The great recession after 2008 and the great depression both show what happens when finance stops working. The rest of the economy collapses without it. You can all the way back to medieval Kings to see how important it is.
I don't know where people get this idea finance is not "real". If it wasn't useful, people wouldn't be paying for the services it provides, they're all optional.
Regarding mortgages, auto loans, business loans, the key point is that the money is created out of thin air. 80% of bank credit goes to mortgages, which ultimately drives up prices and fuels housing bubbles.
The Great Recession and Great Depression were caused by the finance sector. The Great Recession was the result of banks fueling a housing bubble by loosening lending standards, driven by the peddling of risky financial securities like CDOs, and leveraged to the tilt by derivatives like credit default swaps. When it all collapsed, they had to be bailed out (while Main St never got one). The Great Depression was preceded by a stock market bubble fueled by speculators trading on margin.
The banking industry does not create wealth. It is a middleman with the monopoly privilege of creating money out of thin air in exchange for dishing out collateral-backed loans of this funny money, and has 1. too much power, and is 2. overcompensated for it's "work" 3. in the long-term will reduce our competitiveness and lead to our relative demise (eg. look at General Electric).
You're failing to envision an alternative where credit is more democratically allocated, where finance isn't so overcompensated and such a brain drain attracting our brightest minds, and where the government can offer $350b in small business loans during a crisis without some middlemen taking a ludicrous 3% fee for shuffling some papers.
The vast majority of student loans are guaranteed by the federal government. The banks take zero risk on these loans and still charge higher rates than home mortgages. Something seems broken there.
Do you have a source for this? I can't confirm it. As an example, this description implies that the guarantee is for 97% of outstanding principal: https://www.nolo.com/legal-encyclopedia/what-is-federally-gu...
Assuming something close to that, the bank is out 3% of the principal, plus any accumulated interest-- which I would guess is usually substantial, because payments are typically deferred while the student is in school, but the bank's been paying the fed interest during that time period.
So I don't have all the numbers, but on the face of it, it doesn't seem totally ridiculous that a secured loan like a mortgage would fetch a better rate than student loans that aren't fully guaranteed.
They explicitly said that if you wanted to get a loan, private Banks should be there to enable you.
The only thing that they wanted was a public bank, so you're not forced to support them if all you need is an online account for transfers.
perhaps, but
> The great recession after 2008 and the great depression both show what happens when finance stops working.
shows the problem with your comment. The "recession after 2008" is not the problem, the previous 30 years of finance capitalism and deregulation (starting with the mortgage interest deduction and securitization in the late 70s) is.
Justifying our horrendously corrupt system this way -- by pointing to the basic utility in banking, lending and financial instruments -- is like saying McDonalds is great because food is good.
Honestly, in my opinion this could not be a more misinformed take on the reality of banking. Today there exist no alternatives to commercial money (private bank debt), because our governments' demand taxes in it.
Finance and banking are also different, yet you seem to use the words interchangeably.
Banking = creation of credit.
Finance (today) is about creating overly complex financial products to take part in the game of high volume automated trading, such as with the use of BlackRock's Aladdin - where the same financial products are sold and resold hundreds of times in an hour. Pure speculation/extraction/Rentierism.
As the comment you replied to wrote:
> The first step to fixing this is to give citizens the ability to opt out of private banks and bank directly with the central bank. Private banks should not be the only ones with this privilege.
"The problem is largely in the system of exchange we call “money,” and in the banks that store and distribute it. Rather than allowing the free exchange of labor and materials for production, our system of banking and credit has acted as a tourniquet on production and a parasite draining resources away.
Genuine economic freedom requires that credit flow freely for productive use. But today, a handful of giant banks diverts that flow into an exponentially-growing self-feeding pool of digital profits for themselves. In the wake of the 2008 financial crisis, much of the global economy has been battling economic downturn, with rampant unemployment, government funding problems, and harsh austerity measures imposed on the people. Meanwhile, the banks that caused this devastation have been bailed out at government expense and continue to thrive at the public trough. All this has caused irate citizens to rise up against the banks, particularly the large international banks. But for better or worse, we cannot do without the functions they perform; and one of these is the creation of “money” in the form of credit when banks make loans.
This advance of bank credit has taken the form of “fractional reserve” lending, which has been heavily criticized. Yet historically, it is this sort of credit created out of nothing on the books of banks that has allowed the wheels of industry to turn. Employers need credit at each stage of production before they have finished products that can be sold on the market, and banks need to be able to create credit as needed to respond to this demand. Without the advance of credit, there will be no products or services to sell; and without products to sell, workers and suppliers cannot get paid.
If banks have an unfair edge in this game, it is because they have managed to get private control of the credit spigots. They use this control not to serve business, industry, and society’s needs but for their private advantage. They can turn credit on and off at will, direct it to their cronies, or use it for their own speculative ventures; and they collect the interest as middlemen. This is not just a modest service fee. Interest has been calculated to compose a third of everything we buy."[1]
The strongest alternative I am seeing emerge at this point is a new distributed peer to peer cryptographically secured accounting framework/pattern called Holochain. It allows us to rapidly prototype, and start using, new types of mutually sovereign asset backed Mutual Credit 'currencies' [2] (wealth-acknowledgement systems), based on productive capacity and measuring this wealth in new ways that isn't possible to integrate with today's money system. This includes the use of reputation currencies (think FairTrade labels, Organic veggie labels etc.). Building on this are projects like http://valueflo.ws.
