Angel Island ferry 

From the upper deck.



Bella Saratoga 

Lunch at Bella Saratoga.



Economic Disintermediation and Banks 

I read in the wall street journal that the fed rate hike is putting the squeeze on banks. In particular, banks' profit model of borrowing money at the short-term rate -- that's the savings of average joes and janes like us -- and then lending that money out at the long-term rate -- that's mortgages, corporate paper, etc -- disintegrates when the gap between the short-term rate narrows or even inverts. Well, we normally put up with long lines and poor customer service at banks because we think of banks as a safe place to park our money and have it earn an interest, but when we think of the situation as banks borrowing cheap money from us... it's not as copacetic.

The irony of business relationship perceptions aside, I can't help but wonder about whether the fed may have less macroeconomic control these days. The long-term rate not moving in response to the fed's adjustments of the prime rate may be indicative of structural changes. Just as the Internet enabled greater disintermediation between consumers and businesses, enabling me to mail order directly from larger businesses -- sometimes producers of goods and sometimes just larger, more efficient retailers like amazon -- perhaps another aftereffect of the dot bomb era is that individual investors are far more likely to invest directly in stocks and bonds, or at least mutual funds. Certainly the ease with which we can obtain business news, corporate financial information (conjecture: most companies put their annual reports on their web sites), SEC filings, etc makes it possible to be more informed direct investors.

Banks still provide greater safety through FDIC and risk sharing. With the options of investing in mutual funds, government bonds, corporate paper, and stocks, however, a wide range of risk/reward tradeoffs are readily available to the individual investor. It seems inevitable that more money will flow away from consumer banking to other financial instruments, and that the role of banks as intermediaries between investors and investment vehicles must necessarily be diminished.



Marvin at Penang garden.


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