I was having a conversation today with a friend about the mystery of banks. We were both curious about the strange and dysfunctional dynamic between banks and bank customers.
Walking into a bank is often a bit like walking into a sacred place – a church perhaps. There are stern guards in uniforms to make sure you behave properly, and officious people behind little windows that you need to wait in line to see. The ceilings are often tall, as though you are in some sort of cathedral, and a sombre atmosphere pervades.
The whole feeling of waiting for a teller is a lot like going into a government office to ask for a visa or passport. There is the same sense of supplication, of being in the presence of something important, of needing to seek permission from those in authority.
The curious thing about this situation is that the transactions involved generally involve your own money. You’ve put your savings into the hands of these people, and they are supposed to be looking out for it on your behalf. On a fundamental level they are not all that different from your doorman or housekeeper – people who are performing some useful service for your benefit. People who are in your employ.
So why the power reversal? One theory is that there is a strange aura attached to having lots of money – even other people’s money. In a sense a banker is someone who stares all day at a big pile of money on his living room table – lots and lots and lots of money. Millions of dollars of money.
Yes, he knows that it’s not his money – it’s actually an amalgam of bits and pieces of the wealth of others – but nonetheless, he’s got it, ownership be damned. After all he can see it – it’s in his vault, in his computer, in crisp hundred dollar bills at the fingertips of people who work for him. Who cares who actually owns it?
You, on the other hand, only possess title to this money, perhaps a measly tens of thousands of it, or perhaps even hundreds of thousands. Whatever. You are merely the puny and insignificant figure in this vast fiducial drama who happens to legally own the money.
The banker is a giant striding upon the earth, a god descended from Olympus to trample across the vast stage of history upon a cushion of millions of dollars of borrowed wealth. But you? Poor poor little you. You are a simply contributor to this magnificent drama, a bit player, a working stiff with a paycheck. How dare you presume to breath the same air as a banker?
One day we might all realize how much of a scam this is. And then the sense of entitlement of people who watch our money for us will melt away, and we will gain our rightful place at the table as owners of our own hard-earned wealth.
You never know, it could happen. But I wouldn’t bank on it. 😉
Banks have their big fancy marble edifices and expensive power suits and extra useless employees like guards and tellers standing around doing nothing and act like they don’t need or even particularly want your business for a very good reason. These are signs that the bank has a great deal of extra money to waste. Which is something that people find desirable in something to which they are going to loan their money.
Think of it like this. You look around outside a toilet because you need to ask someone to hold your wallet for a few minutes. One person is wearing worn jeans and a stained t-shirt and hasn’t showered in a few days. Another has a freshly laundered tasteful Armani suit, expensive shined shoes, $1000 glasses on his face, and a great big $20,000 gold Rolex. Who do you choose?
bank guards are useless? Hmmm…
As for the toilet guard… I’d give the guy in need a few bucks for his service, obviously the other one needs to drive his habit of conspicuous consumption. Wouldn’t trust him at all… In either case, I’d invite them into the stall with me to make sure that everything was kosher.
In all seriousness, I appreciate the point about the guy in the Armani suit. Nonetheless, my ideal model for a guy to hold my wallet is a friend I trust because they have earned my trust.
How did we get into this situation whereby there is no mechanism for knowing whether or how to trust the institution to whom you lend your money? This fall-back position of going with whichever entity creates the most convincing display of wealth is – to put it bluntly – ridiculous.
I feel bad for our society that this is our poor excuse of a substitute for trust-based relationships.
An interesting addition… well, at least interesting to me…
In my business, we chose to keep things very simple. We don’t spend a lot of money on fancy furniture, a class-A building, or any of the trappings of a high-overhead business. Very simple, but functional. It’s professional, but not showy.
When courting new investors, we get two basic reactions. There is the group that really thinks about our offerings, they ask questions, think through what they are doing, and who we are. In this group I’ve had many comments about the fact that we don’t spend our investor’s money on fancy frills. This seems to make them more comfortable with our operation.
