
The general economic importance of banks has been highly exaggerated - robg
http://www.nytimes.com/2008/10/10/opinion/10mulligan.html?ref=opinion&pagewanted=all
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jmtame
"And second, the economy doesn’t really need saving. It’s stronger than we
think."

The first step is admitting there's a problem.

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blakeweb
I read this article, and two days ago listened to this podcast from 'this
american life' on npr. This article's arguments doesn't stand up against the
pretty convincing descriptions of what's actually going on from the corporate
treasurers and banking industry folk interviewed in the podcast. You should
make an hour and listen to it--it's fantastic.

[http://www.thisamericanlife.org/Radio_Episode.aspx?episode=3...](http://www.thisamericanlife.org/Radio_Episode.aspx?episode=365)

~~~
kylec
If you liked that, you'll love Planet Money - a daily podcast created by the
people that made the This American Life money program.

<http://www.npr.org/blogs/money/>

[http://www.npr.org/rss/podcast/podcast_detail.php?siteId=944...](http://www.npr.org/rss/podcast/podcast_detail.php?siteId=94411890)

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mdasen
To argue the opposite:

The author suggests that other institutions (pensions, universities, etc.)
bring investors together with savers. It's true, but not to the same extent.
Banks are primary. Drying up a majority of the way that it happens will have a
drastic effect despite the fact that other ways exist.

The author argues that corporations get 25% of their investment funds from
their own profits and that could go to 75% if they stopped paying dividends.
The problem is that still leaves a 25% gap there which is sizable. Not only
that, but profits don't help firms who are just starting up.

I'm not all doom and gloom about the economy (even today), but I don't think
the importance of banks is understated. The author is essentially arguing that
if we scraped the bottom of the barrel, we could probably replicate what banks
do (bringing investors and savers together) to a certain percentage. That's
true, but what if your work just started paying you 50%. It might be hard to
meet your next month's bills.

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Prrometheus
I haven't read the article, but a counter-point:

Banks are much less important today than they used to be because there are so
many more investment channels available. While regulation limits participation
in these channels to the rich and well-lawyered, our economy is more redundant
and diverse today than it has ever been.

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fallentimes
_there are so many more investment channels available_

This is exactly why banks spend significant more money on advertising (think
WaMu pre-death) than they used to. It's also why they derive a higher
percentage of revenue from fees.

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markdionne
International trade is dependent on Letters of Credit issued by banks:
[http://www.nakedcapitalism.com/2008/10/international-
trade-s...](http://www.nakedcapitalism.com/2008/10/international-trade-
seizing-up-due-to.html)

The shit will really hit the fan when your lights go out because your local
power utility cannot get a shipment of fuel oil when no bank will guarantee
their credit.

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newt0311
"Although banks perform an essential economic function — bringing together
investors and savers — they are not the only institutions that can do this.
Pension funds, university endowments, venture capitalists and corporations all
bring money to new investment projects without banks playing any essential
role."

Ummm... Pension funds invest in the stock market and they depend on banks to
help themselves out. Same for univ. endowments and venture capitalists.
Corporations still use banks to manage their cash flow and guess how they and
everybody else flows their cash through? Banks!!!

If anything, the importance of banks has been highly understated.

PS. This does not imply the necessity of the bailout. The bailout is
ultimately unnecessary. Wamu was still solvent from a cash flow perspective
when the FDIC took over and even if some large institutions fail (as some
already have), there are more than just three or four banks.

