0/ We Need to Fix Our Deal with Banks
Right now, the average American faces a comically unfair deal with banks: deposit your money, get paid nothing, they do hilariously risky stuff, and if it goes well, they pay themselves huge bonuses.
Which somehow isn't even the bad part!
Right now, the average American faces a comically unfair deal with banks: deposit your money, get paid nothing, they do hilariously risky stuff, and if it goes well, they pay themselves huge bonuses.
Which somehow isn't even the bad part!
1/ The bad part is that when they don't do well, we don't get a refund. In fact, we have to bail them out. This has been a problem throughout American history, and there is a certain undeniable tension between credit and bailouts. However, in the past, we had this under control.
2/ How? It was called Glass-Steagall, and it meant that while banks could take risk, those risks were largely mainstream lending for the benefit of America, not yeeting as much money as humanly possible to hedge funds so they could lever up their trades.
3/ While not perfect, this meant we did not have too-big-to-fail banks, we did have a period of relatively banking stability, and more so, we had entities that if we had to bail them out, we could at least live with the social contract between average American and bank.
4/ All of this changed with the deregulation push of the 1980s-1990s, the coup de grace of which was Graham-Leach-Bliley, which repealed Glass-Steagall. Banks became unrestricted free market enterprises, and if they had held to that ideal, I wouldn't be writing this.
5/ But now, these so-called titans of the free market are arguing for (you guessed it) the government to restrict competition against them to protect their bonuses. Let's not lie about that, either: banks pay you nothing on deposits, but the CEO of Citi made $34.5mm last year.
6/ To add insult to injury, they are now claiming they will be crippled in their activities if stablecoins are allowed to pay yield to compete against them. Will they? No, their bonuses will just get smaller? What activities? They will claim main street lending.
7/ Yet if you look at bank balance sheets and measure their residential mortgage + small business loan exposure, it is <20% for most. So, they want the government to ban competition so they can lend money to billionaires and hedge funds, and think they are the good guys?
8/ There are two potential answers here. Answer one, which is simple: let everyone compete. Yield, stablecoins, banks, fintechs? All of them. Let them fight!
Is that the right answer? If you are a de-regulation libertarian, yes, yes it is!
Is that the right answer? If you are a de-regulation libertarian, yes, yes it is!
9/ But I want to shift the Overton window to propose another answer: have we considered bringing back Glass-Steagall? Break up the TBTF banks. Separate investment and commercial banking. Return to smaller, more socially aligned banks, if we are keeping the FDIC and bailouts.
10/ I go through the whole history of how we got here, why I think maybe we should make a u-turn, and some of the implications in the longer piece. If you care about stablecoins, banks, government finances, or just not getting ripped off, you should read it.
12/ All questions welcome.
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