Posts tagged Banking

Well then I suppose they will lose their waffle cones as well as their principal.

In recent news, from the Money Monopoly, Ethan Clay, the owner of a Pittsburgh-area ice-cream parlor, has been offering a small-time check-cashing service and community bank through his shop’s gift card system. The interest on deposits is paid out in ice cream gift cards. From the WSJ story, it sounds like he was largely motivated by frustration over fees from the cartelists in the Bureaucratically Correct banking system. So he’s offering a neighborhood alternative that’s designed to minimize fees, offer a moderate rate of interest on deposits, and offer low-interest microloans.

PITTSBURGH–State banking officials want to put the freeze[1] on the owner of an ice-cream parlor who opened a community-bank alternative that pays interest in the form of gift cards for ice cream, waffles and coffee.

Ethan Clay, 31 years old, opened Whalebone Café Bank seven months ago in his shop, Oh Yeah!, a year and a half after he was hit with $1,600 in overdraft fees from a local bank where his account was overdrawn by a series of checks.

Mr. Clay says he wants to offer an alternative banking experience, and has accepted small deposits and made small loans. He claims he isn’t subject to banking rules because his operation is a gift-card savings account.

. . . Mr. Clay’s ice-cream-bank novelty is drawing attention at a time when people, irritated over banking fees and overdraft penalties, are increasingly looking to alternatives to traditional banking. Today, 8.2% of the nation’s households—up from 7.7% in 2009—are managing their finances without a bank, according to the Federal Deposit Insurance Corp.

. . . Mr. Clay said he has $550 from depositors and has loaned $1,700, an amount that includes some of his own seed money. My goal is to get to $100,000 in deposits by Dec. 21, he said. This is the prototype, but I hope to become the neighborhood bank.

He said he came up with the idea after he paid 45 fees at $35 each to his local bank. If I’m overdrawn by 64 cents, the bank should charge me 10 cents and not $20, said Mr. Clay. At some point, he said he might have to consider a small penalty for borrowers who spend money they don’t have.

You have to have a way of making it uncomfortable for people to be overdrawn, he said.

— John W. Miller, Wall Street Journal (2012-09-13)

The story doesn’t mention anything about it, but I expect that accepting the deposits would also be a good way for Clay to capitalize his small business without having to go through the high volumes or bureaucratic demands for getting standard business loans from a bank, and without paying off the Money Monopolist’s skim. In any case, the prospect of a community alternative to cartel banking is certainly more than enough for the Pennsylvania Department of Banking to leap into action. My God, the man is threatening to compete. And he isn’t even a banker!

Now of course I do in general terms understand the cartelizing function of banking regulations, and the role that they play in insulating incumbent capitalists from the threat of market competition. And I know that these cartelizing and insulating functions are in fact, and always have been, the essence and the raison d’être of the regulations. And I realize that there really isn’t any micromanaging defend-the-status-quo, control-at-any-cost argument so baldfacedly idiotic that it can’t still be assimilated and rationalized and seriously produced by the internal logic of bureaucratic rationality. Still, when I read this stuff from a guy like Ed Novak, Spokesman for the Pennsylvania Department of Banking …

It’s a strange case, we don’t have the authority to go close an ice-cream store, said Ed Novak, spokesman for the Pennsylvania Department of Banking. But we are going to do something. You can’t mess with people’s money.[2]

. . . There are other issues, as well. Oh Yeah! does not have depositors insurance. If a bank goes under, the depositors get their money back, said Mr. Novak. If the ice-cream store goes under, who knows what happens?[3]

— John W. Miller, Wall Street Journal (2012-09-13)

… I do still find myself wondering, at some level, how you ever get to a point in your life when you can actually say this kind of stuff without just falling over laughing at yourself. In any case, when he ventures to say it in public, the rest of us ought to at the very least to pick up the slack and laugh him out of the room for it.

In any case, here’s a bit more from Novak:

There is also the question of enforcing banking charters, which licenses institutions to cash checks. Banking in the 19th century was a hit-or-miss proposition, says Mr. Novak. And we have a banking system now to make sure that that’s not the issue.

— John W. Miller, Wall Street Journal (2012-09-13)

Now, of course, you can’t mess with people’s money, and we don’t have any of that hit-or-miss stuff. You can’t mess with people’s money because now we have a Banking System which owns all the money, and only allows you to do what they please with it. And within the enclosed game reserve of that Banking System, there is no hit-or-miss: government guarantees that megacapitalists like Citi and J.P. Morgan-Chase will bag their targets.[4] Whether you think all this is a good thing or not depends on how much you like being in the crosshairs.

Also.

  1. [1][The Editor would like to extend his apologies. The Wall Street Journal story seems to exist mostly in order to print as many awful journalistic puns as you can fit in the available space. –RG]
  2. [2][This was apparently said with a straight face. –R.G.]
  3. [3][This too. –R.G.]
  4. [4]If they should miss on their first shot, FDIC and TARP will roll up in a tank and open fire on their behalf.

