"11) ... While investments in technology will continue, the really smart VCs will realize there is a much better and more certain way to make a ton of money in the short term: start a bank. ..."
I think he's right, in a way. I don't think we're talking about traditional banks, but more like a federally sanctioned micro-loan enterprise. These smaller lending facilities can be much more specialized. When I worked to get a _secured_ loan in 1995 to start a multi-media business the bank officer "didn't get it". And for that bank, it was the right choice. Mostly, I'd really just like to see something replace credit cards as my loan device. When money is near 0% and credit cards are nearing 30% (amortized daily accrual) - these "banks" would have my interest.... err, I mean, business.
I suspect that the returns are too low to cover the failures or rates would be too high for the successful ones to afford. The real problem is that banks borrow short and lend long. They cant take the risk. Maybe VCs could package SBA loans. Others have suggested small investments from non-sophisticated investors. Maybe they could set up a mutual fund that invested in letter stock. Letter stock is stock that is not registered with the SEC and cannot be publicly traded.
a micro-loan bank that lends only to college graduates in the tech sector would probably be ultra competitive because default rates would so much lower than average that they could give awesome rates.
who wants to start a 100% reserve bank, make profits in this manner and start the honest banking revolution?
you're quoting something that the federal reserve puts out as an explanation of FRB. it is clear from the rest of that paragraph that they are speaking in loose terms meant to make things simple.
read the paragraph on checkbook money. loans create money.
If the bank only lets you withdraw at certain times then yes, they could loan out your money during times you have agreed to. But no loans could be made from a savings account in its current form with a 100% reserve requirement.
fractional reserve banking makes the assumption that you can predict what the loan market will look like if you need to sell off any assets. relying on your ability to predict the future is not sound finance.
How is something universally practiced (as is fractional reserver banking) not sound finance?
The current crisis was not brought on by retail/commercial banks. It was caused by investment banks using way to much leverage, and trading complex financial instruments that where the risk was poorly understood.
fallacy of the appeal to the majority. the current bank crisis was caused by alan greenspan's credit bubbles. the first one causes the dot com boom, the second caused the housing boom and was used to cover up the first.
sigh...
anyone care to have a stab at VC's becoming banks & tech becoming self financing?