Banks are just as real as Bitcoin is. One illusion reveals the other. They are both shady, but for separate reasons. Bitcoin and all the offshoots of the digital dollar family are suspect, but everyone knows it. Most people have not figured out that the banks are a bigger racket, with worse consequences.
Banks are a cornerstone of our ridiculous financial system, which is a central pillar of our “society.” And our society is determined by our belief in its limits. Not the limits it actually has, but in the limits we think it has. We choose to believe that property is sacrosanct, and it becomes that way. We imagine certain parts of our society are solid and unshakeable: and so they are treated with reverence. And we tell ourselves that banks are necessary, and that money is real.
But neither is true. For all the flaws of digital currency such as Bitcoin, it gives us this window on the world: the order of buying and selling, of lending and spending, does not need to be the way that it is. The illusion of currency and of scarcity is important for the power of the banks. It is less important for Bitcoin. Two recent stories demonstrate why.
WOW SUCH BITCOIN
First, digital currency. The most Bitcoin of states, Florida, recently passed a law about bilking people online using digital currency. David Ovalle, writing for the Miami Herald, tells us that
“The high-tech criminals of the 21st Century use virtual currencies like bitcoin to accumulate and hide the profits of their illegal activities,” Miami-Dade State Attorney Katherine Fernandez Rundle said in a statement. “This legislation makes sure that traffickers and fraudsters can no longer try to use internet-based currencies to hide and move their ill-gotten gains.” ... Authorities across the United States have struggled to figure out how laws apply to Bitcoin, which allows some users to spend money anonymously and can also be bought and sold on exchanges with U.S. dollars and other currencies. Digital currencies allow people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit-card issuers or other third parties.
A currency which is liquid, untraceable, and fashionable is not just good for the semi-criminal elements, such as the credit card companies, but actual illegal operators, such as the black market, and the black market’s offshoot, the Internet. Ovalle notes that the “dark web” site Silk Road, an online network which specialized in the selling of illicit goods, was built on the back of the digital currency.
Additionally, currency speculators and human traffickers have a warm spot in their heart-like organs for the Bitcoin hustle. Reputable investors too. All of which is to be expected. Bitcoin’s value lies in the fact that it is what it claims to be. No more, no less. It carries whatever value you want it to. A single person with an illusion is a madman, but if thousands or millions of people share the vision, then it acquires a certain cachet. Bitcoin is such an illusion. But it is a well-thought out illusion.
A lump of value by any name is just as sweet to the buyer and seller as a dollar bill. Anything at all can carry value—it’s your belief in it that endows it with monetary power. Like the resurrection of fairies or the boxing meets of Don King, it’s the child-like faith of the onlooker that does most of the work. I do not love Bitcoin, but I do not hate it, either; it has the same value a dollar does. But I am fond of Bitcoin because it reminds us of what stands at the bottom of our vaunted financial system, and the entire game of buck-hunting: absolutely nothing.
Which brings us to the banks.
SAVING MR. BANKS
In an article for Yahoo Finance, Bethany McLean writes about Wells Fargo:
It’s almost a year after the bombshell announcement that Wells would pay $185 million to settle charges that it opened unauthorized accounts for customers, among other things. Now, there’s a new CFPB investigation and a wave of lawsuits over Wells’ mortgage practices. Last week, Elizabeth Warren sent a letter to the Federal Reserve with an unprecedented demand that the Fed seek the removal of Wells Fargo’s board of directors. That’s not all. Lurking in the background is a largely forgotten lawsuit involving Wells’ overdraft practices. No wonder it’s been forgotten: The case has been tied up in torturous litigation for almost a decade. But the ultimate resolution could make the $185 million look like a small down payment for years of aggressive business practices.
As she describes, in the old days, banks used to cover overdrafts. In the early Nineties, banks hit on a revenue stream for them to vampire up. They were already making record profits, but what was a little more money between friends:
A 2008 FDIC report said that overdraft fees for debit cards could carry effective annualized interest rate exceeding 3500%. And then banks figured out that overdraft charges could be even more lucrative if they were reordered. Instead of having them hit a customer’s account in the most straightforward way—chronologically—the banks could reorder them from largest to smallest in order to maximize the damage to their customers. So if you had $100 in your bank account, and you had a $5 cup of coffee, a $10 sandwich, a $50 gas bill, and a $175 grocery bill, in that order, you should pay one $35 overdraft fee. But if the bank reorders the charges to put the grocery bill first, they could collect three fees, or $105.
Every other bank joined in as well. Say, then: what economic necessity impelled them to overcharge their customers? What invisible hand urged them to screw their customers? What iron chain of logic, of supply and demand, made them press down on their clientele?
Nothing. Absolutely nothing. There was no reason but profit. No logic argued for it. This is why economics is largely make-believe, a ghost in the machine of exploitation. Hey, phrenology once seemed real too. Economics, as commonly practiced, is a collection of model-makers trying to apply their systems to the confusing business of the real world. Which requires the question: why does power love economics? Why, for the same reason they love any tool: it helps them. The study of economics provides authority with just-so stories to justify their exploitations.
Power sings; the economists hold the hymnal. That is the primary value of economics. So, when Wells Fargo discovers it can powder-grind its base with overdraft fees or peddle fake accounts, they can cry to heaven that some market necessity pressed it on them. But no economic force pushed them into fraud and the machinations of avarice.
Banks believe they are the bones underneath the world. An understandable illusion. But they are hardly the stuff of human necessity. Banks of the Wells Fargo mold live only to charge rent, never to create value. Are these the innovations that disaster capitalism was supposed to create? A brave new world of stealing from the collection plate? Charging overdrafts? Where is the magnificent work and the vast enterprise that we were promised by princes of finance like Greenspan? Banks are an agreed-upon illusion, a fireside-tale that we either believe or are forced to believe.
And crypto-currency flimsies the divide between the “reality” of paper money and make-believe money which only exists online. Money only exists because we believe it exists. The shadiness of Bitcoin is, by extension, the shadiness of the banking system too.
And surprising implications follow: if this is the case, maybe we don’t have to dole out billions to the bankers. Maybe we should toss the ones from 2009 in jail, the way we would any set of lying bums. Perhaps there could be democratically controlled organs of finance, and not Harvard and Yale spitting out graduates who would then go spend years repossessing houses from high school teachers in Skokie. Banking loves a gratitude of debt. It depends upon it.
Bitcoin is the bad magician whose fumbles remind you it’s all made up. Bitcoin is good and Bitcoin is admirable because Bitcoin and Ethereum and the rest of the online crew remind us that the banks are just as real as Bitcoin, just as huge a smorgasbord of cheapjack stories of solidity and stability and necessity. Bitcoin is a magic trick, but so are the bankers.
It’s a magic spell we’ve been sharing long enough to actually think it’s real. Banks are yet another instance of a modern requirement, currency trafficking, being held hostage by the greed of private interests. Both are long cons; but Bitcoin is the hustle that could serve everybody, and there’s the difference. Why give credit where credit isn’t due?