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Banking in the United State s is undergoing a change. Out of over 8,000 banks in this country the
top 4 (Morgan-Chase, Citi, Bank of American and Wells Fargo) control 55% of
all banking assets. The top 100 banks control over 75%. The
FDIC’s watch list of troubled banks is now over 700 and growing every
quarter. If the big four had to mark all their assets to market it is
doubtful they would survive as viable banks. The government has deemed
them too big to fail. They are insolvent but can not be shut
down. They are the walking dead or zombie banks. I suppose it is
hoped that they can plod along until the economy recovers and the
non-performing assets begin to perform again. Or maybe the plan is for
their more profitable divisions such as the credit card sector to make enough
profit over the coming years to cover the losses as they slowly allow the
dead bodies to float to the surface. Of course feeding them a steady
diet of failed banks (after removing all the bad loans) helps as well.
One of the great
strengths of our country has always been our small local banks. These
banks loaned funds within the community and then reinvested the profits
within the community as well. For years banks were not even allowed to
operate outside of their county and certainly not outside of their
state. In the last few decades these regulations disappeared and most
of our local banks disappeared along with them. How many locally owned
banks were in your community 20 years ago? How many are locally owned
now? Commercial banks hold a privileged position in society as the
actual creation of money takes place in commercial banks with our fractional
reserve banking system. As a result banking regulations have always
been strict and commercial banks had been kept relatively small and
LOCAL.
Years ago it was
very common for small local banks to make small consumer loans to known
customers for a short duration at reasonable rates. Signature loans
were made by the bank to local people based on their reputation in the
community. With the wrong type of banking regulation these small
short-term loans require too much paperwork to be profitable. As a
result pawn shops, payday loan companies charging 600+% and credit card loans
from national banks charging 30+% are the only options available to many
consumers.
Depositors knew
their bankers and bankers knew their borrowers in the past. The people
running the big four banks would make Mr. Potter (from It’s a Wonderful
Life) seem like a kindly old grandfather. Today small banks are
disappearing and large banks are getting even larger. This trend cannot
be healthy for the country. If it were not for credit unions many
cities would not have any locally owned banks.
So what do we
do? In an effort to goose the economy the Federal Reserve has kept
interest rates artificially low. This has forced savers into the
stock market to become unsuspecting investors/speculators in
search of a fair return on their funds. The results have been
predictable. These low rates also discourage savings and promote
consumerism. Our capitalist system depends on the accumulation of
capital to increase productivity and therefore increase wealth. If a
ditch digger uses a shovel his income will be limited. If he can
accumulate capital and buy a backhoe he has the opportunity to greatly
increase his productivity and wealth. Without the accumulation of
capital this can never happen. Savers are the people who make
capitalism work at its very basic level. Without them we are doomed for
3rd world status.
Credit unions are
one answer. Family banks are another. Throughout the ages a
family patriarch has loaned private capital to other family
members. As the government becomes weaker and government
guarantees mean less and less the family unit will become more
important. Usury has a dirty connotation among some and the very
definition of usury is controversial. Some consider charging interest
in any amount usury while others consider the charging of
“excessive” interest usury. If you are in the first camp
you can overcome your aversion by taking an equity stake in your family
member’s business enterprise and holding a first mortgage on the
company assets. Of course the patriarch has to review the business plan
and take the emotion out of the decision to loan/invest or not. A good
deal for both parties will allow the patriarch to gain a fair return on his
investment and will also allow the family member to pay a fair rate for investment
capital. A family bank will only work when a deal is looked at from a
strict business perspective. Proper documents must be drawn up and
filed to protect both parties.
However, when there
are no investment opportunities at the moment the best decision is to do
nothing. Park your funds where they will be safe until a nice slow fat
pitch comes right over the plate. Park your funds in gold and silver
outside of the traditional banking system. An interest rate of
½% guaranteed by the FDIC, which is broke, in a currency that is
poised for a round of hefty inflation is not much of a deal these days.
Gold and silver are in primary bull markets with years of upside still
ahead. After all, gold and silver are the original money with 5,000
years of history. Nothing else even comes close.
Worried about
storage issues? Ask us and maybe we can help.
Larry Laborde
Silver Trading
Company
www.silvertrading.net
Larry lives in the occupied South with his wife Puddy and sells
precious metals at the Silver Trading Company. Larry can be contacted
at llabord@aol.com. You can view
his web site at www.silvertrading.net.
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