tag:blogger.com,1999:blog-1623699882018686488.post2034777252222443791..comments2023-10-24T07:33:32.257-07:00Comments on Home of the Snapping Turtle: Reformed Banking- J-ModelAlpha Zahttp://www.blogger.com/profile/09940520964761065276noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-1623699882018686488.post-69070430421249589772010-03-18T13:50:32.060-07:002010-03-18T13:50:32.060-07:00Thank you Ali, I've of course heard of Mr. You...Thank you Ali, I've of course heard of Mr. Younus, but I thought his entire model was based on primarily lending to poor people with little collateral and charging them...well, 'attractive' interest rates. <br /><br />I'll definitely grab that book at the first opportunity, Banking ought to be innovative and as time goes on, it must be.Alpha Zahttps://www.blogger.com/profile/09940520964761065276noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-25571889167157453572010-03-10T08:33:40.923-08:002010-03-10T08:33:40.923-08:00ok, you must read Banker to the Poor written by No...ok, you must read Banker to the Poor written by Nobel Prize winner Mohammed Younus and he created Grameen Bank which did you proposed in your J model. Ali NaqviAli Naqvihttps://www.blogger.com/profile/03910030197344184925noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-57181370553568332762010-03-09T05:42:21.092-08:002010-03-09T05:42:21.092-08:00I think when it comes to charity, everyone likes h...I think when it comes to charity, everyone likes having some influence on how their money is being spent.<br /><br />In terms of investment, it's not the banks money, it's the depositors money, so there is a lack of emotional attachment. It's more 'professional', banks are aware that even though when they are junior partners, they don't have control over the company. <br /><br />Banks do currently in essence have some degree of control of how the money they loan out is spent. For example, they ask what the money is for? <br /><br />Businesses may want complete control, but they also want to grow, be liquid and succeed. So they have to be willing to give it up, or go to a more conventional bank and take on debt. It's the price we pay. <br /><br />Banks own equity is a lot of companies and usually don't have alot of say in how they are run.Alpha Zahttps://www.blogger.com/profile/09940520964761065276noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-87413912662308239852010-03-09T05:16:32.716-08:002010-03-09T05:16:32.716-08:00So you would set your inexpert opinion above that ...So you would set your inexpert opinion above that of the people who are involved every day with the problems of the homeless or whatever? That's exactly my point about the banks, too generally stated perhaps (but argument forces us, eventually, into exaggeration). The situation you've created may or may not happen as you suppose, but the point is that you as the donee would want the money spent in a particular way, which may or may not accord with what the charity thinks is the best way to spend it. Exactly. And this, I'm suggesting, is how the bank might behave if it is too closely involved with the business. For the sake of argument I accept all you say about what a bank might (and I'm also assuming that the bank is run by clever men of sound judgement [such as yourself!] - which experience teaches us is not necessarily always the case) bring to a business, but I suspect it isn't what businessmen want. I imagine they want the freedom to act as their judgement tells them.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-90393693572718461832010-03-09T02:55:22.227-08:002010-03-09T02:55:22.227-08:00Well actually no, people who give to charities exp...Well actually no, people who give to charities expect some 'good' to be done, and because it's their money, they feel they know more about what the money should be used for. If I gave money to a charity that helps the homeless, I'd rather the money be spent on feeding them versus building them a shelter as the charity feels. We both have valid arguments of what the 'greatest' good is. Which is reasonable, even though charity dollars are mostly used for tax breaks. <br /><br />Banks don't care about greatest good. They want a tangible return, the difference between that and private capital, is that it's the banks profits belong to the depositors and when the bank invests in a project it will have a stake in the success of the project, and as banks typically don't have the man power to individually manage each investment, they are more likely to give money to those businesses that they feel don't need supervision, but will be there to help at all times in their own realm of expertise. Bank will obviously act, in the interest of it's depositors. Banks have the infrastructure to help businesses trim their costs, either via financial expertise or link ups with other invested clients of the bank.<br /><br />Private Capital expects majority of the businesses it invests in to fail. As far as they are concerned it's a numbers game. for every face book a firm invests in, there are 20-30 duds.Alpha Zahttps://www.blogger.com/profile/09940520964761065276noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-35311348619910538692010-03-09T02:04:19.713-08:002010-03-09T02:04:19.713-08:00Well banks basically dole out money, and both they...Well banks basically dole out money, and both they and charities expect a return (different in kind maybe, but still a return). All I was trying to illustrate was how difficult it is for a charity to work towards what its judgement says is the best end if the powerful donees decide they want something, let us say, which is a more obvious tribute to themselves. You seem in any case to be so trimming your model that it has got a long way back towards the situation as it exists now, where the bank lends (invests, in your model) money and allows the entrepreneur the freedom to run the business untrammeled by interference. Is that different? You seem to me to be back to square one, leaving investment, as you say, to private capital.