Monday, November 29, 2010
Banks: Who Needs Them? Or, Do We Really Need Banks?
This recent article published in the Guardian really got me thinking about my own experience using debit or credit cards and about how rotten the banking system has become. I realized that my life could probably go on indefinitely without a single dollar in my wallet. Nowadays, I pay all my expenses with that strangely tangible and yet intangible currency represented by plastic cards. Bills? I pay them online. Eating or drinking out? I pay with a card. Shopping? Card. I even use a card to pay the meter when parking my car. I simply don’t ever need to hold those smelly, germ-carrying bills anymore.
I am certain that I am not the only one experiencing this total transition to plastic, which makes me wonder: Is the actual currency represented by all those electronic transactions even available? What if Eric Cantonas’s campaign were to succeed, what if the massive coordinated withdrawal of money from banks were to take place on December 7? I decided to explore this by making my own inquires. I called a few banks in Washington, DC. The (rudely communicated) response was that the withdrawal of a large amount takes more than a week to process. So let’s say you decide to withdraw $100K, if they approve it and allow you to walk away from their branch with all your money—a big if, given that the money is essentially a part of their capital. The “easy” option would be for you to accept a certified check, which returns us to my initial point about strangely tangible and yet intangible forms of currency. Now, let’s suppose that all US accountholders are able to withdraw their total savings—a grand total in the billions or trillions. Would that amount really exist in cash? Is it really readily available? The obvious answer is, no. So how dependable and indispensable are banks these days?
Consider the case of CreditAnstalt, an Austrian bank backed by the Austrian government that collapsed nonetheless when depositors withdrew all their money. It turned out that neither the bank nor the government actually had the resources to protect those savings. Banks in general are asked to comply with only two things: “Allocate savings and manage credit risk.” Full stop. Now consider what happened in the United States and Greece, what is now happening in Ireland and Spain, and what will soon happen in Portugal. In these countries, the banks did not do either of those two things. The lesson here is that weak and irresponsible banks deserve to be abandoned to their own risk. They deserve to collapse, and not a single dime of taxpayer money should be spent to bail them out. This is globalization in all its glory: the strong, the capable, the innovative deserve to survive, to compete in global markets, and to earn some back-up from governments. Globalization and protectionism try sometimes to hold hands, but they always make an odd couple. It is like going to a wedding reception, where the gossip centers on how long the marriage will last.
What we are seeing or experiencing right now is merely a shifting of global powers. The West is fighting tooth and nail to keep its global dominance against emerging global power centers in places like China and Brazil. Global economic decisions are no longer made solely by Germany, France, Unites States, or Great Britain. Remember, money makes the world go around—seriously around, not around the few. Don’t forget to keep an eye on yours on December 7, whether you look at it on a computer screen or join the Cantonas campaign and (try to) hold it in your hand.