#4: The Sacred Tribe of Bankers

Some time ago, a friend told me about a heart-rending experience she had, where she lost her best friend and the love of her life. I could feel the hurt and sadness pouring out of her, more than I had ever seen up close, and I told her I wished I could feel what she was feeling. Before I could finish, she snapped back that no, I never, NEVER wanted to feel any of it. That she knew I was trying to emphasize, but it wasn’t helpful and what she had been through was something no one should ever experience.

Later on, I was devastated by a catastrophe of my own, and I felt that finally I was going through the same thing as her. Maybe more, maybe less. It’s meaningless to compare sadness. And I didn’t wish it on anyone. It took a long time to work through it and forgive myself.

I know that most people out there have been hurt deeply in their own way, and have had to learn to process that trauma. I feel that from the Obama administration, and probably earlier, millions of people have learned to process their trauma by tracing it back to systemic issues in the society we live in. I think this is what we call being “woke”. After this, when you’re hurt in the same, familiar ways, now there’s a direction to shape and channel the pain, and it becomes anger at the system. There are well-established groups and tactics for turning that anger into action, and that’s when people begin organizing and marching and protesting.

I’m not sure what I can add to this, other that I understand the pain people have gone through and are still going through, and the burning purpose that comes from finding a way to turn it down. I hope everyone who’s fighting for what they believe in can still find happiness along the way, and if they’re going out, that they come home safe. 

What I can talk a little bit about is financial markets, and that brings me to the conversation I had with Barry James. Barry has been nurturing and fighting for grassroots movements for decades, and is a constant source of both lived experience and sincere optimism. Here’s the link: https://www.youtube.com/watch?v=UJNjdSp2PZU

One thing we keep coming back to is the parallels between the 2008 financial crisis, and the everything crisis that we’re in today. In particular, Barry has honed in on a single problem: in the UK, most of the funds meant for lending to small businesses have been blocked up at commercial banks, who have distributed a tiny fraction in the form of loans. 

Barry’s solution is textbook crowdfunding and fintech thinking. To oversimplify, the funds would be disbursed directly by the Bank of England. Data would be aggregated and sent to accredited assessors who would make a yes or no decision. The funds would be paid into a prepaid card. The result is huge capacity for assessing credit risk and rapid distribution of funds.

Obviously there’s a lot more to be figured out. To me, there are two big questions. First of all, do we want central banks to be this influential? Of course, given the Fed’s Main Street Lending Program, which is basically Barry’s proposal except with lending criteria that is both less flexible and more byzantine, this may be a moot point. Paul Schulte makes a great point that with a price-to-book ratio of 1 and minimal return-on-capital (not to mention restrictive regulatory regimes that make applying for a loan look like onboarding to a new video-sharing app), many banks are already close to being utilities anyway.

Second, is it really a good thing that we’re keeping these businesses alive? That fact is that we are facing both a demand and a supply shock. It follows that we won’t need as many businesses in the lean times as before. This could be why the banks aren’t making loans. Already, 43% of small businesses are skeptical they will ever repay the loan. Maybe keeping them alive is delaying the recovery by disrupting Joseph Schumpeter’s process of creative destruction.

But there’s also an aspect of fairness. It’s not just small businesses that are being bailed out. The UK’s largest corporations have already been disbursed more money in a strikingly opaque and rapid process. Why should they be the only ones given life support?

One more thing we talk about is the concept of bankers as a sacred tribe, who care only for their own group. Barry’s proposal is to unlock value by cutting out the middleman and un-warping incentives. Of course, we’re making a huge assumption here: while bankers no longer care for the rest of society, the central bank does. This begs the question though: what if the central bank isn’t on our side either? 

I guess a lot of the people out there protesting think it isn’t.