Sunday Musings: On Bank Failures… and Our Borrowing, Leveraging and Risk-Taking Nature
These days, it increasingly feels like I am truly starting to show my age.
I remember being a kid, maybe seven or eight years old, and my dad telling me that the purpose of a bank was to offer you a safe place to keep your money. The emphasis in that particular talk was on the idea of "safe," not on investing or borrowing money or anything like that.
I also remember I would go with him too the local branch of the bank the family had been using for many decades, so we could deposit my lawn mowing and driveway snow shoveling money into a simple savings account.
At the time, that was actually a pretty good deal... because by the time I was 20 and heading off to college in the USA that lawn mowing money — along with other bits and pieces I'd added along the way — amounted to almost $6000 which was certainly an ample start for me to feel OK about heading off to a foreign country for study.
Let's keep in mind that this was in 1980, many years ago!
And so we fast forward to 2023 where it seems like banks have increasingly become very risky propositions and certainly no opportunity for a kid to grow their savings... and it seems to mirror how most investments seem to have become very risky.
But is that really so?
Maybe this is a misperception on my behalf, but I can't help but think that the state of banking is merely a reflection of our grossly inflated expectations as to what our returns — not just for money but from life in general — are supposed to be.
Call it a "Paradigm of Entitlement" or whatever you will, but the riskiness of banks seems like it would be tied in directly to the fact that those who invest in banks — as public corporations — now have ridiculously unrealistic expectations as to what rates of return their investments are "supposed to" to bring.
So, in order to keep investors from going somewhere else, the banks have to take increasing levels of risk in order to provide the expected returns to shareholders, and before you know it we end up with SVB.
Of course I'm grossly oversimplifying a very complex situation here, but I'm also stepping out of the pattern of just looking directly at banks and instead taking the "50,000 foot overview" of the human condition as a whole.
We seem to have grown these expectations of getting increasingly large amounts of money for nothing… and I just can't figure our how that is that supposed to work out, given that the time tried formula when it comes to returns on investment is that the higher the return the higher the risk.
Did everyone just conveniently forget that, and instead started snorting magical unicorn dust?
Somehow it feels like somewhere someone along the way we chose to increasingly turn a blind eye to some very painfully obvious parts of reality!
When did we become so greedy?
Or did we not become greedy at all, did we merely become entitled to things we don't really have any claim to, given the amount of effort and value we're willing to put into the equation, ourselves?
Sadly, it doesn't seem like crypto is helping much; creating a new set of expectations that returns are "supposed to" be 30%, 40%, 50% a year (DeFi, for example) and anything less is "underperforming."
Ah well... the good thing about becoming "too old for this" is that I don't have that many years left to remain confounded by the whole thing!
Thanks for reading, and have a great week ahead!
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