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Sam’s Exchange: Hotel California

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These days most of us do all our transactional banking electronically. We buy our goods on debit or credit cards, pay our bills via the Internet, and transfer funds from account to account electronically.

These days most of us do all our transactional banking electronically.  We buy our goods on debit or credit cards, pay our bills via the Internet, and transfer funds from account to account electronically.  Gone are the days of trudging along to the bank with our pay in books and our weekly savings in cash and coins, to have a friendly chat with the bank tellers.  There are few, if any, bank robbers in today’s world, because most banks don’t keep much cash on their premises.  In fact, some don’t even have tellers any more; they just have machines where you deposit cash into your account.

But checks still exist.  Here in Dubai, when I opened a bank account, I was issued a check book.  I found this mildly amusing, as it had been at least 16 years since I had written a check and I had completely forgotten how to fill one out.  So far I have written one check with my new checkbook, and I wrote it twice. The first time I incorrectly filled it out, so I had to cancel it and re-write it.  But in Dubai, checks are a serious business.  In fact, if you write a check, either personal or business, and it bounces (i.e. there are not enough funds in your account to cover the check), you go to jail.  It is a criminal offence to bounce a check here in the UAE.  When companies defaulted on their obligations to their suppliers in Dubai in 2009, many of the suppliers could not cover their debts, and a chain reaction began.  Half the country went to jail for bouncing checks, while the other half left their cars at the airport with their maxed out credit cards in the glove box, and fled. 

Banks also write checks. If you happen to be very, very rich and you want to withdraw your funds from the bank, you will be given a check.  Rumor has it that there is some nervous money here in the Middle East region, wanting to exit, or move to another nest.  So when I came across some of this nervous money recently, in the form of a 200 million USD check, I could not comprehend why the holder was so upset with his bank.  Then he told me.  The bank gave him a check alright, cashable in one year and one day.  That’s right, in 366 days’ time. 

The bank in question is an international bank, and is apparently not alone in this practice. What seems to be an emerging trend is that banks don’t actually have any cash.  In fact, according to a report by the World Economic Forum in Davos, we need another 100 trillion worth of credit (code for debt) to support growth in the global economy. It should be remembered that under the Federal Reserve System, we actually use debt-based money in the form of Federal Reserve Notes, called USD.  So if banks can just issue more credit in the form of money, as the Davos report calls for, then why can’t they issue checks that we can cash?

The more I read and learn about giga finance, the further away from reality I seem to find myself.  What I do know is that the world financial system needs an overhaul.  Our monetary system should be asset backed, not paper based (debt based).  When banks do not have the funds to pay out to their depositors, albeit large ones, or refuse to do so, yet the same banks, within the same system, call for the creation of 100 trillion in credit (debt), then the logical conclusion to me  is the system is broken, and needs replacing.

When I met the rich man with the big check, and he was telling me his tale, I could not help but think of the song Hotel California by the Eagles, the last three lines in particular:
“We are programmed to receive.
You can check out any time you like,
But you can never leave! “

So the banks will happily issue you with a check for your funds, just don’t expect to cash it.  How that is different from a check which bounces, I do not know.  Perhaps the mere illusion that banks have money is enough.  Banks have developed complex financial products in order to promulgate their roles as intermediaries of the financial system, when in fact they should only be service providers within it.  So for the super rich wanting to withdraw their funds, I can only advise them one thing, only do it if you want to be a poor multi-millionaire.

 

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Global Markets are anything but integrated. What if we had a paradigm shift in the way we think, the way we actually do business with each other, between nations. Balanced global trade can only occur if we have transparent, accessible, efficient markets, with standardized contracts and on a standardized platform of global exchange. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.

Sam Barden is CEO of SBI Markets General Trading LLC, a Dubai-registered trading and advisory company. Barden, 39, has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.

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