interest rate spread. In an idealized scenario, a bank might paydepositors 3% annual yield on their savings and charge borrowers 5%.The 2% spread was the bank's to keep for performing the accounting,collection and risk management functions.
Today, computers running scripts/programs can perform thesefunctions with minimal human oversight and at very low cost.
Thetracking and recording of millions of transactions and accounts nolonger requires thousands of clerks and a large institutionalbureaucracy; a relative handful of software engineers are all that'sneeded to maintain these services, which are in effect a low-cost utility.Risk management and lending are also computerized; the humaninterface of a banker is a bow to tradition, not necessity. Crowdsourcedfunding is entirely computerized: those with money/capital choose to join a pool of lenders who accept the risk of lending to an individual,household, project or enterprise for a specified return.
This process of aligning excess capital (savings) with borrowers isalready automated. Is there a role for regulation?
Absolutely: such asystem requires transparency that can be trusted. Those who violatethis trust with cooked-books, lies, misinformation, etc. must suffernegative, long-lasting consequences, starting with being banned fromthe system.It is an abiding irony that the present banking system's secret portfoliosand processes (shadow banking, derivatives designed to fail and triggerprofitable defaults, etc.) are considered core competitive advantages:
inother words, eliminating transparency generates the highest-returnbank profits.And let's not overlook the political consequences of these immenseprofits: a political and regulatory order that is easily captured to servethe interests of big banks
. The number one agenda item is of course toarrange Central State protection of the most profitable (i.e. the leasttransparent) parts of the banking sector's operations.This lack of transparency distorts the financial market, rendering itsystemically vulnerable to malinvestments and risky speculations andthe financial crashes that result from these systemic distortions.
The other top agenda item for bank lobbyists is to arrange CentralState/Federal Reserve subsidies of bank profits
. These subsidies arealso known as financial repression, as the Central State/Bank rigsinterest rates and regulations to favor bank profits at the expense of both savers and borrowers.
Thanks to the Federal Reserve's Zero Interest Rate Policy (ZIRP),savers have been robbed of hundreds of billions of dollars inincome--money that has been effectively transferred to the banks bythe State
. This is why I call our system State-Cartel capitalism, as theState and cartels rule in a mutually beneficial marriage at the expenseof the real economy, the citizenry and especially what's left of the