STAFF NEWS & ANALYSIS
Who Needs Banks?
By Staff News & Analysis - September 29, 2010

The largest number of bank failures in nearly 20 years has eliminated jobs, accelerated a drought in lending and left the industry's survivors with more power to squeeze customers … Some 279 banks have collapsed since Sept. 25, 2008, when Washington Mutual Inc. became the biggest bank failure on record. That dwarfed the 1984 demise of Continental Illinois, which had only one-seventh of WaMu's assets. The failures of the past two years shattered the pace of the prior six-year period, when only three dozen banks died … Between failures and consolidation, the number of U.S. banks could fall to 5,000 over the next decade from the current 7,932, according to the top executive of investment- banking firm Keefe, Bruyette & Woods Inc. The upside of failures is that they can represent a healthy cleansing of a sector that grew too fast, with bank assets more than doubling to $13.8 trillion in the decade that ended in 2008. Many banks that failed were opportunistic latecomers. Of the failed banks since February 2007, 75 were formed after 1999, according to SNL Financial. Still, economists say, the contraction represents an enduring threat to capital, lending and the economy. – UK Telegraph

Dominant Social Theme: Thank goodness for banks, the most valuable invention since the wheel.

Free-Market Analysis: We've often pointed out that banking is the "biggest bubble" – at least until a feedbacker pointed out to us that government actually is. But banks probably run a close second. In the 20th century, especially, central bankers were the unacknowledged priests of high finance and banks were (and are) their temples. It is instructive to notice how many banks have classical-style facades reminding one of, say, the Parthenon. Another sub dominant social theme: "Bow down if you will at the alter of probity and wealth! Here everything is made good again."

But the ongoing failures of US banks provides us with the opportunity to ask, "banks, who needs 'em?" That this question still has the capacity to shock shows us how effective this central money power promotion really is. For most people, unfortunately, banks are the place from which they will think to seek funding to start a business venture or buy a home or refurbish a kitchen. In fact, banks are not necessary for any of this.

Neolithic banks were initially temple-places, apparently, and then more generally money warehouses for precious metals. In such places as America (during its time of free-banking) there were plenty of other sorts of warehouses including restaurants, hotels, etc. Many of these issued scrip in the form of receipts. And the receipts were accepted locally. Central banks also issued such scrip. In the modern day, these invoices are seen as "money," though they are no longer redeemable for gold or silver.

Because of legal tender laws and the vast powers of central banks, people seem generally to accept the power and scope of Western banks without much question. This is exactly as it should be in the view of the power elite that has set up the modern system and operates it. There ought to be no question about the functionality of banks. They are, in Willie Sutton's phrase, where the money is. And yet has this always been so? There is this, from Wikipedia, about banking in ancient Rome:

Banking during Roman times was not as we understand banking in modern times. During the Principate the majority of banking activities were conducted by private individuals, and not by large banking corporations that exist today. Moneylending not only allowed for those people who needed money to have access to it, but that through direct transference between bankers, the actual usage of currency was not needed because it could be done purely through financial intermediation.

Large investments were conducted and financed by the faeneratores (trans. financier), whilst those that worked professionally in the money business and were recognised as such were known by various names, such as argentarii (trans. banker), nummularii (trans. money changer), and coactores (trans. debt collector), but the vast majority of money-lenders in the Empire were private individuals, since anybody that had any additional capital and wished to lend it out, could easily do so.

Makes a lot of sense to us. We have noted in numerous articles that banks these days are merely conduits for central bank-created physical and electronic money. The reason for banks is mostly cosmetic. If banks did not exist, then it would be seen that central banks could just as easily distribute "money" directly to people from some central location like a post office. But if central banks did so, receivers would immediately understand the fraud that lies at the heart of modern banking – that there is no real money, only printed paper and electronic digits. For this reason, banks provide the necessary curtain behind which OZ resides.

The other reason for modern banking is to control the money-stuff. The privilege of printing money is an awesome one – literally a God-like power. It must be managed very carefully so people do not see too deeply into the process. Thus, printed money is distributed through various elaborate mechanisms, but mostly through dissemination to chosen "money center" banks. These banks, in turn, determine who gets the privilege of borrowing for various endeavors. The money trickles out, and sometimes (as today) it moves most sluggishly indeed.

It is a well-thought-out and rigorously controlled process. The promotion surrounding the process, as we have written, is quasi-religious. As with all such processes, there are vestments (gray suits), ceremonies (wherein the money-priests meet deep in the heart of the banking temple) and public announcements of what has been decided (proclamations by the major media). Occasionally, the chief central banker himself opines on economic circumstances – usually within the ambit of a carefully controlled public ceremony.

It is also noteworthy that much of the process of central banking has to do with divining the future (impossible of course). But this is an important part of the ritual. Only seers and prophets can foresee what the future holds, and central bankers especially are granted this gift by those around them.

One could go on and on about the religious parallels but you, dear reader, have probably figured them out already. The main point we would make is that all the functions of modern banking could be easily performed by individuals – and in Roman times finance was indeed a private affair. Mostly conducted by the wealthy, apparently, it involved promissory notes and other forms of guarantees that obviated the use of specie. In other words, the Roman system was a lot more sophisticated and liquid than it probably seems today.

There is really no reason why Citicorp has hundreds of thousands of employees. Or why bank headquarters soar in gleaming splendor in city-centers throughout the West. None of it is probably necessary. It is, in fact, for show, a dramatic charade; most involved in the accounting and legal analyses required by banks are unnecessary, the product of regulatory demands (negotiated by the same banks as barriers to entry). In fact the whole industry is unnecessary. It could be privatized entirely, as it is to some degree in the Muslim world (and was in Rome). This is, as we have pointed out many times, one of the reasons that the West is continually attacking the Middle East. Western banking must be globalized before Anglo-American world dominance can be realized.

After Thoughts

The article excerpted at the beginning of this analysis points out that "the contraction (of US banking) represents an enduring threat to capital, lending and the economy." As we have tried to show in this article, such a contraction does no such thing. It represents a threat mostly to the perception that banks and banking are indeed necessary in any capacity – other than as warehouses for storing gold and silver. And in the past, most people stored their gold and silver in clay pots in the ground near or within their houses. Was this such a bad idea?

Posted in STAFF NEWS & ANALYSIS
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