The Great Financial Crisis: 10 Years Later
Ten years after the Great Financial Crisis of 2008, little has changed. The banking system is still fragile, centralized, nontransparent, and incapable of serving large segments of the world’s population.
Banking, in particular, is still centralized in a few large institutions concentrated in a handful of cities. Ten years after the Great Meltdown; most of the world’s money still moves through a few big banks in the cities of London, Shanghai, New York, Hong Kong, Singapore, and Tokyo.
Therefore, the banks are bigger, richer, and more powerful than ever. Conversely, the banks are more fragile, more vulnerable, and probably more over extended than ever.
The amount of money held by banks is incredible. Pershing; just one fund managed by BNY Mellon (NYSE: BK) a relatively small bank, contains $1.8 trillion in assets for example.
America’s largest bank, JPMorgan Chase (NYSE: JPM), reported $2.5536 trillion in assets in 2017. Tellingly, Chase’s 2017 assets were slightly larger than the $2.175 trillion reported in 2008.
Banks are Closed Loop Institutions
The danger in the banking system is that it is a nontransparent closed loop institution.
To enumerate, a closed loop institution excludes most people from access and limits their participation. In other words, banks want your money but they do not want you to have control over it.
People do not know what banks are doing with their money. There is no way for average people to know if banking practices are safe, responsible, or ethical. For instance, back in 2006, depositors did not know their banks were investing in risky products like mortgage-based derivatives.
Regulation fails to address the situation because of regulatory capture. Regulatory capture occurs when regulators work for the people or institutions they should be overseeing. For example, a Securities and Exchange Commission (SEC) employee quits and goes to work at Goldman Sachs (NYSE: GS).
Under the present system, regulators have a huge incentive not to hold financial institutions accountable. Obviously, that incentive is all the money regulators can make working for or with the investment banks.
Not surprisingly, corruption is still out of control in the banking system. For example, employees at the giant American bank Wells Fargo (NYSE: WFC) allegedly created millions of fake accounts to get sales commissions.
CNN Money accurately labeled Wells Fargo “the horror story that just won’t end.” Ultimately, we can place that label on the entire banking system.
The Banking System does not Serve the People
Lack of transparency and regulatory capture are just one of many uncorrected flaws in the banking system. A greater problem is the vast number of people left out of the system.
There are 1.7 billion unbanked adults in the world, Rubius estimated. Those individuals lack access to banking products and technology. For example, just 21% of Indonesians had a debit card in 2017.
The situation gets worse in less developed nations. In particular, Rubius estimates that 47% of low- and middle-income people do not have a bank account. Furthermore, 69% of people in those nations lacked debit cards.
Therefore, those people conduct almost all of their transactions in uninsured cash. That puts those people in danger of robbery because they are carrying cash.
It also increases the chances of catastrophic losses that can keep a family in poverty. As an illustration, a family could lose its lifesavings if the house burns down, destroying their paper money.
The problem even extends to developed nations. The Federal Deposit Insurance Corporation (FDIC) estimates that there were nine million unbanked households in the USA in 2017. Also, 19.9% or 24.5 million households were “underbanked” or underserved by banks.
The Banking System is Still Broken
The banking system is still broken 10 years after the banking crisis of 2008. To emphasize, banks are still nontransparent, vulnerable to collapse, and not serving vast numbers of people.
The worst aspect of this situation is that we have the technology to fix the banking system–if we want. Theoretically, the blockchain offers far higher levels of security and transparency than the systems currently employed by the major banks.
Blockchain platforms, cryptocurrencies, and digital wallets have the potential to give average people total control over their money. Such technologies can reduce risks significantly because they are digital.
For instance, there is no vulnerable paper cash. On the positive side, agencies like the FDIC can insure digital wallets against loss providing an added layer of protection.
It is now possible to create a new world banking system that everybody on Earth will have access to through mobile phones. In this new banking system, everybody will have instant access to his or her money and that money will be 100% safe and secure.
In time, everybody on Earth could have access to financial tools such as loans, mortgages, credit cards, and insurance as well. Under those circumstances, hundreds of millions of people will have the means to escape poverty.
How the Crisis of 2008 Inspired the FinTech Startup: Rubius Inc.
Rubius Inc.’s goal is to create a New World Bank and a better banking system using blockchain, cryptocurrency, digital wallets, and other innovative technologies. Interestingly, the financial crisis of 2008 inspired founder Joseph Rubin to start Rubius.
Rubin had a front-row seat to the crisis because his father worked in the finance industry. Like many Americans, Rubin saw his family lose a lot of money because of fraudulent practices at the big banks.
In an interview with a New York Times reporter, Rubin explained that “we had the financial crisis of 2007–2008, and then one year later Bitcoin was invented. Bitcoin didn’t emerge in 2009 out of coincidence. It was born out of necessity.”
The goal at Rubius is to make Rubin’s vision a reality. They want to bring secure, fast, and transparent financial services to the people of the world in the same way Amazon brings eCommerce to your doorstep. Rubin‘s dream is vast, therefore achieving it will take decades and require a lot of blood, sweat, and tears.
If you remember 2008 and don’t want to repeat it, check out Rubius Inc. They are trying to lay the groundwork for the Future of Finance.
To learn more about Rubius please visit:
https://rubius.io/rubius-whitepaper.pdf
Join the conversation on Telegram:
Article Written By Daniel Jennings, the founder of Market Mad House. To read more of Daniel’s work, please visit: https://marketmadhouse.com/
