The Future of Banking

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codeblue's picture
codeblue
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Joined: Apr 21 2009
Posts: 13
The Future of Banking

I have been working in the banking industry for nearly 15 years.  I now work for a small community bank, and of course we have been injured by the recent decline in the construction real estate market and the general overall state of the economy.  We are surviving due to more capital injected from shareholders as we refused the TARP funds.

Had I realized the concepts outlined in the Crash Course earlier than the beginning of 2009, I most likely would have transitioned my efforts and resourses differently a few years ago.  However, I am where I am; and I feel committed to my employer and those whom I call co-workers.  Also, as I look at other options, there seems to be fewer as the days go by.

But I truly question my industry right now.  The small community banks are an endangered species.  And actually, at some point, I am beginning to wonder if the entire industry will become extinct.  There truly is systematic risk that few realize.  Or maybe they realize, but choose to ignore.

Anyway, I value the opinions and views expressed from you in this forum.  Generally speaking, you "get it".  I have not found a better place where there are so many great minds coming together.

I know this may be speculation; but my questions for you:  What is the outlook for the banking industry?  Are the large banks going the gobble up the small?  What happens if there is a "reset" of the dollar"?  If you were me, would you look to change industries? 

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: The Future of Banking

hi blue, this is difficult.  

On the one hand, I'm glad you're in local banking.  It could've been part of the solution to this entire problem had the Wall St / DC crime syndicate not responded to the "crisis" as they did.  I would wish that I could cheer you on and join with you in serving local communities from the bottom up.  I would wish I could tell you not to look for another job.  I wish I had long-term hope in the capital that you say your shareholders have injected.  

On the other hand, I think it's better odds than 50/50 that small banking will dry up.  Local shareholder capital is nothing compared to the big guns, though I suppose it could survive as a stable island in a vicious sea.  Small banking, along with small anything, is targeted for destruction as the "big" takeover.  Even some of the bigs are being taken over...there's a reason.  What's happening is a purposeful shift in the system toward more top-down control.  Besides what Treasury, Fed, etc have done in propping up the bigs, just look at the FDIC's actions...increasing the cost of small banks in order to bulk up funds to prop up big ones. The economic structure for total control is being setup and small banks aren't welcome in that plan.  So unless something is done to stop it by the "small" (towns, states, people, voters, etc) you are in a dead industry, but there's no urgency to jump tomorrow.  Perhaps people will eventually rally around local banks and credit unions and stop being lured to Wall St with gimmicks.  Banking as a concept won't disappear because banking is the best form of people control ever invented (look at how the supposed communists in China are using it...a few mega banks bigger than ours).  But JPM Chase is the only bank with 100% guarantee of survival.  By joining it you'd be joining the enemy of the local.

Hope that's not too harsh.  Just trying to honestly respond to your question based on what I see.  

DrKrbyLuv's picture
DrKrbyLuv
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Joined: Aug 10 2008
Posts: 1995
Re: The Future of Banking

codeblue,

You bring up some very interesting stuff.  It's really great to have an insiders view to help with the discussion.

If things continue on the current trajectory, I think there will be much consolidation in the banking industry.  99 banks have failed so far in 2009, versus 25 for all of 2008.  It looks like the big banks will continue to take market share from smaller banks and they will leverage their position for favorable legislation and unfair benefits  not enjoyed by smaller banks.

Another possibility is that the people will demand that the big banks be allowed to fail.  Any of the big banks could trigger derivative contract defaults which could take down the big Wall Street banks, one after the other.  I think this is the big reason that AIG was bailed out.  Maybe next time, the people will have their way in stopping another round of inevitable bail-outs.

In my opinion, the private Federal Reserve is the biggest problem - they need to be fired as they are parasites on the real economy and the antithesis of honest banking.  

I have some thoughts on how the elimination of the Fed could benefit the people and private banks:

  1. Instead of creating money on a fractional basis, banks could borrow all new money from the U.S. Treasury at a low interest rate (e.g. 1%).   Credit worthiness would be determined by the banks who would also assume more risk in issuing loans.
  2. Banks would work off a spread, the loan rate minus the treasury rate.
  3. Banks could be chartered by the state to provide special services.  For example, a state may want to provide 0% interest rates to reduce home and building energy needs by upgrading lighting, mechanical equipment, appliances and better thermal barriers.  Participating banks could profit by charging service and transaction fees for credit approval, appraisals, inspections, collection, etc.
  4. Loan re-bundling and sales in secondary markets could be eliminated to keep predatory banks from raiding an area or markets.

I'd sure appreciate hearing any ideas or feedback.

Larry

codeblue's picture
codeblue
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Joined: Apr 21 2009
Posts: 13
Re: The Future of Banking

Thank you for your comments strabes and Larry.