On the other hand, we’ve had many of what I call the “Rob Report” crowd. These are the country club types that like the oak paneling and fancy modern conference rooms. They want their investment partners to have the same value systems that they do, which includes a healthy dose of conspicuous consumption that “shows everyone else how successful they are”. That’s just not what we do… We invest their money, and silently send them distribution checks every month that was printed on check stock from Staples and mailed in a plain white envelope…
Apparently, the trappings of excessive consumption are often all you need… the facad of irriational exhuberance that shows the world how good you are… makes people want to latch on to that. Makes them feel safe, comfortable, etc. “look how well they’re doing, they’ll take care of my money and I can be like them!”
I was at a meeting with a group of personal financial consultanting firm in Chicago last week. These were a bunch of guys that have lost billions of dollars for their high net worth investors in the last couple of years… They’re not performance based, so, seemed like a pretty easy job… all you have to do is lose peoples money for them… But, their offices, an entire floor of the NBC building, was class-A+ modern, fancy, movie set quality… There might be something to this…
Maybe I should get rid of my Target wardrobe and put a few paintings on the wall… What’s an Armani cost these days?
There is a long history of bank failure, right through the Depression, out of which the FDIC was created. People lost all their deposits on many occasions. In 1914, things were so bad that the NYSE was shuttered for 3 solid months. Given that history of instability, it makes sense that banks would want to give the impression of stately security. But I believe there is another aspect of the stagecraft.
Power in the European monarchy was held by the duality of church and state; the monarchs ruled by divine right. The analogy of the bank branch’s aura to that of a church is an interesting one, because it could be argued that the central bank has replaced the church as the other side of the coin in the duality of power in our society.
There are a couple of common misperceptions, which are allowed to prevail because they not in the interest of those in power to dispel. The first begins with the premise that the overall amount of money is basically finite; that the way the bank works is that we trust the banker and allow him to safeguard our money for us; that in doing so, and in paying us interest on the funds, that the bank is working for us, that it is performing a service like “a doorman or a housekeeper”; and that by trusting the bank with our deposits, we allow it to use THAT money to lend at higher interest, thereby making profit by the spread, or difference in the rates for savings which they pay out and the loan interest they collect.
This is not exactly so. In reality, for each dollar that is deposited, the regional bank can lend many more times money out, in a ratio determined by the central bank, than it possesses. The bank is able to lend a lot of imaginary money. But they get repaid with “real” money, money that has been earned by the energy input of another individual or business entity. That is a great power.
But the truth becomes even stranger when we dispel the second misperception, which is that our government prints/ creates our money. Actually, it is the central bank, known as the “Fed” or Federal Reserve, not the government, which controls the printing of our money and controls the total amount of money or money supply. The Federal Reserve is not federal and it has no reserves. It is a private entity that is allowed by the government to simply create our money.
Here is Fed chairman Ben Bernanke casually admitting this on “60 Minutes” at the height of the financial crisis. http://www.youtube.com/watch?v=hYVp-UFzmXw. You have to let the consequences of his statement sink in, and remember that he is only telling half of the truth; because all money that is lent, must be repaid by someone, with interest.
If you had your own legal money printing press, would you be the housekeeper? (Personally, I would own the building, and the whole block…)
In fact, the Fed issues money to the government in the form of debt, which must eventually be repaid by the taxpayer in the form of real, energy input (i.e. WORK) generated money. That is why the constitutional amendments creating the federal income tax, and allowing the formation of the Federal Reserve, roughly coincide in time.
The Fed creates inflation by increasing the money supply. The benefits of this are inversely correlated to one’s distance from the printing press. The Fed controls inflation by intentionally causing unemployment. This all sounds like wacky conspiracy theory stuff, but it is easily verifiable fact. This has everything to do with the huge bank bail outs of the recent past, where the money for the bail outs actually originated (in a computer) and now is leading to the call for investigation of the Fed by congress that is currently underway.