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-24595683296087377842010-03-08T21:55:29.726-08:002010-03-08T21:55:29.726-08:00haha, of course I'm talking about ideal models...haha, of course I'm talking about ideal models. Models are all built for a set of perfect principles. The most perfect model can be corrupted by human behavior. What you do is build a model where there is a lack of incentives for humans to act corruptly. For example, Goldman distributes about half of it's profits amongst employees. So they are all perfectly aligned to making money for all. <br /><br />In terms of Banks interfering, Banks are lending to businesses they believe will make them money, and they realize they can't do that if they interfere more than they ask. A charity, basically doles out money. You expect no return from it, so if you give alot, you expect a voice on how the money is spent. If you don't agree with it, you should be able to yank it out, after all, the purpose of your charity allocations is to do good. Banks work as an organization to make profits. They want real returns and if owners don't have autonomy they won't be able to create them. Banks wouldn't give money to a companies management if they did'nt believe they knew what they were doing. So no, they wouldn't interfere unless the company was really in the doldrums. <br /><br />You also have alot of venture cap and private equity firms that do in fact act as silent investors to start ups. Facebook, Twitter, etc.Alpha Zahttps://www.blogger.com/profile/09940520964761065276noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-65706654652526977172010-03-08T01:23:48.992-08:002010-03-08T01:23:48.992-08:00I think, and as I say I know next to nothing about...I think, and as I say I know next to nothing about finance or banking, that you are talking about ideal models. Do you think, because this is your plan, that you might have too rosy a view of how the banks might work as equity partners? I'm trying to remain dispassionate, but can't help imagining that banks would interfere, in fact might more quickly find an excuse to, in situations where they are more than just the financial backer. I was talking to an executive in a major aid charity recently and she said that the more money a donor had given them the more they wanted to direct how the money should be spent, often with little understanding of where it would be best spent. A good part of her time is spent with executives and auditors arguing the case for the charity's decisions, and occasionally losing the argument with what eventually become demonstrably poor outcomes for the beneficiaries of the aid. Isn't this a parallel with what might happen with banks if they become so closely involved in their clients' business?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-30658653872735642482010-03-07T18:53:08.540-08:002010-03-07T18:53:08.540-08:00Yes, Banks would definitely let a company that des...Yes, Banks would definitely let a company that deserves to fail to fail, because if its one thing that banks are good at is number crunching. Usually, I'd imagine they'd minimize high risk businesses, but that depends on what sort of credit rating system they have. <br /><br />Most entrepreneurs know their own expertise, for example an ice cream shop owner, knows how to make good ice cream, but he probably doesn't know how a business runs or the numbers work. A good entrepreneur worth his salt would want to focus on what he/she is good at. Divisibility of labor... <br /><br />If they want to pursue their own vision, they are under no obligation to enter into the agreement, either way they'll need a bank, and J-Model bank is one where they'll gain extra expertise and particularly for the next generations sake, ensure that it's a going concern.<br /><br />Banks wouldn't interfere that much, if they didn't have faith in the entrepreneur, they wouldn't have given him money in the first place.Alpha Zahttps://www.blogger.com/profile/09940520964761065276noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-14984508727430207992010-03-07T15:48:26.818-08:002010-03-07T15:48:26.818-08:00And another thing, would having a bank as a partne...And another thing, would having a bank as a partner in your enterprise, as opposed to just financing the business, be attractive to the entrepreneur? Isn't it more likely that the businessman worth his salt wants to pursue his own vision? Hasn't there got to be the hands off venture capital provider who backs the idea, and the entrepreneur, without needing to interfere? If banks are put in the position of having to back a business because they own part of the equity, doesn't that cloud judgement and make it more likely that banks themselves will get into trouble? Isn't it true that sometimes businesses should fail? Would a bank with a share in the equity be able to make that decision?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-77672131313632921982010-03-07T14:11:40.552-08:002010-03-07T14:11:40.552-08:00Banks are conservative or risk takers, depending o...Banks are conservative or risk takers, depending on who you ask. One form to maintain a conservative stance and returns would be to invest money in government securities. <br /><br />Having banks as business partners would expand the realm of expertise, the single most common reason businesses fail is due to inadequate cash flows. Banks have that knowledge to alleviate that, rather than force that firm to liquidate or write off the amount as a loss. <br /><br />Currently most business owners are already subject to their banks, in forms of their loan terms, over drafts, financing facilities. By making the bank a partner, would increase the scope of the banks profit making.Alpha Zahttps://www.blogger.com/profile/09940520964761065276noreply@blogger.comtag:blogger.com,1999:blog-1623699882018686488.post-3730171131716178292010-03-07T09:28:56.667-08:002010-03-07T09:28:56.667-08:00So this whole model is based on the initial propos...So this whole model is based on the initial proposition that banks rather than make a loan should in effect buy equity in the company in which they invest? Everything follows from that one point? But isn't it the case that banks are institutionally conservative, and might not having them as more of a business partner be antithetical to innovative and risk taking business? Just a thought. This isn't at all my comfort zone. As a polemic it's lovely.Anonymousnoreply@blogger.com