No, this is not a gripe about how stingy they are when we go and ask for a loan; a bank is properly in the business of making money, and nobody can make money by extending risky loans. Place yourself on the other side of the desk, and consider: if "you" were coming for one, would "you" grant it?
So although it may be true that a bank never lends money to anyone unable to prove he doesn't need it, that's not far removed from the way things ought to be. Anything much different is a fast road to ruin; and a banker should quite rightly put his other depositors' security first and his shareholders next. Those depositors, after all, are the ones actually lending, right?
Well, no, not actually; but more of that later on. The foregoing refers to an honest bank, one that accepts and safeguards your money and mine, and then lends it out at a higher interest rate than it pays, so as to make a profit. That's pretty well what we all suppose a bank to be doing. So now let's get down to what they actually do, in the real world.
Part of "keeping our money safe" would be to keep all records about it private, right? - to let nobody see it or hear about it without our permission. That is rather basic to all kinds of stewardship, and may also be called "fiduciary responsibility." It's the sort of thing we take for granted, and in some countries today it's actually available. UK banks, for example, let nobody see a customer's account without a Court Order. Switzerland, for another, has bank secrecy laws so tough that recently a sad result has surfaced: Jews left money with them for safe keeping sixty years ago but then got liquidated; and now, their descendants have a hard time proving the accounts ever existed.
That's a nasty one, but must NOT be allowed to change the privacy principle; hopefully, there will never be another Holocaust. But there may very well be other governments that do as the Nazis did, which was to confiscate wealth and forbid people to keep money safe abroad. It was exactly those vicious laws in Germany that caused Swiss banks to offer highly secret, numbered acounts.
Today in America, to most peoples' surprise, no such privacy exists. It's very hard if not impossible to open a bank account today without giving your SS Number, which makes it easy for government spies to track down your money. And if a government spy should arrive at the Bank Manager's office and ask to see your account history (or even to grab its contents!) he will get it, three bags full; without even the pretense of furnishing a Court Order!!
Let me again be fair: not all bankers are quite so spineless. Mine refused such an order several years ago because the spy spelled my name without an "e", like the creator of Garfield; and so the banker could truthfully say he knew of no such account. That was before the days of compulsory SS numbers. But honest clerks like that are a very far cry from formal bank security and privacy.
Bank companies often project an image of security by having imposing buildings, though that was never more than an image; investing in stone is hardly more profitable than investing in well-managed businesses. But bankers' financial stability is, alas, not as strong as they'd like us to believe.
Take mortgages, for example. When you or I borrow $100,000 from a bank as a mortgage, essentially there is an exchange of paper: we give the banker a written promise to pay $X a month for ever and ever, Amen, and the banker writes us a check for the hundred grand - which is then paid over to the former house owner, and we get to occupy the house. Fine; and what we thought just happened was that the bank took money it already had (as deposits from other customers) and lent us some. But that isn't what really happened!
What actually happened was that the bank entered the promissory note in its books as an asset, and then wrote us a check against that entry. In other words, the instant before those papers were exchanged, the bank didn't actually have $100,000 to lend! It wrote us the check against funds that never actually existed. It gets away with that because (a) people almost never complain and (b) the government, which never hesitates to enforce laws that make such such chicanery criminal if done by you or me, mysteriously forgets to do so for those with a government license to commit banking.
So, that license allows the banker to create "money" out of thin air, and then make real interest on it! And for good measure, he gets to own the (real) house if we don't keep on paying. What a neat way to make a living!
I'm told that there are those who, having tumbled to the real nature of how banks finance mortgages, are suing them for breach of promise (the promise to exchange true money for the promissory note) and winning; or, more accurately, not losing. The cases seldom go to a jury, but are settled on terms to whose confidential nature the only clue is a broad smile on the plaintiff's face. No wonder, if his mortgage payments were just cut down to zero...
When they realize just how flimsy is the security of the banking system, and how easily the government can grab their property, many people reckon that US Banks are no longer a safe enough place to put their hard-earned money. And some of them, like the Jews in Germany during the 1930s, are shifting their assets offshore. It's a very wise move. If I had any assets, I'd do it myself; and Switzerland is only one of several safe offshore havens. Oh, there is one other way to keep it relatively secure, and it's sad, because it's much less profitable than an honest banking system here would be; and that's to keep it under the mattress - or more accurately, turn the government's paper "money" into something of real value, such as gold, and then hide that somewhere very secret. Yes, it's primitive. But what safe alternative have they left us?
|© Copyright Jim Davies 1999|
Jim Davies lives in New Hampshire,
and enjoys contemplating which way is up.
The above is Edition # 191
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