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Banks Are Obsolete: The Entire Parasitic Sector Can Be Eliminated

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This entire parasitic middleman sector could be replaced with automated digital clearing houses and crowdfunded or non-bank loans. Why do we need banks to pay bills online? We don't; any clearing house could charge a small fee for the transaction.


Why do we need banks when loans can be crowdfunded? If we can invest money in start-ups via Kickstarter, Indiegogo, RocketHub, AngelList, etc., why can't we own a piece of someone's auto loan or home mortgage?


The web and software now enable the elimination of the entire middleman skimming operation of banking. Those with capital can invest that capital directly in loans that the investors choose. Risk is distributed throughout the system, and the process of verifying credit scores, income, valuations, assets, and so on--the building blocks of risk assessment and a market for debt and cash--can also be automated.


The entire notion that 100 savers put their money in a bank which then buys a mortgage with their savings and sells it as a security that supports a pyramid of derivatives is obsolete. Each saver can directly own (and sell on a transparent market) a piece of a mortgage, auto loan, business loan, etc. There is no need for a middleman banking sector at all--no skim, no concentration of risk, no opportunities for selling derivatives to unwary investors. All that goes away with the banking sector.


But what about holding deposits? We already have two institutions that could serve this role: credit unions and the post office. If those holding depositors' cash do not issue loans, they have no source of income to defray operating expenses. The solution is obvious: charge fees for holding deposits and payor-payee transactions.

If the fee structures are transparent, those who charge too much will disappear as customers go elsewhere. That's the purpose of transparent competition in an open marketplace.


Many other advanced nations have long combined postal and simple banking services: France and Japan come to mind. Here we have a postal service that is struggling to fund its operations in the era of email, and here we have millions of people who prefer to (or have to) do simple banking in person. There is no technical or administrative reason that the post office could not operate as it does in Japan, as a place to deposit funds (including auto-deposit of Social Security checks), take out cash, etc.


US Post Office Could Rack Up Billions By Offering Money Services--NPR (via Joel M.)

Please note that what I am suggesting is a transparent open market for these services provided by a range of enterprises and institutions. Assemble a marketplace of local credit unions, the post office, enterprises that handle payor-payee transactions such as Dwolla and PayPal, and you have a wide spectrum of choices to suit every need.


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Charles Smith moved to Hawaii at 15, entering Lanai High School as one of only three Anglos. By marriage or birth his immediate family includes Mexican-American, African-American, Asian-American, and Caucasian bloodlines. He's put his degree (more...)
 

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Banks Are Obsolete: The Entire Parasitic Sector Can Be Eliminated

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