The Bank Monopoly

One wonders sometimes how things got the way they are.

Today, you find it hard to use cash. Nobody wants to take a reasonable sized payment in cash. You cant get large denomination notes anymore, my bank tells me no notes larger than $100 exist. If you carry around a significant amount of cash the feds feel obligated to take it away from you - you must be dealing drugs or doing something illegal. Visa and Mastercard put out advertisements that suggest you must be a rube if you try to pay with cash as does a current TV ad for phones that you can use to pay. You pay for "check return" and many times you do not even get a check image of the check you wrote - it has been turned into a debit. You borrow money for a house and pay it off - and then find the bank evicting you from your home because they think you have not paid. You sign an employment agreement with a company, and they require you to do it electronically, and then keep the record on their system - so you have to jump through hoops to get a copy that is under your control. And it so happens that the one company that really is a stickler about this is also the company that produces the software that prevents alteration of and verifies the validity of the electronic document, so they can really do just about anything they want with the agreement if there is a dispute!

Ultimately - all this happens because somebody lobbied Congress (or the Fed) to change the rules so that things are more convenient for the banks or corporations - and nobody bothered to think about what is being lost for the man on Main Street. Well, maybe somebody did, maybe that was the whole point - to make it easier to steal from or tax the average citizen.

Lets start with what has happened to checks. First of all, no bank actually bothers to verify the signature on the check anymore, or even checks the name on the check. So anybody who gets a check writing machine can generate any number of fraudulent checks, sign it with any signature, and debit any checking account they pick out. Simpler than stealing a check book! Thanks to Bernanke, because of "check truncation", the check once presented to the bank, is imaged and then destroyed. Even if you are lucky enough to get a check image good luck trying to show that the signature on the check is fraudulent. Many banks check images are so bad you cannot decipher the tracing information on the back of check. I dont know how the advertised "photographing the check on your cell-phone" works, but that is likely to result in not even needing a magnetic ink printer to write fraudulent checks when it really gets going. The basic function of a bank - keeping your money secure, i.e. people cant take your funds without your permission - has been compromised.

What happened with the economy in 2008? Simple - mortgage brokers wrote loans, then transferred the loans and all liability to one or more investors. They kept the fee for writing the loan. Did this give them any incentive to properly verify the ability of the borrower to pay? Of course not. In the ultimate "stick it to the rubes" maneuver, Countrywide got taken over by Bank of America, so there was not even the possibility of going after the management of Countrywide for sloppy controls in writing the bad loans. Yes, in this scenario, Bank of America was the rube, as they now own the liability and the bad press! Of course their own issues did not help. On top of that, many loans were known to be bad, and could not be sold to investors, because they did not have an AAA rating. So here comes GS with their CDOs, derivatives and tranches, packaging up a bunch of bad loans and getting somebody else (AIG!) to buy the risk, so the lot could be sold as AAA. Investors were too lazy to do any verification, but just trusted the AAA rating. Selling loans to an investor had another problem - who had the right to foreclose on the loan? The notes (with the borrower's signature) had to be transferred, but when you do the derivative stuff you are getting only part of the loan, so who should hold the note? The borrower defaults and the investor stops getting paid, but does not have the note, so cannot foreclose. So you have to have people certify "I saw the note" to a court because they cant produce it - somebody else needs it for some other part of the loan. As this happens more and more, courts get used to it, and robo-accept robo-signatures. They no longer feel the need to protect the borrower. The basic function of the court - to determine a debt actually exists and that it actually has not been paid before issuing an order to foreclose - has been compromised. There is also another problem - the borrower has to pay whoever holds the note - but if you do not know who holds it, how do you know who to pay? Anybody could send the letter many of us got telling us to pay somebody else the principal and interest payments. The process was set up for the convenience of the banks, mortgage brokers and investors - but nobody considered that it left the borrower totally vulnerable. I am sure this happened at least sometimes - there were enough cases of mortgage payments not being recorded by servicers with the resulting foreclosure notices, that this attack is probably what happened in some cases.

Fundamentally financial institutions do not like you to use cash for transactions. When you use cash, they cannot get a piece of the transaction. They do not even get to know that the transaction happened, so they dont know how much they are missing. Any good businessman wants to know what the size of his market is. Every thief wants to know how much there is to steal. Politicians want to know what there is to tax. So the Federal Reserve makes it extremely inconvenient to possess large amounts of cash by not supplying large denomination bills for circulation - if you want to carry out a significant transaction you have to use a suitcase full of money. They have not even attempted to keep place with inflation - this makes the transactions that can be practically accomplished with cash smaller and smaller as time goes by. This is the real reason for money laundering laws - why the government has made it risky to use or possess significant amounts of cash - because the government wants to know what transactions you are making. In fact, the US government has "know your customer" rules and severely penalizes banks for failing to follow such rules. Dont even try to hide your assets in a foreign bank - the US Treasury gets really really really nasty about that! The banks may grumble about the regulations but are generally happy to go along - after all, this makes them necessary for any large transaction. I am sure Senator Chuck Schumer would get a line of lobbyists from the banks carrying suitcases(!) if any Congressman ever talked about issuing larger denominations and repealing the money laundering laws. Congress here has compromised its duty to ensure the smooth flow of commerce by giving up the right to issue currency to the Federal Reserve, and allowing asset seizures based merely on possession of large amounts of cash.

Having an anonymous payment method is an important part of preserving your liberty and your ability to exercise your right to free speech - because the most efficient way to shut either down is to track you and penalize you when you actively contribute to causes your government does not like. Dont think for a minute that it cant happen to you - our government now does not hesitate to even kill its own citizens without a trial for speaking out against it - as demonstrated by the assassination of Al Awlaki.

Allowing the Fed to determine how much money is available is giving the Fed power to tax. The US Treasury is the biggest borrower, and having money be worth less is the same as stealing from (or taxing) the average citizen. Ultimately the average citizen keeps his or her savings in dollar denominated assets, whether it is cash under a mattress, deposits in a bank or money market fund, or even life insurance or bonds (they are promises denominated in dollars) or stocks (hope denominated in dollars).

Banks are not really necessary. They do provide two functions for the public that are convenient - agglomeration of wealth (deposits) so that large projects can be undertaken - and convenient and secure transmission of money. Both of these functions can be performed in other ways. What banks are really good for is letting governments spy on your transactions, and providing access to your cash for purposes you may not approve of (i.e. - taking the decision of how to invest your money away from you).

I think every US citizen should insist that Congress take back its constitutional duty to determine how much currency to issue and can be outstanding, and to make sure that currency is issued in such denominations that any transaction is conveniently accomplished with cash. This means issuing $1000, $100,000, even $1,000,000,000 denominations. What they make the largest denominations from is immaterial - they could even make plutonium coins if they choose to - although I would not recommend it. All asset seizure laws based only on possession should be repealed and blocked in the Constitution. Congress has no business creating a monopoly for banks allowing them to steal a portion of every transaction. Banks would then have to convince us that the service they provide is worth entrusting our money to them - as we would have a true alternative if they dont.

See also:-
Iceland Loses Its Banks, Finds Its Wealth - Banks are not wealth creators
Elastic Currency with a Vengeance - Bank of England was set up to fund government of King William in 1694
Towards a Cashless Society - Slate