Why banks are no longer needed

What else can we do with the $1.25 trillion we’ll save by eliminating these obsolete financial middleman parasites? A lot.

Technology has leapfrogged the banking sector, rendering it as obsolete as buggy whips. So why are we devoting 9% of our economy to an obsolete parasite? 

Financial sector profits now total a staggering 4.5% of GDP (gross domestic product), while the expenses generated by financial churning account for another 4.5% of the economy.

Software and existing non-Wall Street/too-big-to-fail institutions could replace the entire Wall Street/banking sector and drop costs to .5% of GDP, saving us 8+% of our GDP ($1.25 trillion) that is currently siphoned off by parasitic middlemen.

The banking sector is Exhibit A in the Middleman-Skimming Economy (February 11, 2014).

profits debt gdp

The pull of habit and propaganda is so strong that most people haven’t even recognized that software and the Web can replace the entire financial/banking sector for a fraction of the cost of the current parasitic system, a system that (as we all know) has captured the regulatory and governance machinery of the central state, making a mockery of democracy.

The benefits of eliminating the financial/banking sector are immense and far-reaching.

What exactly do banks do? Banks perform these basic functions:

1. They hold depositors’ money.

2. They act as a clearing house for payments, transferring funds from payor to payee.

3. They issue loans on a fractional reserve basis, i.e. a few dollars in cash deposits supports $100 in loans.

4. They originate and trade derivatives, run high-speed trading desks, operate various money-laundering and embezzlement schemes, influence elected officials with lobbying and campaign contributions and subvert both free market capitalism and democracy at every turn.

This entire parasitic middleman sector could be replaced with automated digital clearing houses and crowdfunded or non-bank loans. Why do we need banks to pay bills online? We don’t; any clearing house could charge a small fee for the transaction.

Why do we need banks when loans can be crowdfunded? If we can invest money in start-ups via Kickstarter, Indiegogo, RocketHub, AngelList, etc., why can’t we own a piece of someone’s auto loan or home mortgage?

The web and software now enable the elimination of the entire middleman skimming operation of banking. Those with capital can invest that capital directly in loans that the investors choose. Risk is distributed throughout the system, and the process of verifying credit scores, income, valuations, assets, and so on–the building blocks of risk assessment and a market for debt and cash–can also be automated.

The entire notion that 100 savers put their money in a bank which then buys a mortgage with their savings and sells it as a security that supports a pyramid of derivatives is obsolete. Each saver can directly own (and sell on a transparent market) a piece of a mortgage, auto loan, business loan, etc. There is no need for a middleman banking sector at all–no skim, no concentration of risk, no opportunities for selling derivatives to unwary investors. All that goes away with the banking sector.

But what about holding deposits? We already have two institutions that could serve this role: credit unions and the post office. If those holding depositors’ cash do not issue loans, they have no source of income to defray operating expenses. The solution is obvious: charge fees for holding deposits and payor-payee transactions.

Bank feesIf the fee structures are transparent, those who charge too much will disappear as customers go elsewhere. That’s the purpose of transparent competition in an open marketplace.

Many other advanced nations have long combined postal and simple banking services: France and Japan come to mind. Here we have a postal service that is struggling to fund its operations in the era of email, and here we have millions of people who prefer to (or have to) do simple banking in person. There is no technical or administrative reason that the post office could not operate as it does in Japan, as a place to deposit funds (including auto-deposit of Social Security checks), take out cash, etc.

US Post Office Could Rack Up Billions By Offering Money Services–NPR (via Joel M.)

Please note that what I am suggesting is a transparent open market for these services provided by a range of enterprises and institutions. Assemble a marketplace of local credit unions, the post office, enterprises that handle payor-payee transactions such as Dwolla and PayPal, and you have a wide spectrum of choices to suit every need.

As for business loans: you can get small-business loans on PayPal right now. It’s called Working Capital, and the borrower is given the total amount due right up front.

As for the commercial paper market: there is no technical reason why a transparent exchange couldn’t enable borrowers and owners of capital to set short-term loan rates via transparent bidding with automated software.

The obsolescence of banking includes the Federal Reserve–the ultimate middleman skimming operation. But what about providing liquidity in credit panics? Well, to start with, once the banking sector is gone then the concentrations of risk and the obscuring of risk that go hand in hand with banking also disappear– the forces that generate panics will have been dispersed. Those forces will have vanished along with the middleman financial sector that created all the risks, speculative excesses and panics. If there were a liquidity crisis, the Treasury could create and lend whatever funds were needed.

But what about manipulating interest rates and other forms of financial repression? Interest rates would be set by millions of borrowers and owners of capital in transparent transactions.

What about all those great investing services offered by big banks and Wall Street? As many have observed, automated index funds outperform 99% of fund managers over 10 year time frames. So Wall Street is also obsolete.

Once we get rid of these obsolete middleman parasites–Wall Street, the banking sector and the Federal Reserve–we have a delightful question to answer: what else can we do with the $1.25 trillion we’ll save every year by eliminating these obsolete financial middleman parasites? A lot.


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Source: http://www.zerohedge.com/news/2014-02-20/banks-are-obsolete-entire-parasitic-sector-can-be-eliminated

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  1. Its the corporate elite in general, and to oust them you would need to remove the need for a government. Right now the system is set up to protect and cater for the elite. Whether it be bankers or big corporate elites, they are all handled the same way – with kids gloves.

    Whenever a big bank or corporate come under fire in the media, whether it be HSBC for harbouring drug dealers and terrorists money; or Apple and Newscorp escaping huge tax contributions, all the government responds with are some meaningless PR stints at how outraged they are, just before doing absolutely nothing further about it.

