Banking....Simple Problem....Simple Solution

[libertad]

The problem regarding the larger banks/brokerages/rating agencies is very simple....and proven by the recent success of community banks....

Community banks were successful because they were accountable both in terms of both the lender/borrower having skin in the game....and only after knowing their customers on a local basis....

The big banks/investment banks/rating agencies acted in collusion without skin in the game.....did not know their customers.....and with the then existing good will of rating agencies....they sold CCC paper with a AAA label....
Big spreads, big commissions, no accountability, did not know their customers, and had no skin in the game....as it was just brokered to someone who believed in the good will of the rating agencies....

Let the community banks come to the fore....and just continue what they were doing....

Scrap the investment bank/rating agency/big bank process....

And while doing so....will bid good riddance to "too big to fail"....

 

[jueco2005]

How about abolishing fractional lending???

Quote from libertad:

The problem regarding the larger banks/brokerages/rating agencies is very simple....and proven by the recent success of community banks....

Community banks were successful because they were accountable both in terms of both the lender/borrower having skin in the game....and only after knowing their customers on a local basis....

The big banks/investment banks/rating agencies acted in collusion without skin in the game.....did not know their customers.....and with the then existing good will of rating agencies....they sold CCC paper with a AAA label....
Big spreads, big commissions, no accountability, did not know their customers, and had no skin in the game....as it was just brokered to someone who believed in the good will of the rating agencies....

Let the community banks come to the fore....and just continue what they were doing....

Scrap the investment bank/rating agency/big bank process....

And while doing so....will bid good riddance to "too big to fail"....

 

[libertad]

Jeuco2005

How about abolishing fractional lending???

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This is a very interesting point....

At some point in the past.... the inventors of "fractional lending" sold this concept to government officials....

At the time....the state of affairs needed a "quick fix" that was needed to jump start employment and the overall economy....

The problem being ....it was never taken off after the vehicle began rolling....

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Make no mistake....ever since that day of adoption....the whole process has been nothing more than the management of excessive leverage...."a very chancy game"....
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A simple view is that over the last 26 years....leverage was levered even more....and the underlying fundamentals of leverage ...."farm acerage" was sold off....

Then the game became....

Exporter countries financing the levered state of developed importing countries....ie China buying US Dollars....
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Which brought all players under the "levered umbrella"....
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What really needs to happen is for the world to adopt to the fact that over $30 Trillion vanishing is a permanent affair....

This is the only solution to more stable currencies and economies....

A simple matter of permanently removing irresponsible "leveraging the leverage"....

 

[murray t turtle]

Quote from libertad:

The problem regarding the larger banks/brokerages/rating agencies is very simple....and proven by the recent success of community banks....

Community banks were successful because they were accountable both in terms of both the lender/borrower having skin in the game....and only after knowing their customers on a local basis....

The big banks/investment banks/rating agencies acted in collusion without skin in the game.....did not know their customers.....and with the then existing good will of rating agencies....they sold CCC paper with a AAA label....
Big spreads, big commissions, no accountability, did not know their customers, and had no skin in the game....as it was just brokered to someone who believed in the good will of the rating agencies....

Let the community banks come to the fore....and just continue what they were doing....

Scrap the investment bank/rating agency/big bank process....

And while doing so....will bid good riddance to "too big to fail"....

====================
Excellant,Liberty;
and another big part of the problem.

With LEH & Citigroup....... you have/had TOP managers that can NOT manage. They blame shortsellers for their mis-management;
& C got caught attempting to waste 50/+ million on a corp jet.....................................................................Its a persistant pattern, of mis-management, same as GM.

 

[WaveStrider]

Quote from libertad:

And while doing so....will bid good riddance to "too big to fail"....

Any financial institution that is "too big to fail" becomes the entire system's weakest link, making the whole financial structure subject to collapse. They got to fix that or anything they do is going to just go bust later.

 

[libertad]

Wavestrider....


Any financial institution that is "too big to fail" becomes the entire system's weakest link, making the whole financial structure subject to collapse. They got to fix that or anything they do is going to just go bust later.

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Exactly....


This is exactly what the Community Bank model does by default.....

 

[nicuss]

Quote from jueco2005:

How about abolishing fractional lending???

So then how does any bank lend out money if they have to keep 100% of their deposits in the vault? How do I buy a house if I can't borrow from any bank? Save my whole life and hope that I make enough to buy it before I die? What am I missing here?

 

[tetramorium]

Quote from nicuss:

...What am I missing here?

A house, by the sounds of it.

 

[Sandybestdog]

Quote from jueco2005:
How about abolishing fractional lending???

How dare you suggest something that will result in banks making less money, stops inflation, stabalizes prices, keeps home prices affordable for new buyers, slows the gradual rise in stock prices, slows corporate profits, narrows the rich/poor gap, and generally helps the little guy. Seriously, who do you think you are?

 

[Sandybestdog]

Quote from nicuss:
So then how does any bank lend out money if they have to keep 100% of their deposits in the vault? How do I buy a house if I can't borrow from any bank? Save my whole life and hope that I make enough to buy it before I die? What am I missing here?

Was the house invented in the 1900’s? People must have lived in tents before that because obviously they would never be able to get a loan to buy one. Right?

You’d be able to afford a house because it would cost a lot less. Fractional reserve banking creates higher prices which just further increases the need for even more loans. There is no reason housing prices should continually go up. A house is a house. Why should it be worth more in 10 years? It’s a place to live in, not an atm.