Banking in the Coming Decade
Larry LaBorde
Aug 6, 2010
Banking in the United States is undergoing
a change. Out of over 8,000 banks in this country the top 4 (Morgan-Chase,
Citi, Bank of America and Wells Fargo) control 55% of
all banking assets. The top 100 banks control over 75%. The FDIC's
watch list of troubled banks is now over 700 and growing every
quarter. If the big four had to mark all their assets to market
it is doubtful they would survive as viable banks. The government
has deemed them too big to fail. They are insolvent but can not
be shut down. They are the walking dead or zombie banks.
[Editor's note:
Bolding is mine] suppose it is
hoped that they can plod along until the economy recovers and
the non-performing assets begin to perform again. Or maybe the
plan is for their more profitable divisions such as the credit
card sector to make enough profit over the coming years to cover
the losses as they slowly allow the dead bodies to float to the
surface. Of course feeding them a steady diet of failed banks
(after removing all the bad loans) helps as well.
One of the great strengths of our country has always been our
small local banks. These banks loaned funds within the community
and then reinvested the profits within the community as well.
For years banks were not even allowed to operate outside of their
county and certainly not outside of their state. In the last
few decades these regulations disappeared and most of our local
banks disappeared along with them. How many locally owned banks
were in your community 20 years ago? How many are locally owned
now? Commercial banks hold a privileged position in society as
the actual creation of money takes place in commercial banks
with our fractional reserve banking system. As a result banking
regulations have always been strict and commercial banks had
been kept relatively small and LOCAL.
Years ago it was very common for small local banks to make small
consumer loans to known customers for a short duration at reasonable
rates. Signature loans were made by the bank to local people
based on their reputation in the community. With the wrong type
of banking regulation these small short-term loans require too
much paperwork to be profitable. As a result pawn shops, payday
loan companies charging 600+% and credit card loans from national
banks charging 30+% are the only options available to many consumers.
Depositors knew their bankers and bankers knew their borrowers
in the past. The people running the big four banks would make
Mr. Potter (from It's a Wonderful Life) seem like a kindly old
grandfather. Today small banks are disappearing and large banks
are getting even larger. This trend cannot be healthy for the
country. If it were not for credit unions many cities would not
have any locally owned banks.
So what do we do? In an effort to goose the economy the Federal
Reserve has kept interest rates artificially low. This has forced
savers into the stock market to become unsuspecting investors/speculators
in search of a fair return on their funds. The results have been
predictable. These low rates also discourage savings and promote
consumerism. Our capitalist system depends on the accumulation
of capital to increase productivity and therefore increase wealth.
If a ditch digger uses a shovel his income will be limited. If
he can accumulate capital and buy a backhoe he has the opportunity
to greatly increase his productivity and wealth. Without the
accumulation of capital this can never happen. Savers are the
people who make capitalism work at its very basic level. Without
them we are doomed for 3rd world status.
Credit unions are one answer. Family banks are another. Throughout
the ages a family patriarch has loaned private capital to other
family members. As the government becomes weaker and government
guarantees mean less and less the family unit will become more
important. Usury has a dirty connotation among some and the very
definition of usury is controversial. Some consider charging
interest in any amount usury while others consider the
charging of "excessive" interest usury. If you
are in the first camp you can overcome your aversion by taking
an equity stake in your family member's business enterprise and
holding a first mortgage on the company assets. Of course the
patriarch has to review the business plan and take the emotion
out of the decision to loan/invest or not. A good deal for both
parties will allow the patriarch to gain a fair return on his
investment and will also allow the family member to pay a fair
rate for investment capital. A family bank will only work when
a deal is looked at from a strict business perspective. Proper
documents must be drawn up and filed to protect both parties.
However, when there are no investment opportunities at the moment
the best decision is to do nothing. Park your funds where they
will be safe until a nice slow fat pitch comes right over the
plate. Park your funds in gold and silver outside of the traditional
banking system. An interest rate of ½% guaranteed by the
FDIC, which is broke, in a currency that is poised for a round
of hefty inflation is not much of a deal these days. Gold and
silver are in primary bull markets with years of upside still
ahead. After all, gold and silver are the original money with
5,000 years of history. Nothing else even comes close.
Worried about storage issues? Ask us and maybe we can help.
###
Larry LaBorde
 Silver Trading Company
318-470-7291
website: www.silvertrading.net
email: llabord@aol.com
Larry lives in Shreveport, LA with his wife Puddy, and sells
precious metals at the Silver Trading Company.
Larry can be contacted at llabord@aol.com. You can view his web
site at www.silvertrading.net.
Send questions, comments or corrections to llabord@silvertrading.net.
"Please note that I am by no means a financial advisor and
all investments should only be made after performing your own
due diligence." -Larry
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