- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Retail banking should, of course, remain in the public sector.
But of course. That's been established beyond all doubt.
There is no sound reason that your savings account and debit card are issued and managed by a private bank. It just adds hassle (because the bastards charge fees for using the "wrong" terminals) and doesn't really do anything for service.
You obviously don't know what you're talking about. Let me explain the service behind making a single ATM available in the middle of a town. Somebody has to: > select and buy the ATM - which costs about 40K€ > install the ATM into a hole in a building - which somebody has to carve out - costs another 10K€ to 15K€ > wire the thing: link it up to the bank's database via IP, link up the alarm systems > then... service the thing to make sure it's full of cash > manage maintenance, repair vandalism... What's that of not a service? Why on earth do you thing the state is better suited for this type of a job?
Yes, because it is essential infrastructure. The brainless should not be in banking. — Willem Buitler
Because the tasks you listed are a no-brainer. No innovation required. The brainless should not be in banking. — Willem Buitler
Because only the first two are completed by banks (many of them competing in this area). Payment terminals are manufactured and (often) distributed independently. Clearing & settlement is run by a number of competing networks (Amex, Visa & Master Card, ...) which are inter-operable. Card & chip manufacture is also standardised but run my competing companies.
Then, of course we have the world of e-payments, which is a whole new universe.
As you can see, a lot of innovation, a lot of competition. No justification whatsoever for the state to monopolise this market.
> The account management? > The cash distributors? > The payment terminals? > The clearing & settlement? > The card & chip manufacture?
Bullets one, two and four.
Manufacturing the terminals doesn't have to be done by the banks, but they should have in-house service staff who can take one of them apart and put it back together again, just to make sure that they don't get Diebolded. And the cards are just ordinary consumer electronics with hard-coded encryption.
What are you saying, that the bread we buy should be free of charge coz it's a no brainer to make?
How wrong you are. Latest innovation is two way IP exchanges of information between the ATMs and the banks central IT - allowing it to "push" contextual information to clients based on who the client is. Other innovations include new security mechanisms, cash depositing functions... etc.
Most central banks are quite good at security functions. And last time I checked, the ability to exchange encrypted data was not a new invention. Automated money counting deposit slots are not new inventions either. The only new thing about them is that they've gotten an access point on the outside of the building.
The logistics of bread production and banking are radically different.
No, and I'd appreciate it if you stopped putting words in my mouth to build straw men and asking rhetorical questions. You've been doing it all thread long. It's tiresome. The brainless should not be in banking. — Willem Buitler
There were two issues being discussed: > the gratuity of a service provided by a bank > the suitability of the state taking on a specific job
To my question: Why on earth do you thing the state is better suited for this type of a job? You answered: Because the tasks you listed are a no-brainer. No innovation required.
So... I was quick and wrong in implying that you were responding to the issue (gratuity) - when in fact it was the second (suitability of the state).
I do not think that your criteria (whether or not a task or a process is a no brainer) is applicable to making a decision as to whether the state or the private sector is best suited to complete a specific task. Really. There are other factors at play which are much more important.
Why on earth do you thing the state is better suited for this type of a job?
Because the state is demonstrably better than the private sector at running trains and power grids. The only place in the world where private trains have not been a disaster is Japan. Everywhere else - and I do mean everywhere else - it has been an abysmal failure. And trains and power grids have a number of similarities with what you describe.
The rail/electricity operator has to:
> select and buy the ATM
Select and buy the trains/transformers.
> install the ATM into a hole in a building - which somebody has to carve out
Build a train/transformer station - which someone has to construct, from the ground up and to very precise specifications.
> wire the thing: link it up to the bank's database via IP, link up the alarm systems
Schedule the trains, wire the signalling, install and test the circuit breakers that prevent trains from accidentally violating a stop signal,
Or, in the case of an electrical grid operator:
Wire the station into the grid, install circuit breakers and alert systems that allow real-time damage containment in the event of malfunction, create safe systems for real-time load balancing,
And then both of them have to
link up the entire grid to a central command and control station (preferably more than one, actually).
> then... service the thing to make sure it's full of cash
Actually run the trains (preferably on time)/service the transformer station to make sure its cooling systems work.
> manage maintenance, repair vandalism...
Maintain the trains/transformers, remove graffiti and replace bashed-in windows/restore connection when a tree falls down over a hanging wire, etc., etc.
As for the cash outlays you cite, they would barely even amount to a rounding error in the budget of a semi-serious railway.
Retail distribution networks are a good example. Society needs only one food distribution network from producers to consumers. Yet we've got many. Its because the balance between the required investment and the social benefits is in favour of the latter.
Now to our payments system. In addition to the issuers of cards (Visa, MasterCard, Amex, ...) who are marketing agents and provide variable levels of security checking, there are also national clearing and settlement agencies that manage the actual flows of funds between the banks who manage the accounts of the individuals and/or businesses making the transactions. Usually, these are oligopolies run by bank consortia.
The EU introduced legislation (latest piece in 2007) requiring the national infrastructures to morph into a pan European infrastructure in order to gain in efficiency and reduce costs for the end user. What's interesting about the legislation is that it calls for the creation of not ONE but a NUMBER of networks which will compete with one another. These are: STEP2, STET and TARGET2.
The EU didn't call for the nationalisation of these "utilities"... thank God. It just regulated the private sector where it felt this was necessary. And that's my point: regulation of industries deemed to be of "strategic social utility" is much more efficient and effective than having the government run them directly.
Society needs only one food distribution network from producers to consumers. Yet we've got many.
Actually, we have substantially two food distribution networks: Nestlé and Unilever (and they're both evil, but that's another story...). That's an exaggeration, of course, but not a very big one.
Now to our payments system. In addition to the issuers of cards (Visa, MasterCard, Amex, ...) who are marketing agents and provide variable levels of security checking,
... for a variety of funny fees and general scamminess. The credit card industry is not really a good example of a construct that serves the public.
In Denmark, we have one system, Dankort, which then interfaces with all these funny credit card companies. But the backbone is a single system. There is no reason - other than tradition - that this backbone couldn't be run by the state.
And in fact, there would have been substantial benefits of nationalising the Dankort: With the most dreary regularity, the banks attempt to impose onerous fees on usage that in no sane world merits those fees (mostly it's a matter of vendor lock-in, but they also make fat money on ForEx transactions over Dankort, with fees that cannot possibly be justified on the merits).
Again: It's one system. There is no technical reason to split it into four or five different operators, any more than there is any technical reason to split the power grid into four or five different operators.
there are also national clearing and settlement agencies that manage the actual flows of funds between the banks who manage the accounts of the individuals and/or businesses making the transactions. Usually, these are oligopolies run by bank consortia.
And these jobs are completely routine, standardised and heavily regulated. There is no reason that the central bank cannot perform them with equal efficiency. And the added benefit of it being easier to enforce compliance with tax authorities when you run all clearing through the central bank.
The EU also ruled that power grids must be broken into separate operators, "to enhance efficiency." And that railways must be privatised "to enhance efficiency." That was bullshit. Any time a politician says "competition" there is a better than even chance that he means "a handout to the locusts." Do you have any evidence that this is not the case here?
regulation of industries deemed to be of "strategic social utility" is much more efficient and effective than having the government run them directly.
Railways, power grids, postal service, education, health care, pensions, roads and bridges would beg to differ.
I agree with that. But I haven't seen a compelling case to nationalise the payment system.
is generally the case. Nor, even, that it is usually the case.
As for the clearing system in particular:
Case open and shut.
As Migeru would say: you're starting to look disingenuous.
That a speculative bubble in the real estate and derivatives markets can bring deposit-taking institutions to the brink of not lending to each other demonstrates conclusively that the current clearing system does not work: It cannot withstand sharp shocks without massive public subsidies.
Also, the bulk of the costs of maintaining a clearing system are independent of usage rates, so price/transaction is not a meaningful number to judge the price of a clearing system.
These banks are deposit-taking institutions. If they stop lending to each other, the clearing system ceases to work.
I'd add that it's the same in France, with the Groupement Carte Bleue (which was imposed on reluctant banks by the government) imposing a single set of rules for cards clearing and ATMs. In the long run, we're all dead. John Maynard Keynes
Same with GSM - thanks to heavy-handed regulation at the highest level (in this case Europe), Europe got a better standard, and imposed it across the world. With 3G, industry tried again to impose incompatible standards onto weaker regulators, and the result was incompatible standards and Europe losing its leadership. In the long run, we're all dead. John Maynard Keynes
