Bauelle and Folk Wisdom

From James Bauelle's newsletter: "Six years later, we are on our way to the next crisis. In my view, its seeds are being sown in the proliferation of Internet-based lending platforms that promise to match borrowers and lenders/investors without the inconvenience or expense of a bank's being involved in the transactions. I have previously written about Lending Club and Prosper, the two leading companies in this space. Lending Club has an IPO in registration at the SEC and is expected to debut with a multi-billion dollar market capitalization this quarter. Like the woman's convertible Mercedes, P2P intermediaries' pricing is unbeatable. Nearly all of the expense of operating a bank is taken away; so, however, are key aspects of a bank's functionality."
 

There are a number of ways to see this evolution and they are worrisome, all of them. The banks have been unscrupulous and virtually rogue over the last decade; it is not unreasonable that people would love to bypass them. The problem is they have been roguish in their dereliction of their main assignment: The preservation of stability. They cannot be rejected without some substitute for that stability, otherwise the baby is in the air with the bathwater. That would be symbolic only, hoping that Galton is really, really right and we can substitute every Tom, Dick and Harry for banks--and should.

If it is symbolism everyone wants, how about decimating all the bank Boards. And the Fed too.