    The system remains the same and we all fall in line with the corporate elites agenda.

  2. From the birth of capitalism to around the 1920s, the lords of the economy were the industrial magnates. Astor (fur), Vanderbilt (railroads), Carnegie (steel), Rockefeller (oil), Edison, and Ford were, and often still are, household names. Even the famous bankers J. P. Morgan and Charles Schwab made most of their money from non-financial holdings. The finance sector was quite volatile, but it was small and mostly reflected changes in the economy, as opposed to causing or triggering them.

    By the 1920s however, the mass amount of war debt floating around, the destruction of Continental Europe’s productive capacity, and the need for retooling war industries back to civilian uses created a huge influx of economic activity into the financial sector. In that regard, it is no surprise that the two centers of global finance, NYC and London, were also the homes of the largest lenders to the Allies.

    This financial bubble would not last as long as some thought or hoped. The crash of 1929 set off waves of secondary detonations that reset the financial industry. The Great Depression, World War II (including the Marshall Plan and the rise of the Iron Curtain), and layers of regulation kept a lid on the financial sector for the next 40 years.

    Despite the skillful avoidance of debt entanglements after WWII by Truman (helped, no doubt, by the cutting off of the more heavily damaged Eastern Europe from the global markets), Nixon was not as cautious or thoughtful. Forced by escalating debts from Vietnam and the rest of the Cold War, along with an economic rebirth of Western Europe and the Asia-Pacific forced the abandonment of the gold standard, along with the capital controls that stabilized the Breton Woods system internationally.

    Without these controls, the financial sector expanded once again. Reagan and his Congress exacerbated the problem with more deregulation, ultimately touching off the crash of 1987 and the savings & loan crisis.

    Abroad, decisions in the US compounded by similar decisions by foreign governments triggered waves of national and regional crises in Latin America (2X Mexico), Israel, Asia (2X Japan), and Russia. We had the 2001 .com crash, combined with the aftermath of the Asian crisis and the economic repercussions of 9/11.

    What’s significant about all these crashes, besides their escalating frequency, was that in each case, the Federal Reserve successfully buffered the impact with monetary policy. In other words, even government policy itself became financialized.

    When one looks at GDP from the perspective of commodities, especially gold, instead of in terms of federally-manipulated currency, it’s quite apparent that we never really got out of the early 2000s recession. For most of us, this manifested as the increase in prices over the decade, especially food and fuel. The rest of the consequences normally associated with a recession were obscured by government-encouraged, finance-funded credit and speculation. Meanwhile, the real jobs were being shipped to China, along with some of the government’s money (the rest went to domestic banks), courtesy of two overseas wars.

    The fact is that while the housing-credit crash may have precipitated our current dilemma, what has made it so protracted and devastating to jobs is the the fact that this time, the government was unable to stop the bleeding with monetary policy alone. Even massive bailouts and fiscal stimulus could do little but offer a palliative. Governments went bankrupt. Waves of unrest sent dictatorships packing

    Yet, it seems that once again we are on track to patching the hole in a crumbling dam. New regulations are little more than a fresh coat of paint. In a world were our industry has fled to China and our armed forces have had their rear ends handed to them, the only thread of imperialism we have left is that of financial imperialism. On that note, is it any wonder the concept of breaking up financial institutions was never taken seriously? Or any restrictions on derivatives? Finance is what keeps the heart of capitalism in the firm grasp of the United States. The federal government is quite keen on keeping this intact.

    Now that Russia is rising to take advantage of the situation to annex their neighbors like the Nazis of old, we have to ask ourselves the question: are we willing to risk WWIII and the continuation of exploitation, destruction, suffering, and death in the name of the status quo? Or is it time for us to rise against evil, and dismantle the global system of the exploitation economy of which finance is merely a sector? Beyond the barricades, isn’t there a world you want to see? A world in our hands, and not in the hands of politicians, bankers, and corporate executives? I believe such as world is ours for the taking.

    Friends, comrades, countrymen, do you hear the distant drums? Do you hear the cadence of a rebel army marching for truth, justice, and the real American way? I do, because in my heart, I am marching in formation right along with them.

    Deep in my heart, I do believe, we shall overcome, someday.

  3. The Bankers will just gravitate towards another field and destroy it too. We need to change their thinking or the cycle will continue.

  4. Another bonus in getting rid of the banksters, is it would end all the wars and conflicts. Plus the drug trade and corruption would be severely diminished and Israel and the US would stop acting like modern day nazis

    • Yes. war, on the scale it is currently waged, has outgrown man’s inhumanity to man… We are driven to war now exclusively by lies in order to serve the wealth and avarice of bankers/financial sector. It is said that all wars are banker’s wars, and as we evolve that becomes both more apparently and exclusively true.

      The target is more apparent.

  5. I totally agree. Banking is not necessary. And inasmuch as an individual cannot use the money held by the richest, it should all be available to everyone. Since we put them there… and now regret it.

    They got where they are on our backs and necks. And yet, no one would harm them. They would simply become obsolete, which I agree, they are.

  6. You have missed the point: usury kills.

    “Investors” in your scenario are usurers. How is this different from what the banks do?

    Does it matter who steals your future if your future is still stolen?

    It is immoral to “loan” money at interest. Do you borrow inches from a ruler? Money is a measurement of wealth. It properly represents a promissory obligation. Interest is never created by the act of making a loan.

    Your idea gives us new masters, but solves nothing at all. Meet the new boss.

    Please read and understand the material at http://perfecteconomy.com/

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