MCViewPoint

Opinion from a Libertarian ViewPoint

Banks Will Soon Be Obsolete | The Nestmann Group

Posted by M. C. on June 26, 2019

Facebook, Amazon, Google, and Apple haven’t exactly done a great job of protecting user data. But traditional banks aren’t doing much better – a recent study from security consultancy Positive Technologies revealed that more than half of banks with an online presence allow fraudulent transactions and theft of funds.

There will be nothing crypto about your spending habits. The government and the ankle grabbing digital banks will make sure of that.

https://www.nestmann.com/banks-will-soon-be-obsolete

By Mark Nestmann

Last week, social networking giant Facebook announced that it plans to create what it calls an “alternative financial system” based on a cryptocurrency called the Libra. The crypto will be backed by a basket of currencies to keep its value stable.

Pundits immediately pronounced that the Libra could represent the beginning of the end for traditional banking. But while Facebook’s plunge into this space is the most ambitious effort by a Fortune 500 company to profit from the crypto market, the company hasn’t exactly done a stellar job of protecting user data. That makes me skeptical of its ability to safeguard your money.

Last October, Facebook announced that hackers had compromised more than 30 million accounts by taking advantage of vulnerabilities that have now been patched. A month later, researchers uncovered a vulnerability in Facebook Messenger that hackers could use to reveal the identity of the people with whom you exchanged messages. And who can forget the seemingly innocent quizzes that were used to gain access to 50 million Facebook accounts in an effort to affect the outcome of the 2016 presidential election?

It’s one thing to load photos of your cat doing stupid tricks onto your Facebook account. It’s quite another to trust the company with your money. Although Facebook says that Libra’s governance model will ensure “separation between social and financial data,” I suspect Libra will appeal mainly to people who don’t have bank accounts and have no practical way to open them. Facebook cited a figure of 1.7 billion adults in this category, with nearly half of them living in Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.

Still, the launch of the Libra is a proverbial shot across the bow for the banking industry. And it couldn’t come too soon.

Our global financial system is built on the flawed foundation of a poorly understood concept called fractional reserve banking…

The biggest risk of fractional reserve banking is, of course, the “bank run.” If a bank lends out too much of the funds on reserve and everyone wants their money at once, the bank won’t be able to pay everyone. Deposit insurance schemes evolved in the 20th century to shield bank customers from this possibility. As a result, bank customers in most countries treat their deposits, including those that are uninsured, as if they’re 100% backed by actual reserves.

Then came the 2013 Cyprus financial crisis and the collapse of the country’s banking system. In exchange for a €10 billion bailout from the European Central Bank, Cyprus agreed to force uninsured depositors to submit to a “bail-in.” Instead of getting their money back, depositors holding uninsured accounts that exceeded €100,000 received stock in the failed bank. Uninsured depositors at the worst-capitalized bank that failed lost all their money.

Bank regulators around the world quickly took notice, and by the end of 2014, decided to extend the bail-in model worldwide. Deposits in banks that are “too big to fail” will be “promptly recapitalized” with their “unsecured debt.” This avoids the taxpayer-funded bailouts that proved so politically unpopular during the 2008–2009 financial crisis.

And the largest chunk of unsecured debt is your bank deposits. Insolvent banks will recapitalize themselves by converting your deposits into stock…

Facebook, Amazon, Google, and Apple haven’t exactly done a great job of protecting user data. But traditional banks aren’t doing much better – a recent study from security consultancy Positive Technologies revealed that more than half of banks with an online presence allow fraudulent transactions and theft of funds. But security is likely to gradually improve, and the tech giants will provide much-needed competition for what was for many years an effective payments monopoly by fractional reserve banks.

I look forward to the day when the fractional reserve banking system takes its last breath.

Be seeing you

mark of the beast

The Mark of the Beast

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

 
%d bloggers like this: