[criley2]

>Do we even need monolithic financial entities in this day and age? Most transactions would be better handled by smaller, specialized and modern service companies. Banks are to financial startups what taxi driver unions are to Uber.

You forgot one of the most critical functions of banks like this-- large scale institutional lending.

A business needs to borrow $2 billion dollars -- are you going to crowd fund that?

A state government wants to borrow $800 million in bonds for a new arena, can you GoFund that?

A major government wants to store $30 billion of their own currency in a financial product that will decrease in value against the dollar more slowly than their currency. Is there an app that helps governments store 30 billion in assets (or are we naive enough to suggest that bitcoin is a smart investment?)

A major pension plan serving 100,000 retirees needs their 100 billion dollars in assets to be managed responsibly, can a 24 year old Stanford grad manage that?

I think calling Banks the "taxi union against Uber" is painfully naive in the sense that it only looks at small transactions and consumer transaction while ignoring the very large institutional business-to-business and business-to-governments side of banking.

Maybe small business will get their lending needs with new technology but I just don't see a Fortune 50 company taking a multi-billion dollar loan through crowdsourcing.

[lhh]

Having worked for a major bank for several years, the way huge deals like this get placed isn't too far removed from crowdfunding, it's just that the dollar amounts are higher and the participants are big institutions instead of individuals.

I was on the deal team for a $1.4bn capital raise and probably 20 or so $100mm-$500mm raises, and the way it happens (for bond and equity issues anyway) is there's a brief marketing period and then a bunch of sales guys get on the phone, call all their institutional accounts, get commitments from them, and the deal is done. It's amazing how quickly it happens. And the fees we earn on these deals are ludicrous. I think there's no way the banks don't get disintermediated.

[psaintla]

> A major pension plan serving 100,000 retirees needs their 100 billion dollars in assets to be managed responsibly, can a 24 year old Stanford grad manage that?

Judging by the NYC pension fund, I could manage 100 billion better.

http://mobile.nytimes.com/2015/04/09/nyregion/wall-street-fe...

[scott_karana]

Wow, no kidding! For the huge discount over their current guys at a mere $1,000,000 a year, I'd happily put the pensions into some Vanguard index funds... :D

[gclaramunt]

The NY article is misleading: http://www.bloombergview.com/articles/2015-04-09/new-york-di...

[ryguytilidie]

Then again, just burying the money in your backyard wouldnt be too far off...

[chisleu]

Are you saying that too big to succeed will solve too big to fail?

"A state government wants to borrow $800 million in bonds for a new arena" ... Arenas are a curse on the population. ( http://www.theatlantic.com/business/archive/2012/09/if-you-b... )

"A major pension plan serving 100,000 retirees needs their 100 billion dollars in assets to be managed responsibly, can a 24 year old Stanford grad manage that?"

If the tech start ups change the game, do you think the pensioners are going to trust their money with a kid? no... Do you think the Wall Street talent is going to disappear just because the reviled industry they worked in changed? I don't think so.

I for one welcome the change. The industry is a bit of a mess right now.

[Selfcommit]

Is it a terrible thing that massive amounts of money can't be promised and taxed? If that kind of lending is in fact good business(I'm not convinced it is) Couldn't the same loan be made through multiple smaller share holders? I don't think billion dollar loans are a requirement for society to function, or the best option.

[criley2]

It could but that's the wrong perspective. In "free" system that respects private choice, what can and cannot be achieved isn't as important as what deciders decide on.

A large bank will perform risk analyses and consult with their data and math people, consult their legal people, consult their insurance people, and will choose what they think is best.

So your option can be totally feasible and never chosen by a large bank- a similar fate to many new technically feasible ideas.

But then again, if you were a large entity, would you prefer to be indebted to one large entity, or a thousand small ones? All things equal, I'd rather owe 1 person 1000$ than 1000 people 1$, and I imagine their lawyers and insurance people agree.

[Selfcommit]

I understand why you would only want to owe 1 person $1000, but I think you see more ideas funded as the number of funding providers increases. My dislike of large banks is totally a bias here, but I'd like to think more funding options = superior to a single decision maker.

[Consultant32452]

It's also true that for very very large loans banks already work together to spread the risk.

[tomjen3]

Yeah it is a huge problem: Without a way to source a billion dollars Intel can't build a new factory.

Now you could replace banks with e.g bonds sold in the public market, but you still need something to finance the IT of the world.

[Selfcommit]

If Intel is sourcing a billion dollar factory, shouldn't their revenue be multiple times that? If you're telling me the factory they need costs $1 billion, my response is that the cost is only that high in a market full of banks that make billion dollar loans...

[mikeash]

Intel's factories cost billions of dollars (actual cost is around $5 billion now, not a mere $1 billion) because they're unbelievably advanced. This isn't the housing bubble applied to factories. They're building a facility that uses the most advanced technology in the world on an industrial scale.

Their revenue is many times that, certainly, but that doesn't mean they just have billions of dollars lying about doing nothing, waiting for the company to need a factory.

[patrickk]

Sometimes it's not so simple. I recall Google issuing bonds because it was cheaper than repatriating non-US revenue from abroad to fund US investments (it would have been taxed twice, albeit at an extremely low rate on it's non-US revenue).

[tomjen3]

Lets say that that billion dollar factory will earn itself back over 10 years. Do you have 10 years of mortages saved up?

Also I am going to have to ask for a source for your hypothetical reply.

[dragonwriter]

> Is it a terrible thing that massive amounts of money can't be promised and taxed? If that kind of lending is in fact good business(I'm not convinced it is) Couldn't the same loan be made through multiple smaller share holders?

Sure, in fact, the same loan probably will be with the existing system. Large (hundreds of millions of USD) bond offerings to the public, from either a state agencies or private firms don't end up with only one purchaser in many cases, even if they have a big financial firm facilitating the offering.

The question is how do alternative mechanisms do this as well or better?

[wozniacki]

  A major government wants to store $30 billion of their
  own currency in a financial product that will decrease 
  in value against the dollar more slowly than their 
  currency. Is there an app that helps governments store 
  30 billion in assets (or are we naive enough to suggest 
  that bitcoin is a smart investment?)

Could someone, well versed with central banking methods or fiscal/monetary policy, explain how this works?

I'm not very monetarily/financially literate.

Why would a country invest in some product that decreases in value in the first place - even if their own country's currency is slowly but surely losing value?

By "decrease in value", does the author mean temporarily or in a slow downward trending gradual spiral ?

Why not pump the same money into something that is likely to grow in value, like rare earth minerals or into companies that hold rare expertise in battery technology or something similar?

edit: clarification

[gclaramunt]

because of risk, is in everybody interest of playing as safe as possible with the government assets (unless you channel them to your Swiss account using your cousin's fake company as a front

[imgabe]

Why does the institution that does this sort of lending have to be the same one that holds my checking account?

[rdlecler1]

You bet that you can crowd fund Capital markets. It's just done with much bigger checks. One of the very large food and ag banks told us (AgFunder) that they were losing clients to JPM and GS because they didn't have their distribution power, and that if we could provide them with a distribution platform they would literally bring us billions of dollars of deal flow. On the other side of the table we have sovereign wealth funds and PE funds that are asking us when we can bring on larger deals. One conversation today said that they were looming for $500m deals to invest in.

[mathattack]

The theoretical basis for banks is twofold:

1 - Connecting money providers and money users. This can play out in the big deals that you mention. They provide $2 billion in financing, and line up a bunch of investors on the other side. Additionally they fulfill this in trading securities.

2 - Taking short term money (deposits which can be withdrawn at any time) and funding long term debt (mortgages, long term bank loans). This can only be done by aggregating lots of suppliers of funds, and pooling them together.

I suspect that much of this can be crowd-sourced and disaggregated, starting at the bottom.

[nissimk]

Exactly. If these small players start by acquiring deposits and investment accounts, they will be offsetting those deposits from the big banks. Once the small entrants reach a certain size they will themselves be able to play in the larger financing space thus competing with the big banks in more areas.

Hedge funds have been doing this for years, and some of the largest hedge funds now participate in many of the lines of business that are traditionally thought of as investment banking.

[marcosdumay]

Both those problems can be solved by emiting bills that anybody can buy and sell on a secondary market.

The problems that can not be solved by that are basically how to discover who one should trust enough to lend money, and agregating people to persue unpaid loans.

[markvdb]

The problem of course being that banks have a heavily regulated oligopoly on the _creation_ of money. Banks have a right to lend (a lot) more than they have deposits and capital. Think fractional reserve banking. They effectively create money out of thin air. Kickstarter and friends can't do that.

But the tech sector may come start scratch at the edges. I hope so, together with you!

[mikeash]

Fractional reserve banking doesn't mean you lend more than you have. It merely means you keep less money on hand than the sum total of your deposits and capital. This "creates money" because the depositors still act like their deposits are 100% present, and the debtors have some of that same money to spend. Banks aren't lending more money than the deposits and capital they hold.

[mathattack]

Kickstarter and friends can't, but there are other tech options for creating money, or money-like instruments. Bitcoin and Zynga points are some first steps in that direction. IOUs could be another. Any firm that can give credit is also a move towards money.

[jbangert]

But these are very different business cases - retail banking and institutional investing have very different customers, practices, regulations, etc. So why not make these be different companies?

[criley2]

>But these are very different business cases - retail banking and institutional investing have very different customers, practices, regulations, etc. So why not make these be different companies?

Operating Systems and Search Engines are completely different business cases with different industries and markets.

So why does Google do Search and Android? Because both fit the larger Google Data focus.

Both retail and institutional banking fit the larger Bank Finance focus.

They are one big company for the same reason why Apple makes smartphones and desktop operating systems.

For the same reason why Microsoft develops the best Office Software as well makes tablet computers with styluses.

What can I say? You can use government to force large companies to break up, but otherwise the existence of a large company that works in multiple industries or has multiple focuses isn't that crazy or alien.

[late2part]

A business needs to borrow $2 billion dollars -- are you going to crowd fund that? A state government wants to borrow $800 million in bonds for a new arena, can you GoFund that?

Sure, why not?

[MarkPNeyer]

> A state government wants to borrow $800 million in bonds for a new arena, can you GoFund that?

say you have an arena that holds 50,000 people, sell the right to name a seat for $100, and the right to choose an image to put on the seat for $1,000. That's 5,000,0000 in naming rights on the seats, and 50 million for the images on the seats.

Charge more for putting an image on contiguous seats - if you want n seats in a row, that's $1000 *n^2. They always end up selling naming rights to these things anyways, why not just have images in the seats be ads or pictures of loved ones or whatever?

Sell colored tiles in the bathrooms and even things like the color of a single screw for $10. sell the names of the concession stands and the names of urinals on the bathroom and the pictures on the bathroom stalls.

But who needs a fancy, multicolored stadium named after and showing the character, images and pictures of the people and brands from the city when you could have a big bland boxy thing named after a large company, and then 30 years of bonds to pay it off, right?

[criley2]

I mean, realistically you don't have to charge fans a cent. Kraft bought the Patriots a stadium in Foxborough at his personal expense: zero cost to taxpayers or subsidization from fans outside of the business he operates.

My point wasn't to find an alternative to taxpayer stadium financing as those alternatives exist today, my point was to say: If a government wants to take out a $800M loan, how do we make that happen. If an entity has a need: how do we meet that need. Merely saying "your need is invalid" is not a solution in any sense.

By trying to invalidate my use-case of an $800M loan, you side-step the actual problem: Providing a 20 year $800M loan. That's a real need in today's world. Providing a billion USD that you don't get back for multiple decades. That's a real world need that will have to be met by your future-tech. Not evaded, not made irrelevant, not ignored: but solved. How do you crowdsource finance in a way that you can take someone's money for 20 years? Because we know how traditional banks can achieve giving away billions for decades, but not how an crowdsourced futuretech solution would approach it.

[nemild]

Doesn't a liquid securities market imply that a lender in a 20 year loan can always sell their loan to others if they want? So there's no need to require them to provide a 20 year lockup, assuming a secondary market exists.

[jsprogrammer]

If the government (by US theory, this is: "the people") wants to take out a $800M loan, then, by definition, it will have no problem 'crowd-funding' it.

[criley2]

>If the government (by US theory, this is: "the people")

You're talking about the Federal Government, which yes can monetize debt through the Treasury and Federal Reserve by act of Congress.

However, I'm talking about State and Local governments which are unable to run deficits and unable to create treasuries to sell to the Reserve for new cash.

For all American governments EXCEPT for the Federal level, they must, like any large corporation or entity, find a lender and pay interest.

[prostoalex]

The bigger question is what happens if you don't sell at that price.

Large bond placements usually begin with testing clients' enthusiasm at specific interest rate, and then adjusting the interest rate in case of under/over-subscription.

Not saying you couldn't do that via an online auction system, it's just that cost and time it takes is usually under-estimated.

[liopord]

Wow, this sounds to me like a case for the innovator's dilemma.