Sean Corrigan makes some interesting comments about the current problems with banking. If the basic tenets of free-market "capitalism" include the full recognition of property rights, the sanctity of voluntary contract, and the relegation of government to a minimalist role as arbiter – and, reluctantly, as enforcer – of last resort.... the roots of today’s woes lie not in whether this or that regulation was sufficiently well-crafted or implemented, but rather go deeper into the issue of whether banking as currently instituted is – in any way, shape, or form – an activity consonant with such principles.
This is the guts of the problem. Modern banking is fraudulent.
Firstly, the ability of banks to create money simply by making a book entry in favour of a borrower, without first asking whether anyone else would be willing to place their previously earned cash at the latter’s disposal, is nothing other than a legalized act of counterfeiting or, if you prefer, an act of "watering" the stock of claims upon the totality of private property; of diluting the existing "shareholders" rights to the social product without their prior consent.
Secondly, the fact that depositors are led to believe that they do not relinquish any rights over the funds they entrust to the banks – when, in fact, they are no more than the unsecured creditors of a commingled holding – leads to the reprehensible business of promising demand account customers instant access to "their" cash, while being fully aware that such a promise is wholly fraudulent since the bulk of this "cash" will be rapidly deployed to "fund" any number of the long term, potentially illiquid ventures being undertaken by the bank’s lending department.
The fact is that, by some twisted thread of history, banks have been accorded the unjust privilege of being allowed to ignore the absolutely crucial lines of demarcation between four, wholly beneficial, but utterly distinct, roles.
Monies given into their possession in their guise as "giro," or transmission, agents, or as the custodians of what are, today, largely virtual safety deposit-boxes, are one thing: quite another are the resources entrusted to them in their equally laudable function as asset managers whose job is profitably to invest their customers’ term deposits in a range of what are presumed to be creditworthy ventures.
A third – individually irreproachable – business is that of facilitating the raising and transfer of capital between customers; mobilizing savings, large and small, in order to fund entrepreneurial attempts at wealth creation, whether through arranging trade finance or by bringing issues to the bond and stock markets.
Finally, there is no intrinsic demerit to bankers speculating either with their own capital or, indeed, with that of those clients who are fully cognizant of the fact that their money will be used to bankroll an attempt to outguess other traders and to pre-empt changes in the valuation of securities, currencies, or commodities.
The underlying problem is that banks have been granted the right indiscriminately to mix all four of these often incompatible activities. This gives rise to an unhealthy promiscuity, corrupting their fiduciary duties, introducing irreconcilable conflicts of interest, and opening up countless opportunities for a wholly legal embezzlement which has a small, but significant, chance of going horribly awry – as today’s events have once more forcibly brought home.
....all that is needed is for the same basic principles of law to apply to banks as to any other commercial enterprise, in a manner that they have never done heretofore.
If the basic tenets of free-market "capitalism" include the full recognition of property rights, the sanctity of voluntary contract, and the relegation of government to a minimalist role as arbiter – and, reluctantly, as enforcer – of last resort.... the roots of today’s woes lie not in whether this or that regulation was sufficiently well-crafted or implemented, but rather go deeper into the issue of whether banking as currently instituted is – in any way, shape, or form – an activity consonant with such principles.