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Small business rescue earned banks $10B in fees

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Re: Small business rescue earned banks $10B in fees

#281

Post by notJim »

tempsy wrote: post #38

The thing here is the bank isn’t taking any risk here. All the loans are guaranteed by the government. So banks are really just a middle man that is transferring money from the SBA to a small business’s bank account and taking on zero credit risk. The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds. Banks are basically being…

> The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds.

Actually a major issue with the stimulus is that the government does not have this ability, which is why it will takes months for some people to get their checks. Many people don't have to file income taxes, so the government doesn't have their info.

Re: Small business rescue earned banks $10B in fees

#282

Post by thulecitizen »

JSavageOne wrote: post #220
lordnacho wrote: post #3

Gotta ask whether the banking system makes sense in its current form. - Part of it is actually a utility. Payments, sending money from one place to another, making sure there's an account at the other end of that number. Everyone needs this, yet being a huge international network there isn't a whole lot that one bank offers that another cannot. - Part of it is deciding who to lend money to. Makes sense for the bank t…

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated. This would be fine if it were their own money, but it's not - it's our…

> The banking industry is the arbiter and credit in our society and decides where money get allocated.

Thanks for your comment. In my experience this is the most misunderstood aspect about money. Your comment explained it really well. I wish this was more widely understood and talked about.

I do not think the original commenter understands the monopolistic as well as parasitical nature of today's money, as they write:

> - Part of it is deciding who to lend money to. Makes sense for the bank to decide this with its own money.

...which is wrong. Banks do not have their 'own money'. They create money out of nothing. They get a license to create debt out of nothing (fiat). Many times today they do not even have to have the fractional reserves for any of it.

If anyone has any doubts please check out Anthropologist David Graeber's book 'Debt: The First 5,000 Years' as well as his explanation of the money system in this article:

"In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite."[1]

[1] https://www.theguardian.com/commentisfree/2014/mar/18/truth-...

Re: Small business rescue earned banks $10B in fees

#283

Post by thulecitizen »

bo1024 wrote: post #240
JSavageOne wrote: post #220

Earlier quoted context omitted.

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated. This would be fine if it were their own money, but it's not - it's our…

This and the parent comment seem like pretty strong arguments. If the main differentiator is supposed to be whom banks decide to lend to, this doesn't seem to be working. They are extremely risk-averse about innovating lending or using criteria beyond credit score (to preempt accusations of discrimination, I was told, which is ironic since credit score is a hugely discriminatory system). Anyway, I think I like the id…

There are many calls for public banking by people such as Ellen Brown [1], as well organizations such as the MetaCurrency Project [2] and Positive Money [3].

[1] https://ellenbrown.com/what-are-public-banks-and-how-do-they...

[2] http://eric.harris-braun.com/blog/2007/05/14/id-53

[3] https://www.youtube.com/watch?v=ZzCegQVljdY

Re: Small business rescue earned banks $10B in fees

#284

Post by agilebyte »

tempsy wrote: post #47
agilebyte wrote: post #43

Earlier quoted context omitted.

Paperwork AND doing due diligence on the companies more effectively than the government can right now.

The point is the amount they are earning is overly generous for the work completed. Most banks are only working with existing customers, so the DD is 99% complete. Few are reviewing applications from brand new clients.

Yes, but the point is DD was done (last year or today). Effectively the government is paying the banks for the work they've done creating a relationship with the clients, which includes DD.

Re: Small business rescue earned banks $10B in fees

#285

Post by jatone »

RivieraKid wrote: post #195
CPLX wrote: post #108

Earlier quoted context omitted.

> the government sector is usually less efficient than private sector Statements like this require proof.

I don't have a proof, it's a belief based on anecdotal evidence and just thinking about it.

and based on medicare and the post office as reference points you'd be very wrong.