Repeating the concept, the “power reversal”, in the immediate sense at the bank branch, and in the larger sense, with the central bank, comes from the fact that they don’t just hold your money; they continually manufacture money, including that small portion of which you have temporary control.
It is mind bending, at least for me, to consider that an individual or small group of people could, by inputting a few strokes on a computer, compel an entire generation of hundreds of millions of individuals to work overtime to pay a debt which has just by that simple keystroke been created. The bank can project power through the government by creating the funds to wage war, to buy influence, whatever is necessary, in order to protect itself, and compel US (us) by projecting the force of the government on our selves to work to pay the debt. THAT is power.
Just as sailors check the weather when plotting their courses, Wall Street looks to the Fed when placing their bets. They know the magnitude of the force which creates the over arching economic climate.
It is important to remember that the Fed is a private concern with multinational roots, tied to the central banks of Europe; self preservation and control of the printing press, more than the interests of the American worker, is its main concern. This lord has no national boundary and little allegiance except for maintaing the conditions that enable its survival. They will maintain order and endeavor to remain out of the public eye; and they will seek to appear benevolent when thrust into the spotlight. This, I believe, is why the banks wear the aura of stable solemnity, of timeless authority that they do. They don’t really want us asking any questions. Greenspan was a master of giving answers which appeared sound on the surface and which reassured Wall Street with willful ignorance; but when his convoluted verbage was carefully parsed, those answers boiled down to absolutely no meaning.
We can see history playing out before our eyes. Seven hundred $Billion was unconditionally handed over by the Fed through the government to the troubled banks inside of a week with little resistance. Yet tens of billions to support the remains of American Industry, the iconic auto manufacturers, which employ hundreds of thousands of US citizens, was controversial. Three billion, for the resoundingly successful “cash for clunkers” program, which by the way proved the reality of demand side economics and debunked absolutely Reagan and Greenspan’s supply side concept, was also controversial. Because, these expenditures were OUTSIDE of the banking system.
This reality is not of itself a bad thing. As of now, it just is what it is. But if we are going to even attempt to be actors rather than puppets in this society, we must try to understand who holds the strings, and the mechanisms by which they pull. Warren Buffet and the members of the Skull and Bones Society probably know. George Soros has almost certainly figured it out.
And that is the animal you are dealing with directly when you walk into the bank. But the bank is effecting you in all aspects of your life whether you choose to walk in or not.
i don’t know if it was written in Donald Tump’s “The Art of the Deal”, or if I just think of Trump’s history when I hear the quote, but paraphrasing, “If you owe the bank $30,000 you are in trouble. But if you owe the bank $300,000,000 the BANK is in trouble. Or not. Because when there are mass defaults and the money supply implodes, they can just create more money, as they have done these last few months.
If people were wise to it, would things be better?
What really astonishes me is that Troy and I actually completely agree on something. 🙂
Ken,
I think we agree on a lot… we just don’t agree on the best way to get there…
All we can do is keep our eyes open and hope that the best path comes in focus through the fog of crazy proselytizing and propoganda… But, ultimately, everyone wants a healthy happy world.
The best that I can do is to boldly argue my points, and to listen when someone else does the same. The goal is to either understand the other’s thinking, or, to maybe modify my own base of understanding on a well thought out response. Or maybe, god forbid, I’m right every once in awhile and can enlighten someone else. It’s all part of the journey of understanding. (the god forbid parts was, of course, only a figure of speech… I have trouble accepting the existence of a god 🙂 )
I really enjoy a good, heated debate amongst people that can argue points without allowing it to emotionally shut them down. Unfortunately, some topics are sacred amongst people and they simply can’t intellectually argue the points… Unless we all evolve into Vulcans, this will probably always be the case.
Until then, I will continue to solicit responses with my crazy political rhetoric, rants, and ramblings… 🙂