A few thoughts: 

There is no doubt that what happened with the banking system this past year was the greatest heist in world history.  To pull something off this big and so smooth verifies that it had been designed and engineered for some time.  Large investment houses that leveraged over 30 to 1 were able to flip their status in order to socialize their losses while maintaining ablility to continue their practices.  So they continue their unprudent practices.  And when I think about it, what troubles me even more is I get the sense that there is a greater transfer of wealth planned that will make what has already happened not even worth mentioning.

I also get the sense that generally speaking, the FDIC is not going to be in the business of shutting down banks--at least in the short term.  Yes, their own rules dictate that they should (and there will be a slow steady stream of bank failures), but they simply can't afford to shut down too many--at least for now.  They are broke and are now planning to charge banks premiums in advance (collect a couple of years upfront kind of thing).  In addition, their mode of operation seems to be to downgrade banks as much as possible (but don't put them out of business) in order to charge excessive premiums.  And an added bonus is that they don't create a panic through a "bank run" or other systemic possibilities.   But these excessive premiums are only making the banks less healthy.  I also expect further declines in health as the commercial market cracks (starting right now).  The other problem is a viable business plan.  How is a traditional bank going to make money when they can't find credit worthy borrowers and they can't enter the high octane business of speculating like GS.

Yes Larry, from my perspective the fed is as evil as you envision it (if not more so).  They answer to no one and dictate essentially what they wish to all banks.   I haven't given much thought to an ideal way of doing banking.  I know this may sound crazy to some of you, but I do believe there is an honest way of doing banking.  The problem is power and greed.  This can really never be eliminated--at least not in the world we live in now.  I like your suggestions Larry, but nothing will change until the system is ready for it--due to a collapse of somekind.  Maybe I need to start thinking about this--because something will break--sometime.

These are a few of my thoughts.  Please don't hesitate to give me yours.

 

Thomas Hedin's picture
Thomas Hedin
Status: Platinum Member (Offline)
Joined: Jan 28 2009
Posts: 815
Re: The Future of Banking

What is the outlook for the banking industry?  

Maintain an absolute monopoly over the creatation of the medium of exchange as interest bearing 'loans'.

 

Are the large banks going the gobble up the small? 

I cannot prove this, but maybe you could help me.  I understand that when loans go bad for smaller banks, they have to write off the loss on their books, but does this rule apply to the large banks?  From everything I can see it does not apply but none of the big boys will speak.  Can you think of a more effective way for the large banks to wipe out all of their competition when they stop making loans and dry up the money supply?

 

What happens if there is a "reset" of the dollar"?  If you were me, would you look to change industries?

Can you give me the legal statutory definition of the dollar(and then we'll talk about what is going to be reset)?  If you're wondering where your industry is headed I highly suggest you get a copy of modern money secrets, especially if you work for a state chartered bank.  Remember the National banks tried to wipe out all the state chartered banks once before.  Do you think they might just try to do that again?

Thomas Hedin's picture
Thomas Hedin
Status: Platinum Member (Offline)
Joined: Jan 28 2009
Posts: 815
Re: The Future of Banking

Larry,

How about we just regulate the state chartered banks into creating money to pay for the permanant infrastructure in their respective states which would allow the interest to be paid?

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: The Future of Banking

Thomas Hedin  wrote:

How about we just regulate the state chartered banks into creating money to pay for the permanant infrastructure in their respective states which would allow the interest to be paid?

Hello Thomas,

Thanks for bringing that up - it has to be part of any sustainable reform.  The exponential growth of interest debt must be abated and the best way is for state governments to "spend" the money into the economy by building infrastructure that benefits all.  The best example is building transportation systems that reduce energy costs, promote safety and enhance commerce.  God bless the MTA!

We can easily see the terminal flaw in our current debt money system when one considers that our money supply (M3) is around $15 trillion while private and public debt total over $60 trillion (not including future entitlements).  How do we pay $60 trillion in debt with only $15 trillion?  The answer - we must perpetually borrow more in an endless "loop" that cannot be sustained.

By "injecting" debt free money into the system, we provide a way for debts to be repaid, otherwise the system will reset through massive loan defaults.  It is inevitable as the math is very clear - our system was designed to fail.

The state level offers us our greatest opportunity as it will be much easier to get states to consider reform as they continue to slash services while still running in the red.  States cannot rely on the corruption that is washington and new york.  This would also "decentralize" much of our government; states would gain financial power without being subjugated by the national government.

Larry

Note for codeblue - Thomas is one of the big shakers in the Minnesota Transportation Act penned by Byron Dale.  This is the most promising reform initiative that I've seen and I suggest everyone take a good look at the mechanics they propose.  They have provided a template to take back our country...state by state.        

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