global IC chip, and the natives have already recognized $17T of the $600+T in sunk costs. Where must the surplus originate to reboot the system?

So long as the manufactured majority seeks to prosecute the elite robots employing it, the status quo collapse will accelerate. It can get quite ugly, hence FIRE and Nero.

The politicians have been kind enough to isolate the firefighter and police unions. Let’s see what happens next. What is labor’s contribution to the economy? What has labor’s return been over the last two generations? What is the essential nature of energy stored in explicit and implicit bonds? Only your own can sell you out.

The doctors made a ton of money off that surgeons manual, and the software engineers made a ton of money off that dc computer, but what did the tyrant learn about law enforcement in the concentration camps?

If you run an independent surplus, peer pressure directs the robots, from the machine, to hunt you down and force you to join, making it unlawful to operate beyond the empire with common law, revoking the at-will constitution, and closing the contact set between opposite independents, which are emigrating to quantum threshold.

Joining a group of independents, all running deficits, led by a dependent, running an artificial surplus, makes learning difficult, but it can be done, by acting uniquely beyond their perception. Ruling out that which is not unique is ALPHA.

The womb is the HOLY GRAIL, but the p-y is not all powerful. Not ever man takes the bait at the church entrance, or the gutter drain, the false choice, and it still takes two to tango. When the womb of civilization is rendered dormant by empire replication, devolution, it must be re-ignited by complimentary alpha, to create space time for its children, the OMEGA.

The male instinct is to disperse the seed broadly. The female instinct is to mate with intellect, while deploying the male body against itself. Choose a complimentary mate to produce enduring love, in HOLY MATRIMONY, as you traverse the empire in parallel. Build your nest in the neutral return, where your children will prosper in relationship with nature, to build the KINGDOM of GOD from the remnants of empire.

The human body is a sexual machine, with a flight or fight autonomous system. The intellect games the result with artificial repression, incrementally profiting on the positive anxiety feedback normalization. Spirit shorts the resulting empire, transferring the gain to a more effective individual sovereignty, in quantum leaps we call constitutions.

Stupidity is the devil, robots programmed by an education system designed to short intellect, by intellects with spirits similarly shorted by empire replication. Alpha nets independent minded children. Why would any thinking person accept the Fed’s definition of productivity as the pivot assumption embedded in the reserve currency? Employ gravity or be employed by it.

Liberty is the integral, responsibility id the gate, and the empire is the derivative. Multiply the empire currency by the communal productive value of your customer, to implicitly enable community. Adjust RE to neutralize FIRE, and watch the flow of goods and services.

NPV leverage, community health, depends upon children from nuclear families. Shift the variable derivative data of non-nuclear arrangements back to see for yourself. Agency simply misdirects outcome responsibility with RE finance under its control, insuring against loss with later dated insurance against loss.

Children must choose of their own free will to educate themselves, which is a function of examples in the environment. Non-nuclear family is a multiplying dimension, but alone it is a dead end for NPV leverage, without which financial leverage collapses, which is what you are witnessing.

Agency profits on the misdirection of time delayed anxiety. We all have different needs in many and growing dimensions. Fathers provide mothers with space, to raise children on the margin where organic growth originates. The snake oil salesman begins by denying opportunity cost and goes straight to equal rights, to build the cookie cutter.

The only place you are going to find equality is hell, the DNA churn pool. Robots want profit from choice and delay loss recognition with government insurance, to future generations, demanding equality to drive inequality. The only possible outcome is tyranny, in the form of interest and persecution.

On the explicit corporate side, there is no individual sovereignty. The certified leader leads the ponzi robots in circles, in search of equality, measuring the economic activity of reinforcing the virtual bridge, until the debt is recognized and it collapses. On the implicit labor side, the individual with the best solution at the time it is required installs the next piece of the next bridge.

The system distills alpha males and omega females across a space time fulcrum, which the empire requires, but cannot explicitly tolerate. We all play make-believe until we don’t, and it blows up.

The robots have simply replicated themselves into lessor selves, in a digital cloud. Broadcast right through it. When you have completed the next set of equations and designed the ones to follow, run data through the completed set. All they know how to do is distill data to static equations for later reduction, or not. That’s it. Never defend a bridge; accelerate time.

Love is an investment in foresight. Effective parents place children in the CAPTAINS CHAIR, which they may move at will. The ADMIRALS sit in the back, up in the balcony. Space exploration runs through the neutral line, not across History.

While government launches preemptive cyber attacks, on itself, labor builds AI applications to ignite the next black hole. If you can build a better bridge, do so. Male, female, black or white has nothing to do with opportunity.

At what oil price do you expect PM to become structurally convex relative to your community VIX? Be weaned off empire currency by that time.

Pavlov Empire Control:


Individual fight or flight

Individual adaptation

Individual sovereignty


Marital NPV leverage

Community prosperity

Community sovereignty


Looking glass neutral return

Near miss + empire monetary expansion

Individual maladaptation credit

Corporate income



Miss + 2Xempire

Individual anxiety + community maladaptive credit

Corporate income + non-performing assets

Financial leverage



Big miss + 3Xempire

Individual bankruptcy + community entitlement

Individual self medication



Community bankruptcy

Community self medication

Empire bankruptcy

The robots are here, in artificial crises; where are you?