[1] https://ellenbrown.com/what-are-public-banks-and-how-do-they...
[2] https://medium.com/holochain/beyond-blockchain-simple-scalab...
You for instance (forgive me getting personal) don't have to engage in high volume trading products using Blackrock Aladdin. You can just get a job, get paid, and spend what you earn.
> You for instance (forgive me getting personal) don't have to engage in high volume trading products using Blackrock Aladdin. You can just get a job, get paid, and spend what you earn.
The problem is that because of the monopoly on today's money, I am literally unable to not take part in society (in the way you describe) without at some point being negatively affected by the slippery things Wall Street does. An example is the recent US government bailouts during COVID-19, which means we are basically paying to clean up corporate fuck-ups caused by the effects of the extremely risky and parasitic ‘financial products’ sold by these big financial institutions.
Leilani Farha, a Canadian human rights lawyer working as the UN's special rapporteur on adequate housing, provides an inside look into one of these dark patterns in the 2019 documentary 'Push'[1]. It focuses on the financialization of housing and in it Blackstone's blueprints are laid out in full. They've now started a new fund to buy more 'distressed real estate' in Europe [2], repeating the same heist they pulled off during the '08 crash. It comes down to buying up housing and becoming landlords en-masse for society's most vulnerable, extracting rents from them, turning neighborhoods (groups of homes) into financial instruments/products, and selling a stake in such a financial product as just another commodity on the market. Yet these are people's lives we're talking about - and they are being systematically destroyed in the pursuit of profit. Profits which are then used to pay for huge corporate bonuses.
In my eyes, the real parasites of today's society are the propertied classes. Not the Precariat class [3], who faces ever-more unstable labor contracts and precarious working conditions, in the global North as well as the South.
The proprietary protocols of the money system constrain and shape all my actions in the world. Unless I live with an indigenous tribe who live in a gift economy, I cannot escape the rules and constraints imposed by the rules of today’s money. This means I am at the mercy of the Rentier capitalist class, which is growing in power every day.
To be honest, we'd have to go deeper and examine Capitalism's move into digital property, and the government granting state backed monopolies - and thus violence backed, through the criminal justice system - in the form of 'intellectual property', which is what I believe is causing a lot of issues in a world:
"…today, a tiny minority of people and corporate interests across the world are accumulating vast wealth and power from rental income, not only from housing and land but from a range of other assets, natural and created. 'Rentiers’ of all kinds are in unparalleled ascendancy and the neo-liberal state is only too keen to oblige their greed.
Rentiers derive income from ownership, possession or control of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, mineral exploitation or financial investments, but other sources have grown too. They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’ (such as patents, copyright, brands and trademarks); capital gains on investments; ‘above normal’ company profits (when a firm has a dominant market position that allows it to charge high prices or dictate terms); income from government subsidies; and income of financial and other intermediaries derived from third-party transactions." [4]
I want us to move to what is commonly referred to as 'Commons based peer production' (Yochai Benckler) - in scholarly circles it would be called ‘Open Access development’. This is literally about connecting the whole world to a hyper-connected network of open source repositories [Ceptr.org], in effect moving us from Platform Capitalism to Protocol/Open Cooperativism. I believe this can start by first evolving or reinventing our wealth acknowledgement systems.
When we also start using Cooperative Open Value Networks instead of enclosed firm-based/Corporate Enterprise Resource Planning systems, we can have transparent supply chains that reveal to us all of the complex information and measurements that are important and which respect humans and planet (say the regenerative capacity of sustainable timber forest, or the productive capacity of a farm during one season).
What happens today is that we reduce everything to one number, it's $dollar value. By doing that we lose a lot of important and vital information about the complex relationships between people, places and resources. Those relationships are obscured. Today's system creates an impoverished one-dimensional view of the physical world where we lose depth by oversimplying things without respecting their complexity and intricacy. Basically the question I am asking is this: how do we fully exploitat the near-zero marginal cost of digital technologies in meeting the promise of a more empowered, less hierarchical, internet?
[1] https://vimeo.com/ondemand/pushthefilm, or available to watch for free with a VPN at https://www.tvo.org/video/documentaries/push-feature-version
[2] https://twitter.com/Noordam/status/1248313189332406273, more info here: https://theconversation.com/wall-street-landlords-are-chasin...
[3] https://progressiveeconomyforum.com/blog/rentier-capitalism-...
[4] https://www.resilience.org/stories/2017-08-03/book-day-corru...
--
Edit: the way you say I could 'just get a job and get paid', shows me that you might not see that money is merely a human creation, and something without inherent worth. It then stops you from knowing about the possibility for locally-stewarded mutual credit community currencies, together with Commons based peer production. This view however is something I am seeing surprisingly often. When I started learning about the money system, it was all a bit of a mindfuck to me. I found this blog post to be an exciting read and it helped me a lot:
https://howwegettonext.com/the-future-of-money-depends-on-bu...
