"Do capitalist societies need banks?" veteran bank analyst Richard X. Bove asks today in a report to clients of his firm, Rochdale Securities LLC.
As I've noted, big, solvent companies at the moment have little trouble raising funds: they sell bonds at historically attractive rates. But small businesses are having a tough time getting money from banks, which are still under extreme pressure from bad loans, declining property values and increased regulation.
Bove says the banking system faces attacks from right and left:
US Rep. Ron Paul, R-Tx, who replaces Barney Frank as head of the House banking committee, wants to "End the Fed." The Federal Reserve currently "creates" money by buying US Government debt, as Bove notes. Gold now backs less than 10% of oru dollars. If the Fed gets clipped, "where will the money come from? How will the economy get access to credit?" The financial system as it exists will grow slowly, if at all.