Re: Small business rescue earned banks $10B in fees

#286

Post by jatone »

notJim wrote: post #281
tempsy wrote: post #38

The thing here is the bank isn’t taking any risk here. All the loans are guaranteed by the government. So banks are really just a middle man that is transferring money from the SBA to a small business’s bank account and taking on zero credit risk. The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds. Banks are basically being…

> The government has the ability to send funds directly to people obviously...that’s how they are sending the stimulus checks and send tax refunds. Actually a major issue with the stimulus is that the government does not have this ability, which is why it will takes months for some people to get their checks. Many people don't have to file income taxes, so the government doesn't have their info.

yes they do, they do it every year via tax returns.

the problems relate to unemployement systems (completely different system) or our administration holding things up (trump demanding his name be on the checks)

Re: Small business rescue earned banks $10B in fees

#287

Post by agilebyte »

stri8ed wrote: post #67
agilebyte wrote: post #43

Earlier quoted context omitted.

Paperwork AND doing due diligence on the companies more effectively than the government can right now.

What incentive does bank have to actually do due diligence, when the loans are all guaranteed by government?

The loans are guaranteed but you can still pay $ sanctions for not doing the work right.

From Matt Levine:

> Big banks that paid billions of dollars in sanctions after the 2008 financial crisis for flaws or omissions in loan applications -- in that case, mortgages -- assumed paperwork submitted to the SBA would need to meet high standards, or they would risk getting in trouble again. Wells Fargo has been under particular pressure to show that it overhauled its internal controls.

Now that wasn't in the end the case as:

> Some were floored when the SBA posted a notice on its website on Tuesday, confirming that’s necessary but saying that “lenders who did not understand that these steps are required” didn’t need to withdraw applications already submitted. That essentially gave an edge to lenders that had skipped that time-intensive step to get their customers’ applications in first.

But that was (some of the) banks' view.

Re: Small business rescue earned banks $10B in fees

#288

Post by agilebyte »

Klinky wrote: post #92
agilebyte wrote: post #43

Earlier quoted context omitted.

Paperwork AND doing due diligence on the companies more effectively than the government can right now.

Robosigning and NINA loans of the past lead me to be skeptical.

Banks paid sanctions for failing to do due diligence on loan applications, that's what the banks want to avoid this time round.

Re: Small business rescue earned banks $10B in fees

#289

Post by LatteLazy »

JSavageOne wrote: post #220
lordnacho wrote: post #3

Gotta ask whether the banking system makes sense in its current form. - Part of it is actually a utility. Payments, sending money from one place to another, making sure there's an account at the other end of that number. Everyone needs this, yet being a huge international network there isn't a whole lot that one bank offers that another cannot. - Part of it is deciding who to lend money to. Makes sense for the bank t…

You outline the problem very well. The banking sector has an ENORMOUS amount of power over the economy/society in a way that no other industry does because it literally has the ability to create money out of thin air (by loaning it into existence). The banking industry is the arbiter and credit in our society and decides where money get allocated. This would be fine if it were their own money, but it's not - it's our…

Finance is a very important industry that adds a lot of value. If you get a student loan, you can go to university tomorrow and earn more in a few years, that's much more valuable than spending 20yrs at McDonald's earning nothing and saving very slowly to pay for your degree upfront as you would have to otherwise. Ditto mortgages. Ditto getting a car or starting a business or basically anything finance permits.

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.

Re: Small business rescue earned banks $10B in fees

#290

Post by javagram »

dylan604 wrote: post #278
javagram wrote: post #242

Earlier quoted context omitted.

FWIW, the banks didn’t feel like it was 0 risk, many of them were doing a lot of due diligence, document checking, etc. because they were worried about it. I’ve seen stories of small business owners talking about how difficult it was to get the loan through due to having to go back and forth with documents etc. although I’m sure it varied per bank. 2.8% doesn’t seem like that much for me, especially considering the g…

Why did it need to be a bank to begin with? Are banks involved when the government hands out low interest loans for natural disasters. Do they take cuts from that money? If so, I've never heard of it before. What about the 9/11 fund? Did banks get a cut of that money as well? Why is this situation different?

The goal here was to give the money out ASAP as businesses and their employees had already been forced to shutter by the pandemic and lockdown orders and were rapidly marching toward insolvency.

Stuff like the 9/11 compensation fund was on a much longer timeline and was also much smaller - the 9/11 fund was open ended, but ended up being about $7 billion, compared to the $349 billion PPP.

Remember the PPP is intended to give out money to the entire country and that is a huge scale. There was no available mechanism to give out the money, the SBA administers a EIDL grant/loan program but lawmakers on both sides of congress didn’t believe the SBA could give the money out fast enough, so this system of having the banks get money from the SBA was created.

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