What is a banker for? A banker is simply a lender. Grant credit. We turn to a banker when we need financing. In that sense, they are extremely useful. They are a solution for the illiquid. Do you need money for your company? Need to make a payment, but don’t have the funds on hand? In those cases, a bank can help. Bankers also offer services and products for those who have money and don’t want to use the mattress as a safety vault. Consequently, banks are not only lenders and payment platforms. They are also borrowers, because each depositor is a lender to the bank.
Of course We normally use the word “bank” to refer to an entity operating like a bank, but regulated by the State. For entities operating as “banks”, but not registered, the word “no bank” is normally used.
Why are bankers so hated? JPMorgan, Goldman Sachs, Bank of America, Wells Fargo, Citi Group, Bank of New York Mellon, and Morgan Stanley are the survivors of the 2007-2009 financial crisis. Bern Sterns, Fannie Mae, Freddie Mac, Lehman Brothers, and insurer AIG are remembered as the sparks that started the fire. The financial crisis caused a painful recession. And the recession generated a lot of political polarization. Many blamed the banks for all the nitty-gritty. The left blames the banks for evading regulations, for their high executive salaries, and for their “predatory” practices. The right wing blames the banks for being corrupt state-sponsored monopolies. What is the solution? The extreme left proposes the nationalization of banking. At best, a radical increase in regulation. The extreme right proposes its total abolition. Which implies self-custody, free markets and a return to the gold standard (or Bitcoin standard).
Now let’s go to the basics. What is a debt? A debt is an asset for the lender and a liability for the debtor.. If the debtor files for bankruptcy and defaults, the lender records a loss. If many debtors go bankrupt at the same time, the lender is obviously in a bind. Which implies that the lender, perhaps, will not be able to pay its own debts. So a bank’s failure harms depositors and customers who depend on its financing. In a system as concentrated and highly interconnected as the current one, the collapse of a major bank can create an epidemic of collapses. That is to say, they all pay and the just pay for sinners.
Taking other people’s money for loans and investments has always been a highly risky business. Over time, however, ways have been found to cover (hedge) that risk. In order, in this way, to be able to count on a slightly more stable banking system. What is sought is that people can sleep peacefully when depositing their money in a bank and companies can work vigorously with their guaranteed sources of financing. Nothing is 100% safe. But we can aspire to reduce risks with certain strategies.
Insurance is a hedge. And Dad State as “lender of last resort” is another hedge. The former charge premiums for the service. The latter collect taxes and tributes for the service. In other words, properly regulated banks (*in the best jurisdictions) are covered. This is not always true of non-banks. Which implies that heNon-banks are always riskier than banks because they have lesshedging”.
Now, the “hatred” towards banks is not something new. in the middle ages, Easterners had better math than Westerners. Suddenly, because the easterners were more merchants and more urban while the westerners were more agricultural and rural. It is no coincidence that, in the West, despite using the Latin alphabet, we use Arabic numbers. That change occurred in Renaissance Italy. The Jews were Orientals in the West. Essentially merchants and urbanites in a very agricultural and rural world. For the time, I guess Jews weren’t as “strange” as Muslims, but they weren’t as “common” as Christians. So, it could be said that they were tolerated, but not totally accepted. They had some rights. But we did not have the same rights as Christians. Which also meant that they were not subject to the same prohibitions.
The Bible forbids usury. So all lending had to be benevolent. Charging interest was the practice of usurers. The Jews, however, interpreted the same passages in a very different way. You can’t be a usurer with your “brothers”, but you can be a usurer with the “strangers”. So, the myth of the banker was born. We have the character Shylock in the play The Merchant of Venice by William Shakespeare. In the collective imagination, the lender is pure greed and evil. However, they exist, because they are a necessary evil. The Medicis, the Rothschilds, JP Morgan, David Rockefeller, etc. In literature, in cinema, in theater and in the real world. Bankers are always the bad guys. Do you remember Mary Poppins?
The Renaissance was a period of transition. The first steps towards modernity were taken. The old versus the new. Tradition versus innovation. The countryside against the city. Ancestry and land were to the country what education and money were to the city. We are talking about completely different worlds. The producer needs capital to produce. He requires financing. In this context, the city is normally the creditor and the countryside is the debtor. However, the relationship seems unfair, because the countryside produces and the city consumes. Then, the banker has always been seen as a parasite on the “real economy”. In the collective imagination, farmers and industrialists work very hard to produce the goods and services necessary for life. Meanwhile, bankers are sitting on their butts all day, writing letters and calculating numbers from their luxurious offices. This has been true since the invention of banking.
Financing is not easy. If you are very generous with the debtor, you reduce your earnings. And if you are very soft, the debtor may interpret that as weakness and take advantage of the opportunity not to pay the debt. So, when it comes to asking for a loan, the lender is a necessary evil. But, when it comes to paying our debts, the lender is a villain with a thousand heads. Mutual hatred is simply too easy in this context. Both parties need each other. But both parties hate each other.
The relationship between lenders and their debtors has always been quite toxic. What could be the solution? Let’s talk first about the solutions proposed by the debtors’ side. One extreme proposes the total abolition of banks. The other extreme proposes its nationalization. In other words, the cushion (self-custody and self-financing), on the one hand. Communism, on the other. Autarkic or communist paranoids. Now, on the side of the lenders, one of the proposals is the license to act as gangsters (loan sharks). Free market fundamentalism in all its glory. The Wild West.
What is my point? In the crypto space, there are not many communists. But we do have quite a lot of autarchic paranoids and many “loan sharks” disguised as sheep selling the idea that a libertarian utopia is being built. So, we have a lot of actors like Celsius. Remember Alex Mashinsky flannel? “Banks are not your Friends”. What is Celsius? Well, an unregistered bank. A non-bank taking on big risks without much”hedge”. Alex Mashnsky knew very well that the business of rebellion sells and he formulated his marketing strategy on the myth of the evil banker to build (ironically) his own bank. The paradoxical and contradictory world of today. Words for reflection.
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