Get the Gun Out of the Room.

Sheldon Richman recently published a TGIF column A Free Market in Banking? Not Even Close in which he points out that when folks like John Quiggin claim that free-market economic ideas have been tried and found wanting in the late economic crisis, they are attacking a Ridiculous Strawman of free-market ideas. There has been, to be sure, an economic crisis, which had something to do with bankers acting recklessly and exploitatively. But not because they were unregulated: there is no such thing as unregulated banking or a free market in money, and never has been at any time in the history of the United States (the Fed is a problem, but it’s far from the first problem).[1] In comments on this story, Shyla asks the musical question:

This article raises a critical question about how to structure our economic policies in light of the recession, spiraling debt, and financial collapse.

Let’s say I buy the argument these catastrophes were precipitated by crazy distortions in market forces. Richman suggests these crazy distortions are the result of corporatist influence and unintended consequences.

How do libertarians propose to counter “the competition-inhibiting partnership between influential businesses and government officials?”

Well, one possibility is to get rid of the government officials.

When positions of power are held in place, I think it’s a fool’s errand to try to devise strategies for keeping the wealthy and well-connected from corrupting and exploiting the power of these offices to their own ends. Political processes tend to benefit the politically-connected, and every federal regulatory agency, from the FTC down to TARP, has a long and sorry history of being captured and exploited by the trusts, cartelists, monopolists, robber-barons and financial sharks that they were supposedly concocted to restrain. So rather than worrying about how to stop influential businesses from capturing the regulatory apparatus for their own ends, better to abolish the regulatory apparatus, and refocus on economic, rather than political, means of responding to economic crises.

Of course, you may want to ask the question one step back: how, then, do you get rid of the government officials? (I.e., how do you stop admittedly influential players from exerting their influence over the legislative process, in order to assure that the offices they want created and sustained are created and sustained, in spite of popular indifference or popular objections?) Well, that is admittedly a hard problem. My answer is that in order to get rid of the government officials, you ought to get rid of the government.

I don’t doubt that as long as a legislative process is monopolized by a single, professional political apparatus, that apparatus will be an attractive prize and a willing tool for the influential and wealthy. Concentrated power will always be vulnerable to co-optation, corruption, and exploitation by those who are well-placed to take advantage of it. Attempts to vest all political authority in a single, professionalized, territorial monopoly, but then to turn around and strictly limit that government (for example, by means of a written constitution, or regular elections of officials) have always and everywhere failed. If initially limited, it will grow; legislation will multiply officials, establish bureaucracies, and ratchet up the level of political control, in response to pressure from the concentrated interests (chief among them influential businesses) that benefit from all that. Not because power cannot possibly be limited, but because concentrated power cannot be counted on to limit itself in the absence of any ultimate accountability or threat of competition. The solution, then, is not to find ways to insulate concentrated power from outside influence (which, even if achieved, would make an even worse problem: an absolutely unaccountable absolute state). It’s to diffuse power throughout civil society, rather than concentrating it all in a single, professionalized, territorial monopoly government.

Of course, you may now want to ask the question one further step back: if the solution to business-regulatory collusion is to get rid of the regulatory offices, and the way to get rid of regulatory offices (in spite of business pressure to create them) is to get rid of government, then what’s the way to get rid of government? Well, that is a hard problem, and I don’t have an easy answer. Perhaps it is impossible under present social and economic conditions. I’m inclined to doubt that, but if it is, then surely the answer is to work towards changing present social and economic conditions, around the edges and where possible, by means that avoid the corporate-political nexus, and in ways that undermine the corporate-political nexus’s control over our thoughts and everyday lives: spreading libertarian ideas, educating people about the ways in which bankers and other influential businesses have never been subject to free market conditions, how influential businesses have used the state for their own ends, helping people become more self-sufficient, materially secure and culturally respected while working “outside the system,” encouraging forms of protest, social activism and community organization that operate outside of conventional electoral politics or legislative lobbying, etc. Some of my fellow Anarchists call this “building the new society within the shell of the old”; if anarchy is not now possible, that’s no reason to imagine that even more fanciful utopian schemes (such as “progressive regulation,” “good government,” or “limited government”) are any more plausible or likely to succeed. And if anarchy is not now possible, there is no reason why we should give up on working anarchistically to make it possible in the future.

See also:

  1. [1]Richman discusses efforts at national banking cartels dating back to Alexander Hamilton, restrictions on branch banking, and regulations of interest rates and currency. The only thing I’d want to do at this point is to add: to discuss how legal tender laws, government tax policies, and government-enforced economic dependency and state capitalism conspire to create an artificial demand for liquidity in general, and balances in government-approved cash in particular; how 19th century banking regulations specifically taxed or prohibited co-operative forms of credit and money backed by goods other than government-approved precious metals; how government war bonds, the coercive extraction of tax revenues, and the promise of government bail-outs have been undergirding and coercively securing American banking bidniz models since the Revolutionary War; and the rest of the usual mutualist song and dance about the Money Monopoly.