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Banking in the Coming Decade

Larry LaBorde
Aug 6, 2010

Banking in the United States is undergoing a change. Out of over 8,000 banks in this country the top 4 (Morgan-Chase, Citi, Bank of America 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. [Editor's note: Bolding is mine] 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.

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Larry LaBorde
Silver Trading Company
318-470-7291
website: www.silvertrading.net
email: llabord@aol.com


Larry lives in Shreveport, LA 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.

Send questions, comments or corrections to
llabord@silvertrading.net.

"Please note that I am by no means a financial advisor and all investments should only be made after performing your own due diligence." -Larry

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