DNA Churn Pool


* note multiplication into recursion, stack, hash table, & heap

(yes, typos, oh well)

Tue, 06/12/2012 - 15:05 | 2519008 PulpCutter
PulpCutter's picture

Until the mid-1970s, virtually all banks in America were local banks.  This is because states has so-called "unit banking" laws, that restricted a given bank to a small geographic area (e.g., fifty-mile radius).

A local bank lives and dies with the local economy.  This fact focused bankers on the health of the local economy.  It was a tough job being a banker - you had to simultaneously 1) do what you could to help local businesses grow, while 2) still being prudent and careful with your lending.  Being a good banker required wisdom, an entreprenurial spirit, and a deep knowledge of the local businessmen and business conditions.  You had to be both a 'people person', AND be able to tell your friends "no", when that word meant their business would go under.  Only bankers with the best combination of skills survived.

Starting in the 1970s, states began to get rid of their 'unit banking' laws.  The banking industry pushed for this, arguing that bigger banks would be safer (a claim that is quite humorous in retrospect).  The big national/international banks grew.

Think Bank of America, or Wells Fargo, gives a rat's ass if a Youngstown or a Detroit continues to go to seed?  Instead, they bet against the recovery of those economies, using derivative instruments, with their depositors money. 

Tue, 06/12/2012 - 15:13 | 2519044 tony bonn
tony bonn's picture

p2p banking is a superb idea.....the banksters outrageously gouge borrowers and royally screw lenders....benwa created the huge disparity for carry trade lechery to bailout the banks....however, as noted, in the long run, they will diminish....especially after jpm craters to the center of the earth with its failed irswaps trades....

Tue, 06/12/2012 - 15:20 | 2519075 shovelhead
shovelhead's picture

Why is the Govt. in the insurance business anyway?

They have lost trillions of dollars at it. Let Warren Buffet insure banks. No insurance no deposits, simple as that.

Might have to adopt a prudent business model if they wanted to get insured.

Yeah, I know...crazy talk.

Tue, 06/12/2012 - 15:38 | 2519132 Racer
Racer's picture

And the sooner they become extinct the better!

Tue, 06/12/2012 - 17:17 | 2519588 Augustus
Augustus's picture

We have peer to peer lending now in many parts of the US.  It is based on the honor system.  Gladman Guido hands the borrower the cash.  Midnight John has the honor of whacking the ones who do not pay as agreed.  There is no Jingle Mail in that system.  It should really reduce the cost of credit.

The whole idea that banks will disappear and lending will become a peer to peer operation is nonsense.  Banks are funded by depositors who want easy access to the funds.  If YOU make that loan for the milling machine, then decide you need the funds for other purposes, good luck getting immediate repayment.

It is interesting to see those direct lending websites mentioned.  Why was there no mention of the cost of borrowing through them?  It is not cheap, by any measure.  Unless the borrower simply takes the money and makes no repayments, the ultimate low cost borrow.

Tue, 06/12/2012 - 17:41 | 2519667 PieEconomics
PieEconomics's picture

The banking industry has been rendered obsolete by the internet. A national Bitcoin model could function as a database specifying how the national money supply is divided up. No bank insurance would be required, since there would be no banks lending out the money and therefore no credit risk. Once bank accounts are electronically transferred out to customers' own computers (or to customers' cloud storage), banks as we know them would cease to exist. Former banks might become loan companies; risking their own money making loans. Increasingly, however, individuals and companies would lend and borrow money through internet clearinghouse sites. The sites might offer services such as aggregating loans, determining credit ratings, and collection (including foreclosure).

Tue, 06/12/2012 - 20:26 | 2520027 FreeNewEnergy
FreeNewEnergy's picture

Look, I'm only going to say this once: BITCOIN IS CRAP.

I have an IQ which qualified me for Mensa three different times in my life - turned them down every time - but the point I'm trying to make is that if an intelligent guy like myself couldn't figure out how bitcoin was supposed to work and how to easily implement it into my business, on my website, it's simply NO FUCKING GOOD.

Whomever it was that came up with the bitcoin model is probably wickedly smart - I give credit for that - but the concept is not well-explained or easily employed, which is why NOBODY HAS ADOPTED IT.

Sorry for yelling, but, please, let's just shitcan this idea or somebody please make it workable.

Tue, 06/12/2012 - 21:45 | 2520149 Augustus
Augustus's picture

Sure, it sounds great that you are willing to loan to and accept the credit risk that you got snookered by a deadbeat borrower such as skipjack, posted above.  His theory is that if repaying a loan is inconvenient, hide the collateral and default.  Should be great for anyone with a bit of excess that Obama has not claimed and distributed under his Fairness Doctrine.  Borrowers can create their own fairness shares.

Tue, 06/12/2012 - 18:06 | 2519720 Cthonic
Cthonic's picture

"At one time, (some) banks generated value by being wise lenders, lending to businesses that they determined would add value."

Yes, that we did, until Congress and regulators decided that their ancillary social engineering goals superceded concerns for protecting and growing capital.

Tue, 06/12/2012 - 22:13 | 2520195 FreeNewEnergy
FreeNewEnergy's picture

Amen to that. Word.

Tue, 06/12/2012 - 22:58 | 2520265 janus
janus's picture

awesome, aziz.

janus sees something that may crack the spine of insitutional banking for good (and i mean for GOOD!).


just think this technology all the way through; wrap your minds around where this is leading...presenting, the greatest threat to fractional reserve banking in the world today:

bye-bye banker bitchez,


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