a mini rant on banks

I've always viewed banks as landlords, only their product is money rental rather than shelter rental...

Most banks have a sweetheart deal in place with governments which gives them cheap access to money and in turn they have to follow various regulations in how they then rent this money to the public.

I think recent times have shown that these regulations form a fairly one way partnership.

Our money landlords write rental agreements (read: loan contracts) - much the same way as a property rental agreement, only these have slightly longer terms [called maturity]... and they usually they put conditions in place [called covenants] linking the agreement to the value of whatever they are renting the money for [read: asset price]- typically allowing the renter to rent around 50% of the asset value.

This sounds nice on the surface... but we are beginning to learn one important thing.... one that is perhaps not visible on the surface... that is that there does not appear to be anything in the regulations they have to adhere to about their willingness to have to provide money for rent!

And this is problematic, as only a select few are given both the sweetheart cheap access to funds held by governments - and even a guarantee that their liabilities [read: deposits] are also secured by the government too! Boy have they got it good!

But.. subsequently to banks getting their houses in a complete mess, they decided to all but stop renting money...

And this then lead to something long suspected, but hard to prove in recent years... That is, in times of exuberance, it would appear that the biggest single factor in determining the price of an asset, is the willingness of the money landlords [read: banks] to sign up new tenants [read: loans].

What this now means, is that the bankers are in complete control in the short term of the value of assets of their customers. All they have to do to be able to seize these assets for themselves is keep the flow of money turned off, which lowers the value of asset prices, and in turn forces the covenants they have written to be breached, and they are then allowed to jump all the queues of owners and cherry pick like children in a chocolate store with the owner tied up and blindfolded.

Of course, the banks balance sheets themselves might suffer somewhat, but with all the sweetheart deals and guarantees, its far too inconvenient that they be allowed to actually fail, and besides, when times turn good again, they will reap the rewards of all the bargains they robbed from their formerly loved customers - whom they partnered with in the first place.

Somethings rotten in Denmark... I cant help but feel that right now the ones that benefit the most from doing nothing but sitting on their safes and keeping them nicely tightly shut, are our money landlords. After all, they have a once in a lifetime opportunity that they have carefully engineered, putting them squarely in the box seat.

Not sure how to make it better, but I believe that these incentives now in place favor the banks far too much - and our current situation is directly caused by giving those banks too much power to begin with..

/end not so mini bank rant